Finer Points in Cost Recording
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Many Small Hauliers are Afraid of the Task of Keeping Accurate Records of Costs, Although it can be Done Simply IHAD a conversation the other day with an experienced transport manager in charge of a fleet of over 100 Clicensed vehicles. His company is highly logical in its attitude towards the use of its own road transport, and expects the transport manager to show an economy in using the fleet for the conveyance of its goods compared with any other means. To justify his existence and that of the fleet of vehicles he operates, he has not only to be able to state what the cost of a new venture will be, but later be able to justify his forecast.
He said that he placed great reliance upon "The Commercial Motor" Tables of Operating Costs. He used them as a check upon his own vehicle expenses, but did not regard the figures they contain as being inviolable. He does not accept them as such, but uses them as a standard for comparison.
I told hint that was precisely the purpose of the Tables, and that they were so used by nearly all the principal Government departments who run transport, as well as by Licensing Authorities, municipalities and others.
He then remarked that in the course of his dealings with hauliers, he had seldom found any who kept complete and accurate records of their costs of operation, and he wondered how I was able to compile these figures, which he accepted as being obtained from users, having in mind the paucity of . reliable information.
How the Tables are Compiled
I agreed with him as to the difficulty of finding any operator whose costs were complete. I told him that I obtained my figures by taking certain items from the records of one operator and others from those of another, so that although I seldom came across records which were complete in every detail I could, by putting two and two together, as it were, eventually obtain the information I sought.
We discussed the present position in the haulage industry particularly with respect to what is in store for the freeenterprise hauler, the competition he will have to meet not only from his fellows but from the British Road Services. We agreed that the keener the competition the more necessary it is for the operator to be fully aware of his costs so that in dealing with any problem involving the assessment of rates and charges he will know where he stands.
Competition does not necessarily involve rate-cutting: more often than not, the retention of custom turns on the service rendered rather than on the cost. At least, cost is not the only consideration, but where rates quoted have A36 to be low so that the operator may stand a chance of obtaining a contract, actual cost must be known so that the rate will sshow some margin of profit. If the haulier has figures for cost, the borderline between profit and loss is clearly shown. It is better to quote on that basis than blindly to undercut the other man just for the sake of getting the job, only to find later that it is unremunerative.
Objections to Cost Recording
In dealing with this problem of cost recording, and in an endeavour to persuade the average operator that he should keep costs, I am faced with a series of objections. First, there is the owner-driver who, whilst he may be at home when dealing with the anatomy of his vehicle and have an expert knowledge of the way to handle the particular traffics in which he specializes, is often completely at sea when faced with the necessity of dealing with figures. The upshot is usually that he leaves the figures alone and takes a chance when quoting a rate. Sometimes he is successful, more often he is not, and of the many owner-drivers who fall by the wayside, the majority do so because they have not taken the trouble to check costs and outgoings against rates and incomings.
The owner of a small fleet of up to 10 vehicles perhaps objects on another account. He thinks it is going to be too much trouble to keep records of the cost of operation of so small a fleet. He is the more inclined to object if the fleet be comprised of a variety of makes, sizes and types. In the latter case, he points out that he will have to,keep cost records for each vehicle, which seems to him as if it would involve an immense amount of clerical work. He is right as to the first point because, as I have so often stated, if a cost-recording system is to be useful, it must be devised to show the cost of each vehicle in the fleet separately. He is wrong as to the second point, as I shall show, because once a system is properly established, little clerical labour is involved in keeping it going and up to date.
Another operator will be afraid of starting a costrecording system because his traffics vary. The operator who is almost solely concerned with simple haulage, like the cartage of sand and ballast and road materials, is not so troubled. but the country carrier who one day may be taking sacks of corn from the farmer to the mill, the next day hauling sugar-beet and the day after carrying bricks, feels that if he has to assess his rates he will have to apply some complicated mathematical formula in order to obtain the information he requires.
All the time it should be noticed that there is one Common ground shared by all these operators. They are afraid of the task. They imagine that it is going to be complicated, that it will take up a lot of time and that they will not be able to understand or apply the results when they are achieved. That is not so
The requirements of a suitable costing system are that it should be flexible enough to be capable of being expanded or contracted so as to cover the diverse needs of a variety of types of operator, yet be sufficiently rigid to ensure that there shall be no relaxing of the application of the fundamental principles. Above all, there is need for standardization so that whenever any operator states that his cost of operation is so mUch per mile and/or per hour, his figure shall be capable of logical comparison with similar statements from another operator. The system of costing in both cases must be such that the investigator may be sure that all the essentials have been taken into account, that none has been overlooked and • that no extraneous figures have been allowed to enter the I calculations. Before going on to discuss this matter at length, I would like to deal with an immediate problem which has come before me this week. It is one concerning the recording of maintenance costs. It is interesting in the light of what have already written, because in attempting its solution in a broad way; difficulties of divergence in size and character of hauliers' businesses are at once encountered.
