Rates for Mineral Waters
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"The Commercial Motor" Costs Expert Deals with a Question Raised by a Haulier about to Enter a C-hiring-margin Contract for the Transport of a Manufacturer's Output
AN interesting problem has been put to Me by a correspondent who has been invited to...handle the
transport for a manufacturer of mineral waters under a C-hiring-margin. His quotation for the work is to be noI 'per ton, per mile or per case, but per bottle or per siphon. There are three different types'of product to be considered.
First, there are the ordinary mineral waters, lemonade, ginger ale and so on. These are in bottles, usually with crown corks, and are packed three dozen to a Case., Then there are cordials, which are in larger bottles and are.packed one dozen in a case. Lastly, there is soda water in siphOns, half a dozen in a case. Each case with its bottled contents weighs approximately Ji cwt., 40 casesso to one ton. , The organization of the traffic has been laid down and explained to my. correspondent. Some of the product is. to
be delivered direct from the factory to retail shops. A large proportion, however, has to be delivered first tothree depots, A, B and C, and subsequently distributed direct to retail shops within reasonably easy reach of each depot..
. It seems that to attempt to deliver all the traffic direct to retailers is impracticable _because either the journeys.. to some Of the outlying retail shops would be too far, or . quantities so delivered would be too small to justify the, wages "and expenses of the driver-salesman.-
For the distribution to reTailers, both from headquarters and depots, 4-ton lorries are used, and the average single load is 139 cases. For the conveyance of the product from the manufacturer's headquarters to the depots, articulated 8-tanners are used. The average number of cases carried' per journey by these larger vehicles is 320.
The total output of the factory is 7,500 cases per week of which ,000: are mineral waters, three dozen to the case,
making 18,000 dozen; 1,000 are cordials, one dozen to the case, which is 1,000 dozen;•-and 500 are siphons, six to the case, which is eqUivalent to 250 dozen. The total output is therefore 19,250 dozen per week.
Of the foregoing total, 2,000 cases are sent direct to the distribution centres' in the proportion of 600 cases to A,
1,000 to B and 400 to C. The remaining 5,500 cases are distributed direct from ;the manufacturer to retail shops in the vicinity. The distances from headquarters to the three distributing centres are: A, 10' miles; B, 50 miles; and C, 20 miles.
Drivers are Salesmen It should be appreciated that this type of operation is naturally dealt with under a C-hiring-margin because the drivers of the vehicles are also salesmen and employees of the manufacturer.
At the beginning of negotiations it was suggested that the haulier dealt with the main deliveries from headquarters to A, B and C, using his own vehicles in the ordinary way as a haulage contractor, that is to say, taking out an Aor Blicence for the 8-ton articulated vehicle to be used for that work. It was pointed out, however, that it would not be possible for him to make deliveries to B, as that was 50 miles away. It was therefore decided that the whole of the traffic should be dealt with in C-licensed vehicles.
A point arises, here which I should make clear: all this information was not set out in the original inquiry. Most of it had to be obtained from the haulier bit by bit, and quite a voluminous correspondence took place before I was able to gather all the essential information as set out above. However, the basic details being now understood, the first thing necessary is to estimate the cost of operation of the vehicles to be employed.
Let me first deal with the 4-tonners to put myself in a position to make a detailed estimate of the cost of direct
distribution, considering the additional, cost of the hulk conveyance from headquarters to the distribnting centres as a separate item. These are likely to be the operating costs of the 4-tonners used for this direct distribution: prime cost (ready for the -road), £900; tyres (7.00. by 20). 1126; this makes the cost, less tyres,. £780, from Which we deduet the residual value, £80, to give the net cost for assessment of depreciation, £700. From that I can take out the figures for depreciation as _ follows: taking halt on a time basis; assuming six years as the life:, £350 divided by .six is £58 6s. 8d., approximately £1 3s. 3d. per week. On the mileage basis, assuming a life of 200,000 miles, the figure comes to=0.42d. per mile. Interest on £900 at 3 per cent, per annum is £27, approxi-.matey I Is. per week.' Details of the operating costs can now be set out:—
Add for profit at 15 per cent., 0.92d.; total charge, 7.33d. • per mile.
These are the basic figures upon which the hardier must assess his charges, £7 2s, per week plus 7.33d. per mile.
In .Table I. 1 have set out information relating to seven typical weeks" work carried out by seven vehicles. I understand that these figures represent a cross-section of the deliveries made by the vehicles, so that the figures thus laid down can be taken to represent the costs of distribution.
Examining these figures and taking journey No. I as an example, the significance of each column may be explained as follows: The vehicle made 120 calls during the week and covered 146 miles in that time. There were six journeys (which means that the vehicle worked 5i days per week and did a journey on each day from Monday to Saturday). carrying 130 cases on each run; so that the total of cases carried by the vehicle was 780.
The charge for that week's work which the operator should make comprises first the weekly charge of £7 2s., plus the mileage charge for 146 miles at 7.33d. per mile, which is 14 9s. 2d. The total charge for delivering these 780 eases is thus ill Its. 2c1, which is 3.56d. per case. The same procedure applies to the other six examples.
