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FACTORS AFFECTING TILE DZILI'J.~m”-.Y OF IERCIL’GIDISE

IN TEE FOOD CHAR! INDUSTRY

By

Robert Han}; De Tieese

A THESIS
Submitted to the School of Ch‘aduate Studies of

1.103;}. 9‘ ‘1 State College of A-jriC'Jle‘e and Alieplied Science
in partial fulfillment of the requirements

f‘

for the dcgrce cu.
LESTER OF ARTS
Dolmmnt of General Business
Curriculum in Food Distribution
1952

 

111‘! [[[[.l|||l\1.l

ACE-3011.1) CEL‘TS

The writer wishes to express his sincere appreciation to Dr. Kenneth
Wilson, Director of the Gmieulum in Food Distribution at Michigan State
College, for his ntereet, guidance, and valuable assistance during the
preparation of this study.

Grateful acknowledgement is due those companies referred to in this
thesis, and in particular to Mr. K. G. Birdseye, Director of Research of
the Grand Union Comm, Mr. L. D. Smith , Warehouse Operating Liamger of
the Jewel Tea. Company, Incorporated, and Er. W. R. Rosenberger, Assistant
Treasurer of the First National Stores, Incorporated, for their ampera-
tion and help.

Finally, I would also like to agrees my sincere thanks to Er.
lensing P. Shield, Resident, and w. Lloyd 17. Malay, Secretazy, of
the (Trend Union We, and to all other persons who provided the author

with the opportunity to attend lflchigan State College .

TABLE OF cum-r23
CHAPI‘ER
I. IIlrtCD‘JCI'ION-oooo.oo.o.oooooooa.
EECpensoCmnperison.......o........
itiethods of Allocating Delivery Eirense . . o o o .
Purposeofthestudyoa0-9....oooooo
’a'fartim Emergency Iroblems . . 9 o o c e o o . . o
SourcesofData .o...o...........
II. THE RECR‘I‘AE-ICE OF hEiRCIiAl-IDI SE DBLIVZBIES . . . . . .
Dependence of Store Operations upon Deliveries . .
Staple Grocery Deliveries . . . o . . . . . . . .
ProduceDeliveries..............o.
LBatDeliveries ........._§.......
Changes in Available Facilities . . . . . . . . .
Refrigeration .oooo'.............
PalletLosdingandmloadmg...oo......
Px'oblems Encountered During; tortime Period . . . .
EileezeQuote 000.000.000.000...
Fewer Staple Grocer};r Deliveries . . . . . . . . .
Check List for Lbasuring Ability to Meet Possible

Regulations and Restrictions in the Current

Entirgfincy'cococoooeoeooooooooo
III. mEEODS OF DELIVERY 0 o o 0’ I c o o o o c o o o o c=
lupin Beta Stores -- Comenyhommd Tnzclclng . o e .

AdvantagesofleaaingTrucksoo.ooo.ooo.

Edtfifi

CHAPTEI

Jewel Tea Company, Incorporated - Ieased Trucking . .

Ilational'Tea Company's Preventive mintcnz-moe

3351593 oooocoucoooooacooooooo.

DirectStoreDeliverieS..........o....

DELIVERY names

w m7

IV. 021'"; VARU.TI~"‘-=E?S 0'1"“ TZZE TOEHEEE More

101} O?

O I O O I O O O O C O

WMOnCOmpmy........o

First National Stores, Incorporated .

' Colonial Stores, Incorporated

0 0

ALIC- CATIE‘IG

. O O O O O 0

Female for Distributing the Delivery EJQJense

Stems

V. T233 I333. CSETP-oTO-EALES MID TTZZ IECS‘I-JLIJfiCATIOEE LETIIOTJS

OCOOOCOCOOOOOQOODOIOO

OF ACCOUITEING FOR THE DELIVE‘J‘IY 11.141913 . o c o c o o 0

Factor of Comany size
For Gent-«baseless Method

Jewel Tea 00:11pm, Incorporated . . o

Non-Allocation of Delivery Expense .

Size Of Corporation 9 o o a
Central EEI'GhOUSing . o c a
VI. Smallfiil' MID CONCLUSION o o o

BEHUQWHY . o o o o o c o c o o

1

a

0

PAGE

23

25
33

3h
35
39
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ll

LIST oar moons
FIGIH’E PACE
1. One Thousand Lflle maintenance Inspection Check-Off list . 27
2. Individuanehicle huleage Report. . . o. .. . ... . 28
3. The Driver's Report in Three Parts 0 c o . o o . o o o . 29

h. Ding-am Showing Zonal Arrangemnt by Mr Eiles from the
ZOHOWlI‘ehOU—SE?coco-900.00.000.90... 1L2

 

[ [[[[[{.[ llll'l

 

CIL’Lm I
BJTRCD UCTIOII

In the retail feed hidustzy today the delivery of merol'mdise to
the store units is a very important elezzxzrrt in the cost of doing business.
Tho total annual expenditures for this purpose in many food chain can-
panies amount to several millions of dollars and account for a substanc
tial percentage of the total operating costs.

