costing for maximum profit
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A SPECIAL SERIES BY R. P. C. BLOCK
19. The daily report on utilization, costs and revenue
WITH so much information available the cost analyst can supply just about every statistic management will require. From the drivers' daily logs he records how each vehicle was employed, output, hours of work, miles run, and the fuel and oil drawn and if the log sheet is carefully designed it is simple enough for the driver to originate these entries. Once it is signed as being correct by a responsible person—and this will be obligatory from next March 1—the daily entries to Form R.B.6 can be completed in a matter of minutes.
This part of the performance /costing system accounts for the major part of the work involved to complete the vehicle record of utilization and cost on a daily/monthly basis, and from which both profitable or unprofitable work undertaken can be detected for any given day. With such comprehensive information on hand I suggest that many operators in haulage or on own-account would soon be changing their operating pattern or the customers served. Such changes as are obviously necessary will be the direct result of the cost analyst's investigations into area of cost and /or profit departures which are at variance with the standards of performance prescribed.
During this process management is kept informed so that decisions can be made on the instructions to be given to the order department in respect of unremunerative customers, as it is at this point that once an order is accepted the company is committed. The sales manager should be advised and reasons given for any change in customer policy, so that he can instruct the outside representatives to refrain from calling on unprofitable customers in the future. At the same time they would be alerted to the need to replace their business by new customers within more lucrative areas of distribution.
The same procedure should be adopted in respect of the traffic manager in a road haulage concern, with the possible exception that if a reliable sub-contractor is available to undertake the work at a rate which will give the haulier a commission on the business, then, and only then, could the work be accepted. As mentioned briefly elsewhere (CM December 19) the yield on capital employed can be enhanced through the use of someone else's investment, and consequently sub-contracting can he turned to profitable account.
Reproduced here is a further example—and indeed the most important of the uses to which costing is applied in the form of a cost and rates schedule for a 10-ton rigid vehicle.
Carefully prepared budgets This should interest hauliers and own-account operators alike as the standing and running costs, plus the haulier's mark up, have been drawn from the carefully prepared budgets resulting from the cost history (CM December 5). For example, the haulier hired on a casual basis for 10 hours for an effective distance of 100 miles would calculate his costs at per hour plus ls per mile plus 25 per cent, and so his charge-out rate for the day would be £18 .15s Od. Intermediate mileages would be charged pro rata. As I have stated previously, the basis on which the revenue is earned is of little consequence, as if the haulier is asked to quote a tonnage rate for a full payload this would be calculated at £18 15s Od divided by 10 tons, i.e. 37s bd per ton.
The same principle would be adopted in compiling a cost and rates schedule for any other type of vehicle, providing there was a cost history on which to budget and which, in the event, would give the haulier his profit objective, e.g. 20 per cent on the capital employed.
Note that the whole rates structure is based on standing and running costs; thus, the household remover would adopt exactly the same principle but based on cubic capacity plus the built-in cost of porters at their hourly rate plus the budgeted profit margin.
In the use of additional labour I must say that during my years of operational management I was amazed to find hauliers —including removers—who, while satisfied to include a profit margin for vehicle and driver, when additional labour was required charged it at prime cost. Indeed, I have seen the same policy pursued by some hauliers who have entered into Contract A arrangements in which the profit margin was related only to the vehicle.
In cases of this kind it was apparent that the haulier had overlooked the fact that he was engaged in contracting out labour in addition to hiring the vehicle for what transpired to be a pittance_ Through the use of a cost and rates schedule of the kind illustrated, the own-account operator can calculate to what extent he can, if at all, improve upon hauliers' rates, bearing in mind that in the absence of any contractual arrangement the haulier is at his beck and call. In tiddition, the private carrier can quantify the minimum number of vehicles he can profitably operate on "own-account" from day to day throughout the year, and so arrive at the optimum number beyond which it will pay him to engage a haulier's services.
Within such a schedule therefore you have the ultimate and possibly the most beneficial use to which costing can be applied.
With budgeted standing costs per hour and running costs per mile for each type of vehicle employed it is a relatively simple matter to estimate the total daily cost of operating—once the previous day's mileages are available. To this the haulier would add his mark up and so provide an estimate of the revenue /profit earned day by day.
