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Putting Costing to Wider Use
INTERNAL COSTINGS VALUE CAN BE INCREASED IF AN EXTERNAL YARDSTICK IS AVAILABLE FOR COMPARISON THE costing of commercial vehicles is concerned with past, present and future operations. Similarly there can be several purposes to which the results can usefully be put. As a result of these variants there is available opportunity to make valid comparisons to advantage even if the operator is only in a small way of business with just a few vehicles. The immediate and obvious comparison is that of current vehicle performance with that obtained in similar conditions previously and with similar or even the same vehicles.
Then there would be the comparison between different types of vehicles or makes of vehicles doing similar work over the same period. Such comparisons are not limited necessarily to determining whether one make of product gives better results in a certain set of circumstances than another. Where an operator is possibly in the fortunate position of having to cope with increasing traffic and is considering the purchase of not only additional but possibly larger vehicles than those at present operated, adequate and reliable costing alone can provide a reliable guide to the correct choice.
Future Trends As said earlier costing can relate to past, present and future operations, Where the same or similar vehicles are being considered an operator would, within reason, be able to make forecasts as to the costs of future operations based on the existing records of current experience. These, incidentally, would have to make allowance for the effect of future trends in prices and other items of cost which seemed likely to occur during the period under review.
Many of the comparisons already mentioned and those of a similar nature are commonly made by both professional hauliers and ancillary users for their internal benefit. Because the road passenger industry was more highly organized in terms of company structure and geographical coverage at a relatively early stage in the development of road transport, correspondingly their costing records constituted, to some extent, pioneering work in this field.
Several Depots Admittedly they had the advantage of sufficien4 large operating units to justify adequate headquarters' staff to produce the costing records. But equally important they invariably set up several depots within their company structure (which tended to be a later development in haulage) and, moreover, the operating companies themselves were linked under what is modernly termed a holding company from a very early stage.
The significance of this background as regards costing of passenger operation was that there were always available more opportunities for valid comparisons than existed with most hauliers in the early days and still exist for a large proportion of small and medium operators today who have only one depot and a small fleet.
As has been emphasized previously in this series, although costing is of vital concern to road transport operation the work entailed in compiling such records is not an end in itself. Once the records have been produced they must be put to practical use. Usually this takes the form of providing a guide for management in a variety of decisions. But often the value of costing records is dependent on the availability of suitable yardsticks by which to evaluate such records.
Adequate Comparative Data Obviously, to state that the operating cost per mile of a particular vehicle is, for example, 18.01d. is relatively meaningless until adequate comparative data is also made available. Even the additional information that this particular figure happens to be relative to a goods vehicle of 7 ton carrying capacity when averaging 600 miles a week still gives no indication that this may be a reasonable figure until other figures are made available.
Because the road transport industry has always been and still remains largely an industry of small units, this limitation in the opportunity which a small operator has to improve his own efficiency solely on records produced internally remains. To meet this difficulty The Commercial Motor first produced Tables of Operating Costs as far back as 1911, and the current 1965 issue constitutes the 49th
edition, after allowing for the intervention of war years. As stated in the introduction, these tables are based on the experience of many operators in varying conditions and correspondingly constitute average figures. Judgment has to be exercised in determining what can rightly be considered operating conditions so exceptional as to be likely to distort the ultimate final figures. And because, as already stated, there still remains a large number of small operators, the level of record keeping and costing leaves much to be desired.
Misrepresentation Understandably the proficiency with which this is carried out tends to improve as the size of the unit increases. But if average tables were to be based largely or solely on the records thereby more readily obtainable from medium-sized or large operators, there could be a misrepresentation not only as to the true costing of smaller units but also as to the industry as a whole, once again bearing in mind that this is largely made up of small units. To meet this difficulty personal inspection and discussion on the spot is often the only way of ensuring that valid information is being obtained, no matter how attractive and certainly easier the filling in by operators of standard questionnaires might seem to be. Where, however, operators can be relied on to return accurate information as to their true costs in standardized form, then obviously this is of considerable advantage. But the fact remains that there are a large number of operators, some quite successful, who seem to manage on next to no records as to costing and whose operations have to be scrutinized in some detail before the necessary information can be extracted.
Prices Board Comparison of costing records was referred to in the first report of the National Board for Prices and Incomes dealing with road haulage rates issued in June this year. The Board then said it considered that the Road Haulage Association, rather than issue a blanket recommendation on rate increases, could do more to promote general accounting responsibilities in the industry in general and amongst the small hauliers in particular. This they could do if they gave members comparative information on the relationship between costs, turnover, capital, profit margins and so on in comparable parts of the industry. By so doing each member could thus judge his performance by the achievement of others.
The Board recognized that the heterogeneous nature of the industry did not make this kind of comparison easy. This type of service was, however, given by trade associations in other industries where there were a large number of small firms with a wide variety in the nature of the business conducted.
Commendable Development
Since the issue of the report steps have been taken to implement this recommendation by the RHA and similar investigations have been undertaken by the National Association of Furniture Warehousemen and Removers in association with the Centre for Inter-Firm Comparison Ltd.
But, however successful this commendable development in the wider appreciation of costing comparisons might be within these respective trading associations, and possibly additional associations, at a later date the exercise and subsequent results inevitably will be limited to their respective members. But, as probably more operators— goods or passenger—of road transport vehicles remain outside any trade associations than are members, obviously there must be a limit to the benefits to be obtained in this direction.
The need for efficiency and productivity in the operation of commercial vehicles is universal. Correspondingly the need for the small unattached operator to have access to standard records such as are available in The Commercial Motor Tables of Operating Costs remains as essential as ever. Indeed, it is likely to grow greater if his competitors are able to realize their objective of increasing their efficiency by access to other comparative records such as those which the respective trade associations, are now in the process of promoting.