How Cub Scout Logic Can Improve Your Bottom Line

I submit that if you apply the same principles to your business that Scouts do in a Pinewood Derby you’ll win. And I predict that 50% of businesses won’t do this and therefore be out of business in 5 years or less. And some of the 50% that do survive could significantly improve their position by using applying a few simple tactics.

“So who the heck is this guy and what makes him think he knows ANYTHING about my business!”. Well, I’m not a business guru, but I sometimes try to play one in boardrooms. Just a guy who’s OK at math, started and ran a few businesses, and analyzed a bunch more. What makes me so sure I’m right? In a word -- numbers.

You don’t have to look far to learn that 50% of new businesses fail in the first 5 years. That makes my prediction above kind of “ho-hum”. But would you be willing to explore a deceptively simple concept if it might improve your odds?

I work in transportation and visit hundreds of big and small companies each year. The examples here are primarily from Trucking (and Scouting) but apply similarly in almost any business, or even non-profit.

Income and Expense, those are the two obvious metrics that every business owner/manager must know and continuously work to improve. In a pinewood derby, you have two similar metrics which I will relate in this way:

Typical Logic

I’m not sure why, but there are two prevalent assumptions among business leaders.

1.      The only way to grow the bottom line is to grow the top line, i.e. Sales – COGS (Cost of Goods Sold) = Profit

2.      Expense is static. Especially in more mature businesses and industries, the assumption seems to be that so much effort and analysis has already been done to reduce expense that further improvement will cost more than it yields.

Business Example: In trucking, the average profit margin (bottom line) is ~4.8%. (I know, pitiful right?) So, if we want to add say, $100,000 to the bottom line, we must add $2,083,333 in gross sales (top line). My personal pet term for this method is “Growth by Brute Force”. It can be done, but it ain’t easy! You better be a brute! Oh, and big brutes often seem to get smoked by those insidious little mealy-mouthed smart-alecks like market fluctuation, raw material cost increases, unforeseen regulatory changes, etc. More on this below.

Scout Logic

More weight, less drag.

With a 5-ounce weight maximum, increasing momentum is pretty straightforward. Get as close to maximum weight as possible.

Drag consists mainly of two things, directional stability and to a smaller degree, wind resistance. The cars are kept in their track lane by rails. So if the car tends to weave, it will create resistance against the rails, slowing it down.

Applying Scout Logic to Business

Since Pinewood car weight is finite, ounce we’ve maximized weight, we must focus solely on the one remaining option - reducing drag.

In business, we have two options:

1.      Increasing weight (top-line Sales revenue) as much as we want -- and can afford

2.      Reducing drag (expense)

The latter, while extremely un-sexy, un-fun and just plain grueling, can be a far more streamlined and effective way to improve your bottom line, both short and long term.

Let’s use another trucking example:

In nearly every conversation I’ve had with trucking managers and executives in the last couple hundred meetings, I hear a comment like “I could double the size of my fleet if I could get Drivers!” That troubling concern is reflected dramatically in ATRI’s October 2018 study of “Critical Issues in the Trucking Industry”. In the figure below, excerpted from that report, consider that 8 of the top 10 things Trucking worries about involve Drivers.

Brute Force Numbers

So if we’re a 100 truck fleet, running average miles-per-truck, average revenue & expense, we will need to add about 11.5 trucks, Drivers, etc. (forget about trailers and the Driver shortage for the now).

The Coming Doom (It’s normal, be not afraid!)

Today freight tonnage is up more than down, and capacity has been low more than high for the past while. So now “we’re cooking’ with gas”! Trucks are rolling, bills are paid, life’s good. Aaaannd…what do we know about the economy – Trucking business, Agriculture, software, whatever your business? It fluctuates, that’s what economies do!

So, now let’s fast forward 6, 12, 18 months. Let’s say consumer demand wains, freight tonnage goes down and now, since we Truckers all went out and added to our fleets by 11.5%, capacity is high. Low demand, high supply… freight rates go down, we have less freight to haul, less profit in what we do haul and probably, we now have a bunch of our tractors parked. So now what about all that overhead we added in order to “get while the getting was good”? I dare say the lender or leasing company is still going to expect you to make our payments, insurance same thing, the mechanics & extra office staff we may have added, will expect to be paid. You get the picture.

But what if we look at this another way, the way a Cub Scout might?

How might we add $100K to our bottom line…WITHOUT increasing Sales by 20 times that. What if we could do so by utilizing technology that we already possess?

Except for those exempt from the regulation, trucking companies have now had to invest in ELD’s (Electronic Logging Device). In addition to Drivers’ Hours of Service (what the tech was designed to track), most ELD’s have some level of monitoring for other systems. Things like idle time, engine fault codes, speed, etc.

Let’s take a different look at some startling statistics. Fuel is always near the top of the list of costs in trucking. In the table below from ATRI’s October 2018 study of Operational Costs in Trucking it’s second behind Driver wages. The average fuel economy for heavy trucks runs around 6.5 MPG – here’s the startling part – Best-in-class fleets like MVT (Mesilla Valley Transportation) routinely average near 10 MPG. These guys give their Driver of the quarter a new vehicle for topping their leader board! And obviously fuel economy plays heavily in that ranking.

How does MVT do it? The same way that you and I save for a vacation, by meticulously looking after the budget, identifying and trying new ways to save. It’s boring and it ain’t sexy! But how much would you say that higher average fuel economy has contributed to their stellar growth over the last decade?

Cub Scout Numbers

Let’s not try to go from neighborhood pick-up ball to Michael Jordon in a weekend here. Let’s just have a look at the impact making a tiny change might have on your bottom line.

Most trucking companies now have some way to report internally the metrics that directly impact fuel economy. With good data, Driver and Back Office awareness, perhaps a good Driver incentive program, you should be able to move the needle slightly.

Typical initial improvement I’ve seen, once a concerted effort is made to improve these metrics is 5%. Let’s be even more conservative and only use 3%. If you’re at the industry average 6.5 MPG, a 3% improvement moves you to 6.695. Based on April 22, 2019 average fuel prices, your annual fuel cost savings at the new average MPG would be $141,015.68. Oops! We over shot. I think we were only shooting for $100K! So, sue me!

Now what about the cost of getting that savings. Well assuming you already had in-cab tech that can report on idle time, speed, RPMs, shift patterns etc. your cost simply will be the time it takes office staff to monitor and communicate with Drivers. There will be a cost, but it won’t be 20 times the savings, mark my words!

Let’s Compare

Of course, this is only the tip of the iceberg. Get good at this and then move on to other un-sexy areas – like improving operations & C-sat with real-time freight visibility, reducing Out-of-route-miles, Predictive/prescriptive vs. reactive/unplanned maintenance, Safety and so on. Pick one, try-fail-adjust, get good at it, then pick another one.

Cub Scout vs. (Typical) Business Person

A Pinewood-Derby-winning Cub Scout wins by focusing on pretty much one thing, reducing drag… I would humbly suggest that we in business might learn from the Cub Scouts and focus on simpler, less costly measures for bigger (and sustainable) gains.

Comment below, challenge my numbers, whatever, I’d love to visit!