Some hauliers make provision for all maintenance work to be carried out within their own establishments, with the possible exception of• pertain major machine work like cylinder boring and crankshaft grinding. On the other hand, some provide for all the work to be done by a local garage. Again, some divide the work, doing part of it on their own premises and putting some of it Out. •
Here, the size and organization have no bearing on the choice of method. Some small operators do all, their own maintenance and repair work. The owner-driver is especially apt to take that line. Indeed,' he is usually iii. the position that he has to do the Work himself, spending his Saturday afternoons and Sundays at it. otherwise the meagre balance of profit which he may manage to make is likely to he completely dissipated. On the other hand, operators of the largest fleets in the country, and this perhaps applies more to C-licensees than to hauliers, have come to the conclusion that maintenance is best Carried out under contract by local garage proprietors.
Provision for Two Methods
It is perhaps advisable to leave out of the scheme, which I shall delineate, any precise provision for the owner-driver who effects his maintenance work in the fashion I have just described. It is essential, however, to provide in the scheme of costing for the two kinds of method just described.
The inquiry which started this train of thought came from an operator who has II vehicles. He employs one fitter and has a carpenter available when any jobs requiring woodworking have to be done. He has for some time kept strict records of mileage, fuel and oil consumption and so on. He now wishes to expand his system of cost recording in such a way that any repair or maintenance operation can be properly debited to the individual vehicle.
He suggests that he would like the procedure to be such that records of material used and time worked can be entered in duplicate on some kind of sheet which has a price column. The idea is that one copy, without prices, may be retained by the mechanic for his own records, whilst the other can pass into the office, having the price column filled in, and serve as a means for ascertaining the maintenance costs of the vehicle.
Some such procedure is an essential part of any efficient system of recording the costs of operation. Maintenance figures must be complete and must be allotted to individual vehicles. Where there is a separate department for maintenance and repair, as in this case, it is essential to treat it as a separate entity. In effect, it should be regarded as a repair shop owned by the haulier but separately controlled, the costs being set out so that the repair department charges each vehicle for the work done on it.
It may be getting down to details, but there are one or two points to discuss. They are not, strictly speaking, comprehensive, but have been raised by hauliers when talking
about the finer points of cost recording. The first, put to me in the form of a suggestion, was that when a vehicle is idle in dock for repairs or overhaul, the standing charges in that idle time should be charged against the vehicle and included in the item of maintenance."
I disagree. The idea is an interesting one. It provides for the entry of a debit against the vehicle, but it is not the right way. it is important not to lose sight of the fact that what is necessary in these accounts is to know what the actual costs of operating the vehicle are and that an important item of these costs is the direct expenditure on maintenance and repairs.
The cost to the operator of having vehicles standing idle, while off the road being repaired or otherwise dealt with, is no part of the cost of maintenance. In any case, the loss of the vehicle is already provided for in a more rational way. The efficiency of any vehicle is measured by the operating cost per unit of work done, whether that work be measured in miles, hours, in the tons carried, or tonmiles. In the case of a vehicle which spends a considerable proportion of its time in dock, its efficiency is disclosed by the fact that its cost per unit is high. That is the information really required and it will be no help but only an unnecessary complication to load the maintenance costs with an allowance for the idle time.
Inefficiency Means High Cost
The reason for the lack of efficiency of a vehicle will quickly be discovered in the fact that its maintenance costs are high. Moreover, if we were to complicate the accounts for maintenance by trying to include this figure for idle time, the results would be useless for any purposes of comparison because of the wide variation in the value of the idle times of vehicles.
Another question concerns those cases in which the driver helps in the repair shops—while his own vehicle is undergoing maintenance. The question is whether his wages should be debited to maintenance or remain as driver's wages in the schedule of operating costs.
Here, the issue is not so clear. On the face of it, as the driver's wages are part of the vehicle standing charges, the question would appear to have been answered as it has been agreed that standing charges should not he debited against maintenance, but the problem is not so easily solved. For one thing, the driver's wages are not strictly a standing charge. It would be quite feasible in the case of an operator. such as the one we are considering, having a small fleet of vehicles and possibly getting a spare one, to turn the driver of a vehicle which is in dock onto another vehicle, in which case this question would not arise.
Moreover, if that be done another man must be employed to help with the repair and his wages will be charged to the job. If, however, the driver's wages are not charged when he helps, a difference will arise between the cost of Inaintenance when the driver does not help and when he does.
In view of that and the fact that it would be better, if possible, for maintenance costs between one haulier and another to be comparable, it would seem that the correct thing to do is to debit the driver's wages against maintenance and deduct them from the corresponding column, "wages," in the costs schedule of the vehicle.
This, however, is a case where practical considerations must take precedence over theoretical. Theory dictates that the driver's charges should be debited against maintenance and deducted from the wages item -in the operating costs. Actually, that would involve a complication of entry, the advantage of which would not justify the trouble.
I think, therefore, that no such entry is needed.
Another analogous case arises in connection with charging for washing and polishing and greasing, all of which are maintenance operations, when the driVer does not work. Here again the question arises whether the driver's time and wages for the time be debited against maintenance and deducted from the column "wages" in the vehicle operating costs. The answer is no, and the reason is the same as just given_ This illogicality in the system of scheduling the costs does, indeed, affect the figure of maintenance, distorting it so that it seems less than it really is. On the other hand, the complication of the accounts would be considerable and the effect, in so far as the total cost of operations is concerned, would be nil.