John Darker AMBIM on Management Matters
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Flow line accounting for road transport operators
MUCH INTEREST was aroused in January when Mr. Reg. Block announced his intention to run a series of two-day seminars for transport ,executives. He has had 40 years' experience of cost control in road transport organizations and his seminar theme—Management by objectives to maximize productivity and profit—is highly relevant to current problems. Very few of the lecturers at current road transport courses can have such a detailed knowledge of the practicalities as Mr. Block: you do not build up and operate a successful contraCt-hire business without much costing expertise. His "prayer" as a business man: "Preserve me to increase our turnover at a faster rate than we spend it" is likely to be echoed by successful entrepreneurs everywhere.
It was of great interest, therefore, to attend the second of Mr. Block's seminars in London recently in the company of a mixed group of own-account operators and professional hauliers. This mixing of two sections of the road transport industry for generations artificially separated by absurd carriers' licensing provisions ought to continue. It was very clear during the seminar discussions that many of the own-account .operators present would have chosen to be within the ambit of the Road Transport Industry Training Board. The development of common standards of training and the promotion of sound operating practices would certainly have been much more easily accomplished under one umbrella, albeit a very large one.
What does Flow Line Accounting mean? It is, in brief, an integrated system utilizing simple recording and control procedures which tells even the smallest road transport operator his profitability, virtually on a day-to-day basis. It is not—and this must be stressed so simple that the employment of a mediocre cost clerk alone will suffice to turn an indifferently organized business into a flourishing, expanding concern. Sound cost control procedures must be accepted by everyone in the firm as a desirable end involving a degree of disciplined thought and action. Drivers, traffic clerks, costing executives and management must pull together continuously if flow line accounting—or any other viable system—is to work.
The flow line method utilizes a series of well-thought-out recording forms. Many details of the driver's performance—on which the prosperity of any road transport business depends—are drawn from the daily log sheet, specially modified if desired, or from consignment notes. Relevant details are extracted and recorded on a monthly vehicle record sheet showing the use of the vehicle on a day-to-day basis, the goods or units delivered or collected, the number of drops, revenue earned, hours paid and, of course, the name of the driver.
Also included on the same vehicle record sheet are columns for recording daily speedometer reading, miles run and fuel and oil consumed (with a distinctive notation showing whether fuel or oil was supplied by agency or in bulk).
In a separate "box" operating costs are recorded for fuel, oil, tyres and tubes, repairs, and standing costs. The totals can be adjusted for any credits received during the month for claims, etc.
Specimen sheet •
In a particular specimen sheet demonstrated the cost of two tyres (£54) fitted during the month put total costs of the 10 ton box van reviewed up to £354 lOs for the month—against a revenue of £343. It could be argued that the vehicle concerned was profitable as the tyres fitted would in the normal course have a considerable life but misfortunes or ham-fisted drivers can result in the scrapping of new tyres—as any experienced operator well knows. There is a value in showing all costs against revenue earned by a particular vehicle in a particular month. Both drivers and managerial staff then know that specially productive use of that vehicle is necessary if the cumulative quarterly or six monthly figures are not to appear in the red.
In the vehicle record sheet concerned for January, with 23 work days in the simulated business, 19 days were worked showing 83 per cent vehicle availability. If this seems reasonably high Mr. Block was far from satisfied. At least one of the days against which repairs were shown was a normal working day, and it might have been possible to have the repairs done during the weekend.
I noted during the explanation of the vehicle record form that it was a simple matter to calculate the standing cost per hour from the information recorded. If the £205 per month standing costs are divided
by the 238 hours Paid during the month the result—I hope my arithmetic is accurate —comes out to £.865. Near enough to 17s, 3d an hour.
Man' times during the seminar Mr. Block stressed the great advantage in showing as many as possible of the identifiable costs in the standing cost figures. Certainly, when operators are faced daily by the unreasonable delays in loading and off-loading, it is helpful to be able to confront customers with irrefutable evidence of standing cost figures. If every operator had up-to-date standing costs for each vehicle on a desk pad the resistance of the vast majority of customers to the payment of demurrage charges would surely be eroded? Other useful information from the vehicle record sheet allows m.p.g. for fuel and oil to be worked out. Always given the accuracy and honesty of fuel issuer, driver and possibly other parties, it is easy by comparing-a number of monthly sheets in sequence to trace the trend of vehicle operating efficiency. For example, if oil consumption per month steadily declines it is a poor operator who does not ask the relevant questions. Perhaps the vehicle is due for replacement? Does driver Noggs occasionally .forget to record oil topping up or—perhaps more probable—run regular risk of seizing the engine?
A practical feature of the Block vehicle record forms is that the vehicle age is always shown in months. This.is an obvious guide to the likely time for replacement and may—or may not—indicate the wisdom or otherwise of undertaking a costly overhaul or conversion. It would be a simple matter, also, to include details of licence renewal date, testing date, etc.
