October 2009

When I was recently on holiday in Switzerland, I stopped at a tiny cafe in a remote village.  Just as I was thinking how refreshingly different from work this was, I saw this sign behind the counter:

"This is a non-profit-making business.  It wasn't supposed to be like that, but that's how it turned out!"

What a let down!  I'd always thought that these were a form of humour peculiar to British offices - but they're everywhere! 

But that got me thinking.  It shows the force of a phrase that really hits the spot.  So let me share one of my favourites with you - and one that's more useful than the one I saw in that cafe!

"You only get the right answer if you ask the right question"
 

This phrase helped one of my clients cut their transport costs - and here's how.

This client had squeezed their contractor hard, but had to make further savings somehow.  There wasn't much chance of negotiating further reductions, so what could they do? 

That's when I remembered the saying - and realised we shouldn't ask about how to negotiate.  The right question was:

"How do you cut costs?"

There's a general answer to this:

- carry out the same activity with fewer inputs

- achieve the same output with less activity

But of course, we needed something more specific.  So this is how we answered the question for our circumstances:

- make the same number of drops (that's "activity") for less mileage (your "inputs")

- make the same sales revenue ("output") with fewer drops

(I've used mileage as the input, because if you reduce this you'll reduce hours - and possibly vehicles - as well.)

And once we had this answer, we were quickly able to come up with these six ideas for cutting cost:

How To Reduce Your Mileage

You can zone your deliveries.  Group deliveries in the same area together and do them all on the same day.  And arrange them in a sequence that minimises the distance you drive. 

This means you have to take control of the day and time you make your deliveries.  Don't wait for your customer's call - ring them for an order on a day and at a time that suits you. 

You should avoid duplicating stem mileage.  You can't control the distance between your customers - but you can control your stem distance (that's the distance from your depot to your first drop, and then back to the depot from your last drop). 

Use the largest vehicles you can: the more deliveries you can make with each vehicle, the less stem mileage you have.  Locate your depot centrally: the closer you are to the centre of your demand, the less your stem mileage.  Use trunking routes: if several of your delivery vehicles run stem miles along the same route, why not base those vehicles nearer the customers and run a larger trunk vehicle instead?

You can share your transport with other companies who make deliveries in the same areas as you.  Find a shared-user transport company who covers your delivery area.  Their miles per drop will be less than yours - and you should get some of the benefit.

How To Reduce Your Drops

If you want to cut costs using the second method you have to increase your drop size:

You can persuade your customers to place larger orders.  For example: minimum order sizes; free delivery if you order more than a set amount; discounts for large orders; and so on.  Just make sure that the benefit you give your customer is less than you save in transport cost.  And remember that it's usually better to present your action as an incentive than a penalty.

You can reduce your delivery frequency - which imposes larger drop sizes on your customers.  They may not like this - so choose to whom you apply it.  Don't try this with your top 20% of customers, but what about the others?  You won't put as much profit at risk, but they still form a large proportion of your transport costs.

You can share transport with other companies that deliver to your customers.  This will create larger drops.  Why not talk to your customers to find out which transport companies their other suppliers use?  After all, if this reduces your transport costs, you should both benefit.

So what's this month's message?  If you want to cut your costs - for your transport or anything else - don't jump to solutions.  Start by asking yourself the right questions:

- how can you carry out the same activity with fewer inputs? Or

- how can you achieve the same output with less activity?

You'll soon find that the right question gives you the answers you need.

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