For sample, the Jewel Tea Company, Incorporated, of Chicago,
Illinois, which is comprised of approthtel‘y 350 retail units all located
in the Chicago area and within four counties, bad a transportation cost
in distributing merchaniise to their stores for 1951 totalling a little
over one million dollars.

This transportation amuse accounted for 6 per cent of the total
expense dollar ., In this Operation no one store is. located more than
fifty miles from the warehouse.- In many companies, warehouses are often
located hundreds of miles from some retail units which they supply.
Fwthemore, all. meat is delivered to the retail units of this coarqnam
directly from the supplier.

The Grand Union Company of East Patersm, New Jersey, having 320
retail units, has some stores which are Sit'otiltcd over one hundred miles
from the warehouse. It delivers approzmntely 30 per cent of all meet
from its own warehouses. This coatzpony attributes approximately 6} per

cent of tire expense dollar for the tramportation expense.

It would seem that since the Grand Union Company has stores
located a greater distance from the warehouses, and slso delivers
30 per cent of its meat supply from its own warehouses, its transpor-
tation expense should represent a much greater per cent of the expense
dollar than that of the Jewel Tea. Coupeny, Incorporated.

than comparing delivery expenses of various chains, however, it
is necessary to take into consideration 8. comparism of the per cent
of merciwndise they buy on s delivered or direct delivery basis. The
higher the per cent of "delivered cost" merchandise involved, the lower
the isolatable trunking exposes are liable to be.

Delivered cost merchandise is that merchandise delivered to the
stores or warehouses one delivered basis in which the cost of delivery-
the amount which it costs the supplier to ship this mrchandiso to the
warehouse or stores «unmet be reflected in the price the cmpany ms
for the merchandise if the suppliers are to stay in business. To deter-
mine these probable truchng expenses would be an involved sccmmting
task far beyond the powers of the food chain companies.

Also, some companies have route divisions in which the cost of
delivering merchandise to branch warehouses fight be included or ex-
eluded.

hese are just two variable factors which would have to be reckoned
with in making accurate com-risons. This only helps to point out that
it is not practical to compare percentages or oven actual cost figures

of one company with another.

 

 

[III-[.[ll[ [[[ ({‘[ I'll

host retail units receive at least we and quite often two or
three staple grocery deliveries per week. Since the dollar value of
the average inventory left on hand in any one store at closing time on
Saturday night seldom exceeds a one week's supply, it is relatively sim-
ple to understand what would happen should the warehouse delivery of
this type merchandise be disrupted for me week. The important point
to understand is that though much of the mrchandise (the slaw-movers)
might be kept in sufficnent quantity on the shelves to last for sev-
eral weeks, there are many items such as soap ponders, cereals, cer-
tain canned vegetables, baby foods, and the weekly specials which are
often in very low supply on Saturday. It is not uncmon, in fact,
for a retail store to be completely out of certain staple merchandise
at closing time cu Saturday night.

Praduce (fresh fruits and vegetables) is considered to be the most
perishable merchandise sold in a retail food store. For this reason
more frequent deliveries are necessary. In new food chain canpanics
produce is delivered daily to the retail units. Since the stores oper-
ate on a day to day basis, it is necessary to have only a mall inven-
tory on hand at the close of each day's business. For this reason the
operation of the produce department is even more dependent upm warehouse
deliveries than is the grocery department.

In some commies mat is delivered to the stores from comparw—oamed
warehouses. In other operations meat is delivered to the stores directly
Iran the warehouses of the supplier. In still other canpanies meat is
delivered to the retail units from both conpany warehouses and directly
from supplier mehouseo.

3
The food chain mummies have several different mthods of 9.1.10—

cating the eXpense of delivering merchandise from their warehouses to
the individual store units. Of these , there are three methods which
are most coxmorfly used. These are (1) s. percentage—trsfles basis 3
(2) a mileage basis by hmxdredweight; and (3) as an overall Operating
expense in which the companies do not attempt to break down the dc-

livery costs on a store or departmental basis.

Purpose of the Stucbr

The purpose of this study is (1) to point out the Woe of
the delivery function as compared with other operations; (2) to examine
em or the methods of accounting for delivery expenses which are in
nest comm use today in the food chain industry, and to substantiate
those methods with notes]. case studies of system in use by specific
food chain conpenios; (3) to earpiein why the delivery Operation in the
toad chain industry varies in cost and mthod; and (h) to point out
objectively the advantages and disadvantages at the various methods as
spplied by saspanies of different lines and locations.