To facilitate this process and at the same time to enable a watchful eye to be kept on
vehicle utilization the following specimen daily report form can be usefully employed by any operator of up to, say, 20 vehicles. Beyond this number similar information could be recorded on a wall chart.
As the title implies it is a daily /monthly record of vehicle utilization. The dates on which the weekends occur are crossed through in advance, in order that Mondays to Fridays can be more readily identified.
The record is to a large extent self-explanatory. For example, the symbols above the dates serve to indicate if the vehicle is gainfully employed or otherwise, e.g. V = EARNING_ To take a particular case L = LOADING as was KLM 32IC on the first day of the month. However, although the vehicle and driver were employed they were not earning revenue until the second day of the month when the consignment was delivered: consequently on the first day of the month only five vehicles are shown V = EARNING REVENUE.
Daily profit estimate The haulier who can calculate his vehicle revenue daily can substitute the V by the amount earned per vehicle to the nearest .£ and consequently through his knowledge of budgeted standing and running costs he can estimate his profit on a daily basis throughout the month. Conversely, the own-account operator can calculate that any vehicle signalled as not being gainfully employed, will, by reason of the standing costs involved, increase his ratio of cost to turnover.
Provision is made to calculate vehicle utilization percentage on the basis of a fiveor six-day week, and where the 20-day month is employed—provision having been made for time off road—the utilization target would be 100 per cent throughout the year.
A further control built into this return is in the total revenue invoiced by a haulier for
the month's work, together with the date on which all sales invoices have been cleared. This provides management with a comparison between the revenue invoiced and the revenue estimated on the daily basis, and moreover the state of the office in the matter of the time taken to finalize all invoices to customers—debtor collection being all important.
Finally, a notation in the top left-hand corner of the vehicle utilization record, i.e. "Complete for chief executive by 9.30 a.m. daily" means just that, since if the information is not available, or fails to be put to proper use by the recipient in time for the person responsible to prepare the same information for the following day, then its value is lost. This is a simple aide-ntimoire and yet it provides management with an "at-a-glance" appraisal of the fleet state on a daily basis throughout the month. In the past I found it extremely useful not only for the work content recorded but also for checking on driver attendance, labour turnover and, most important, down-time as a result of repair or maintenance.
On the eleventh day of Christmas Fred Mulley sent to me ...
11 LAs LAing 10 hours of driving Nine testers testing Eight weighers weighing Seven checkers checking Six union objectors Five GV9s Four Transport Acts Three record books Two licence fees And a blast from the NIB.
"Turn it off now," said Maggie's brother Cromwell. "I cannot bear to listen to what happens on the twelfth day when he sends in a couple of bailiffs to put the operator in Carey Street."
"It seems to me," said Maggie. "that it is not the sort of thing they ought to sing at the season of goodwill."
"Much depends on who is listening of course," said Cromwell. "For example it was not very tactful of the hauliers' glee club to sing Silent Night at the top of their voices under the window of Tony Crosland, especially as he happens to be a member of the Noise Abatement Society."
Tactless
"You have not told the whole story," I said. "What was really tactless of them was to drive up to his house in a 32-ton plated lorry and to time their visit for after 12p.m."
"Silent Night indeed," said Maggie. "It would have been more appropriate for them to sing the Bells of Hell."
-"Or perhaps the Decibels of Hell, "I said.
"On the whole," said Maggie, -it is better in these cases to stick to carols like Good King Wenceslas. You can hardly go wrong with that."
"I should not be too confident," said Cromwell. "It would not be altogether suitable for, say. the Minister of Transport. In fact when you come to look at it closely that particular carol turns out to be a pretty revolutionary ditty in a medieval disguise."
"It seems harmless enough to me," said Maggie.
"Perhaps you have not really thought about the words for a long time," said Cromwell. "I should hate you to accuse me of putting ideas into your head, so let us seek our information from what you would agree is a neutral source. Charlie here must have sung Good King Wenceslas enough times at school—if indeed they still do that sort of thing. Suppose we ask Charlie to tell us the plot."
