How Leveraging Byproducts Can Turn Transportation Costs Into Profit
Want to save on freight costs? Don’t ship anything.
Yeah — that’s the easy answer. But that isn’t what we are here to talk about. Let’s talk about the B word. Byproducts. Every single business out there produces one or more byproduct whether they know it or not.
[bahy-prod-uh kt]. noun. A secondary or incidental product. The result of another action, often unforeseen or unintended.
Going back in history — many companies have capitalized on, benefited from, and even re-branded completely based on a byproduct they discovered.
No I’m not talking about some cheesy one-liner that’s supposed to magically elevate everyone’s mood at work — therefore making the entire company more productive and sales go through the roof…Bonuses for everyone…yay.
I’m not sure about you, but I sure feel better now.
I’m referring to something of value that your company already produces either by accident or in conjunction with the output of another core commodity. These elements need to be recognized, harnessed, and recycled so that they either become another revenue stream for the business or will flat out eliminate the cost of disposing of it. Your company may break even on another key investment, or maybe it’ll allow for a strategic partnership with another business in your area. The commonly told example of selling a byproduct is this:
Henry Ford was going through wood like nobody’s business.
Back in the day Model-T’s were outfitted with that sweet ligneous trim. Now they’re all fiberglass and carbon… Anyway — Ol’ Henry was famous for constructing a sawmill or two in the same vicinity as his motor car plants. I’d like to think he was also selling its services to local contractors and builders as well since he had the equipment and facilities to produce lumber packages, but I’m really not sure about that.
Where I’m headed with this tale — is Henry Ford’s epiphany that all of these wood scraps, end pieces and sawdust were just basically like piles of money laying around on his shop floor. However rather than being converted into diamonds on his best gal’s neck — they were being swept up daily and deposited in the trash…not his bank account.
Thus — Ford Charcoal was born. The Ford Motor Company and their sawmill operations realized pretty quick that they were going to keep producing that “waste” as long as they were Ron Swanson-ing those Model T’s with beautiful oak and cedar. No need for the green tree air fresheners either. By capitalizing on this opportunity, Ford was not only saving the overhead required to clean up the mess, but was turning that into another revenue stream. Ford Charcoal was later bought and renamed to Kingsford Charcoal in the 1970's.
This concept has been widely touted more recently by the founders of Basecamp (formerly 37signals). In their March 2010 book Rework — Jason Fried (@jasonfried) and David Heinemeier Hansson (@dhh) drive home the viewpoint that all businesses should be pouncing on their byproducts and not letting these opportunities pass them by. They even go as far as to say that the books they’ve written over the past 15 years (Rework and a few others) are simply a byproduct of their day to day business (and the experience that is honed and refined along with it). The book sales have made them a substantial amount of revenue both directly and indirectly over time.
Basecamp was founded in 1999 as a small web design company. The Basecamp product which eventually became the cornerstone and brand of the business was also born from a byproduct situation. The firm needed a beefier project management, collaboration and organizational tool to maintain and push the ball forward on their client’s projects. They built Basecamp to satisfy this, and eventually turned the company into one of the better known SaaS platforms out there.
Now that I’ve made my point let’s get back to the statement in the title…
I’m sure you’ve figured out that nobody really gets to ship freight for free. But what If that cost was offset or eliminated by harnessing the power of your byproducts and generating mo’ money?
I know of a smart company that moves equipment by flatbed and hot-shot throughout various US regions and around the country on a once or twice a week basis. Lucky for them, they had the capacity to think that purchasing transportation as a variable cost and being forced to build that into the pricing to deploy their units could not be the only way to make this work. They explored the possibility that not only could they essentially start a small trucking firm within their company to cover their own moves — they could also haul moderate amounts of freight during their down time and not only cover the costs of their transportation needs, but actually end up with some profit as well. This would allow them to get more competitive or beat other company’s pricing levels on their products and services. It wasn’t a guess. It wasn’t magic. This was cold, hard data at work — aggregated and analyzed until they were confident of the right choice.
The company compiled a data-set of equipment moves within a year’s time. They looked at transportation costs by region, as well as the risk that sometimes a trucking vendor may not be easily found in certain areas at certain times of the year. Then they did the same thing looking at the cost to own the trucks, employ the drivers, and haul themselves. Yes, this plainly costs more, but, when calculating in the projected revenue from hauling third party moves 3–4 days a week it actually tipped the Flying J scales in their favor.
Another company does the same thing with their warehouse space. They run a mid-sized warehouse and only use 60% of available space with their inventory. By leveraging an on demand warehousing platform like Flexe — they are able to rent out the space and recover many of the Benjamin’s that would have been sitting there collecting dust on their warehouse floor.
SO. In conclusion I hope that you will start looking harder for re-packaging opportunities within your business to convert something formerly perceived as waste into a non-sexy but oh so consistent earning machine. This can be utilized in order to subsidize your LTL freight spend and keep more dollars in your pocket.
This can be a great exercise in reducing or eliminating waste and the costs that are associated with it.