An additional purpose of this stuchr is to present the material in
a mnnor which V111 be helpful to the student of food distributim and
the food chain industry in the future.

Not only is the function of delivering merchandise important all a
cost factor, but it is use 1 very inpwtant item in the physical oper-

ation of the business.

This study has stteuptsd to point out sum of the problem confront-
in; 5 food chain company, relative to mrchendise deliveries, during a.
mtionsl energenoy such a World War II.

h

It is hoped that the inclusion of this material will assist the

food chain companies to meet such restrictions and regulations as may

be encountered during a wartime emergency period.

Some of the items covered are:

1.
2.
3.
h.
S.
6.
7.
8.
9.
10.

Methods of routing

Importance of keeping records

Efficient use of equipment

Various methods of loading and unloading
Inventory needs of spare parts, at caters
Necessity of an efficient maintenance program
Tire care and tire requiremnts

Necessity of drivers' framing

Personnel records

Long-trange equipment programs

‘ Sources of Data

The bulk of the information used in this thesis has been secured

through personal correspondence with, and visits to a select few food

chain companies.

Certain general information was procured from periodicals and

government documents. However, Iince there is virttmlly no written

matter on this subject, the author found it necessary to rely mostly

on information from those persms and companies actually engaged in the

industry.

The idea for the selection of this subject as a research project

was decided upon after having read a treatmnt of the subject of

"Allocating Delivery Costs" as presented by hr. Killian R. Rosenberger,

5
Assistant Treasurer of the First I-Iational Stores, Incorporated, before
the Jmuary, 1950, conference of "Operation, Incorporated", 31d later
distributed by the National Association of Food Chains.
' ‘ The fonduinr; dmp'ter will be devoted primarily to a further dis-
cussion cf the important role that transportation and store deliveries

play in a food chain store Operation.

TILE ILWTAHCH (I? 3177:: 15:3.“ 73 37mm

Delivery is a. service department within the whole oc'gazdzation.

No profit is made in the chain until the merchandise reaches the con-
sumers' hands, and every 1/10 of l per cent of overhead is important.
It is the function of the warehouse and delivery system to furnish
ammiticn to front-dine stores .1

In its physical ispwtancs as compared to other operations, the
delivery d merchandise in conjunction with buying and warehousing is
definitelyone ofthensstimpm'tsnt matimsinthefoodcheinin-
mm.

The food 01min could continue to function indefinitely should the
advertising operation be discontinued. Supervision above that of stare
wager could also be eliminated and, though the stems operations would
undmbtedly suffer, their continued operation could be presumd.

Dependence of Store Operations upon Deliveries
In most food chain ccmpmies, deliveries of nerohsndjse are thought
of as (l) the staple grocery delivery, (2) the produce delivery, and (3)
the neat delivery.

I: Haifa-1'51 Kesociation ofjood 01mins Sumnsry Report on the
umhouonnmm 11m; Clinic? Rational Association Woo lains,

Won, Do as; Jazmary 7’ 1950, P0 300

(W

8

Regardless crimes method a used m- delivering mu, «mom
is a full week's supply received on one delivery. Three 3' more de-
liveries per week are not meow.

In contrast to the independent operator, the food chain retail
market is virtually dependent upon one source of supply. The inde-
pendent operntor, should a source such as a particular wholesaler
fail to deliver the goods to him when needed, can readily send his
order to any one of a number of other sources. The food chain mar-
ket. can only sit and wait, for (ml),r in rare instances today is a
store manager authorized to purchase staple groceries locally. There-
fore , if the company warehouse delivery does not come through, the

retail unit must perforce do without.

Changes in Available Facilities

Without the advent of the wide use of" motor transportation and
the growth of this country's extensive highway system, the grocery
chains might never have grown to the magnitude that they have reached
“dam

In the early days of thechain food companies prior to, and for
some years after 1900,r each retail store unit of a chain company was
Operated much the same as was an independent market. The store man-
agar purchased locally a considerable portion of the merchandise he
handled, especially perishable products such as produce, meat, and
may dairy precincts such as eggs and milk.

is refrigeration and transportation facilities came into wider

use, many of the duties of store wingers were assumed by the head-

9
mmters' stai‘i‘s. For example, as these facilities grew, so too did
the size of the food chem. With the increase in size greater con-
tralization of operations was employed. ‘
Not mly were Operations centralized but they also became in-
tegrated so that each department, such as binning, warehousing, de-
livering, and advertising, had the interest of one another and the

coxzrpamq,r as a whole when performing their respective duties. They
began to function as a team and held periodic meetings to project
and plan future Operations .

Rather than depend upon hundreds and in some instances thousands
of purchasing agents, buying was centralized and accomplished through
specialists in that field frm the central office or headquarters.

Because of the increased efficiency of truck deliveries, more
merclmndise was pzn'chased in large quantities and distributed from
company warehmmes,2 thus making lower prices possible. This func-
tion. of supplying the retail units with merchandise was found to be
such more efficient when a country-armed central warehouse was used
as the principle source of supply. In “dais method the orders are
dispatched from the warehouse on regular schedules, and they are
received at the store as complete orders. Usually the warehouse pools

a load of different products for one store to keep warehouse and

 

2. jsiarelzcuse. In this report the term "warehouse“will be inter-
preted as a staple grocery, produce (fresh fruits and vegetables),
and meat warehouse which serves chiefly as a distribution center for
an individual retail food chain.

10
delivery expense at a minimnn. This practice eliminates almost en-
tirely the need for g Iahamn-denverymm who calls on each store
daily with his 01m partimilar line. Thus, in addition to reducing de-
livery expenses, 3 modern warehousing system inmate” the tim
available to store personnel for their primary activities .3

Since the days of forty and fifty years ago, new types at
trucks have come into use. There has been a trend toward devel-
oping trucks to fit the specific need of mrchandiu to be carried.
Refrigerated trucks for those items needing refrigeration and heated
trucks for those climates requiring them were developed. Trailers
were insulated and refrigeration units were momted an the outside
at the front and near the roof of the trailers in order to conserve
interior loading space;

Some of the particular advantages incorporated in the design
and Specifications of the newer tractor-trailers are:

1. Protection of load against extreme of heat or cold.

2. Provision for easy unloading by driver or store mum]. at
delivery points.

3. Maximum route range of over 250 miles without a refilling of
the fuel tanks.

14. A road Speed equal to legal limits with sufficient reserve
' h

power to negotiate hills without too much slmdng down.

 

3. Sayres, Pail: Food Marketing. New York: HcGral-Hill Book
CW, 1110., 1950’ pl 23¢~

h. Anon. Kraft. Designs Trailer for Bigger Loads. Food Industry.
20(June, l9h8), pp. 871-872.

 

ll

lino mer new feature union speeds loading and unloading is the use
of pallets. A pallet is a portable, wooden or metal platform, 0033-
monly about forty inches by forty-eight inches, for holding material
for storage for transportation. Some food chains feel that the use
of pallets is a remedy for the problem of loading and unloading trucks
manually. The pallets are loaded in the warehouse with the merchandise
destined for the retail unit. The pallets are then placed upon the
delivery trucks, especially fitted for handling pallets, and delivered
to the retail unit where the entire pallet is unloaded as a unit . .d
rolled (the pallets may be equipped with wheels or placed upon dollies)
into the storeroom where they can be unloaded as needed. In this
manner an entire semi-trailer my be unloaded inas few as twenty opcr~
ations.

This'procedm‘c, however, is still largely in the theoretical
stage. To be reasonably successful, delivery truck bodies must be
made to such Specifications as to accommodate the specific pallets
used. Investigation of the subject seems to indicate the following
shortcomings of the system:

1. Breakage and damage to mrchandise is substantial due to the
inability to make the load "tight“ and the jostling the goods receive
when the track is in motion. This breakage is partimzlarly large for
fragile goods and goods packed in glass. One chain operata' now using
the system orpressed the doubt that loaded pallets can ever be made to
fit in truck bodies snugly enough to prevent excessive damage to nor--

clmndise.

12

2. Unit loading results in loss of track capacity. Pallets are
seldom loaded on the truck greater than time-quu’tere of the height
of the truck body. To overcome the loss of space above the load
one firm hand-places breakfast and steer light merchandise on top of
the loaded pallets. This, it reports, increases the load but also
greatly lessens the efficiency of the system.

3. Unit loading is possible only' for very large adorns

Since unit loading is possible for very large orders, this sys-
tem does seen feasible for food chain store operations or for grocery
wholesalers where there is close cooperation between the warehouse
and the retail units served.

In contrast to the above statement concerning the breakage and
damage to palletized merchandise while the truck is in motion, Abner
A. Wolf, Incorporated, a grocery wholesaler of Detroit, Lichigan,
expressed the Opinion that very little mrchandise is damaged in
transit. The warehouse supervisory personnel attribute the main cause
of ruined merchandise to handling in the warehouse prior to, and during
the unloading of the merchandise.

