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Planning for Profit

18th March 1960, Page 80
18th March 1960
Page 80
Page 83
Page 80, 18th March 1960 — Planning for Profit
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Which of the following most accurately describes the problem?

SERVICE NEEDS SELLING

The Sales Side of Conducting a Haulage Business is Frequently Ignored by Potential Entrants to the Industry: Increasing Competition Makes This Aspect Much More Important

SELDOM, if ever, do inquiries for inforMation on how to set up in haulage give any indication that the readers have any interest or concern in the sales aspect of the proposed business. In the great majority of cases they either consider, and rightly so, that transport operation gives greater opportunity for the exercise of initiative and responsibility than a comparable indoor job, or they wish to use their specialized mechanical knowledge. This, they assume, will enable them to ensure that they have a reliable fleet and keep maintenance costs at a reasonable level.

Selling transport is probably underestimated in importance by many inquirers because it does not appear to be directly related to the operation of vehicles. As I explained last week, however, when I began a review of overhead costs, there are several such items of expenditure which must inevitably be incurred in running a business, as distinct from the cost of running vehicles.

Four groups of overhead costs have so far been dealt with under the headings of management, office, garage and stores, and warehouse and branch depots, which, together with some general items, totalled 36 costs. For convenience, the table of overhead costs shown last week is reproduced.

The next group is headed "Sales." The small operator, such as the owner-driver, will combine selling with other duties, but larger organizations will find it economic to set up a separate department for this purpose.

Although the need for efficient salesmanship in retail distribution of commodities is recognized there is often a reluctance _ to admit the same need where a service has to be sold. With increasing competition from both the railways and ancillary fleets, the professional haulier is finding it more difficult to obtain new and additional traffic.

Customers' Problem

In such circumstances, it is imperative that a canvasser, whether he is the operator or a sales representative, should be fully acquainted with the customers' fraffic problems, such as loading peculiarities and the special requirements of market deliveries. Traffic managers are invariably busy men and are unlikely to give much time to hauliers who obviously are unaccustomed to their particular traffic. .

Customers of established hauliers who regularly supply profitable traffic should not be ignored while the traffic continues to pass. The daily contacts which will presumably be made -at a lower level between the respective traffic clerks is insufficient if the operator is to be assured of the continuance of this custom. Personal contact at top level is of real value in this respect and expense is unavoidable. For the large organization, this would include representatives' salaries and

c44 commissions, and, in all probability, car expenses. In addition, expenditure can be incurred on advertising, entertaining and gratuities.

The basic assets of road transport—flexibility, speed and reliability—are commonly recognized, but they need continuous publicity in competition with other forms of transport. What may seem self-evident to the operator is not necessarily so to the prospective customer: But to put these points over needs both the time and ability of an experienced representative.

Under the next heading, "Professional Services," hank charges, auditors' fees and legal expenses are grouped. Whatever size of fleet is operated, the professional haulier will incur some expense on one or more of these items. The ancillary user, however, may not be directly responsible for such charges, because the services will probably be provided by the main administrative organization.

Vehicles in Reserve

Where a large number of vehicles is operated, it is usually necessary to have a proportion of additional_ vehicles in reserve. Whilst their ideRtity would be constantly changing, the number required would be determined by each operator's individual circumstances. These would include the extent to which deliveries must be guaranteed in any circumstance—for example, market traffic or delivery of perishable foodstuffs— and the extent to which each traffic was liable to fluctuate in quantity.

Individual maintenance facilities would also play a part in determining the number of spare vehicles required. In some areas it may be difficult, if not impossible, to recruit an adequate maintenance staff for night duty to service vehicles normally operating during the day. In such circumstances, the operate has to carry a surplus of vehicles which are maintained during the day.

Although 10 per cent. is often mentioned as a reasonable figure for vehicles under maintenance at any time, there are operators who contrive to provide -complete serviceability o their vehicles. Particularly does this apply to the' small operator, who manages to undertake service either in the even ings or at week-ends. Where the vehicles are normally employe on night delivery the problems of maintenance are substantially reduced, as is the resulting need for standby vehicles.

