The most often asked question in the ready mixed concrete industry is So how much have we delivered so far? Utilization is rarely mentioned until month’s
The most often asked question in the ready mixed concrete industry is So how much have we delivered so far? Utilization is rarely mentioned until month’s end, because it’s easy to measure volume but less so to measure utilization. Quantity/driver hour is one of the best ways to measure utilization because the cost per hour is a constant. Thus, the more concrete per hour, the lower the cost per unit. There are three ways to reduce delivery costs: 1) Reduce nonproductive (non-delivery) time; 2) Increase load sizes; and, 3) Reduce round-trip time.
It’s as simple as more volume in fewer hours. The average utilization in North America is 64 percent. This means that in a 10-hour day, the truck is delivering for 6.4 hours. Delivering is considered loading, slump checking, traveling, pouring, chute washing and returning. Other activities are considered nonproductive, which may be necessary but do not generate revenue. Nonproductive time occurs when a vehicle is waiting during start-up time in the morning; in the plant for a load; on the jobsite to be unloaded; and, to be washed out at day’s end. Scheduling better can reduce waiting time in all four areas.
WHAT CAN THE DISPATCHER DO?
Part of good scheduling is endeavoring to spread out the work in order to fill gaps and keep the trucks busy without making the customer wait. Managers often note that their dispatchers are most efficient when running behind. But why does one need to be behind to be efficient? That is like saying that we are better money managers when we overspend and creditors are calling. Just how far behind does one have to run to be efficient? Will 10 minutes do, or does one need the incentive of being one hour behind? How much more efficient is the dispatcher when he/she is running two hours behind?
The driver call-out times for the morning need to be calculated accurately. If you are using a computer system, use its driver report-time function. Ideally, one should know your first-round orders the night before. If this is not happening, efforts need to be extended to make it happen. This can be accomplished by working with your customers or by offering incentives to place firm orders the day before. Unreleased Will Call orders are expensive and a detriment to efficiency. Will Calls for orders before 9 a.m. require the producer to call drivers to work. The producer takes the entire risk, while the customer takes none. First-round Will Calls should be discouraged or banned.
Delivery costs average $15.50 per yard and trucks deliver 2.5 yd./driver hour; hence, $15.50 _ 2.50 yd./hour = $38.75 per hour, or $310 in eight hours. This is the actual out-of-pocket cost for the truck and driver only and does not include dispatch, sales, plant and overhead. The average round-trip time in North America is 138 minutes of which 20 minutes are spent waiting to pour. Thus, 118 minutes is the actual productive round-trip time. In order to recover the $310 cost for an eight-hour day, the truck must generate $60.54 per productive hour. This calculation is made by dividing the hourly cost by the productive factor of 64 percent: $38.75 divided by 0.64 = $60.54. If your trucks were 70 percent utilized (30 percent nonproductive), that hourly revenue generation rate drops to $55.35 for a savings of $5.19 per hour. That calculation is $38.75 divided by 0.70 = $55.35.
Stated another way, 2.5 yd./driver hour divided into $38.75 = $15.50 per cubic yard. If the quantity per driver hour can be increased to 2.75, the cost per cubic yard drops to $14.09 ($38.75 divided by 2.75 = $14.09), putting you at a $1.41 advantage over competition that gets 2.50 yd./driver hour.
WHERE CAN TIME BE REDUCED?
Start by looking at what a driver does in a day and who is responsible for improving those times:
- Clocks in and checks out his/her truck
- Queues up to load
- Checks slump
- Travels to the jobsite
- Waits to pour
- Washes chutes
- Waits for the next load
- Repeats cycle (from step 2) 2-3 more times
- Washes up and clocks out
By dissecting each element, we can assign who has the ability to improve times at the dispatch, sales, production or management levels. And we’re looking to improve times, not maintain or prevent the times from becoming worse. Dispatch would be the prime influencer of the time from clock in to first ticket, from returning from the last load until washout, waiting in the plant for a load and waiting on the jobsite to be unloaded (items 1, 6, 10 and 12).
WHAT CAN SALES & MANAGEMENT DO?
Who can improve queuing up to load, loading time and slump check? Here, management is the greatest influencer. This is based upon the plant they have commissioned and the limits set for checking slump. One could argue that the batchman (production) is the greater influencer of loading and slump checking, but a batchman cannot make a 120-yd./hour plant batch 180 yd./hr. He can only keep the plant from running slower than 120 yd./hr.
Too often, plants are overtrucked, meaning that more trucks are assigned to a plant than the equipment can economically load. The calculation for trucks per plant is average round trip time divided into loading cycle time x 70 percent. An example is a plant that can load in six minutes with an average round-trip time of 138 minutes; 138 divided by 6 = 23 trucks, which can be loaded before the first one returns and the cycle starts over. But, trucks do not return every six minutes. There will often be a 15-minute lull before three trucks show up together. The first truck will be loaded in six minutes, the second in 12 and the third in 18 minutes. That is why one takes 70 percent of the calculated trucks to arrive at 16 trucks. More than 16 trucks only increases the line of trucks waiting to get loaded.