Many people interested in this subject feel that with the neces-
sity of decreasing Operating upenses, the use of pallets for de-
livering staple grocery merchandise will one day become a semen

practice in the food chain industry.

 

3. ‘ih'xited States Dapartmnt of Commerce. modernizing and Oper-
ating Ch‘ocerltarehouses. Domestic Commerce Series No. 26. U. S.
Govenmntfif‘rinting Office, ‘t‘sashington, D. 6., 1951, p. 1&5.

3.3
Problems Encomtered Dm‘ing Wartime Period

With the commencement of hostilities in 191:2. the food chain com-
mnies, as did most everyone not engaged in war work, found themselves
subject to certain restrictions and hardships.

The major problem eneomtered was in commotion with trimartatim
an! delivery of mercharflise. During ‘Js'orld War II a mileage quote was
established regulating the mileage of delivery trucks to 75 per cent of
prewar mileage. For example, if prior to the war, a comm}? had an
annual deliver"; mileage of one mJJion files, they were only allowed
750,000 for trio mm purpose during the mar.

The question then was how to resolve this problem. Obviously, the
only practical solution vies to decrease the umber of deliveries made
to each retail unit. The next question encountered was: of the grocery,
produce, and meet deliveries, which shall be decreased?

The decision to be mde was whether produce should be delivered,
perhaps semimeldy rati'zer than one delivery per day; whet: 1e1- meet should
be handled entirely through mat packing commios who would then be
responsible for its delivery to the stores ; or whether deliveries of
staple goceries should be decreased in number.

The solution decided upm by most commfies was that, since produce
nerchandise was so very perishable, it would not be wise to out down on
the number of deliveries received at the retail unit.

It was realized that it would. be impossible to receive all meat
Irma packers, since the;r (the packers) were also subject to the 131103ij
quota and could not mxicrtake additional deliveries during this time.

r.

11;

The (2:le other alternative left to 00.th nth this mgulation,
and still not dismpt store operations to any appreciable dome, seemed
to be that of decreasing the nuzber of staple grocery deliveries. It
was reasoned that since the retail units normally received two staple
grocery deliveries per week, by cutting this to one delivery per week '
the mileage quota for this one operation would be decreased. by 50 per cent.

It was also decided to eliminate the "sugar" tnmkl. In many food
chain comerdes, the anger Simply is delivered on a biweekly schedule a.-
part from the regular staple grocery deliveries .- For the duration of
World War II ‘many of times conparfles decided to eliminate this separate
operation and to deliver the auger supply together with the regular
gocery delivery.

It was found that by cutting this me Operatic: 50 per cent and by
slimming the other (the agar deliveries) it more than Wanted fm‘
tthSper centreductianmmleage of totaloperetionsu setforthby
the regulation. This, therefore, allowed for the same rumor of produce
and meat $11me and the quality of the perishable Mdmndine did
not suffer. ‘

Decreasing the numer of staple grocery deliveries made to the
retail units want tlmt larger deliveries would be necessary. This
presented a storage problem to 1% store zmager. Home than one do-
livery per week had been previously allowed him in order to add his to
estimate more closely his merchardise needs with actual sales. In my
instances more than one delivery had been allowed to certain stores

. 35
because of the smll size of the beacoon storage area. With the de-
crease in number of orders and the increase in size of the orders , the
storage problem was often a serious one and one which necessitated ex-
tremel;r close supervision of emetinf; imentories by the store manager.

Because of this problem of storage in the stores encountered dur—
ing the war, some comics, the Grand Union Germany to Specifically
name one, made it a post-rm policy to provide adequate storage space
cormensurate with meted volume in the future. there possible, a
full basemnt was provided so as to allow for a 2:123:11me of sales area
and still provide a large storage area.

Additional problems were met by those conqoanies who owned all or
part & fine delivery equipment. During this period scarcity of amber
caused an acute shortage in the existing tire supply which necessitated
ratiomrr; of tires. certain metals and repair parts were issued on a
priority basis , which often made it dii’fimilt to keep equipment in the
best rtmrxim: condition.

In order to be prepared for my emergency conditions, Ilr. A. J.
Pick, a unrelousing and transportation moutive of the Grand Union
Coronary, with 3 via! to using those experiences of ‘t’orld War II to
develop improved methods for meeting emergency operations developing
at the present time , suggested that all comanics check their operations
against a. series of questions based on World tier II eXperiences, so as
to determine weak spots and to take action accordingly. This compre-

hensive and valuable check list follows:

0771?: II‘i "‘ Fr”? "-1057; I338- “WI"? '1“) " T P’. "11 LE

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.LJ. “315:: OF: infill-1:} '{TiJi II 1:: 4.4... ".1

1. Grounds m9 312

 

A. Ron-tiara Are you prepared to put your Mileage
3’ 2i) per cent as required in Uorld “er II?

1. Can ember of deliveries to outlying stores
be reduced?

2. Can grocery and perishable shipment be
sowined?

3. Will convenience to stores be made a sec-
ondary consideration?

h. Can fewer, larger deliveries be made in-
stead of many small deliveries?

