08 May 2006
The latest Guide from the Freight Best Practice programme provides invaluable guidance on the accurate pricing of transport jobs to ensure the business returns a profit. The Guide is designed to help freight operators of all sizes understand the principles of job costing and implement their own robust cost model.
Although many businesses with larger fleets are likely to have robust rate structures and systems for costing jobs, this is by no means the industry standard. Many businesses still price work by 'gut feel'.
This is understandable because many owners, managers and traffic planners have a thorough knowlege of how the operations of vehicles will be affected under different scenarios. But is this good enough? How often do they look back and compare the actual cost of a job with what was quoted? When was the last time they used accounts information to calculate costs before pricing a job?
Cost models might sound complex and time consuming to set up but they do not have to be and they are well worth the effort. For a firm new to cost models, the Freight Best Practice FREE Guide "An Introduction to Job Costing for Freight Operators" provides a step-by-step guide to setting them up. For firms with them already in place, it provides case studies that show how other firms have used them to increase operational efficiency.
A good cost model can help a business in other ways. John Hix, from the Freight Best Practice programme, says that good cost data allows a firm to respond more quickly to tenders:
"In a competitive industry such as freight transport, the time taken to provide a customer with a quote can mean the difference between securing and losing a job. A cost model will already contain the information you need to calculate any rate and you will be able to respond quickly. Without that information to hand, you could lose potential work."
The cost model can also provide information that can help improve the overall financial position of the firm. There is little margin for error in the road haulage market, where one small oversight can cancel out any profits. The cost model looks at distance related costs such as tyres and fuel through to time related costs such as driver wages and job specific costs such as toll or ferry charges. All of this information can be used to target areas for improvement.
Mike Farmer from the Road Haulage Association said:
"Having spent many years, commercially and professionally, trying to establish the importance of sound costing systems in the transport industry, I am very pleased to support this contribution by Freight Best Practice, with its clear statement of principles and practicalities. I commend it to the industry."
Cost models can be fairly advanced computer packages, a more basic system based on a spreadsheet or even by a manual procedure based on paper records and forms. The Guide looks at the pros and cons of these model types to help the reader establish what is right for their business.