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management
Page 85
Page 86
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matters by John Darker, AMBIM
Transport and distribution consultants
No3, Howard, Packham and Associates
Wing or sluggish haulage companies can )e revitalized when the outside expert's eye as diagnosed the problems
HERE is a widespread idea in transport rcles that special knowledge of the dustry is a prerequisite for effective msultancy. Most sectors of transport 3erate within legal and regulatory mstraints that are onerous to those miliar with them and perplexing to the itsider. Road transport men, particularly, nd to follow traditional lines of thought. hey have been stow to adopt well-tried anagement techniques such as work study id budgetary control. Innovation in the !y: subject of labour relations has been tre.
If the full range of management sciences is yet to penetrate road transport (and lied distribution) circles no one could .irly say that cost and productivity factors we been ignored. As chairman and anaging director of A. Packham and Son td, Mr Philip Packham won many tributes aeffectively motivating his employees. He as one of the very few men in the industry ith an understanding of the importance of ternal communications. He was quick to 3ply budgetary control procedures and to .st the merits of computer routines. Hence le widespread interest and goodwill lanifested when, with Mr Ian Howard, ackham's chief executive, Howard, ackham and Associates (Consultants) Ltd, • as launched some two years ago.
oroductivity scheme
One of the first assignments undertaken y HPA was with an old-established ornish company, Falmouth Transport td, which had come upon hard times. It .ould not be an exaggeration to say that its mdition was critical when HPA were sled to put in a productivity, scheme pplying to all grades of staff.
Much of the company's traffic was (Jody rated. The morale of drivers was nor, reflecting their low pay. The scope for ,vitalizing this professional haulage business in an area with little prospect of industrial expansion seemed poor. HPA were equal to the challenge. The productivity of all staff, with earnings related to company profits, improved. All concerned were given confidence that the business could be rescued and given a new sense of direction. As will appear later, the productivity bonus scheme needed to be reinforced by a system of budgetary control for the full fruits of consultancy to be achieved.
When I talked recently to Mr Philip Packham I was interested to discover whether two years of consultancy had disillusioned him about the prospects. Was there a need for consultancy within the transport and distribution field? Did (relatively) high fees present insuperable problems? Were there too many consultants in the field?
I was given a number of examples of consultancy jobs undertaken by HPA and left in no doubt of the wide scope within the industry for practical advice. HPA, in common with most consultants, makes a free preliminary survey, normally taking two men two days, working "from 9 am till midnight". Three questions pose themselves initially: (1) Is there a consultancy requirement? (2) Can the client firm stand the fees? (3) Assuming an affirmative answer to (2), is the "climate" within the client firm such that the recommendations will "stick"? (In practice, this means at least a couple of senior executives with open minds.) Company A, importer and manufacturer of building materials distributing nationally with a 10-vehicle fleet, felt that its transport was costing too much. HPA reorganized vehicle schedules and introduced driver incentives to allow 24-hour operation. The fleet was reduced by four vehicles and there was a considerable reduction in overall mileage. Savings are estimated to be running at £8000 pa with the prospect of further improvements as client staff gain experience of traffic control patterns. The HPA fee? . . £2695.
Company B is a privately owned haulage contractor operating 115 vehicles. It was apparent, after investigation, that the organization had not kept pace with growth—a fairly common situation, no doubt, in road haulage. The HPA solution called for the complete overhaul of office and invoicing procedures, preventive maintenance, and credit control. The responsibilities of senior management were redefined. The re-organization made for much smoother flow of paper work. Management were less distracted by details. Profits improved markedly. The fee? . . . £3000.
Profit analysis
Company C hides the identity of a haulage contractor operating a total of 16 vehicles, some long-distance, some tippers, and some on coal delivery. There were trading losses and cash shortage. The directors were uncertain as to which section was losing money.
The HPA analysis of profits showed that the tipper section was a drain on the business. The client was urged to sell the tippers, which he did. Organizational changes were introduced and advice given on the preparation of budgets and monthly operating statements. The cash problem was solved by the sale of the tippers and the company is now profitable. HPA charged £1400.
Company D is a 90-vehicle haulage contractor operating tippers and longdistance vehicles. The firm had run into a severe cash crisis. Analysis of the operations showed that the company was making a modest profit but the directors, lacking proper financial planning ability, had undertaken hire-purchase commitments which could not be met from the cash flow of the company. HPA produced a month-by-month forecast of cash flow for the coming year and helped the client to borrow •the required amount. Control systems were introduced enabling the directors to avoid any similar problems. The benefit, in one word, was survival; the fee, £2400.
This particular company's accounting system was primitive in the extreme. The directors of a business with a turnover of £700,000 a year did not know whether operations were profitable or not until the accounts were produced six months later. One of the directors, whose instinct was right, had tried in vain to discourage his colleagues from buying more vehicles on hp.
Company E, a skcialist transport firm operating 10 vehicles, had a vague feeling that all was not well but were unable to pinpoint a specific problem for HPA to examine. The consultant's initial recommendation was for a drivers' incentive scheme. In the course of an analysis of the company's books to ensure a sound basis for a productivity bonus plan it was realized that the client company was heading for a severe cash crisis. At the client's request, a case was prepared for bank borrowing and the necessary negotiations were carried through. This hurdle surmounted, the incentive scheme and a number of management controls were installed. Profits are now satisfactory and are improving. Fee: £1300.
Cash crisis It is worth noting that in company E the books were kept by a firm of accountants. Annual accounts were not set out in a form comprehensible to the managing director who was surprised to learn from the consultants that a severe cash crisis was impending.
Company F ran a haulage and plant hire activity on the prime function of a coal merchanting business; 46 vehicles and machines were operated. Profits overall were poor but the client could not identify the loss-making sections. HPA's analysis of profits showed that the section the client believed was losing money, in fact supported the whole business. The client was advised in decisions about which sections of the business would be retained or developed. Thereafter, full budgetary controls were introduced with detailed vehicle earnings targets. Subsequently the client retained HPA to reorganize his workshops in order to take in outside business. Fees: £2250, then £1500.
Company G was a 60-vehicle parcels business. Its problem was poor driver productivity. The obvious solution, a driveys' incentive scheme. There was a subAantial increase in collections and deaeries per vehiCle-day, yielding greatly increased profits. The fee: £1500.
It will be noted that in several of the foregoing case studies inadequate budgetary controls explained the client company's difficulties. On my return visit to Falmouth Transport—the incentive scheme devised by HPA was described in Management Matters, October 4 and 18, 1969, I found managing director Mr G. A. J. Polglase warmly appreciative of the simple form of budgetary control introduced by HPA. In conjunction with the productivity scheme which effectively motivated all employees i.e. traffic, administrative and maintenance staff, as well as drivers, the budgetary controls introduced enabled the profitability of particular sectors of the business to be assessed.
An early decision had been to sell all but one of the tipper vehicles whose operations had been a burden. This meant that nine of 27 vehicles were lost. The reconstruction of the business meant that Falmouth Transport had to prospect intensively for new, more profitable traffic, at the same time giving its existing customers an improved service, and thus encouraging greater patronage.
The company is now believed to be paying the highest rates to drivers and staff in Cornwall. In one recent week average bonus rates to drivers worked out at £4.67. One energetic driver earned no less than £16 bonus, delivering thousands of bottles of soft drinks in readiness for the holiday season.
Mr Polglase said the level of bonus earnings was a-good indication of the health of the business but the budgetary controls introduced enabled fluctuations in revenue or costs to be investigated promptly and rectified. As he, with Mr Philip Packham, explained the manner in which customer revenue forecasts and income and expenditure budgets were built up it was apparent to me that many thousands of professional haulage firms could vastly increase their efficiency by adopting similar systems.
Revenue estimates Great care is taken at Falmouth Transport to estimate customer revenue in advance, using last year's figures as a guide. Seasonal patterns are noted and, of course, any commercial information as to likely developments in the area are taken account of. The budget estimates I examined, which were prepared last November, had been twice amended in pencil to take account of more recent knowledge.
Most businesses have a pattern of revenue which may be influenced in part by the number of working days in a month and by seasonal variations, holidays, etc. Known or probable rate increases can be estimated in advance. In all budgets prepared by HPA detailed notes are made of the assumptions underlying the use of particular figures. This is regarded, I think rightly, as crucially important. With each set of budgets produced, year by year, improved accuracy should be possible. the evidence of Falmouth Transport's I gets, no professional haulier should diffident about attempting to fore■ revenue and expenditure in a log fashion. A wages forecast for the montl February, prepared three months ear was £7329, against actual figures £73 Much care had been taken to calculate cost of holiday relief drivers. It was mated that the equivalent of 25 driv with an average holiday entitlement 2+ weeks, would be needed c the five-month holiday season. ' budgeted figures spelled out the I that early in the season one holiday re driver would be needed and at the end of season, five. I noted that no increase I been budgeted for drivers' subsiste increase in 1971. Mr Polglase thought last generous increase in statutory I would mean no increase in subsiste payments this year, though Mr Packh agreed that because there was some clout would have been reasonable to an provision for the possibility of an increase Fuel and oil estimates for 1971 reflec cost increase of 1.23d per gallon, increa to 1.5d per gallon to allow for anticipa development of the parcels sector of business, involving greater mileage.
Mr Packham said that his experience many road haulage firms suggested horrifying vagueness in the provision mi for vehicle depreciation. Professioi accountants often did not help at sometimes putting in ludicrous rever allowances. "For an eight-year-old fleet t would be 25 per cent of nothing," he sz At Falmouth, the budgets reveal provision for vehicles, tractors and trail on an agreed life basis; £12,000 would spent on fleet renewals in 1971, said 1 Polglase.
Target benefits Budgetary control, "easily the m powerful management tool" in Packham's view, works because pea work better when given a target. motivates against excessive spending bui equally biased against excessive meann —if property has to be maintained s vehicles have to be renewed, it is pointl to pretend for a year or two that no p vision need be made. Above all, as . Packham insisted, planned budgeting di not tell a firm what is likely to happen should reflect what is intended to happ■ In short, a resolute management will ne to push and guide business activities in planned direction.
Falmouth Transport's profits in 19 were the best since the business was fowl( 48 years ago. An estimated profit of 13 I cent on net assets last year was boosted 23.5 per cent. The budgeted figure for 19 is 32 per cent on net assets.
Professional hauliers in a remote as may sometimes envy the lush traf pastures of their colleagues in heav industrialized areas. What Falmou Transport has done is to triumph cm circumstances. HPA's contribution has be outstanding.