Keeping a firm grip on transport

The Head of Sales and Marketing at contract hire specialists Artegy, looks at the transport needs of Building Merchants and how a market focused specialist supplier can add real value to the Merchants bottom line.

Building Merchants have a lot to contend with at the moment. A weakened housing market, competition concerns and increasing transportation costs have all contributed to a pressure on operating costs. Businesses involved in every area of the industry, from timber to bathroom distribution, are looking hard at ways to improve their bottom line performance.

As with companies in most other markets, a large percentage of any Builders Merchants’ cost base consists of transport costs. Builders Merchants need a wide variety of vehicles to distribute their products and that means an equally wide variety of expense and potential risk.

In addition to the cost of the vehicles themselves, a fleet requires a funding solution that meets the business needs, plus reliable and constant vehicle and equipment maintenance. In addition damaged vans and trucks require repair, fuel costs must be managed and finally vehicles have to be sold on, requiring expert knowledge of a volatile second hand vehicle market.

Ensuring transparency

One of the main problems relating to the cost of a commercial vehicle fleet is ensuring maximum visibility. When dealing with front-end expenses – specifying and building vehicles – it is difficult to benchmark costs due to the highly specialist nature of the vehicles that Builders Merchants need and the complex range of vehicles available. Depending on the need and usage of the fleet, requirements such as equipment type, payload, crane position and reach, can mean that each vehicle can vary to the next depending on the ‘out-put’ requirements. With such vehicles every area of cost, from build and maintenance to upkeep and resale, brings with it a potentially severe financial risk and operational downtime.

Builders Merchants need to analyse the whole life cost of their fleet and ensure that their suppliers provide full information on the vehicles they provide (although with specialist trucks this can again be more difficult). Only then can they be certain that they are keeping their costs down to a minimum.

What should a Builders Merchant do?

The key to reducing fleet expenditure is to focus on whole life costs rather than vehicles’ purchase prices. Issues to consider include vehicle suitability, reliability, operating costs and vehicle availability. There is no point buying cheap trucks if they are only going to be available 50% of the time due to poor build quality or a lack of proper upkeep. For Builders Merchants, as with any business that runs vans and trucks, unnecessary downtime can be lethal – especially on the business critical vehicles within the fleet.

The truck market is a complex one. With high capital expenditure, multiple manufacturer options on chassis, body and ancillary equipment and constantly evolving legislation, the focus of the Merchants attention should be on how to select a partner with the appropriate financial backing, truck experience and knowledge, and most importantly a real understanding of their business. A favoured method is to obtain the vehicles through contract hire via a specialist outsourced provider. Contract hire does offer a number of advantages, ranging from its financial robustness (off balance sheet qualification) to ease of budgeting because payments are fixed over the life of the vehicle.

One of the main benefits associated with contract hire is the transfer of risk. The leasing company has to take on the financial and specification risk associated with the build, upkeep and resale of all supplied vehicles, so the Builders Merchant is protected from the volatile second-hand market. A Merchant will be happy to operate a truck with specific lifting equipment but probably has no desire or resource to have to hunt down a good price for it when its useful life is over.

Vehicle maintenance

There is an increasing trend towards outsourcing the management of the vehicle maintenance function, even for those companies that own their fleets. Local facilities, such as private garages, manufacturer sites and dealerships are able to offer services like collection & delivery and out of hours servicing thus maximising vehicle availability.

Again, the highly specialised nature of a Builders Merchant’s operation can work against it, as the maintenance of customised and specialist vehicles (and, these days, even ‘standard’ commercial vehicles too) requires sophisticated technology such as engine diagnostic equipment and the tools needed to service digital in-cab technology and electronics.

Poor maintenance leads to increased downtime, which in turns leads to Builders Merchants running more vehicles than they need to simply to take up the slack. We have found that Merchants fleets with in-house maintenance management rather than outsourced services will generally have 15-20% more vehicles than they need, simply because they cannot otherwise have enough vans and trucks on the road to cover their commitments.

Fixing costs and efficient funding methods combined with running a more proficient maintenance department will help solve this problem. With contract hire a company can reduce the average age and size of its fleet and make real cost savings, but probably more importantly offer customers a more reliable and consistent product delivery service.

Transport policy

A lot of companies with complex commercial vehicle fleets have seen the benefits of an integrated transport policy. It is a major cost to be managed, so by giving it strategic importance the right decisions can be made from the beginning.

Builders Merchants and Building Material Distribution companies should be looking to develop similar policies, carefully planning and implementing a transport strategy rather than just reacting on a case-by-case basis. The fact that many face severe restrictions on their capital expenditure, maybe through an aggressive acquisition strategy, only serves to underline the necessity of planning and the importance of alternative fleet funding & maintenance solutions.

The industry needs to take a step back and look at the fleet as an integral part of the business model. Vehicles might not be a Merchant’s core business, but they are what make that core business possible.