The figures are totalled and averaged, and of the average figures the most important is the last, 5.69d., which is the average cost per case. This is summarized below the table. The number of cases delivered in those seven weeks is 5,460, and these have been carried for £129 7s. 9d. Dividing the total cost by 5,460 gives us the charge per case as 5.69d. From that it is easy to assess the charge in respect of each bottle of mineral water or squash or each siphon of soda water.
In order to get the charge per bottle of mineral water, it has only to be remembered that there are three dozen bottles to a case, and dividing 5.69d. by 36 gives 0.158d.it would be sufficiently accurate to call it 0.16d. The charge for a bottle of squash is arrived at in the same way by . dividing 5.69d. by 12, the number of these bottles in a case, and finally the charge for a siphon is calculated by dividing 5.69 by six, giving 0.948d., which is nearly id. per siphon.
These figures for charges apply in respect of the retail deliveries either from headquarters or from the depots. It is now necessary to take the cost of bulk deliveries from headquarters to the three points A, B and C into consideration. The load carriea by the articulated 8-tonners is 320 cases, so that for A. where 600 cases are delivered each week, two 'journeys must be made, totalling 40 miles. To B, the weekly traffic being 1,000 cases, four journeys will be necessary, a total of 400 miles. Two journeys will also be necessary to C in rder to deliver 400 cases, that is another 130 miles.
It is perhaps unfortunate that in respect of C the second load will be only 80 cases, and it may well be that in practice the haulier will find some means for taking on board the 80 cases and carrying the 400 to C in one trip. For these calculations, however, it would not be fair to assume that that is practicable, and therefore I ant going to assume that the total mileage run per week by the heavy vehicle is 520.
The articulated 8-tonner fully equipped, painted and lettered and ready for the road, will cost around £1,700. A set of tyres will cost £200 and I can take the residual value to be 1300, and that leaves me £1,200 as the basis for calculating depreciation. Half of that, £600, assessed on a time basis and depreciated over six years, gives me £100 per annum or £2 per week. The other £600, assuming a life of 240,000 miles, gives me 0.60d. as the depreciation per mile. Interest on first cost is £51 per annum or CI per week. .
Fixed charges per week:s. d.
Licence (unladen weight under 41 tons) I 2 0 Add for profit at 15 per cent., 1.50d. Total charge per mile, 11.0d.
It has been shown that the weekly mileage run by this articulated vehicle is 520, and 520 at Ild, per mile is £23 16s. 8d, Add the fixed charge of £10 18s., and we get £34 I4s. 8d. as the weekly charge.
It must not be forgotten that the haulier has been asked to assess the rate per bottle and/or per siphon, therefore Otis £34 14s, 8d. must be taken as applying to the whole output of 7,500 cases per week, notwithstanding that this additional cost is brought about only by a necessity for preliminary distribution to the depots. So far as the customer is concerned, he will not be interested in that. What he wants to know is the total cost, including that of the preliminary distribution.
It is therefore necessary to divide £34 14s. 8d. by the total number, 7,500 cases handled in one week. That amounts to 1.1Id. per case. Add that to the original 5.69d. per case and we get a total of 6.80d. per case. Proceeding as before, dividing by 36 to get the charge.for an ordinary bottle of mineral water, we get 0.19d., which 1 recommend the haulier to regard as 0.20d. For the larger bottles of 440 cordial, one dozen in a case, dividing 6.80 by 12 1 get 0.57d., and here again I would recommend the haulier to make the charge 0.6d. For siphons the charge is I.12d.
It may be that the haulier would like to consider the possibility of using an oil-engined vehicle for the 8-ton load. At 520 miles per week it is almost certain that an oiler will show large savings, notwithstanding that its initial cost is greater by something like £350. It is certainly worthwhile to run through the figures on the assumption that the oiler is used, and thus assess the possibility of savings.
The operating cost of the 8-ton articulated oiler will approximate to the following: First of all, the initial cost will be in the region of £2,050. -Deducting tyres at £200 and residual value at £350, I get £1,500, on which to calculate depreciation. Half of that. £750, spread over six years for the depreciation on the basis of time gives me £125 per annum or £2 10s. per week. The depreciation on mileage,
assuming 240,000 m;les life, 0.75d. per mile. The interest Add for profit, 1.49d. Total charge per mile, 8.20d.
It will be observed that 1 have allowed practically the same profit per mile for the oiler as for the petrol-engined vehicle. This is only fair, as there would be no sense in depriving the operator of some of the advantage of the oiler which I should do if I assessed his profit on the basis of only 15 per cent.
The total charge for the distribution to the depots using an oil-engined articulated 8-tanner is made up of 111 15s., the total of fixed charges per week, plus 520 times 8.20d. per mile, which is £17 15s. 4d. The sum of those two amounts is £29 10s. 4d.
It has been agreed that that amount should be spread over the grand total of 7,500 cases per week, which means that to allow for the distribution to the depots A, B and C there must be an addition of 0.94d. to the 5.69d. per case for direct distribution to the retail shops. That means that the total charge must be 6.63d. per case.
The charge per bottle of mineral water should therefore be 0.18d.; per bottle of cordial, 0.54d.; and per siphon :A soda water, 1.08d. S.T.R.