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HAULAGE DISCIPLINE PAYS OFF FOR OWN-ACCOUNT OPS

3rd September 1976
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Page 26, 3rd September 1976 — HAULAGE DISCIPLINE PAYS OFF FOR OWN-ACCOUNT OPS
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Which of the following most accurately describes the problem?

OWN-ACCOUNT transport operators are rarely prepared to profit-disciplines as the The apportionment of overheads makes it difficult to make a fair comparison of relative efficiencies. The own-account transport manager can so often disguise his true costs by refusing to accept on-costs shared by other departments. And, it frequently happens that accounts departments are not equipped to separate out the truly relevant transport costs.

At Mardon Son and Hall Ltd, Bristol, a genuine attempt has been made to put the cornpany's road transport operations on a commercial footing. MS and H Ltd is probably the largest provider of traffic for independent road hauliers in Bristol. Its own vehicle fleet is a small one, largely because the company can exploit the return load availability offered by provincial' and London road hauliers.

Even so, the analytical comparisons of own-vehicle costs in relation to competitive services offered by free enterprise road hauliers has enabled the company to get better value from its own fleet.

MS and H make cardboard cartons by the billion, mainly for the food, drink and tobacco industries. Its main headquarters and four principal factories and some other pre mises are all located in Bristol The turnover is around £25rr and the annual cost of boarc purchases for carton making around £12m. This. sum musi be compared with annual transport purchases of less than £500,000.

MS and H is the biggest and most ,profitable element in Marden Packaging International, owned jointly by Imperial Tobacco Col-I.-many and British American Tobacco Company. Until the recession itis probably fair to say that the wealthy tobacco industry — and its off-shoot MS & H — had no great -incentive to enhance its overall efficiency. The recession made managers look much more closely at their traditional methods.

The transport and distribution function at MS and H comes under the control of Mr David J. Dereham, with the title materials manager. The title owes much to advanced American management terminology; Mr Dereham believes that there will be many similar departments within British industry in five years time, responsible for such functions as purchasing, inventory management, traffic, transport, distribution, outside warehousing and packaging.

Mr Dereham sees significant differences between road hauliers and own-account operators in terms of financial responsibility. "The road haulier,he suggests, "is a self-contained profit centre whose very survival depends on his efficiency. The own-account transport operator is a service department within a larger organisation, which provides an acceptable service within an agreed cost budget."

Mr Dereham insists that an own-account transport department which has gradually increased its productivity, over the years, may still be relatively inefficient when unexposed to commercial reality. In comparison with other firms's ownaccount transport operations one department vcrill be .a burden to its firm, another will be a positive benefit.

The key to success at MS and H has been the development of a realistic and relatively simple system of charging for transport services. It is not a system devised by accountants for accountants. Mr Dereham believes that transport supervisors given responsibility for zharging become much more aware of costs and profits. "They have a greater apprecialion of the importance of squeezing the last ounce of Work out of a vehicle within the allowed hours.. They know how much they must earn each day to cover costs, plus an acceptable profit, and information is immediately available for a weekly review of performance." Unless there is a clear understanding of the distinction between traffic and transport there is a strong risk in ownaccount companies of blurred

financial information. The traf fic department at Mardon is a service function providing the

company with the most suitable transport and distribution facilities. It chooses hauliers, one of which is the Mardon fleet. It would still exist even if the company had no vehicles The choice of hauliers by the

traffic department is deter

mined by the following factors: Price — ability to meet emergencies Reliability — amenability of drivers Flexibility — efficiency on particular routes Continuity — suitability of vehicles

The Mardon transport fleet is now a self-contained profit

centre, charging out its services on a commercial basis The company has been wedded to the profit centre idea for many years, even for the restaurant and canteen, but some clear thinking was necessary to devise a viable system in the transport/traffic sphere.

Mardon found that some simple cost exercises helped to

stimulate the thoughts of supervisory staff in transport and traffic departments. Typical cost exercises. are

Overtime payments v employing more vehicles; Single shift operation v double shift; Single stack heights v double stacking; Articulated vehicles v rigids; Two-axle rigids v three-axle rigids; Premium vehicles v cheap-and-nasty vehicles; Powerful engines v minimum fuel consumption engines; • extended vehciles v new vehicles; Van or other bodies v flatbeds.

Although these questions may seem obvious, and relevant, it is to be doubted whether every own-account transport manager takes the trouble to devise such questions.

Mr Dereham found it possible to effect considerable economies in the company's warehousing activities by rationalising the use of space. In particular, warehouses in Bristol were given their own separate cost budgets tqgether with. monthly cost statements show ing variance from budget.

The costing was simple enough, and sufficiently meaningful, for it to be read by and actioned by the working chargehand. Warehousing services were charged out to customer departments on a simple system based on the cheapest equivalent warehousing available in Bristol. The difference between Mardon's costs and the charges to customers — including Mardon factories — represented profit or loss.

The warehousing operation proved both efficient and profitable, free of restrictive practices. A major contributing factor was the pride and interest shown by individuals in the visible success of their own operation.

