Let’s take a look at all the inherent costs of delivering wholesale parts
You have a solid wholesale parts program. Great!
Your fleet of parts trucks are delivering every day. Wonderful! You think you are financially healthy — but are you? Have you ever thought about how much it costs to deliver those items to your customers?
What makes up parts delivery costs? What control mechanisms can you implement to monitor these costs? What can you do to reduce this expense?
Let’s explore.
What makes up transportation costs and what ideas do we have to control them?
To correctly calculate the cost of transportation, you must consider the following:
Fuel Costs: such as gasoline or diesel. These costs fluctuate daily and by geographical region. Consider implementing a route optimization tool and consolidating shipments to minimize the number of miles driven. With today’s fuel rates ranging from $1.30-$1.50 per litre, a small shift in planning will have a drastic impact on your bottom line.
Labour Costs: including wages and overtime of drivers and individuals loading/unloading your parts trucks. Develop some proper KPIs and periodic analytics to ensure your team is working efficiently. Every minute you waste will increase this expense significantly, especially after considering your responsibility to pay for CPP, EI and WSIB on top of regular salaries.
Vehicle or Equipment Depreciation: You need to consider the wear, tear and aging of your parts trucks and loading equipment in your cost structure. This is normally calculated as a depreciation factor over a period of time. Include this amount into your cost per trip or mile and have your customers absorb these amounts. The end user should be paying for this expense, not the dealer.
The line between a profitable parts program and a loss leader can become very narrow unless you properly calculate and manage your costs.
Maintenance & Repairs: While most of these repairs will be done internally, routine service such as oil changes, tire rotation, brake inspections are still costs that need to be considered. Emergency repairs such as engine failure, tire blowouts, etc. become more probable the more miles you drive. Heavier loads or longer routes increase this cost too. Remember to stay on top of your preventative maintenance schedules and ensure you are optimizing the capacity of these trucks. Evaluate leasing vs buying these trucks and negotiate a prepaid maintenance program if the option is available.
Insurance: This is, of course, a dreaded and unexpectedly expensive liability in most major Canadian metropolises. While costs vary based on risk exposures and distance driven, you can certainly control this item by hiring reliable and professional drivers. Ensure policies and procedures are in place, and employees are properly trained to limit any type of risk they may take. Coach them to stay on pre-established driving routes and maintain speed limits while on the road. Ensure drivers are held accountable if issues arise.
Licensing, Tolls, and Regulatory Fees: Road tolls, bridge fees, and licensing fees for commercial vehicles can be substantial if not managed correctly. Proper route planning and GPS tracking can help minimize unnecessary fees. Remember to manage your license renewal program to optimize the timeline of coverage and ensure you have the correct license for your specific vehicle type.
Administrative & Overhead: Remember to consider your route planning, dispatch coordination and documentation time when calculating your delivery costs. Office overhead is a real cost and needs to be transferred to the customer to run a profitable program. Your administrative team should track time spent on each task to properly account for their time. Most DMS systems have this capability, you just need to use it.
Miscellaneous costs: Money spent for shrink wrap, palletization and other warehousing type costs should not be ignored. They can add up quickly and are part of the delivery process too. Don’t ignore them. Quantify and consider including these in your established delivery fee.
The line between a profitable parts program and a loss leader can become very narrow unless you properly calculate and manage your costs. Exercise discipline, in both quantifying and controlling these items. It will be your key to success.
