GET OUT THE BLOODHOUNDS
By
Sam Boyer
The operating costs for beer distributors continue to rise….with no
end in sight. Get out the bloodhounds now....and sniff out all possible
cost savings. Many of the readers of this article may be experiencing
exceptional sales increases. These increases may not go on forever; be
prepared to reap the benefits of a higher level of sales with reduced
costs.
Your first requirement for effective cost control must be accurate and
timely information. If you are waiting more than 10 working days from the
month end to get an income statement for the previous month, you are out
of touch with your cost controls. There are accounting packages on the
market and in use by beer distributors that can produce an income
statement daily if needed, and they are not expensive. You have to have
timely and accurate information.
Payroll is 50% of your expenses. It makes sense (or cents) to begin
your hunt for cost reductions here. I know suppliers place service level
requirements on you; however, you must take a hard look at the service
levels "they require" and how you currently achieve them. There
are alternatives to meeting supplier service levels with less staffing.
Automate, automate, automate…the more functions you can automate the
better your payroll costs will be. It makes a lot more sense (or cents) to
spend $30,000 on equipment than to pay an administrative clerk $25,000 per
year plus benefits. Job elimination is part of management…if you don't
do it, your job may be the one eliminated!
Fuel costs….they are definitely up, and all indications are they will
remain at or near the current level. Many believe this cost is not
controllable, but it is. Are your delivery routes reviewed on a system
wide basis regularly to ensure the miles driven are minimized? Are your
sales routes reviewed for the same efficiency? How about your merchandiser
and draft cleaning routes, are they routed to minimize miles? The subjects
of fuel expense and routing are totally intermixed and have to be examined
in that context.
If your distributorship is using side-load beverage trailers, you must
investigate the use of bulk delivery. The benefits, in the right
environment, can be enormous. First is the cost of the trailer itself. A
bulk trailer with a lift gate is only a fraction of the cost of a side
load trailer. Second, the cost of delivery is reduced. The driver does not
pick the order from a number of different bays; orders are already
assembled on pallets or carts. More stops can be made with each truck,
requiring less delivery vehicles, and fewer miles driven.
The weight of a bulk trailer is significantly less than a beverage
trailer. This is a huge fuel savings (and also tires) for the
distributorship. I have worked with distributors that over time switched
their entire fleet to bulk trailers and experienced significance savings
in manpower, fuel, depreciation, and maintenance costs.
If a beer distributor really wants to operate on a cost effective basis
the number of vehicles in operation, the type of vehicle, how they are
routed, and how they are driven must be addressed. Anything less is a loss
of profitability!
The cost of insurance of all types has been accelerating in recent
years. If you are not putting your insurance needs out for bid on a
regular basis you are paying too much. I have on several occasions worked
with clients that have used the same "friend" for their
insurance needs for years. This is costly. If your "friend" is
really your friend, he/she will not be upset with you for soliciting other
bids. If he/she is upset, they were not your friends after all.
Inventory management is another area of cost savings. I know the
suppliers "require" certain levels of inventory be kept on hand.
However, with a little bit of ingenuity inventory can be managed to
efficient levels. Those distributors that actively manage their
inventories not only have lower levels of inventory but also have fewer
out of stocks. The active management of inventory reduces both levels and
out of stocks. Reduced levels of inventory decrease interest, insurance,
and handling costs.
Inventory control is different from inventory management. It addresses
the systems and procedures that track, control, and account for each case
of beer from the time it is received in the warehouse until it is posted
in the route accounting system. Many times inventory losses are hidden
within the cost of goods. Require your accounting personnel to show the
cost of inventory losses as a line item on your financial statement. If
you do not know the cost of your inventory losses, how can you control and
eliminate them?
Out of date product is another area of easy cost control. It is the
result of poor inventory management, poor warehouse rotation, and/or
ineffective in-market supervision. Beer distributors can easily address
all three of the above. If your out of date product expense is not shown
as a line item on your financial statement you do not have control of it.
Make sure you know your monthly out of code product expense and take
action.
The principal of a beer distributorship cannot achieve effective cost
control by him or herself. You must involve your staff and not only hold
managers responsible for cost control but place part of their income
"at risk" for cost control. Make sure the managers cost control
goals (or budgets) are accurately determined and he/she can impact them.
Controlling costs is not just a matter of eliminating unnecessary
expenditures. It is the management of a properly staffed organization that
is supported by timely and accurate information. Controlling costs is
anything but fun. However, controlling costs is the second most important
function for a beer distributor (sales growth is first). Without it, even
the most profitable of distributorships will eventually become
unprofitable.
