My father owned a decrepit Ford station wagon that had so much play in the steering wheel you’d have to spin it at least five inches before the tires would respond. Driving this way wasn’t a problem at slow speeds, but when you moved to the interstate it was white-knuckle time, even back when 55 mph was the speed limit.
Today, a lot of LBM dealers are driving their operations with similarly primitive steering. They may have the basic gauges a dealer needs—total revenues, gross profit, payroll costs, and such—but as business speeds up, smart dealers and business analysts have decided they must use more sophisticated equipment, some of which wasn’t even around the last time the market was hot. Here are two measurements you should consider adding to your company’s dashboard plus some that you’ve been requesting from vendors.
1] True Cost of Delivery
It’s not hard to figure out total delivery costs: Just tally all the personnel and equipment charges involved in loading materials and taking them to the job site. A spreadsheet would include such factors as loading staff salaries and benefits, forklift and truck costs, fuel and insurance, driver salaries and benefits, mileage, and amount of time needed to load and deliver the goods.
But adding up totals does you little good if you’re looking to find out which individual deliveries are the least cost-effective and which customer is costing you money. That's in part because historically it's been nearly impossible to hand-enter precise enough data on individual deliveries to make reliable calculations possible. But in recent years, the arrival of scanners, GPS, radio-activated tripwires, smart phones, and tablets are enabling dealers to gather precise info on what goes into making a delivery and then calculate that trip’s value.
After you run those figures, the sales reps can go to work, seeking ways to reduce your expense.
“Once the dealer has established the True Cost of Delivery ($XXX per drop), they can apply this to lower the Total Cost to Serve,” says Cary Anderson, senior director of product development at Epicor Software. “If a customer tends to place many small orders that require more drops, it will cost a dealer more to serve that customer than one who plans better and requires less deliveries. The same is true with returns/pickups.
“Once a dealer has an accurate picture of its True Cost of Delivery, it can target a certain amount of drops/pickups and offer customer incentives to stay within that number,” Anderson adds. “For example, they might say, ‘If you could limit the number of drops to X, I will give you a Y% discount on your order.’ The key is having these precise figures so that you can establish an accurate Cost to Serve benchmark.”
2] Analyzing/Benchmarking Your Best Customers
Most dealers can readily name their best customers, but aside from rough guides like highest dollar volume or biggest gross profit, they can’t say why those customers are best. Now some dealers are drilling for deeper answers.
“The most powerful metrics have ‘what-if’ tools that allow users to drive improvements,” says John Matterson, a vice president at Solarsoft Business Systems who until June held a similar title at Progressive Solutions, an IT company for dealers and mills. For instance, by better understanding delivery costs, they might discover that some people they regarded as top customers actually were costing them more to serve than other, less troublesome clients.
But Matterson also stresses how a good system enables dealers to use the best customers as a benchmark against which you can compare others.
“What are [the best customers] buying or not buying compared to other customers?” Matterson asks. “What would happen if other customers bought the same? The questions that often provide the best returns are those that previously we never thought to ask.”
You also can find dealers around the country, including TW Perry and Stine Lumber, with home-grown programs in place to analyze whether they are getting every possible bit of the customer’s potential purchases rather than, say, selling the contractor low-margin lumber but not high-margin windows.
What Dealers Want
Aside for the two major categories cited above, Panderosa Software and other tech firms say they're hearing requests for these metrics:
- On Time In Full calculators
- Purchasing trends reports
- Lifetime value of a customer (average transactions value x yearly frequency of purchase x customer “life expectancy”)
- Ability to analyze sales lost
- Productivity of yard personnel measured by board foot or weight of order (to keep the work equal among pullers)
- Miles actually driven vs. best route
- Close ratio of quotes to orders
- Delivery performance by vendor
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