Fuel Costs vs. Payroll

by Sam Boyer

It appears we are all stuck with high and rising fuel costs and their impact on beer distributors’ bottom lines. Usually when discussing fuel costs with a client I find they are at least 50% or more over budget (all well run distributorships have expense budgets). The primary question surrounding this situation becomes “what can be done to counteract the rising fuel costs”? My answer to them is: first look at your budget and determine what is your largest expense. The answer to this question is always payroll.

There are some band-aid approaches to reducing the cost of fuel such as minimum deliveries, fuel service charge, hotshot reductions, etc. These are not to be ignored because when it comes to counteracting the rising cost of fuel nothing can be ignored. Even very small things like the mail can make a difference. If you can receive mail at your place of business but you are still using a PO box, forget the box. Let the postal service bring it to you rather than a person from your office going to get the mail. Not only does this save fuel, it makes your office more efficient. Analyze all your office functions….eliminate the unnecessary ones and soon you can eliminate an office position….reducing payroll is the long-term answer to offsetting the rising fuel costs.

Do the same analysis on the warehouse functions and tasks. Do you really need all those vans that are assigned to the warehouse? Do you have a minimum for a hot-shot delivery? If you do not have a minimum you are wasting warehouse manpower time (payroll) and fuel. One of the best ways to eliminate hot-shots is to pressure your sales staff to make sure they are selling in enough product to each account to get them through to the next week. If a retailer refuses to place an adequate order make sure he/she knows your hot-shot minimum order/fee policy when it comes to extra deliveries. The sales staff has to take on and embrace the education of the retailers. If they don’t they are not making a complete sales call; they are just taking orders.

The office and the warehouse payrolls are only a small part of the opportunity to reduce payroll to offset the fuel costs increases. The other areas of sales, delivery, and management offer a much greater target for reducing payroll. Yes, I said management is an area for reducing payroll. All major breweries have some range of the number of subordinates to supervisors in the sales department. Make sure you are at the upper end of the range. So many brewery reps seem to think that the lower end of the range is where everyone should be. Why not, the more people employed by the distributor the more account coverage and the better the sales (it’s a feeble brewery theory at best). After all, the breweries are not paying your employees; you are, so why not make sure you have the right number. Only through an analysis of your management structure, inventory of skills, tasks required, and number of subordinate can a sales organization be structured to become cost effective.

I am saving the best for last. How are your delivery routes determined? Are they put together based on the sales calls that were made the previous day? This is the case with most distributors. If this is the case with you, then you are wasting an immense amount of money on fuel and payroll for your delivery trucks to randomly cover the retail accounts that were sold the previous day. It is highly likely most delivery vehicles are crossing over each other on a regular basis and going back to retailers that they were very near to earlier in the week. This is the result of the sales calls driving how the delivery routes are run. This is a backwards way to route delivery trucks and it wastes payroll and fuel.

Those distributors that approached delivery routing from the view of “let’s develop time efficient and fuel conserving delivery routes and use them as the basis for the sales routes” have obviously also been impacted by rising fuel costs but not to the extreme some of you have. The huge cost savings to this approach to delivery routing is not only in the area of immediate fuel usage reduction, it is in the area of reducing the number of delivery vehicles needed to provide service to the accounts and obviously in the number of personnel needed. This is payroll reduction without impacting account servicing. It is achieved through eliminating delivery route crossovers and making sure accounts that are close to each other are delivered at the same time.

Developing the delivery routes/schedules based on location, mileage, and account proximity will not only save delivery payroll, fuel, and truck expenses….it will also reduce the expenses associated with the sales function. Yes, even the sales function has payroll expenses that can be reduced. Have you done an account ranking analysis to determine what percent of your accounts are producing 90% of your sales? If your market is typical of most you will find that about 50 percent of your accounts produce 90 percent of your sales. These are the accounts the sales staff has to focus on. Not only do they have profit producing sales they are the accounts that are key to sales growth. The remaining 50% of the accounts that produce 10% of sales will never substantially contribute to sales growth….service them and maintain sales, but focus on the top 50%. If you do this in an orderly and systematic way, you may find you do not need as many sales positions. This not only saves payroll dollars, it also reduces fuel expense.

Some things to think about: