Kriebel, Wesley R.

English

Research Papers in Economics

CAPITAL EFFICIENCY OF FACILITIES AND EQUIPMENT
by
Wesley R. Kriebel
Managing Director
Research and Economics Division
American Trucking Associations, Inc.
This afternoon, I intend to par-
tially put aside my role as a transpor-
tation economist and raise a few issues
in the field of capital efficiency in
the operation of motor freight trans-
portation. This subject is very impor-
tant because reduced capital efficiency
in transportation is ultimately trans-
lated into higher freight bills in the
food distribution industry,
Basically, I am asking you to con-
sider the effects of efficient use of
capital in three aspects of highway
transportation; namely, physical faci-
lity location, facility throughput, and
operations scheduling. In recent years,
the economies inherent in these areas
have been demonstrated in the operation
of regional distribution centers. My
comments will in no way do violence to
this concept, but rather will be in-
tended to extend it to what might be
termed the “traffic jam” which sometimes
occurs before and after goods move
through such centers.
To put the conclusions ahead of
the statement, the motor freight trans-
portation industry, while not partic-
ularly capital intensive, must obtain
the highest possible utilization of its
investment. This investment in capital
facilities consists primarily of truck
tractors and trailers which now cost
upwards of $75,000 per combination, and
which have a normal first owner life of
about four to five years. Coupled with
escalating operating costs including
driver wages, such an investment dic-
tates that the trucking industry obtain
the highest possible rate of utilization
in order to minimize costs to customers.
Our experience indicates that some
of the greatest opportunities for im-
proved productivity and efficiency lie
in reducing the time a vehicle is stand-
ing still waiting to be loaded and un-
loaded, or, rather similarly, when it
is moving slowly in congested downtown
traffic to and from a customer. Today,
standing time for even a two-axle de-
livery truck can run up to 20 cents per
minute. The costs for an over-the-road
refrigerated combination might be double
that amount.
One strategy utilized by the motor
carrier industry in optimizing its
capital efficiency involves what is gen-
erally known as the economy of agglomer-
ation. We have observed that motor
carrier terminals serve most efficiently
when they are closely clustered together
in a given urban area. Furthermore, our
observations, buttressed by Federal
studies, indicate that warehouses and
distribution centers often locate in
close proximity to such terminals, form-
ing what might be termed “transporta-
tion parks.”
The basic criteria for site selec-
tion for such agglomerations have been
defined by an ATA staff member familiar
Journal of Food Distribution Research February 79/page 35with this phenomenon in a recently pub-
lished state-of-the-art paper. The time
required to reach customers is considered
more important than is the mileage in-
volved in operations, and thus carrier
terminals and distribution centers tend
to cluster at or near the intersection
of two or more Interstate or other major
highways in a suburban location. Fur-
thermore, the location chosen is norm-
ally on the side of a given urban area
closest to the next urban concentration
and/or the area of greatest growth and
development. The advantages of such
locational criteria are directly trans-
latable into reduced capital costs for
buildings and land, reduced taxes, im-
proved traffic flow patterns, lower pil-
ferage rates and a “numberof other sim-
ilar factors--all when compared with
central city locations.
Applying this motor carrier ration-
ale to food distribution centers, the
improvements in capital efficiency should
be readily apparent. Extending them
further, additional operating cost sav-
ings should also be expected to flow
from such a locational selection in
terms of reduced labor costs and the
1ike. More important, when distribution
centers are in close proximity to tran-
sportation facilities, the time and cost
involved in obtaining and dispatching
vehicles and freight is sharply reduced.
Moving on to the second area of
improved transportation capital effic-
iency which might be utilized by the
food distribution industry, I would like
to discuss facility capacity. The prin-
ciples of physical distribution manage-
ment tell us that the best located and
designed facility in the world will be
a constant financial running sore if it
has the wrong capacity. Just as too
large a facility represents an unecon-
omic allocation of capital resources, an
inadequate facility will always be
operating beyond its capacity and thus
at above optimum cost per unit of goods
handled.
At this point, let me explain that
distribution center capacity may be
considered in two different ways. First,
there is the capacity of the center to
store and sort goods, the interior
square footage. Second, and more im-
portant to transportation, is the cap-
acity to move goods in and out of the
facility. This latter has often been
a problem with even the most modern
warehouses and distribution complexes.
The focus here is on the number and
design of the loading doors or bays
provided.
Fortunately, there is available a
dock planning manual, prepared for The
Operations Council of the American
Trucking Associations and now listed as
an American National Standard, This
manual permits the designer of any
freight handling facility to determine
the number of doors or bays required
under varying waiting time tolerances,
given the anticipated total freight
volume 20 years after completion. Ob-
viously, the less waiting time desired,
or the shorter queues which are con-
sidered tolerable, the larger number of
doors. The manual also provides the
architect with proper dimensions and
clearances to accommodate present and
anticipated future trucking equipment.
The payoff in capital efficiency in
the utilization of this standard plan-
ning manual comes in the avoidance of
physical bottlenecks at the loading
docks, accompanied by costly delays to
both you the shipper and to the freight
carrier. The latter’s increased costs
will eventually be passed on to you in
the form of higher freight rates.
February 79/page 36 Journal of Food Distribution ResearchFinally, there is the rather con-
troversial subject of operational sched-
uling as a tool to improve capital ef-
ficiency. Regardless of how heavy or
how large is the equipment utilized by
the motor carrier industry--and improved
vehicle sizes and weights will improve
efficiency and help hold down freight
rates--that equipment cannot operate at
its optimum efficiency when it is waiting
in line to load or to discharge freight.
This wasteful waiting costs both the
users and the providers of motor freight
service untold millions of dollars an-
nually. Further, it wastes energy, can
add to air pollution and may contribute
to traffic congestion in some areas.
Long waits for dock space can be
partially alleviated through proper
facility capacity and design such as I
have described. But another source of
the problem often lies with the shipper
and receiver himself--in other words,
with you. We have been told that many
motor carriers could substantially re-
duce their capital investment in equip-
ment and thus improve their capital ef-
ficiency if they were able to receive
and deliver freight throughout the
regular business day to all of their cus-
tomers.
Instead, many firms insist on
scheduled times for pick-ups and deliver-
ies, while others will only receive or
tender freight between certain limited
hours--such as 11 AM until 1 PM. To
explain the inefficiencies inherent in
these systems, I must turn, in part, from
capital efficiency to labor efficiency.
Limited freight handling hours have been
established by many firms in an effort to
reduce their labor requirements. By
utilizing the same personnel to handle
over-the-dock freight part of the day as
are assigned to inside warehouse duties
the balance of the working day, total
manpower requirements are reduced.
While this reduces labor costs for
the user of freight services, it in-
creases labor--and equipment--costs for
the providers of these services. A
motor carrier who serves a number of
customers who have only limited freight
service hours requires more equipment and
more manpower than is optimumly effic-
ient. To take an example, if a trucking
company has forty customers who will
accept freight only between 11 AM and
1 PM, that company might require ten
vehicles to make deliveries. If, on the
other hand, those customers would accept
freight anytime between 8 AM and 4 PM,
the trucker might be able to handle their
business with as few as three vehicles.
The same principle applies to pick-ups
of freight.
The differences here may have been
exaggerated slightly, but the possible
added efficiencies are really signi-
ficant. Dock congestion is reduced,
capital and labor costs are lowered, and
overall service levels are greatly im-
proved. Looked at from your point of
view you would be asked to add dock
employees at perhaps $5 to $8 per hour
as a trade-off for truck waiting time
which we estimate at about $12 per hour
for a pick-up truck and up to $24 per
hour for a line-haul refrigerated combina-
tion, We believe that all would benefit
by this trade-off.
To summarize, I am suggesting that
there are several areas in which the food
distribution industry and the motor
carrier industry might cooperate in im-
proving capital efficiency of both faci-
lities and equipment through a better
understanding of each others problems--
and through the application of physical
distribution management principles.
Journal of Food Distribution Research February 79/page 37

CAPITAL EFFICIENCY OF FACILITIES AND EQUIPMENT

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