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HAULACOST
An exclusive CM introduction to a computer-based information system developed by English Electric Computers Ltd.
in conjunction with two road transport operators, making use of COMMERCIAL MOTOR Tables of Operating Costs By B. G. BUCKNALL and M. WILKINSON
English Electric Computers Ltd.
THE TWO vital facts a road haulage operator needs to know are: how profitable are his customers and how profitable are his vehicles. However, detailed examination of costs and profits within the road haulage industry has only been practised so far on a very limited scale, due to two factors.
First, the clerical work involved is irksome to practical operators and the job itself can be complex, involving accurate assessment of vehicle running costs and apportionment of overhead costs. Secondly, where costing has been attempted, the small scale of the operation has limited the value of the results produced since the facility to cheek the profitability of a particular customer, information of vital importance to the business, is still lacking.
In conjunction with two road haulage operators in Liverpool (Jarvis Robinson Transport Ltd. and A. S. Jones and Co. Ltd.) and in liaison with COMMERCIAL MOTOR Tables ofOperating Costs, HAULACOST, a computer based information system, has been developed by the bureau division of English Electric Computers Ltd. to overcome these problems.
HAULACOST provides fully comprehensive costing information on a regular monthly basis in a form directly usable by management. The benefits to be gained from using the system are considerable. Particularly important is the resulting gain in managerial confidence and control.
While the system has been primarily designed for road haulage operators, it will equally be of value to C-licence users and operators of public service vehicles.
The system
The basic method is for the haulier to submit information on all vehicle journeys each month and for the bureau to cost these journeys on a mileage and hourly basis using basic cost rates stored in the computer. The vehicle-journey information required consists basically of vehicle, customer and journey references, total miles and hours run on the journey and revenue earned. This information is extracted from drivers' weekly log sheets and invoices. In the case of deliveries being made to several customers on one vehicle journey, this journey must be broken down and regarded as separate journeys to each customer and the hours and miles run reasonably apportioned to the separate customers.
The information relating to each vehicle is transferred on to punched cards either by the user or the bureau. The punched cards containing the information are read into a KDF9 computer which produces the printed results in easily understandable form as described below. Information may be submitted to the bureau on a weekly or monthly basis as required. The results are despatched to the user within 48 hours of receipt, thus a complete analysis, say, of a month's operation, together with the yearto-date figures, is available within a few days of the end of the month.
The method of cost allocation is as follows:
(1) Running costs
Running costs are incurred according to the number of miles for which a vehicle is run and include fuel and oil consumption, tyre usage and routine servicing and maintenance. The total fuel and oil consumption for each vehicle is notified every month and hence a fuel plus oil cost per mile may be calculated for every vehicle after totalling the individual journey mileages.
Tyre and routine servicing costs require different treatment, however, and costs per mile for these items must first be estimated for each vehicle and then stored in the computer for use each month. If these estimates are later seen to be incorrect, adjustments may be made at any time.
(2) Wage costs
Wage costs are incurred according to the amount of time a vehicle is operated and include drivers' wages plus normal overtime, holiday pay accrued and employer's contributions. The total wage costs for each vehicle are notified every month and hence an average wage cost per hour may be calculated for each vehicle after totalling the individual journey hours.
(3) Standing costs
Standing costs are incurred irrespective of whether a vehicle is being run or not and these costs include a proportion of the garage costs and overheads, depreciation, licences and insurance. A total of garage and overheads costs is stored in the computer and the allocation of a proportion of this cost to each vehicle is performed by the computer. The method used allows full control over this apportionment. This can be based on carrying capacity, g.v.w., capital involved or other such method as the individual haulier feels is equitable.
The other costs listed above will be fixed items for each vehicle and as such are stored in the computer. A total standing cost for each vehicle every month and hence a standing cost per hour run is produced.
(4) Special costs
In addition to the above costs, which yield basic mileage and hourly cost rates for operating each vehicle, extra costs may be incurred as a result of a particular journey. Drivers' special overtime, mates' wages and tanker cleaning, or refrigeration for refrigerated vehicles, are examples of such costs and these are notified with the basic vehicle journey data every month. These special costs affect the cost rates of the particular journey on which they are incurred but do not affect the basic cost rates as used for other journeys.
