"The Perfect Storm," which hit New England in 1991, was the convergence of three separate weather fronts coming together to produce a deadly result. We now have a perfect storm of delivery cost in 2008, the convergence of three equally devastating fronts: 1) a major reduction in the cost of building materials; 2) almost daily record fuel prices; 3) dispatchers finally having the resources to do what sales people have been demanding for decades the ability to make instant deliveries.
Here's an example: a sales person walks in with a $200 order and hands it off to dispatch. There are two trucks parked and drivers are sweeping the warehouse. How much better can it get? That order is out the door in minutes, just 15 minutes ahead of the next $200 order going in the same general direction. Wow, now both trucks are busy!
In 2004, the average LBM dealer spent 11% of its delivered sales gross profit dollars on delivery. In 2007 this expense rose to 16%. When 2008 is over, I expect the number to be over 20%. The average LBM has a one-way cost of $6 per mile or $3 round trip mile.To offset some of the increase, many dealers are charging a delivery fee or fuel surcharge. If you have not implemented one, it is beyond time to "just do it."
I say "just do it" because many dealers in our roundtables have been discussing this for three years. It's time to stop talking and do something. My preference is a surcharge; most people are now accustomed to getting some type of surcharge on almost everything they buy.
Most dealers are now recovering their fuel cost increases with this fee, but there are operational changes that need to be made as well. Instant deliveries will cost you twice: once now in inefficiencies and later when business improves and you cannot meet the new service level you have taught your customers to expect.
Most dealers have a service commitment, some informal, others formal. Usually, it goes something like this: order in by X, out by Y. This provides the sales and operations departments a tool to measure results. A similar but opposite service commitment needs to be made during downturns. An example: an order must be in-house for at least X hours, and/or must be worth Y dollars before it can loaded and shipped. To violate this policy should require management approval. (To help determine the size of orders needed, I have developed a free matrix spreadsheet that you can customize by changing just two numbers. Write to me for a copy.)
Jim Enter is an industry consultant who manages over 25 industry roundtables (he founded the American Association of Roundtables) and complies the National Cost of Doing Business Survey.