As if trying to succeed in this industry wasn’t challenging enough, the past few months have made it even more difficult as gas prices have risen to more than $3 per gallon in some parts of the nation. Today, the national average for a gallon of gas is $2.77, nearly double what it was just one year ago. Every driver in the U.S. is feeling the pinch and taking steps to ease the burden, but what do you do if your business relies on a vehicle (or a fleet of vehicles) to transport parts to jobbers and installers? We asked three WDs from across the country how they are dealing with the rising cost of fuel.
Dick Beirne, President, United Auto Supply (Federated Member), LaCrosse, WI:
How are increasing gas prices impacting your parts delivery service?
Increased fuel costs have been a challenge for us as it has been for any company that provides rapid-response delivery to its customers. With a fuel expense that is double what it was a year ago, we have looked hard for ways to dilute the impact of that increase in expense without cutting back on customer service.
What kind of changes have you made as a result of increased fuel cost?
One of our solutions has been to develop a “Smart Service” initiative in which we are focusing on ways to eliminate wasted trips. That program is designed to spotlight those things that trigger a delivery run and to take actions to prevent redundant trips due to ordering errors or other controllable events. If we make an error at the counter or in pulling an order, a single delivery trip can turn into two. By focusing on this issue, we have a goal to eliminate those trips that are made to fix a mistake. “Smart Service” also calls for more intelligent and thoughtful dispatching, so that we can combine more stops into a single run without slowing our response time.
A second solution has been to move to a single-payer fuel management program. Not only do we have increased control over fuel purchases and a single vendor to pay, but the monthly management reports help us benchmark and rate our fuel economy performance by vehicle and driver. That tool allows us to compare vehicles and drivers to see who gets the most and fewest miles per gallon.
While we are seeing fuel cost surcharges and price increases from our suppliers, we don’t believe that our customers are yet willing to accept the same from us. At this point, our delivery is still “free” and our philosophy is to build the cost into our pricing structure. Due to competitive market conditions however, we have not found it easy to pass this expense along in the form of higher prices, but rather have had to absorb the additional expense.
Should higher fuel prices be here to stay for the long term, we will likely have to address this issue with a more permanent solution.
Steve Siegel, VP of Sales and Marketing, United Automotive Supply Co. (IAPA Member), Warren, MI:
How have the increasing gas prices changed your parts delivery services?
We’re one of the “last of the Mohicans,” so to speak. We’re still a three-stepper in the Detroit area and we service a lot of big jobbers that have 10, 20 and 30 trucks. In our company, the cost of gas has gone up just in the last month by almost $5,000. That’s not counting the increases from the past year.
In our case, since we have big trucks that run on diesel fuel, we have instated a sliding scale based on our customers’ volume, where everyone pays a minimum monthly delivery fee. Our trucks go out at night and typically drop in lock-boxes for large stock orders, so we have set up surcharges.
When did your company institute this change?
We sent a letter out on Sept. 15 and it kicked in at the month’s end. It will be a monthly fee. We’re in a very competitive metropolitan area and many of our customers have also seen their gas bills skyrocket. A few jobbers have tried to institute an invoice-type delivery charge and they got very strong resistance from some of their installers. Many of the good jobbers that we work with met with their top 30 accounts, and believe it or not, those customers said, ‘Raise your prices.’ Our business is unfortunate in that we have to play to the lowest common denominator, not the highest.
Joe Felicelli from Federal-Mogul made a great comment recently, he said, ‘Somehow, the market price is determined by the stupidest customer.’ And, it’s true. The dumbest customer sets the price. He may go out of business in two years, but he set a low price.
A good independent businessman knows that if his costs have gone up, then he has to deal with it accordingly. I had a couple of customers who went to their top accounts and said, “Look, if I charge you 50 cents an invoice and I deliver to you 10 times a day, that’s only $5 a day. That is cheap. And, if you are doing $10,000 a month with me and I’m delivering to you 25 times a month, that’s only $125. If I raise my prices 2 percent, that is $200.” And you know what the customer said? ‘Raise your prices 2 percent.’
David LaRico, Purchasing Agent, Pacific Automotive Co. (Parts Plus Member), San Francisco, CA:
Has the rising cost of gas impacted the way you deliver parts?
No. We deliver to various installers throughout the city, and when they need it, they need it.
So you are just absorbing any additional costs that result from higher gas prices?
That’s correct.
Was there any discussion about the impact of gas prices on your business?
Yes, but in this industry, the prices are pretty close regardless of whether you buy it from me or a competitor. A six-pack of Pepsi is about the same whether you buy it from one supermarket or another. And, when somebody is buying, you have to have the price pretty close to what everybody else is charging. So delivery is not part of the equation if you are our customer.
Some of our vendors are charging fees, but we can’t do that based on the market. The customer would say, “That’s fine, I understand, but now I’m going to go buy from the guy across the street.”
A Champion spark plug is a Champion spark plug is a Champion spark plug. Why do I want to buy it from you and not from somebody else if you make it uncompetitive for me?
Summary by Amy Antenora, managing editor:
We’ve all felt the impact of today’s wildly fluctuating, and painfully rising, gas prices. We pay at the pump and it hurts. Many drivers today are turning to alternate methods of transportation – carpools, public transit, hybrids and bikes. But what do you do if your business relies on a vehicle (or a fleet of vehicles) to transport parts to jobbers and installers?
As we all know, this industry has long suffered from pricing challenges. Due to such constraints as consumer expectation, it has been nearly impossible to charge consumers any more than we already do for parts and service. And now, increased fuel costs have created a double-whammy of sorts.
We took a random sampling from warehouse distributors from across the nation to find out how rising gas prices are impacting their parts delivery services and the response we received was interesting, to say the least.
As exemplified by the WDs we spoke with, it seems that the larger WDs like three-stepper United Automotive Supply (Warren, MI), which does a high volume of business, are more easily able to pass along cost increases to the customer, while smaller facilities like Pacific Automotive feel inclined to absorb the cost in order to stay competitive. Yet, much in the same way you may try to hit the grocery store and dry cleaners on your route home from work in order to eliminate a few extra trips and save a few bucks, United Auto Supply (LaCrosse, WI) has come up with a creative way to be more efficient in its parts deliveries, thereby avoiding having to pass any cost increases on to the customer. Making lemons out of lemonade, the company used this challenge as an opportunity to improve business operations.
With no sign of relief from rising fuel costs on the horizon, it looks as though the entire industry should begin looking for creative cost solutions to what may become a permanent reality. However, if you look at it right, this issue could present us with an opportunity to become more proactive rather than reactive.
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