Furniture retailers need to get with a program to combat skyrocketing delivery maintenance and operating costs.
The three major issues that will affect your delivery operations over the coming months, are also things that you cannot control. These are fuel prices, the new truck engine specifications, and the changeover to ultra-low-sulphur diesel fuel (ULSD). A summary of each of these factors will be followed by seven ways you can offset their impact and possibly even reduce your operating costs.
The average nationwide diesel fuel cost in January 2000 was $1.31 and had increased to $2.92 per gallon as of the July 17, 2006 Department of Energy survey. Depending on location, your cost may have been a nickel less or up to twenty five cents higher. Between January 2004 and mid July 2006, diesel fuel costs have almost doubled.
To meet the 2007 diesel emission standards, the engines have been redesigned with new technologies and components. The new engines will have filters and systems to capture particulate (soot) from the exhaust. Periodic cleaning to burn the soot will raise the exhaust temperature to more than 1,200 degrees which requires some chassis changes. These engines also require a new oil specification called CJ-4. Maintenance and oil changes will require closer attention, and the engines are estimated to cost $4,000 to $7,000 more depending on size. They also will require ULSD fuel. The EPA estimates that the new fuel will cost 5 cents more per gallon but other estimates range from 7 cents to 15 cents, without regard to the volatile situation in the Middle East. Leading manufacturers have stated that vehicles equipped with these engines will not have much lower fuel efficiency, but other experts are not so confident.
The older sulfur standard allowed upwards of 500 parts per million sulfur content while the new standard has a maximum of 15 ppm. You may have seen warning stickers on fuel pumps selling the current formula forbidding use in 2007 diesel vehicles and warning of huge fines. By October 1st, 85% of the stations must offer USLD.
It shouldn’t come as a surprise that many fleets acquired next year’s planned purchase this year, to save on purchase or lease costs. Additional retailers will soon switch to leasing their trucks since the major leasing companies buy large quantities at volume prices and have skilled maintenance programs. Low mileage trucks built in 2004-2006 will command premium prices in the used market and may be a good buy for smaller retailers.
COST CONTAINMENT 7-STEP PROGRAM
Since you cannot control these three very important issues, review the following steps to manage your costs.
Step 1. Improve Prep and Deluxing: Far too many deliveries are refused, resulting in exchanges weeks later, or even cancellations due to allowing poor quality products to be loaded onto delivery trucks. Activity based costing studies have shown that it costs approximately five times the original delivery cost to make an exchange and that this amount frequently exceeds the gross margin on the sale. Think about the financial impact of having a customer return a delivered piece for cause, then demanding a refund and shopping elsewhere. Ouch! You lost the sale, incurred the costs of delivery, pickup and returns processing. In addition, you made a customer angry. Hopefully you didn’t also knock over their mailbox or scratch their floor and have to pay those damages.
Step 2. Minimize Not At Homes: Despite scripted phone calls to customers notifying them that their delivery will be made within a two hour to four hour time frame, the typical furniture retailer fails to successfully deliver 4 to 6% of scheduled pieces. Only minor disruptions occur when a cancellation occurs after the merchandise has been pulled but has not yet been loaded. It is a far worse situation when a delivery rescheduling call is received after the truck has been loaded or the vehicle has traveled many miles and no one answers the door. In addition to the miles put on the furniture (and truck), you have lost valuable space that could have been used to deliver to another customer. Potential solutions to this problem include:
•Collecting and placing home, work and cell phone numbers on the order.
•Involving sales associates in an effort to explain to their customers the necessity of returning delivery confirmation calls left on voice mail.
•Only making a delivery after direct communication with the customer has been confirmed by voice or email.
•Creating improved scripts for the many customers only reachable by voice mail. Consider making a 7:15 AM confirmation call or a 45 minute call ahead reminder from the truck.
Step 3. Use Routing Technology: Traveling the most effective route to deliver to each customer can reduce the mileage traveled by 15 to 30 per cent compared to manual routing. Routing technology saves fuel, labor and truck wear. The simplest tools for small retailers include basic mapping programs on the Internet and multiple stop route optimization software programs costing between $40 and $100. There are also programs that optimize route stops that directly link to the major software retailing programs.
Other technology solutions track delivery trucks with GPS and allow managers to view reports that tell how long engines idle when stopped, report on when doors are opened and lots more. Simply motivating drivers to always shut the engine off at each stop will result in a 10% fuel savings.
Step 4. Maintain your Trucks: If you see black smoke coming out the truck exhaust or soot on the exhaust pipes it is a clear signal that you have engine problems. The soot is wasted, unburned fuel. Checking the oil and other fluids minimizes high cost repairs and on the road breakdowns that upset customers. Check the tire air pressure weekly.
Step 5. Train your Drivers: I once brought in an outside driver-trainer to ride a half day with every driver in my fleet. Almost every driver improved their fuel efficiency by at least 10%. Rather than initiating a fuel efficiency bonus right away, we simply posted every driver’s fuel mileage without saying anything. Competition between drivers increased the mileage further and drivers on the bottom of the scale came under intense pressure from their peers. Small incentives and recognition of best performers also motivate the driver teams. Well trained drivers shut off truck engines rather than leaving them idling. Failure to do so will result in large fines in an ever increasing number of states.
Step 6. Consider Changing Equipment Specs: The typical retailer should keep their Gross Vehicle Weight under 26,000 pounds so a Commercial Drivers License isn’t necessary. Most contractor trucks have 26 foot bodies and stay under the 26,000 pound requirement. That yields more stops than smaller bodies that is very important when running to more distant points. There is negligible difference in fuel economy with a 22, 24 or 26 ft body on the same chassis although lightweight components may be necessary.
Step 7. Establish Metrics for Delivery: How many times have you heard that you cannot improve performance unless you measure performance? Metrics will be a primary focus this next year with inflationary pressures and challenging retail climate in many areas of the country. Keep in mind that if your net pretax profit is 5% of sales, saving $1,000 is the same as selling $20,000 in merchandise. Efforts to control costs will reap substantial rewards.
Conclusion: While most retailers know quite a bit about how the activities on their floor affect sales (how many ups, closing rates, average sale, etc.), few have a real handle on the warehouse activities and delivery stats.
Daniel Bolger, P.E. provides operations consulting services to clients throughout North America. You can contact Dan at firstname.lastname@example.org for more information on this or other transportation, logistics and furniture warehousing topics. Go to www.furninfo.com to read all of Dan’s articles on transportation, logistics and warehousing.
Contributing editor Dan Bolger of The Bolger Group helps companies achieve improved transportation, warehousing and logistics. See many other articles by Dan in the Operations Management article archives on the furninfo.com website. You can send inquiries on any aspect of transportation, warehousing or logistics issues to Dan Bolger care of Furniture World Magazine at email@example.com or call him direct at 740-503-8875.
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