5. Can you balance your delivery schedules
so mrk is Spread evenly throughout the
reel-z?

13.. Records: During World ‘x‘s'ar II corponies with
up—t' o—date , accurate mileage and {3,33 consump-
tion records had an easier time getting their
gas ration coupons, tire rations, and priori-
ties for spare parts. Are your records accua
rate and up—to-date ? -

C. 139‘ uioment: Can you intensify the use of your
eq pmn 7

1. Have you considered installing. night rooms
in your stores so night deliveries can be
made?

2. Have you investigated possibilities of .
trailer spotting?

3. In case return-load requirements are im-
poeed, canyouuseymn‘osntrucks topick
up loads from suppliers?

II.

D.

h.

S.

If suppliers have to out dorm on direct de-
liveries to stores, are you prepared to ware-
house these products?

Are you anticipating: increasoi or decreased

tozmage and mldng arrangemnts to adjust
your operations accordingly?

loading and {bleeding Tim: Can you out these
dm'm so there will be less waiting for tanks?

1. Have roller conveyors and other loba-
savdng mloeding equipment been installed
in your stores?

2. 18 best use being made of store personnel
in unloading trucks?

3. Have you consiwred palletizing loads to
stores? ,

h. Are latest mthods used in loading truck:
at warehouse?

EQUIPLESI-fl‘
A. My: Do you have on comments record of

Bi

trucks, spare parts, tires, batteries, et cetera?

1.

2.

3.

Have you made arrangements to have neces-
sary roplacsnents of spores, tires, beta
teries, et cetera on hand?

Have you anticipated that delivery of
these will probably be delayed?

Have you residual mthods of procuring
those under wartime conditions?

maintenance: Do you have a. maintenance pro-

 

yam Tor your fleet? If not, does your con-
tract hauls:- hm a We: prom?

1.

Have you checked with the truck mne-
i’ecturor for his preventative mints.
nanco book?

313

17

2. no you have accurate room-6.3 for each indi-
vidual truck so you can spot the gas-eaters
and either repair them or 'pu‘o them on short
hauls?

O. Tires:

1. Have you investigated possibilities of re-
capping and re-treading?

2. Are you prepared to sign up with the rubber
commiee for a tire maintenance program if
ouch a progau is revived?

3. Are you getting ready to put on a full-tins

tire man, or do you now have one?

D. gong-range eguipmnt program: Do you contem-

 

plfw radix-1g any Ganges?

l.

2.

If you are clmgbag from gasoline to diesel
trucks, have you stepped up your timing?

If you are considering charging from com-
pony-osmed trucks to contract haulers (or
vicedveraa) , are you moving right. ahead
without delay?

III. 1757136213313

A. Personnel Records: Are the) uric-date?

lo

2.

3.

Do you know which drivers are subject to the
draft? '

Do you know which drivers are in the Armed
Forces Reserve?

Are you prepared to use older workers or
woman if necessary?

8. w: Are you pushing your training program?

1.

Are your drivers being taught the necessity
of proper driving techniques in order to save
tires and cut. down repairs?

Yea

18

2. fire your pereormel befits; trained in the most
efficient loading and unloading mthods?

 

19

Yes 3.9.
(3

6. ilationzfl' Association of Food Chaine' Summary Report on the

 

Warehousing and 11031”? C3113"; 09' Cit" pp. 2143 ‘

In order to be prepared 1' or emergency conditions at any time,
executives of my food chain cmpanies vnich own and operate their
trucks feel that each company should keep a constant icheclc on its
equipment to see that it is kept in good condition. They also feel
that each cmnpany should have a good repair and maintenance setup with
carefully established procedures for repair and maintenance, and for
replacement of used parts.

A "rule of thumb" replacement used by several canpanies is set at
250,000 miles for tractors (or four to five years) and one million miles
for trailers.

At a National Association of Food Chains! Warehousing and Delivery
Clinic in Los Angeles, California, in January 1951, a discussicn of com-
parnr-osned versus contract-carrier delivery indicated a general Opinion
that contract-omisr cost would be higher, although special situations
might reveal lower cost. The necessity of being certain of the reliabil-
ity of the contract carrier was emphasized. "Don't be caught in the
position of having your carrier fold up and leave you without delivery
theilities."7 This was the important point stressed to those cmqaanies
who relied heavily upon this method of deliveries.