Trucks cost about four times more than plants on a per unit basis. Ideally, an operator wants $3.80-per-cubic-yard plants waiting for $15.50-per-cubic-yard trucks, and not vice-versa. Delivery costs can be reduced by buying a faster plant, adding a plant, or speeding up the plant you already have. Fast plants reduce delivery costs.
Travel time to the jobsite is controlled by sales. Quoting jobs far from the plant increases delivery costs and keeps the truck from delivering to other customers. A job that is 30 minutes away from the plant compared to one that is 15 minutes increases the delivery cost by 15 minutes each way or 30 minutes in total. Thirty minutes at $60.54 per hour is an additional $30.27. The delivery cost difference on an average load is an additional $3.91 per cubic yard ($30.27 divided by 7.75 yd.). Bear in mind that the cost is less for a full load, but you cannot average full loads. The 20-yd. pour may need a 2-yd. cleanup resulting in an average load of 7.33 yd. Is sales getting an additional $3.91 per cubic yard for jobs that are an additional 15 minutes travel? Probably not.
Unloading time is also controlled by sales. Analyzing the customer’s concrete placing history will let sales know who unloads quickest and slowest. The same problem occurs in jobs that unload slowly; they cost you more, often taking all available profit to keep them supplied. How does one improve unloading time? One option is to offer an incentive to unload quicker. Quote the standard price for unloading in 45 minutes, but offer a per-minute refund for each minute under 45 (and charge an additional amount for each minute over 45). Another option is to remove the unloading part of the cost from the price and charge for unloading time. The quicker the contractor unloads, the less they pay for concrete. One other option is to quote your customers based upon how they unload. Offer better prices for those that unload faster. Why subsidize the slow ones?
Can one increase the load size? Yes, it has been done by offering incentives. One method is to remove the delivery cost from concrete. If the average cost is $15.50 per cubic yard, sell concrete for $15.50 less but charge a flat delivery fee. If the average delivery is 7.75 yd., then the average delivery per trip is $120.12 ($15.50 _ 7.75). Offer the reduced price concrete plus a $120 delivery charge. The larger the load size the customer orders, the less they pay per cubic yard. The fee applies to both large and small loads, so if the customer takes 3- to 10-yd. loads followed by a 3-yd. load, their average load is 8.25, but they will still save money because their average load size is 0.50 yd. larger than the average. This method has the added benefit of eliminating the separate small-load charge as it is built into the pricing. In this manner, the customers control their own concrete cost.
Poorly planned small-load charges can encourage small-load business rather than larger-load business. The small-load charge should be a graduated charge, not a flat rate. As an example, Producer A charges $50 for any loads under 5 yd. Producer B charges $20 for each yard under 5 yd. Thus, a 3-yd. load will be charged $40 ($20 _ [5 – 3]) or a 1-yd. load is $80 ($20 _ [5-1]). For a 4-yd. load, Producer A charges $50, while B charges $20. At 3 yd., Producer A is at $50 while B is at $40. Producer A charges $50 for a 2-yd. load, while Producer B charges $60. Producer A charges $40 for a 1-yd. load, while Producer B charges $80. The result: Producer A is the low price on 1- and 2-yd. loads while Producer B is low on 3- and 4-yd. loads. Producer A’s charge schedule is encouraging small loads.
Demurrage or holding-time charges will encourage quicker unloading. One way to calculate the charges is to subtract your material costs from your selling price to determine the contribution per cubic yard or cubic meter. Multiply this times your quantity per hour to get an hourly cost. As an example, take $80 concrete and a $42-per-cubic-yard material cost. This leaves $38 contribution per cubic yard, but you may be getting 2.50 yd./driver hour. Thus your contribution per hour is $38 _ 2.5 = $95. This is the amount you need to charge per hour when not delivering concrete or when waiting past the allotted time. This scheme does nothing to take care of the non-productive time, only productive time. If you are getting 64 percent utilization, then the $95 represents only the productive part. You will need to divide $95 per hour by 64 percent to get the cost that you must charge per hour to cover non productive time. That number is 95 divided by 0.64 = $148.44 per hour.
Would you charge every customer for small loads and unloading time? Probably not, but you could very likely charge more than you are now. Why subsidize the poor contractors? It may be cheaper to send that customer a letter with a $20 bill enclosed and your competitor’s phone number. Better yet, keep the $20.
When looking at ways to reduce delivery costs, involve the entire company. All members of the team play an important part and all have their own effect on delivery costs and efficiency. Does an important customer demand trucks waiting in the yard for his call or on the job to unload? Two trucks waiting for an order for just 30 minutes have cost you $60.54. If they each haul a 10-yd. load, the additional cost is $3.91 per cubic yard. Deduct this from the already preferential low pricing and you may be in a loss situation. You may not be able to make it up on volume.
Jim Wagner is vice president of Command Alkon, Birmingham, Ala. He can be reached at [email protected].