To determine transport profitability of company vehicles whose cost, of course, was known, they were compared to the cheapest suitable outside hauliers on the fifty main destinations served by Mardons. This logical approach deserves to be widely adopted.

Each destination was accurately split into motorway, main road and town mileages and, using achievable — and agreed — averages, the driving time was recorded. The addition of typical collecting, loading and unloading times gave the total time. By using the known productive hours a separate costing exercise created hourly running costs from which' the journey cost was calculated and compered with the cheapest outside haulier.

Said Mr Dereham: "This analysis, which is periodically, continued on page 26

updated, has proved invaluable in showing the most profitable routes for company vehicles. Many of the 'obvious' answers were proved inaccurate and it has been possible to have a shift in emphasis towards the more lucrative routes, though still sometimes constrained by service criteria, which it is essential for the fleet to provide."

Mr Dareharn. readily concedes that the use of an average speed for town roads requires the use of some arbitrary figures. If traffic congestion, for example, worsened greatly then agreed averages in 1 976 might have to be looked at again. But average speeds for the different road elements — town, main road, or motorway — has the merit of simplicity and all concerned can understand how journey times are made up. In particular, transport management planning and control is helped by the simple yardsticks of time and cost per hour. • Mardon's transport activities fall into two main categories:, local, mainly interfactory work, and long-haul work delivering finished goods to customers.

The cost of the cheapest equivalent outside vehicle for local work was divided by the average number of trips undertaken per day to give a standard charge.

User-departments within Mardon were given an incentive to think ahead and consolidate. loads because the transport charge debited to them would be the same whether the load was of two pallets or a full load.

The device of using the competitive rates of outside hauliers is applied by Mardon in charging out its own vehicles to user departments within the company. The "rates bookof the cheapest. suitable Bristol haulier provides a benchmark.

The system is very simple and it can be used for split loads and backloads. If it is necessary to use one of the Mardon fleet vehicles for the urgent delivery of a small load an exception would be made: the 10-ton rate is charged to sales.

Mr Dereham is a widely experienced professional manager who has come to like the challenge presented by distribution management. He is well aware that the ideas he has introduced at Mardon reflect costing systems in numerous industrial situations.

The professional ownaccount transport manager may not have the authority to do what Mr Dereham was able to do at Mardon in stock reduction and warehouse rationalisation — he reckons the reduction in board stocks from 9,000 to 3,000 tons saved £200,000 a year apart from savings in transport and warehousing costs.

Mardon has prepared a detailed plan for the development of the most cost-effective transport fleet in the short and medium term. Constructive ideas from drivers, and other employees, have been built into the strategy which — in terms of journeys to be undertaken by own vehicles — is based on the "horses for courses" concept.

What has been accomplished so far proves that it can pay to streamline a small fleet: five Commer vehicles (four Maxiloads and a Commando) were converted to carry 14 pallets in place of the original 12-pallet capacity. Carrying capacity was maintained, with a reduction in vehicle strength of two vehicles and drivers, and lowered operating costs. Before this conversion of vehicles to carry 14 pallets, suitable vehicles had to be hired for journey work. Mardon has found that own vehicles are cheaper than outside hauliers on local work, and they also average one extra journey pe'r eight hour day. But their longer platform vehicles, in some instances, have been found to be even more profitable on journey work. The nature of Mardon traffic is that pallet loads are mostly between 10 and 15cwt, volume being more significant than weight. Hired 40ft artics are charged at the 20-ton rate for a full load which may weigh only 10 tons. Hence, the company see no advantage in operating 32-ton artics or even 38-ton if such could be operated.

But long-wheelbase rigids and drawbar trailer outfits seem particularly suitable and these may form part of the fleet additions and renewals in future years. Three-axle rigids suitable for 18-pallet loads cost more to run (around 5 per cent) but their • 50 per cent extra capacity — compared with the 12-pallet lorries — makes them a good buy. 40ft artics carrying 22 pallets are more expensive to buy and run.

Although the cost per pallet when fully loaded is cheaper there is no lack of such machines on the transport market, particularly in a back loading area such as Bristol. Hence the common sense in hiring such vehicles from professional road hauliers.

The carrying capacity of drawbar trailer outfits (28 pallets) and their relative economy in operation, allied with the speed of the powerful rigid when operating solo, suggests the suitability of this configuration for Mardon.

It was pleasing to learn packaging design is one of the many items'considered in depth in Mardon's forward plannning approach. In one example

quoted an improved specification for a package "blank(for cartons) enabled 180,000 blanks to fit on a 1000 x 1200mm ballet against 115,000 blanks. Extend this principle wherever possible and a manufacturer like Mardon saves a lot of money on transport.

At a time of massive cost inflation Mardon's traffic department reduced carriage costs of £303,000 (1.4 per cent of sales) in 1973/4 down to 297,000 (1.1 per cent of sales) in 1974/75. Carriage costs in 1974/75 were actually over f_100,000 below budget. It shows what can be done!

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Locations: Bristol, London

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