transportation Lumber chain cuts costs by leasing

ITERRY Lumber Co., one of the largI est lumber chains west of the Rockies, provides delivery service for two types of customers: retail customers who place orders at their l6lumberyards and other retail lumber compa- nies who order from their Precision Mill & Lumber Co. and Inland Timber Co. All have the same requirementsdelivery of building products on time every time.

More than three years ago, they were running 65 tractors and trucks. Five Class 8 vehicles were hauling lumber products throughout Southern California to as many as 60lumberyards a day. At the retail level, each store had its own fleet of straight trucks with roller beds for delivery to job sites. In addition, many of the stores kept an extra truck on hand for emergencies.

Lee Krueger, controller for the Tarzana, Ca., based chain, began to see high repairand maintenancebills. When the average cost per vehicle seemed unusually high, he decided to do something about it. The result was a full examination of transportation needs and a cost analysis for the upgrading of the fleet.

Although the company had a history of owning equipment and providing their own services, Krueger convinced them that the company was in the lumber business, not the transportationbtrsiness.

To see if they could improve their transportation operation and save money at the same time, he contacted three leasing companies for proposals.

When he received the proposals, he calculated the costs to Terry. "I did a seven year projection of cash flows comparing a lease program versus ownership," he said. After taking into consideration discounted cash flows. fixed costs, mileage amounts, fuel costs, after tax proceeds from the sale of their equipment, licensing, California highway use tax, opportunity and finance costs, the analysis proved favorable to leasing. "Over seven years, we projected leasing would save our company more than $100,000 and that is a very conservative numbef," Krueger recalled.

Three years ago last fall, Terry signed a full service lease with Pacl.ease, Pico Rivera, Ca., for three tractors, 12 L8foot flat beds with roller bars and seven 16-foot flat beds, all Peterbilt. Two company owned tractors were retained.

The larger units average about 70,000 miles a year hauling lumber from the wholesale facility to retail outlets. The others do store deliveries, averaging 25,000 miles a year.

Krueger has found more than savings in the arrangement. The flexible lease includes a service vehicle that travels on schedule to the retail outlets for standard preventive maintenance and minor repairs. A dedicated service shop in the San Fernando Valley performs work on both leased and company owned equipment.

A fuel program worked out in conjunction with the lease works well for Terry. "This extra program is saving us a bundle," Krueger said.

The lease program has been expanded to meet Teny's needs as the company has grown. When a store was opened in Bakersfield, Ca., they were able to add a truckforthat location with a service program although Paclease had no service facility in the area.

Story at a Glance

How a retailer cut costs, solved maintenance problems, achieved efficiency with a leasing program...cost analysis determined feasibility of leasing . benefits of a fuelprogram.

Because leasing has worked out so well, Terry Lumber intends to continue to enhance its owned fleet with leased vehicles in the future. "We're happy with the relationship and look for it to continue to grow," Krueger commented. "We have a leasing program tailored to our needs."