All for-hire trucking companies once used activity-based costing (ABC) to meet an Interstate Commerce Commission accounting mandate introduced in the 1930s. The ICC claimed it needed ABC’s focus on detailed cost information in order to meet its rate-setting obligations.
The ABC approach isolates a carrier’s costs and allocates them to the activities that make up its service and to customers that receive that service. ABC breaks out into responsible activities many of the costs that executives typically lump together under the heading of overhead.
Traditional accounting methods reinforce this mindset by allocating overhead across all activities based on the percentage of total costs that an activity’s labor and equipment costs represent. In other words, if your department uses a lot of expensive equipment and employs many highly compensated people, your budget will cover a huge chunk of the company’s administrative expenses – even if other departments place a far greater burden on support resources.
In the trucking context, the ability to affix externally imposed costs – such as those created by demanding customers – is an especially useful feature of ABC. It might allow you to demonstrate, for example, that a lower-rate customer actually is more profitable than a higher-rate account because it imposes fewer costs on you in terms of uncompensated services, such as trailer detention or even driver turnover.
ABC exposes cost drains on companies more effectively than traditional – though admittedly simpler – accounting methods. For this reason, many carriers still use ABC-oriented software even though Congress shut the ICC down in 1995, and ABC is no longer required.
Argos Software apparently believes ABC has a bright future. The Fresno, Calif.-based company, which has marketed systems for small- and medium-sized trucking companies since 1979, recently introduced a client-server version of its ABECAS (Activity Based Enterprise Cost Accounting System). The new version, called Insight, uses Microsoft’s SQL server as the scalable database engine.
Argos also has brought ABC into the trucking operations environment of the 21st Century. Although Insight retains all of the billing and accounting functions of the prior version, Argos restructured the 32-bit Windows-based system to emphasize interaction with dispatching, trip and fuel tax management, driver messaging and customer service systems. In addition, Insight provides direct links to RF devices, handheld computers, scales and scanners.
Benefits of automation
Historically, ABC has been a royal pain, even after the dawn of the computer age. The demands on data entry and management – and the people who do that work – were, not surprisingly, greater than those imposed by traditional accounting.
That’s why Dan Rutherford is particularly impressed with Insight’s billing module. “It has a lot of automation built into it, which will allow us to eliminate a lot of man-hours,” says Rutherford, controller of Fort Wayne, Ind.-based JAT, a regional truckload carrier operating about 100 trucks.
The freight billing module, which is now in its fourth generation, can be set up to interface with the general ledger, cost accounting, safety and personnel, accounts receivable, accounts payable, settlements, equipment maintenance, electronic data interchange and trip log modules.
Another benefit of client/server technology is easy customization. Jody Neuwohner, administrative assistant for All Seasons Trucking in Dubuque, Iowa, likes Insight because each person in the operations department, for example, can customize the dispatch module screens.
Carmen Shepard, vice president of Mongo, Ind.-based Weiss Trucking, also likes the new system’s customizable report formats. “I added and deleted some of the fields” in the billing module’s consolidated invoice and freight bill control log reports, she says.
Although the reasons to use cost accounting have changed in 70 years, the need hasn’t. Fortunately, technology lets cost accounting boost productivity, not drain it.
Parry Desmond is executive editor of Commercial Carrier Journal. E-mail pdesmond@eTrucker.com