How you can save on delivery costs

Costs have been spotlighted recently as dealers pare expenses to moximize profits, but one expense often not considered is the cost of deliverY.

Considered essential, the outgo is underrated by many. Wally Lynch' president of Builderc Express in Dallas, Tx., thinks this is wrong.

Hb interest in delivery cost reduction began in 1976 when the compony he managed become strike bound over driver wages. The firm he now heads provides help in delivery cost reduction through publications, troining Programs, seminors ond workshops as well as consultation, surveys ond system implementotion and troining. Lynch's background in retailing and home center management b reflected in the direction he takes.

The Nationsl Lumber and Building Materiab Deolers Association has commissioned him to do a study on delivery costs. The results will be highlighted in a seminar at their notional convention in October.

To prove his theories, LYnch, while talking with us, offered to onswer any

Story at a Glance

Save dollars on dellvery . idenilly costs . determlne pre-tax proflts . dellverY cost expert answers common queslions.

questions readers might hove on the value of minimizing delivery costs and procedures for instituting cuts. Following ore three of the most often osked questions with his answers. Future issues will carry questions which you submit to us with hb solution to the problem.-ed.

Q: How does a building suPPlY dealer begin the process of increasing profits by reducing delivery costs?

A: Almost without excePtion the first step in the program is to identify delivery costs and set uP the mechanics to ensure the information is ongoing for management. Strangely, in this era of computers and sophisti- cated management systems, we must invariably identify what is being spent on delivery by our customers. They know and are continually Provided with payroll expense andtaxes, truck and auto expense, dePreciation, insurance, etc. as these expenses apply to the totol activities of their companies. The information they have meets government and I.R.S. requirements. Accountants and accounting departments are comfortable because expense can be lumPed in nice convenient piles, but management does not get the decision making information it needs to effectively direct the delivery activity. The "generality accounts" must be looked into so that the delivery portions can be identified, segregated and totaled. The average dealer should be able to have someone within his organization identify "delivery costs" for the company's last fiscal year with a few hours of effort. Once identified, it should not be difficult to "plan to separate and present it" on the very next, and all succeeding operating statements.

Q: How does knowing "delivery costs" become decision making information for management?

A: In many ways, but most importantly and foremost is profitability of delivered sales. To know deliverY costs you must have separated "delivered sales" from total sales. Delivered costs as a percentage of delivered sales identifies the delivery cost ratio, or the percentage of the delivered sales spent to complete the sale. Most delivered sales are to contractors or commercial accounts which are sold at lower maintained gross margins than to the retail consumer. Thus delivered sales are sold for less gross profit and have the added expense factor of delivery attacking these lower margins. Thus profit on delivered sales should alwaYs be suspect. You can do a rudimentary or a sophisticated P & L on Delivered Sales when you know their cost.

Our company has evaluated onlY a relatively few of the totd lt,(XX) to 2O,0XX) lumber deders in thecountry, but we have never found one making very much money on delivered sales once delivered costs were identified. Management should not be surPrised if even a rudimentary P & L statement reveals that they are losing money, or barely making anYthing on delivered sales. While delivery costs are part of the reason for small profits, pricing and "order taking" are at least half of the cause for lack of profits. lt is not uncommon for even small lumber yards (under $1,000,000) to have several thousand stock keeping units to price. Too often this tough part of merchandising is computed rather than cdculated as well as being delegated to som@ne without profit accountability. Stick a simple circle drawing compass on a map of Your trading area and draw a 30 mile circle. Check where your deliveries are made. Our experience is that few people sell very much outside of about 2090 of cities or areas in a 30 mile trading area. Order takers cost money and Profits, get them out selling!

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Questions on delivery costs? Send them to this magazine at 4500 Campus Dr., Suite 480, NewPort Beach, Ca. 9260. WallY LYnch will answer them in future issues. This is your chance to take advantage of his expertise in cutting your delivery costs.