A discussion of the research theory and process involved in developing performance indicators for a program.

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  1. A discussion of the research theory and process involved in developing performance indicators for a program.

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ISSN 1940-204X

Over-land Trucking and Freight:
Relevant Costs for Decision Making*
Thomas L. Albright
Naval Postgraduate School

Paul Juras
Babson College

Russ Elrod
Arab Cartage and Express Co.

ABSTRACT

replace older equipment (usually in blocks of five trucks).
Alan knew the slim profit margins associated with trucking,
coupled with a downturn in the economy, could spell disaster
if saddled with too much debt. See Exhibits 1 and 2 for the
company’s most recent statement of income from operations
and the balance sheet, respectively.
Roger Simmons, Over-land’s operations manager for the
past 16 years, had been reviewing the FHP proposal and
approached Alan. “Alan, we need to discuss this offer from
FHP. I think it is a great opportunity for our company, and
we need to find a way to make it work.” Within 10 minutes
Alan and Roger were in a closed-door meeting discussing
the pros and cons of FHP’s offer. Roger began by stating the
obvious: “Alan, this is a huge opportunity for us to grow the
business. Not to mention, as FHP becomes more dependent
on our services, we will be in a stronger position to negotiate
future rate increases. I know you are opposed to debt, and
I understand the risks of carrying more debt, but there is
more than one way to grow our fleet. If you would consider
using independent contract drivers, we could grow the fleet
enough to accept FHP’s offer without incurring more debt.”
Alan cringed at the thought of using independent
contract drivers. Although independent contractors owned
their own trucks, Alan viewed them as difficult to deal
with and not worth the headache. “Roger, I hear you, but
this new route will not last a week if we cannot give FHP
great service. Independent contractors call the shots, not
us. They own the rig and will sit at home if they want to. I
would rather deal with our own company’s rigs and drivers.
The rewards just do not justify the risks of damaging our
relationship with FHP.

Over-land Trucking and Freight has a long-established
and mutually beneficial business relationship with a major
international automotive parts company, FHP Technologies.
Management at FHP has approached Over-land with a
request to provide additional routes that are important to
the efficiency of its supply chain. Over-land’s management
wishes to nurture the business relationship with FHP but
is concerned about the available capacity to service the
new routes, potential risks, and profitability associated with
FHP’s request.

INTRODUCTION
Alan James founded Over-land Trucking and Freight in
1968 and has grown the business into a sizeable operation
with 90 trucks and 180 trailers. His largest customer, FHP
Technologies, has submitted a proposal to him to add
delivery routes that would improve the efficiency of FHP’s
supply chain. Alan was not certain that Over-land could
handle the additional routes since the company currently was
operating at (or near) full capacity.
FHP offered a total of $2.15 per mile (including fuel
service charge and miscellaneous fees) for the new route.
But Alan knew that to accept the offer he would have to add
more trucks and perhaps incur additional debt. The question
was whether the rates offered by FHP were high enough
to offset the associated risks of growing the fleet. Although
the business had been grown organically through the years
by reinvesting profits, it incurred debt from time to time to

*The views expressed in this document are those of the author and do not reflect the offical policy or position of the U.S. Department of Defense or the U.S. government.
IM A ED U C ATIO NA L C A S E JOURNAL

1

VOL. 7, N O. 2, ART. 2, JUN E 2014

“But I am not sure we should take on any more debt at
this point to purchase additional rigs. The economy is in
the tank, and it is a bad time for us to leverage the balance
sheet any further. Roger, my success in this business was not
built by jumping on every offer that came along. Sometimes
you have to say no, even to your biggest customer. Unless
you can find a way to squeeze out more capacity within our
current fleet, I just do not think we can acce...


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