MoveRight Logistics: When Cost per Kilometre Drives the Wrong Behaviour
Lagos-based freight operator MoveRight Logistics runs 240 trucks on contracts for three FMCG clients. Its annual budget set revenue at ₦9.6 billion and a 12% operating margin. Nine months in, revenue is 14% below budget, overtime is 32% over, and preventive maintenance has been deferred on 61 trucks. The operations director defends the overspend because 'we kept every service promise'; the finance director wants a freeze on recruitment. Each depot manager is measured on cost per kilometre only, so dispatchers send trucks on short urban runs and reject long-haul loads that earn more contribution. Customer OTIF has fallen from 94% to 81%, and two clients are invoking penalty clauses. The monthly management report is 24 pages of line-item variances and reaches depot managers 18 days after month-end. The board asks the new management accountant to 'fix performance measurement'.
1. Diagnose the control weaknesses in MoveRight's performance management system. Distinguish design failures from behavioural failures.
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Design failures. First, the measure set is single and incomplete: cost per kilometre rewards short urban runs, which spread fixed depot cost over fewer kilometres and look cheap, while rejecting long-haul loads that earn higher contribution. The measure is not aligned to strategy. Second, responsibility accounting is absent: depot managers are held to a cost measure but cannot control fuel prices, client penalties or fleet age. Third, standards are not re-based: deferring maintenance on 61 trucks lowers current cost but creates future cost and service risk; the budget carries no maintenance standard or asset-condition measure. Fourth, feedback is too late: an 18-day lag and 24 pages of line items give managers data after the decision window has closed. Fifth, the report is not exception-based.
Behavioural failures. Operations defends overspend by appealing to service; finance responds with a recruitment freeze. Both are local rationalisations rather than analysis. Dispatchers optimise the measured metric, a classic gaming response. OTIF decline and penalty clauses are the visible cost of that mismatch.
The root problem is that the system measures cost incurred, not value created, and gives no early warning of service or asset deterioration.
2. Propose a revised performance measurement and reporting architecture, including responsibility centres, a small set of measures and reporting cadence. Explain how it would change dispatcher and depot-manager behaviour.
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Architecture: create three responsibility centres. Depot managers become cost centres with controllable-cost standards (fuel, labour and maintenance per 1,000 km, excluding fuel-price movements). The commercial team becomes a profit centre measured on contribution per truck-day. The operations director becomes an investment centre accountable for fleet availability and return on capital.
Measures: keep a small balanced set - (i) contribution per truck-day, (ii) OTIF and penalty cost, (iii) fleet availability and preventive-maintenance compliance, (iv) safety incidents, (v) cash conversion. Weight them so no single metric can be gamed: a long-haul load that improves contribution but misses OTIF should not score well.
Reporting: a weekly one-page dashboard by depot with exceptions and a named action owner; a monthly management review; a quarterly board summary. Close the books faster so data arrives within five working days. Show contribution per load on the dispatch screen and remove any incentive tied solely to kilometres, so dispatchers see the trade-off they are making. Separate controllable from uncontrollable variances and make maintenance compliance non-negotiable, so depot managers cannot buy short-term cost savings with asset neglect. Add a client-profitability view so penalty clauses appear as a cost of service failure.
Pilot for one quarter, then recalibrate standards using the pilot data rather than the old budget.