7. L'at'iofia Issociation of Food Chaizm' Report on the Warehousing
‘ md Delivery 015.143. 0p. Cito’ 1). 2f

CILAPTLLR III
LESTHODS OF DT'IIJ‘JERY

Merchandise may be delivered from outgrew-owned warehouses to the
retail units via company-owned trucks, leased trucks, or contract cmiers.
All three methods have been attempted and are canmmly in use today by
the food chain companies. There are argtments for and againxt each system,
be it company-owned, leased, or contract-carrier trucking.

The Alpha Beta Stores of Los Angeles, California, is definitely in
favor of empany—mmed trucking equipment. In January, 1951, it canpleted
a survey with a large national trucking company in regard to leasing its
trucks and auto fleet from them. All factors were considered in the cost
of each method. The survey covered a total of fifty-three active vehicles
which averaged 65,6140 miles each row-week period. The lease contract
would call for a cost to the company of $10,108.62 per period, or $135,691;
annually. Taking exactly the same items into consideration it found that
this identical fleet was being Operated at 5931;,692 under the trucking com-
pure bid on an mnual basis.1

The company's transportation department has kept its vehicles in

good shape, and this , coupled with recular replacements and maadmnn

 

LfiNatimsociation of Food Chains' Smuary Report on the
Wmhousing and Delivem. National Association of Food Chains,

Neshington, D. 0., p. 30, January 15-17, 1950.

22
utilization of the equipmnt, left them with only one conclusion-
and that was to continue With the armorslzip of their fleet.

Though the preceding example showed a more favorable delivery ex-
pense pictwe for the Alpha Beta Stores by owning their equipment, the
fact is that more and more coma'Janies are finding it simpler these days
to rent trucks titan to 01m them. Chieflsr, 13318 is true of small firms
with a need for a. lulf-dozen or so vehicles, but some of the bigger
companies, with large fleets, are also begimiing to make the switch.

The business of truck leasing, of course, is nothing new. It
got its start in the depression thirties, but it was not until World
War II, when maintenance became a major problem for management, that
leasing really came into its own. From a total of eighteen thousand
trucks in service in 1910, the number grew to thirtyufive thousand in
191:8.

Actually, for a great many mamgemonts, Here are not any sweeten-
tial savings in going over to rentals. In the main, the ease for
leasing has to rest on other factors. The following advantage are
heard most often:

1. leasing keeps cosmony capital free for primary operations.
Funds are not tied up in large, expensive delivery-truck fleets;

2.. Executives do not have to Spend a lot of their time worrying
about the Operation of a. motor pool. The leasing service takes over
all the maintenance and repair work.

3. Costs of fleet Operations are set in the contract, and can be
budgeted well in advance. The leasing; service submits a periodic bill
covering the rental of each truck, plus a Sgecified charge for each

mile "the truck travels.

23

Before a leasing service actuallynikes a bid for a company's

business, it surveys what the firm will need. It estimates the size

and type ,of truck, body specifications, type of service rendered,

mintenance requirements, and paint and advertising used on the trucks.

2

Effective October 1, 1991, the Jewel Tea Company, Incorporated,

began leasing its equipment. In a survey made prior to leasing of the

equipment it was found that it would need (1) t’iu'rty-f 1V0 tractor-

treiler units for making steple grocery deliveries, (2) fortyqfive

straight-trucks and five tractor-trailer units for produce deliveries,

and (3) seven straight-trucks for frozen food deliveries-

Tho clas si-

fication of the equipment required was broken down as follows:

TYPE

Tractors - ’40
Trailers "' 6 ‘l' 22 ft.
31; an 214 ft.
Straight Trunks * no '612 ft.
3 “7’42 ft.
2 0-760 ft.
Refrigerated Trucks - 7 --626 ft.

 

2. Anon. Fleetwleasing Spreads.

L'usiness Geek.

AHOY]???

 

tandem axle, fully
insulated with two
inch insulation

cubic capacity
fl 1:

I ll
cubic capacity with
four inch insulation

used for the delivery
of frozen foods

(July 23, 1910).

 

PP. 56’580

2h

Ordinarily, the contract specifics tint the leasing service sill
provide everything but the driver. Most companies prefer to keep their
own man on the trucks because they expect the drivers to handle other
chores besides operating the vehicle. In the food chain industry, it
is preferredmy those companies leasing trucks, to use their own per-
normal as drivers because they feel that a more efficient operation is
possible. As company personnel, the drivers are more conscientious,
and generally are moreuilling to cooperate with store personnel than
are “outside” drivers.

