Spotting Causes for Unprofitable Routes
Route profitability is a crucial aspect of your daily operations.
How do you monitor your routes to ensure that they earn instead of losing money?
How often do you dispatch routes that earn little profit or, worse, result in delivery costs that exceed sales?
It’s hard enough to determine whether or not your routes are profitable, but the greater challenge is to determine and manage the causes for unprofitable routes.
Potential Causes of Unprofitable Routes
- Excessive service frequency
- Unprofitable, small orders
- Off-day deliveries
- Underutilized equipment
- Excess driver pay and expenses
- Excessive delay and waiting time at customer locations
- Low driver productivity
- Excessive layover routes
Discovering the Issues
It is important for you to find out which of these issues are effecting your daily operations. Delivery routes are limited by DOT restrictions, customers’ receiving hours, and the time required for driving and unloading product. The number of deliveries made, miles driven, and product offloaded are affected by all of these factors. This makes it critical to match predictable route costs with the correct mix of deliveries to ensure profitability.
Examining historical data can help you identify a mix of indicators of route profitability. Relatively simple metrics such as average cases per stop, average cases per mile, and average invoice amount can often help you define guidelines for service frequency. When correlations between these metrics and route profitability are found to be consistent, these measurements can be used as monitoring tools. Therefore, by setting guidelines for delivery frequency and scheduled days you can help to ensure that each delivery contributes to the bottom line.
Managing Off–Day Deliveries
A small percentage of off-day deliveries and unprofitable orders are usually acceptable. Service excellence is such a key factor in customer retention that these concessions are simply a cost of doing business. When these incidents become excessive the source of the excesses needs to be identified. The source of the problem can often be traced to specific customers placing:
- Small, unprofitable orders, or
- Frequently requesting “emergency” off-day or out-of-the-way deliveries
When the average order size falls to an unprofitable level, it might be appropriate to reduce the service frequency to these customers or add delivery charges for unscheduled deliveries.
In some cases, unprofitable orders can be traced to specific sales territories or sales representatives. When this occurs, the issue becomes one of more focused management of the sales process and customers. Recognizing the source of unprofitable deliveries will allow you to quickly remedy the problem and return your routes to an optimal profitability level.
Driver pay greatly impacts the profitability of a route. It is important to understand the breakdown of labor cost on a route – driving, unloading, and unproductive time. Key areas to examine with driver pay are wait time, delays at the customer site, and unloading rates. Wait time and delays can be indicators that customers are not prepared for deliveries during the scheduled windows or that the assigned delivery windows are not appropriate for the customers.
These occurrences can also be an an indication that the dispatch time of the route is too early or too late. Examining the delivery histories of your customers will reveal where delays occur consistently, allowing you to make adjustments to delivery windows or resolve other reasons for delays.
Correctly evaluating layover costs can result in more profitable delivery routes. The costs associated with layovers:
- Per diems
- Overnight temperature in trailers
- Driver overtime
- Excess stem mileage
- Additional driving time
Syntelic provides the expertise needed to give you insight into your operations. By utilizing Syntelic, not only will you be able to determine which of your routes are unprofitable but you will be able to manage the causes of those unprofitable routes.