1. BY LOUIS BIRON
Cost Savingsin Your Back Office
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2. Integrated Dispatch-
Accounting Phase
This is where you start using your dispatch software to automatically
enter data into your QuickBooks. Hopefully the original dispatch system is
up to the task. If not, you need to start from scratch. At this point all your
systems should be talking to one another, and if you let the systems run,
you should be able to get rid of a lot of the internal paperwork. Companies
often look for customized software to fit their particular needs (there is
always someone who thinks that their company is so different from all the
other brokerage companies out there that they need customized software).
The decisions made at this point can make or break a company’s future.
Choose the wrong software and you will be stuck with it for a long time.
Unfortunately, this is where most companies make a common mistake,
so common that most Enterprise Resource Planning systems make it. The
software customization/selection is made by the people who use it. So you
might say shouldn’t they be the one knowing what they need? Here is the
typicalscenariothatweencounterregularlywhendiscussingimplementing
Stratebo, our home-grown integrated solution, with potential customers.
The primary concern of Mary in the shipping department is to ensure
that Mary stays in the shipping department so any solution that she helps
develop/install cannot threaten her employment or that of her friends.
So when a company embarks on a big software project, savings are often
elusive for that simple reason. In practice if you look at most integrated
systems, you can still see the paper trail. In fact, I have often seen where
people will print the documents at various phases just so they can have
a physical signature/approval before passing it to the next department.
There is so much money left on the table it is not funny. But there is often
a lot of institutional resistance over this. I must say that all is not bad with
this approach. A company should be able to grow gradually and keep a
handle on things.
Total Paper
Phase
There should be very few
companies still operating at this
level but to this day we still receive
here and there hand-written carrier
bills. And don’t forget mechanical
faxes that are still in operation. I
guess they still sell them.
So at the Total
Paper Phase, there
is no computer
or smart phone
usage beyond
the actual phone
function.
I don’t think that I need to dwell on
the fact that there cannot be hope of
growth in this day and age while a
companyisatthisstage.Luckilythere
are plenty of tried and tested tools
that can push you to the next phase.
Standalone
Quickbooks
Phase
This is when your accountant is
at wit’s end and declares that you
can’t keep doing things like this
anymore, you have to automate. So
from the accountant’s point of view,
QuickBooks (or similar package) is
the ideal solution.
All of a sudden
you can generate
invoices that
are a step above
hand written.
I say only a step because although I
feel sorry for my vendors when I see
a hand written invoice, when I see
the very recognizable QuickBooks
invoice I don’t feel much better for
them, either. The problem with this
phase is that QuickBooks makes
life easier for your accountant, but
it does not do much for the rest of
the business and so the paper pile
keeps growing.
Quickbooks
+ Dispatch
System Phase
So now you get yourself a
dispatch system. At first you get a
simple one. The benefits are so big
comparedtopenandpaperthatyou
now feel you have arrived. When
we bought our trucking company,
we were at this stage. With these
tools, if you use them fully you
will be able to manage complexity
up to a point. I have seen fairly
large trucking companies and
brokerages operate at this stage. If
your margins are good enough you
can actually grow your business,
but what you will find is that your
back office will grow as fast if not
faster than your business. At some
point someone realizes that these
systems need to talk to each other.
“At this point
all your
systems
should be
talking to
one another,
and if you let
the systems
run, you
should be
able to get
rid of a lot of
the internal
paperwork.”
“The benefits
are so big
compared
to pen and
paper that
you now feel
you have
arrived.”
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3. Scalable
Business Model
I often get asked what is a
scalable model/business. In simple
terms, if you can grow the revenue
without proportionally growing
your expenses, you have a scalable
business. A simple example if you
wrote an app for a smart phone.
Once the app is in the store,
whether you sell 10 or 10,000 your
cost is going to be about the same:
That is a scalable business. Of
course we can already hear, “But
I have a trucking company not a
software company. That does not
scale.” Not true.
Internal
Scaling Phase
First, you need to eliminate all
internal paper. Paper is the enemy
of scaling. Here is the simplest
example, in our earlier days, we
used to make a copy of all the
invoices before we mailed them to
our customers. We had a significant
part of our office space dedicated to
storing these paper files. This cost
just kept growing along with the
company.
Now that invoices
are generated
electronically,
and all PODs are
kept in the Cloud,
our storage
cost is down to
couple of dollars
per GB per year,
which is an order
of magnitude
cheaper than
square footage.
Here is a simple question you can
ask yourself to see if a particular
function is scalable, “If next month
we triple our volume do I need to
hire someone?” If the answer is,
“Yes,” look at what is the first place
where you think your system would
break and that is where you need to
rethink or automate your process.
External
Scaling Phase
Second, you need to eliminate
external paper. Here is an example:
when we started we would print
checks out of QuickBooks, sign
them, fold, mail, and stamp.
Eventually we got the data entered
automatically into the accounting
package and the checks printed out
pre-signed in batches. But we still
needed to fold, stamp, and deliver
to the Post Office. So as volume
grew, the number of envelopes
kept growing so not scalable. So
we integrated ourselves with an
external vendor that prints checks
for us. Now, whether I have one
check or a thousand, the cost
and effort on our part is the same
that is scalable. Another example
is contracts. We long ago went
paperless but we still needed
to process the email or fax that
came in with the signed contract
or insurance, now our software
automatically posts the contract
to the system and shares the news
with everyone who needs it. Cost
of generating, sending, receiving,
posting a contract or insurance is
almost $0. Now that is scalable.
Here is a simple
example. I used to have
a rule of thumb when we
ran a trucking company,
for every $250,000 of
revenue I needed one
rig costing $125,000
but if I used owner
operators with their own
rigs I could get $250,000
of revenue without any
additional fixed costs.
All of a sudden this is scalable. I
realizethereareotherconsiderations
that come in play, but we followed
that logic to its conclusion sold
all are equipment and became a
pure brokerage. But let’s assume
you want/have to own your own
equipment, this does not mean that
you can’t scale your back office. As
we saw in the previous phase the
integrated system allows you to grow
your business but not to scale it.
Louis Biron is CEO of Stratebo Technologies. He earned his
B.Eng. at McGill University, his MS in computer design at the
University of Montreal and his MBA at HEC in France.
So we have covered the various phases that a company can go through
to tame costs and position itself for scalable growth. In practice most
companies are stuck in non-scalable phase. This can be due to internal
politics (one of our vendors who shall remain nameless never ceases to
amaze us how the employees manage to get themselves in the way of their
software) or just a poor choice of software. Fortunately, you can now get
a fully integrated system out of the box for brokerages and shippers alike
without even needing much of a back office at all.
“...as volume
grew, the
number of
envelopes
kept growing
so not
scalable. So
we integrated
ourselves
with an
external
vendor that
prints for us.”
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