In addition to any replacement vehicle which may be required the auxiliary fleet may include service vans and possibly break down recovery vehicles. In most transport organizations th service van is the maid-of-all-work and provides an invaluabl link in the smooth running of. the business. However careful] arrangements have been drawn up, occasions will always aris when drivers, fitters or urgently required spare parts need transport immediately. Although this is a commonplace occurrence, the cost of providing such a service is not always appreciated when charges are being submitted to a customer, Only the larger operator will probably find it economic to provide his own breakdown vehicle. In an endeavour to reduce the higher proportion of standing costs for this type of vehicle in relation to the mileage operated, old vehicles, and particularly tractors, are often converted for the 'purpose, but, once again, the cost of both provision and subsequent operation must find its way into ultimate charges. •

Throughout the post-war years transport has incurred a substantial amount of Parliamentary attention and appears likely to continue to do so in the future. It is therefore, particularly important that the interests of " road transport should be persistently championed at the highest level. This can be done only by a strongly supported organization, such as the Road Haulage Association, Passenger Vehicle Operators' Association or the Traders' Road Transport Association. A subscription to the appropriate body ensures legal and techn,ical advice, as well as enabling the industry as a whole to receive proper recognition at national level.

The technical Press is invaluable in keeping the operator informed. not only of changes in the law, but also of the latest decisions of the Transport Tribunal and Licensing Authorities or Traffic Commissioners, which could well have significance fot his particular type of business. Similarly, it provides the only means of

keeping up to date with manufacturers' announcements of new vehicles or equipment, whilst descriptions of other operators' methods provide a useful comparison with his own experience.

In the accompanying table, item 49 is entitled "Dues." This is intended to provide for the recording of sundry expenses, such as parking fees, weighbridge tolls and ferry charges. Although it can be claimed that these are really costs directly attributable to the operation of individual vehicles, many users will find it more convenient to deal with them in this way. Admittedly, they could be charged separately to the vehicles incurring such costs, but the additional accuracy thereby obtained would not normally justify the effort unless exceptional use of a ferry had to be made for a particular customer's traffic. Whichever method is employed, it is important to make sure that the costs are included in the total expense of any proposed service.

Some allowance must be made for possible bad debts, which may conveniently be entered as overhead costs. Apart from sundries, the remaining four items—interest on capital, depreciation, maintenance and' insurance—relate to any expenditure in this category not directly chargeable to particular vehicles— for example, office and garage buildings, together with their equipment, and goods-in-transit insurance premiums. Probably nowhere more than in overhead costs ,is there such a wide variation in the number of items and total amount likely to be incurred as between 'small and large operators. The small user will find that the list of overhead costs given here far exceeds the items included in his own 'expenditure, but it,Can still provide' a useful check against the possibk omission of items.

The larger operator, however, may wish to break d,own costs even further, so as to determine, for example, whether his maintenance department, body and paint shops and so on, are economic compared with the possible-employment of outside services.

It would be tedious, if not impossible, to proportion out each item of 'overheads to individual vehicles. It obviously simplifies matters to proportion the total, but, even so, there is no exact method of doing so and some degree of compromise has to be accepted. Except in the unlikely event of all the vehicles in a fleet being identical in size, type and usage, a direct division of the total operating costs by the number of vehicles would not necessarily, give a fair proportion to be allocated to each, Where similar traffic was carried-by vehicles of different sizes, some allowance would have to be made for payload capacity. But, even here, some discretion must be used, because it would be extremely unlikely that the literal overhead costs of a 16-ton eight-wheeler would be 32 times those of a 10-cwt. van.

Moreover, costs vary greatly according to the traffic. The canvassing, documentation and ultimate control of 3 tons of parcels traffic -may well incur more administrative expenditure than the delivery of '16 tons over a long distance. Similarly. overhead costs will not necessarily have direct relation to mileage. To take account of most of these factors, but retain simplicity of procedure, the method of allowing a percentage increase on the total operating cost of the various vehicles is adopted in compiling " ' The Commercial Motor' Tables of Operating Costs." This provides for some allowance both for tapering the proportion of overhead costs as between small and large vehicles, and increased administration resulting from higher mileages, but without undue complexity. S.B.


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