Route Profitability

Profitability solutions typically start with a costing exercise to make sure that granular expense assignments are correct. Modeling the revenue is normally much easier to provide in profitability calculations. Costing in a sales, product handling, and distribution environment may be viewed from 2 primary dimensions, namely Product-driven costs and Customer-driven costs.

Product-driven costs are primarily all the product management activities that relate to the Receiving, Storage, and Further Handling that is performed irrespective of whom the customer or end-delivery entity is. Customer-driven costs relate to those activities necessary to facilitate the ordering and sales process and completing the delivery along a given route.

Route profitability, like any profitability model, starts with a costing exercise. Route costing begins with the costing of deliveries along the various routes. The diagram below is the depiction of a typical route costing model.

Typical Route Costing Model

The costing process is primarily concerned with the costing of the delivery vehicles. The expenses commonly found in a General Ledger system can be grouped into Distance (variable) and Time (fixed) Cost Pools. Some General Ledgers make provisions for the sub classification of some of these cost components to the individual vehicles. This is preferred but not imperative as the cost may be subjected to a cost allocation method to split the cost. Some of the allocation bases may be "distance travelled" and "travel time per vehicle" (if that data is available).

Examples of cost components that may be classified as Distance Cost include:

• Fuel Cost
• Tires
• Fixed Maintenance Costs
• Insurance Charges
• Lease Charges
• Excess Mileage Charges

Further examples of Variable Time Cost components include:

• Staffing Costs
• Depreciation
• Licenses & Registration
• Routine Inspections
• Variable Maintenance Costs
• Oil & Lubrication

Once the fixed and variable cost components are calculated down to the vehicles, the next step is to take those costs to the routes that those vehicles travelled on. The time and distance components are taken from the deliveries made and costs are further assigned to individual routes. The missing component to the profitability is the product delivery to which customer. Customers are located on routes and customers procure a specific product. The delivery cost along a route and the revenue generated from the delivery provides the fundamental components for a route profitability system. Route profitability is but one component in a Supply Chain Profitability Model that also has Product Profitability and Customer Profitability sub modules.

The Route Profitability Solutions

Some Example Reports

Variable and Fixed Cost Summary Report

Example Summary Route Profitability Report

Example Summary Logistics Profitability Report