Delivery cost management puts you in the driver's seat

By Wally Lynch Paid Associates

GOPHISTICATED cost account9ing systems, computer software programs and logistic experts can deal with managing delivery costs, but this article is all about doing it without them, or a blank check and an army of people.

away if you no longer made any deliveries. Examine and allocate costs from each of the following accounts.

(1) Wages, payroll taxes and benefits.

(1) Profitability of delivered sales: (To-date over 90% of those examining this have identified an operating loss from delivered sales alone.)

rttt) ovERCoMEPSYCHoloct- CAL BARRIERS These are three of

Here are frve procedures that anyone can implement right now, at little or no additional cost, to begin to mthage delivery costs almost at once. the most common hang-ups encountered. One or all may be yours.

(A) Cost management (control) is very diflicult and complicated.

(B) Delivery serves the customers: their needs dictate the expense, thus the costs are not manageable.

(C) Our accounting system won't handle it.

(Read on to see why these myths are just that.)

ESTABLISH SEPARATE PROFIT OR COST CENTERS

(2) Recruiting and training.

(3) Vehicle and equipment depreciation/lease.

(4) Interest and insurance.

(5) Licenses, sales and excise tax.

(6) Tires, tubes, garaging, washing, painting.

(7) Fuel and oil.

(8) Maintenance, repairs and supplies.

(9) Supervisory and management expense (approx. 60/d.

(10) Payroll overhead (approx. 40/i.

(Any accountant should be able to provide this information in three to four hours.)

(B) The result will identify a total dollar amount spent on the delivery function.

(2) Delivery cost ratio: The percentage of dollars spent to delivered sales made. (Nominally 5olo to 8% of delivered sales.)

(3) Delivery expense as a percentage of total operating expenses: (This often will range from l8o/o to 250lo of daily expenses and demonstrate its need to be managed.)

(D) Identify miles driven by:

(l) Reading odometers.

(2) Checking oil change tickets.

(3) Estimating mileage. (Average is around 20,000 miles per year per truck.)

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(A) Identify delivery costs by asking yourself what iosts would go

(C) Identify total delivered sales for the same period covered by cost identification in order to determine:

(R) Cost per mile driven can be determined by dividing total delivery costs by total miles. (Range will be between $1.75 and $2.25 per mile.)

(l) Having determined what cost per mile has been, set or peg a figure to cover what you believe it will be, based upon estimated miles to be driven.

(2) This hgure (say 92 per mile) now becomes the standard to be recovered per mile per delivery.

(B) Set a pre-tax profit figure on delivered sales. (Industry average is nominally 2.50/o on total sales.)

(C) Determine a budgeted delivery cost ratio as a percentage of delivered sales by dividing total delivery cost by total delivered sales. (Range is 5olo to 8%)

FoRMULATE A DELIVERY

I POLICY with the information pro- vided by your budget.

(A) Define profit areas of delivery on a wall map with three 10 mile circles outward.

(l) Budgeted profitability can be determined by dividing budgeted cost per mile driven by the budgeted delivery cost ratio. (Example: $2 divided by 6.50h or $30.77 in inventory value per mile driven.)

(a) At the l0 mile circle, this is 20 driven miles or 20 times $30.77 or $615.40 must be on the load or the company loses money.

(b) nt the 20 mile circle the profitable load is 40 times $30.77 or $1230.80 or the company loses money.

(2) With this simple method you can determine budgeted profit and loss before delivery is made. lt can be set up in a chart for dispatcher's review and use before each and everv delivery is made.

Story at a Glance

Five steps for managing delivery costs easily. ways to identify costs, set up budget, establish a delivery policy. free sample trip ticket and delivery P&L statement offer.

(B) Determining number of delivery trucks needed.

(l) One 2 to 2-1/2 ton 16' flat bed truck should easily provide for the delivery of $ 1.000.000 worth of material annually.

(a) A normal40 hour week is 2080 hours annually which means a delivered sales average of $480.76 per hour per truck, which in practical terms is one delivery in the a.m. of $961.52 and another one in the p.m. of the same amount daily.

(b) Another way to look at it is by miles driven at a maintained speed of 15 MPH. Traveling 20,000 miles per year, the truck is on the road 800 hours of the 2080 hour work year.

Transportation Special lssue

(A) You'll need a trip ticket for this purpose to show you how many miles were driven and the value of loads handled per trip. (This has several other benefits which are too numerous to list here.)

(B) Have whoever dispatches your truck(s) make up a daily P & L on delivered sales following these steps:

(l) Total the miles driven.

(2) Multiply this figure by the cost per mile driven ($2).

(3) Total the sales value of all deliveries made less taxes.

(4) Combine the budgeted pretax profit percent on delivered sales (2.50/o) with the budgeted delivery cost ratio (6.5%) and multiply this combined figure (9.00/o) by the total sales value.

(5) The difference between the cost developed in step 2 above and the recovery determined in step 4 above is the profit or loss against the budget for the day.

(6) The process will take less than 5 minutes to accomplish.

(7) Management can immediately do something about losses with such decision making information.

Managing delivery costs is just like managing anything else. Identify the problems. Explain the solutions and monitor implementation.

The five simple steps outlined will be helpful in moving your company from reacting to the customer's delivery demands to managing a cost effective service to these same customers.

(For a free sample trip ticket and a copy of a delivery P & L statement, send a stamped, self-addressed envelope rc lilaily Lynch at Paid Associates, P.O. Box 741623, Dallas, Tx. 75243-ed.) by evaluating what's