"Well," said Charlotte, "this man is filling his tank with winter extra and the boss-man says to his sidekick: 'Let's drive over to this fellow's pad, man, and see what he's up to.' So they load up the royal car and start off' and then they get bogged down in the snow. End of story."
"I must admit that it all seems to fit," said Maggie. "But is it not supposed to be about an old man picking up sticks in the snow and the kind old king of Bohemia taking him a hamper? Lottie's story seems to be wrong somewhere."
"Of course it is," said Cromwell. "Charlie cannot be expected to know all the facts at her tender age although she seems to know an impressive lot of them. But there are clues enough for those people who have been told what to look for."
"0 good!" said Charlotte. "Uncle Cromwell is about to tell us one of his sordid Christmas tales."
"Just the old, old story, I am afraid," said Cromwell, "but this time as it really happened. First of all Charlie must be dead right about the winter fuel coming from the pump. If the old man had wanted wood for the fire he would have collected it weeks earlier and not waited until it was covered with snow deep and crisp and even."
"Now there is an interesting point," I said. "The three adjectives must be a clue. Notice how everything has to be done in triplicate in this story. The good king calls for three things: flesh, wine and pinelogs—probably a Bohemian brand of cigarette or cigar."
Another clue "And before that," said Cromwell, "when' he asks for the old man's operating centre he gets (you've guessed it) three map references: underneath the mountain, right against the forest fence. by St Agnes' fountain. This brings us to the bureaucratic heart of the parable and you can surely see how up to date it is."
"I only wish I knew what you two Were talking about," said Maggie.
"Let me give you another clue," said Cromwell. "The old man would hardly be out on a night like that unless his journey was necessary and one for which he would have to keep a record. Now the instructions in the new record books will include a note to the effect that 'place names need be given only in sufficient detail to show the full extent of your journeys'."
"I am with you," said Charlotte. "The detail must be sufficient if it is given three times over."
"And there is even an indication of the length of the journey," I said, "although what the examiner would make of 'a good league hence' I cannot imagine."
"Nor can I imagine what all this adds up to." said Maggie. "I have always believed that the carol describes an anecdote in the life of a saint and you have so far said nothing to disprove it."
"Look at the thing dispassionately," said Cromwell. "Take your so-called good king's very first remark. Is it characteristic of a saint to describe a poor old man as a peasant?"
"You mean to convey," said Maggie, "that it is certainly characteristic of a bureaucrat. Well, I was called something equally unbleasant by a female traffic warden the other day so that I am in the mood to be persuaded. Do go on."
"As the carol depicts him," said Cromwell, "he is no more good King Wenceslas than I am Good Queen Bess. Quite obviously the whole story is intended as a satire on an MoT silent check."
"We have a clear picture at the very beginning," I said, "of a Scrooge-like examiner 'looking out'—these very words are used in the text—for a victim."
"And of course he would choose the day after Christmas just to show a spirit of goodwill," said Maggie. "I must say that bit seems to fit."
"Much better than the orthodox version," said Cromwell. "Then the bit about the page. Everybody has taken for granted that the page is supposed to be a person. This is no more so than in the case of the licensed transport manager. It is really of course a page in the examiner's ledger which he is apostrophising because he hopes to find incriminating evidence on it. 'Stand by me' is the phrase he uses."
"And take note," I said. "of the sinister menace which this interpretation adds to the words 'if thou knowst it telling.' It is the incantation of the sorcerer determined to wrest the hidden significance from the page."
"I always thought that it was put in just to fill up the line," said Charlotte.
"In the version I used to know," said Maggie, "the page had a little speech of four lines all to himself. He says he is tired and wants to go home."
"The speech has been wrongly attributed," said Cromwell. "It is the old man speaking. He can fill up his lines just as well as Charlie can. All it means is that he has long passed the time for his statutory half-hour break for rest and refreshment."
"So the examiner calls for his own lunch." I said, "and follows him to see if he can catch him out."
"And you cannot deny," said Cromwell, "that there is a stanza about his hot feet."
"But then it ends," said Charlotte, "with the words about blessing the poor and finding blessing yourself. How do you work that in?"
"I'm tired of this game," said Cromwell. "Let's play something else."