Do you know what it costs to deliver?

Costs hove been spotlighted recently as dealers pare expenses to maximize profits, but one expense often not considered is the cost of delivery.

Considered essential, the outgo is un' derrated by many. Wolly Lynch, presi' dent of Builders Express in Dallas' Tx" thinks thb is wrong.

His interest in delivery cost reduction began in 1976 when the company he man' aged became strike bound over driver woges. The firm he now heads provides help in delivery cost reduction through publicotions, training Programs, seminors and workshops as well os consultotion, surveys and system implementotion ond training. Lynch's background in retailing and home center management is reflected in the direction he takes.

The Notional Lumber and Building Material Dealers Association has commissioned him to do a study on delivery costs. The results will be highlighted in a seminar at their nationol convention in October.

To prove his theories, LYnch, while talking with us, offered to answer any questions readers might have on the value of minimizing delivery costs and procedures for instituting cuts. Following are three of the most often asked questions with his enswers. Future issues will carry questions which you submit to us with his solution to the problem.-ed.

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

Story at a Glance

Save dollars on dolivery . . identily costs . . . determine pre.tax profits delivery cost oxpert answers common questions.

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 sophisticated management systems, we must invariably identify what is being spent on delivery by our customers. They know and are continually provided with payroll expense and taxes, truck and auto expense, depreciation, insurance, etc. as these expenses apply to the total 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 total 18,000 to 20,000lumber dealers in the country, 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. It 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 calculated as well as being delegated to someone without profit accountabil- ity. 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!

Q: How can knowing delivery costs help manage the daily delivery operation?

A: When delivery costs and cost ratios are known, this knowledge should also include or generate a measurement reflecting costs per mile driven. In the hands of a manager, dispatcher, shipping clerk or the like, the approximate cost of delivery can be determined before any material or delivery leaves the yard. The approximate mileage out and back times the cost per driven mile equals the cost to deliver what is on the vehicle being used. Thus a trip of 50 miles at $2 per mile driven costs the company $100 to make. If the delivery cost ratio is l09o (not uncommon), the trip can be made profitably to the company if the value of the load exceeds $1000. If not, the company either loses money or reduces profit. Conversely, each day, at the end of the day, total miles driven can be added up and multiplied times driving cost per mile to equal total delivery costs. Nominally, if total delivery costs for the day exceed 1090 of the materials delivered. the company loses money.

When asked why they deliver, management replies that they would lose business to their competitors, therefore they must deliver. We change this emphasis in the eyes of many companies by identifying delivery costs so they can deliver for the right reason-profit!

If the company knows the value of what is delivered, it is a simple job with a hand calculator, pencil and paper to identify profit or loss from delivered sales daily. Delivery managers, we have observed, do this job in less than 20 minutes daily. The whole idea is to give managers, at both levels, decision making information that can be discussed as situations and profits, or lack of them, dictate. Questions on delivery costs? Send them to this magazine at 4500 Campus Dr., Suite 480, Newport Beach, Ca. 92660. Wally Lynch will answer them in future issues. fhis is your chance to take advantage of his expertise in cutting vour deliverv costs.