Best Practices for Protecting Margins from Rising Costs

As I write this article, the price of gas at the neighborhood Shell station is $3.29. Who knows what next week or next month will bring? The skyrocketing cost of energy is cutting into the profits of all American businesses, but vending and other delivery-based companies are particularly feeling the pinch. With razor-thin margins to begin with, operators are taking a big hit from rising fuel costs.

And if a 60 percent increase in the cost of energy wasn’t damaging enough, operators are facing rising healthcare and labor costs and lower manufacturer rebates. All of these factors combine to seriously hurt profitability. Fortunately, vending and OCS operators can adopt a number of "best practices" to mitigate the impact of rising costs and falling rebates. This article will take a look at what "best practices" operators can implement to stay profitable.

One key: reduce delivery trips
One obvious way of lowering fuel costs is to use less gas by reducing the number of deliveries. Doing this also makes better use of the driver’s time and provides more value to the operator for the same wages and healthcare costs.

If you or your route supervisors have not been optimizing your routes, let those rising costs be a catalyst to do it now! Although there are several ways operators can optimize routes, the best way is to look at certain "metrics" for each machine and plan on updating both the planograms and delivery schedules.

A modern vending software system will make collecting and analyzing the appropriate metrics much easier, but the job can be done without one. Start by looking at the most recent services at each machine, and consider the following metrics:

• Percent deleted — How empty was the machine when the driver arrived to service it?
• Percent filled — How full was the machine when the driver left it?
• Number of sold-out columns — The number of columns that were sold out.
• Number of sold-out products — The number of products (and not columns) that have sold out.
• Value of dollar sales (even if not collected).

The goal in fine tuning schedules and planograms is to service the machine when it is as depleted as possible with no sold-out products. A certain amount of sold-out columns may be acceptable because studies show you will only "lose" the sale if the product a consumer wants is not available.

Less service can mean better service
Many operators service a snack or soda machine when it is only 30 percent depleted, and it has sold out of one or more products. This is an opportunity to service the machine less often and provide better service. Here’s a strategy for doing so:

• Double up on the best selling two or three products that are selling out. On a "space to sales" soda machine, reallocate the space to the best seller(s) to accomplish this.
• Monitor the sell-outs for the next few services — they should be eliminated.
• Work to reschedule the machine aiming for a 40 to 50 percent depletion level. Typically, this will involve scheduling it for service at a 30 to 60 percent longer interval.

If collecting these metrics is difficult, or if a manual system is being used, then let the drivers collect the data. Ask them to write the following on each service ticket:

• How many products have sold out?
• Approximately how empty is the machine?
• The products that are selling best and how many columns of each they have allocated.

Oftentimes, just asking for this information will get your drivers focused on it. You will then be able to sort through this information and check up on your drivers.

The latest software and technology solutions can automate much of the manual route scheduling process, using the following systems: