The phone rings. It’s your biggest account.
“Hey, I’ve got a favor to ask. I forgot to put a container of plumbers putty into the load we picked up this morning. It’s the $3 putty in the 15-ounce can. The job site is 17 miles down the 504. The electrician and my two drain guys are already on site and waiting for me to finish the drain flange. Can you run it over?”
No problem. You send one of your team to run the putty to the customer.
It takes that staff member 90 minutes there and back and the customer is happy. But is your bottom line?
Let’s really break down how much that last minute delivery actually cost you. (Warning: some math ahead).
What is RUR?
A RUR (Resource Utilization Rate) is a calculation every plumbing supply house makes to ensure that every worker is earning more in sales revenue than they are paid as an employee.
Let’s say you have a worker that’s paid 40 hours each week to run a function within your supply house (e.g., estimating, bidding, stocking, inventory procurement, new product review) and that worker is called away for just one hour a day to deal with deliveries.
The RUR calculation for that worker looks like this:
5 hours of deliveries/lost hours a week = 35 productive revenue generating hours ÷ 40 salaried hours. This employee’s RUR would be 35 ÷ 40 = 0.875, or just 88%, when the goal is 100%.
If we assume you pay your worker the going rate of $12/hr, that means $60 of their paycheck every week is for non-productive hours.
But it’s not just the salary that we have to consider. You also pay for benefits, taxes, etc
According to an MIT study, the all-in cost of an employee is actually 1.25X to 1.4X their salary. So, that worker’s 5 non-productive hours actually cost you between $75 and $84 per week.
Your Fleet’s RUR
A truck or van fleet also has a RUR.
For every hour that a vehicle is not in use, its RUR sinks below 100%.
A vehicle’s “work week” is not just the traditional 40 hours; you pay for the vehicle 24 hour 7 days a week: 7 X 24 = 168 hours/week.
Even if a vehicle is productively generating revenue during business hours for a full 40 hours/week, it has a RUR of just 23%. That’s because it only earns for 40 hours and incurs 128 dormant non-productive hours when there is no one around to drive it beyond the normal work day.
That vehicle also comes with a lot of costs, expressed cumulatively as the total cost of ownership/operation (TCO). These costs include capital expense for the vehicles, loan service charges and interest, insurance, maintenance, driver drug tests (and HR personnel to schedule them), fuel, the driver’s salary (plus, sick time, overtime, and accrued vacation).
Think of your truck as a very expensive — but not very productive — employee.
The Total Cost to Deliver
Let’s go back to our initial scenario where you sent your employee (let’s call him James) to run the $3 plumbers putty out to your customer. In this scenario:
- The RUR for James’ eight-hour day dropped from 8/8=100% to 7/8=87%, just to sell a $3 dollar item.
- And the van’s RUR just dropped by an hour as well, because it’s making a delivery run with only $3 net sales value.
Now, let’s assume it costs you $15/hour to run the van on a TCO basis and it costs $16.80/hour for the worker to make the delivery. ($12/hour salary at a 1.4X premium for taxes and benefits = $16.80/hour).
That $3 container just lost you $31.80 plus the cost of the lost work that James would have been doing — selling, bidding, ordering, and stocking. If James normally generates $300/hour in sales revenue, it’s arguable that, conservatively, the $3 putty sales lost you $15 in van costs, $16.80 in labor, and $300 in sales, or $331.80.
And that’s to say nothing of the cost to the contractor onsite who has three journeymen sitting around checking football scores, waiting for the drain work to get done. It’s arguable that a missing $3 item cost that general plumbing contractor not $3, but $1,103.00, while driving down his RUR to frightening lows.
Why Run Your Own Fleet?
If a missing $3 item can cost a supplier $331.80 and far more to the customer, why do plumbing supply houses even run their own trucks?
If other industries have thrived using outsourced delivery services, why can’t a plumbing supply house follow the same model?
Let’s look at the math again (I know, bear with me).
On-Demand Delivery Service
Typically these companies charge per delivery, so the calculation would be:
1 delivery = $25
We know from our calculations above the cost to fulfill that delivery in-house is:
$15 van costs + $16.80 labor + $300 lost sales = $331.80
This means, you could have saved around $306 by using an on-demand delivery service to cover the missing putty. Plus you would avoid the headache of maintaining a fleet and preserve the productivity of not just James, but all the workers in your shop.
That’s a 1224% improvement over James taking an hour to run the putty to a jobsite.
The Bottom Line
It’s time to take a good hard look at the cost of fulfilling deliveries in-house.
For many plumbing suppliers, it doesn’t make economical sense to continue sinking money into their fleets. Instead, partnering with an on-demand delivery partner can help reduce those overhead costs, preserve staff productivity, and even help offer faster delivery.