Benefits
(1) Basic system
A report is produced for each vehicle journey showing the total cost, a breakdown of the total cost, revenue earned, profit made, percentage of profit to revenue and percentage of profit to wages. In addition, a summary report is produced on each vehicle after totalling all journeys relating to that vehicle, together with a summary report on each customer, if required.
The above reports are produced every month but, in addition, the vehicle and customer summaries are accumulated from month to month enabling year-to-date reports to be produced every month.
In addition to the basic system outlined, several further facilities, which greatly increase the power of the system, are available for use.
(2) Idle time (vehicles)
If a vehicle stands idle for some part of a month, the method of recovering standing costs over the hours run could produce a misleadingly high cost rate for that month and similarly if the driver of the vehicle was also "idle", the average wage cost per hour would be higher than normal.
This problem is overcome by specifying to the system the amount of time each vehicle, or vehicle and driver, stands idle during the month. Thus idle vehicle hours will be used in the calculation of the standing cost rate and idle driver hours will be used in the calculation of the wage cost rate to produce basic cost rates not affected by idle time.
Idle costs are thus regarded as being overheads and must be recovered against mileage run by introducing an additional factor to the basic cost rates.
The vehicle summary reports will include idle time reports.
(3) Dead costs By dead costs we mean, for example, those costs incurred when a vehicle is travelling empty and its revenue earning capacity is not being utilized. A proportion of the cost of running a partially loaded vehicle, or waiting time at the docks, for instance, may also be regarded as giving rise to dead costs.
These costs may be considered to be directly chargeable to the particular journey on which they were incurred, in which case dead miles and dead hours are specified with the basic journey data and the calculation proceeds exactly as in the basic system but the reports produced indicate what proportion of the total cost is dead cost.
The alternative method of approach is to consider these costs as overheads in which case the individual journeys do not include dead miles and dead hours and these are notified separately for each vehicle. These overheads must then be recovered against "live" miles run by introducing an additional factor to the basic cost rates.
Both methods may be used together and the vehicle summary reports will indicate what proportion of the total operating cost is dead cost.
(4) Analysis grouping (vehicles and customers)
Vehicles and customers may each be split into several groups and summary reports produced for each of these groups. Thus the vehicles may be grouped to provide summaries for different gross tonnage ranges or several types of vehicle of the same gross tonnage may be grouped separately and their performances compared. Customers may be grouped into flows of traffic accord.ing to the type of goods transported and summaries of each group produced.
The more important benefits to the user of the HAULACOST system are: (1) An appreciable gain in management confidence and control.
(2) A comprehensive costing system is produced showing both vehicle and customer profitability. This enables the user to pinpoint the non-profitable work and help in selecting a particular vehicle for a particular job.
(3) The customer and customer group report enables the user to select the most profitable flows of traffic and assist in shortand long-term planning of the business. (4) Evidence is at the user's disposal to substantiate a revision of rates where necessary, doubly important now with the advent of the Prices and Incomes Board.
(5) The journey profitability returns will assist those responsible for the efficient running of the fleet. Individual vehicles which constantly perform badly will be highlighted.
(6) Details of idle time will be available which will help show where return loads are not being obtained and also where undue delays occur.
(7) The computer system gives a faster and more efficient service at a lower cost than could be obtained from a costing department.
The charges for the HAULACOST service by and large depend on the number of vehicles in the fleet and on the number of vehicle journeys in any month. For a medium-size fleet of 40 vehicles, the cost per vehicle per month would be in the region of 15s to 25s with a nominal fee to join the system.
The net benefit of the HAULACOST management information service to the user will be overall improved efficiency and a corresponding increase in the return on capital employed.
HAULACOST seminar
A seminar is to be held on March 28 at 2 p.m. at the Grosvenor Hotel, Victoria, London, SW1, on the role of computer bureaux in meeting the costing requirements of road transport operators with particular reference to the standard programme HAULACOST exclusively announced in this issue.
Details of the seminar are obtainable from: Mr. J. Curtis, Bureau division, English Electric Computers Ltd., Hartree House, Queensway, London, SW2.