Logically, an analysis of the vehicle cost records enables fleet costs and earning figures to be prepared. The same form is used to show vehicle trading and cumulative trading results though the "age in months" column on the vehicle trading results form becomes the "number of work days"—for five-day or six-day week operation—on the form used to record cumulative trading results. There are obvious advantages in using basically similar forms for the vehicle trading results details, prepared monthly, and the cumulative trading results prepared four-monthly. The cost analyst—Mr. Block prefers this title to cost clerk—soon becomes familiar with the column layout and
the sequence with which the information is recorded:I expect—in all too many businesses—he or she will also come up against regularly recurring difficulties in getting necessary information from one or two other departments or individuals. This illustrates, as stressed earlier, the importance of friendly teamwork in running a smooth and efficient costing control system.
The cumulative trading results form illustrated is self-explanatory. It will be noted that the form provides room for the all important profit or loss figures to be recorded.
Two other basic forms are included in the Block flow line system. The consolidated trading account prepared monthly but showing cumulative results to date enables turnover for any number of customers to be recorded; naturally, the individual business would need to adapt the form for its special pattern of operations. Turnover for the current month, for the year to date and last year to date are recorded as totals from which operating costs are deducted. The balance shows the net (pre-tax) profit. Space is provided for the number of licensed vehicles and for the number of operational vehicles—not always the same thing. On every possible occasion the opportunity is taken to remind the owner of the business the size of the profits earned in relation to the number of vehicles operated.
In the columns relating to profits to date actual and target figures are shown expressed in percentage and money terms. In a particular example for a six-vehicle fleet mot pre-tax profits Worked out at £526 for a siagle month (January) yielding a profit of 17.93 per cent against a target figure of 20 per cent. Two further columns showed the return] on capital to date, both actual and target, and there was a useful block showing cash book balance and bank facility.
In the specimen consolidated trading account form space is provided to show vehicle additions and deletions with columns showing date purchased, quantity, make, g.v.w. and cost with parallel columns recording the date of sale or disposal and the amount realized. A further "box" allows the recording of profit or loss on vehicle sales on a cumulative monthly basis for the capital account.
No up-to-date course on costing would be complete without some budgetary control procedures. The Block system headed typically "Budgetary Control (profit departures)" records monthly each vehicle, its payload, age in months, profit (or loss), monthly budgeted figures for repairs and tyres. any abnormal costs in the current month or in the previous six months, monthly depreciation and book value against a column headed pregnantly "Action Advised". In the specimen business discussed a 47-month-old vehicle which had lost £12 during the month of January had budgeted repairs and tyres costs of £36 and £15 respectively. Both were substantially exceeded by actual cost and in addition there had been some substantial abnormal costs in the previous six months. Perhaps it is not surprising that the action advised column urged the replacement of the driver. Another vehicle with a 12-ton payload 60 months' old had earned a modest profit of £23 but its budgeted repair and tyre costs had been much exceeded. The action advised column was endorsed "replace tractor". Perhaps with a little more power under the bonnet the driver would do better!
Commonsense remarks, helpful to management, were recorded against a 20-tonner showing a small loss over the month partly due to a heavy tyre charge. This was endorsed "three days' repairs" showing that the results were affected by more than 10 per cent loss of available operating time in addition to the obvious cost of the tyres.
In this necessarily brief summary of the basic accounting forms devised by Mr. Block it would be quite wrong to suggest that their compilation alone occupied the bulk of the time spent on the course. Expla natory and supplementary illustrations wet% projected by the lecturer on a screen—somi 45 illustrations all told—each with specific point helping to focus the inevitablt discussion and questions.
There was so much "body" in many o the topics thrown up by the subject matte that the lecturer all too often cried: "Gen tlemen, tern pus fugit".
Practical "tips" abounded. For examplc after listing dozens of items appropriate': recorded under workshop overheads Mi Block suggested that training expense could usefully be underlined in green—a possibly recoverable.
The value of such a seminar would ten to be lessened if the standard costing metho illustrated was regarded as sacrosanct. Th great majority of the firms sending key me on such a course will have developed more c less sophisticated systems in the normi course of business. The ideas behind th methods recommended by Mr. Block at much more important than the details an this he was at pains to stress.
In many instances class members wer critical of some of the lecturer's views important matters of detailed accountin interpretation. It would be strange if thi were not so. There are many schools c accountants. Many learned tomes could b written about depreciation methods. Ther was a most enlightening discussion on th tax significance of varying methods of rt cording depreciation with much stress b the lecturer on the desirability of reconcilin commercial vehicle depreciation rates wit Inland Revenue Allowances.
Next week I will deal with further poin1 arising from this most interesting seminar. Note: Further seminars for transport execi tives have been arranged by Mr. R. P. Bloc in the coming months, and a few places al still available. Details may be obtained froi Mr. Block, 7 Brighton Road, Surbiton, Su rey, tel. Elmbridge 9434.