Prior to October 1, 1951, all of the mohandiso of the Jewel Tea
Company, Incorporated, was distributed from its warehouses to its re-
tail units under a contract-carrier relationship with s trucking
company. As of harsh, 1952, via leased trucks, this comany had de-
creased its hauling cost approximately one cent per hundrech'eight.

”mother or not it is best to own, lease, or use contract carriers
for deliveries, of course, depends upon conditions within the individual
coupsny. Local conditions, labor relations ,« availability of contract
carriers, and many other factors mks up the elements contributing to
the decision of which type of delivery method to use.

Contrary to popular belief among some operators, ownership of trucks
does not insure an economical and efficient operation. Truck ownership
must be backed up by complete mechanical facilities and records which
provide an intimate picture of what is happening. These factors play
an immortant part in the success of trucking operations.

25

A full-em mohanic, plus :1 cowletehr equipped garage, filling
station and muck-flashing facilities are basic among the filings that
we needed by a chain, it it is going to operate ite cm trucks euc-
md’ully.3

The following preventive mintenance system used by the Natimal
Tea 0mm of Chicago has proven very eatiefectm‘y. Three form are
emphasized in the preventive truck maintenance eyeten used by the Na;-
tionelTeaCoupmv,michhuh8hretailetcreeinthcchieegcme.

The eyetememphuisee thefact that itie eeeyencmhtceetup
such a preventive Montezuma eyetem by which vehicle. in a fleet are
to be inspected at certain Mleege intervals, but not no easy to de-
termine Just when each truck has reached its inspection point.

The diffimflty increases as the fleet gone in sin and the indi-
viduel units 11': the fleet are rotated between sham-haul and long-
haul m‘leage routes in accordance with the requirements of the deliv-
ery operations. The trouble roots in (1) keeping track of the mileage
of each individual unit in the fleet, (2) when the last inspection
called for in the preventive maintenance system was made, and (3)
when the truck has been operated for eufficient miles to make its total
mileage equal to that at which the next inspection should be mode on
the seemed mileage interval.

These uleege intervals vary from one thousand to five thousand

and even to ten thousand, twenty thousand, or even thirty thousand

 

3. 11311de, 301. flaking Truck (hmership Pay. Chain Store Age.
28(Februaryo 1952), pp. 160-211.

26
mos , depending upon the severity of the truck operation and the degree
of care the fleet owner desires to give his equipment. In em onset
the molemical operations called for in the one thomand-uile immctim
are reportted indefinitely after each one thousand miles of Operation.

In other cases, different and more thorough operations are made at each
of the ten thousand, twenty thousand, or thirty thousand-nib intervals.

In the case of the Rational Tea. Company mich operated a fleet of
fifty-nine heavy-duty tractors and trailers , and which covered 1,316,911;
miles in 19245, the one thousand-Idle interval was adopted. The items
covered in each of the one thousand-unis inspections are shown in
Figure 1.

The form shown in Figure 1 is one of three forms in the Nations).
Tea Coupony system. The remining two form are the individual vehicle
Mileage record ehcvrn in Figm'e 2 and the Inddle part of the driver's
report shown in Figure 3."

The individual vehicle mileage record form, in Figure 2, is made
out for each vehicle in the fleet by the rennin dispenses gasoline to
the trucks and tractors. As shown, it is mdc out by periods, a period
being one of the thirteen equal four-week intervals into which the com--
pany divides its sales and expense records.

‘ The colleage of the given vehicle at the beginning of the period is
entered at the tap of the form. Then, each day as the vehicle is oper-
ated, the miles run are entered in one column and made accumhtive in
the next colmm. ?:'hen the total mileage run approximtes one thousand
miss, the gasoline dispenser sends 3 1:19:30er to the shop foreman

that the vehicle is due for an inspection.

Date__.J' 3,, 91; r. 306 3-2343

 

 

 

 

TRUCK N0._ _ 421 I
Our-Permit Speedometer Reading 38' 22‘

(on M’ Inspection Safety Sticker A97 x3;__
Sta .5”; # c 3; ~- se # Fen—LL 8_t . a} Affidavit
5351M cylinder head bolts W
. __AdJust valve tappets dal clearance
ZAdJust spark plug gaps ransnission leaks
Lprression . o in shaft

"' #2 ’“ “3' " g "° ' ifferential leaks
”’fi“ ten axle shaft nuts
stri tor, ust wheel bearings

38:1: tgomts, lubricate
. aloer Cam.8¢1ming «Tighten spring clips
__ spect ignition wires Brighton spring shackles
gAdJust fan belt “Just brakes

ighten exhaust, intake manifold

 

 

 

0 “'Check, adjust carburetor m
flights!) motor support bolts Genera or on put to Mps.
oClean fuel pump 5411ng
el pump pressure a ights Focus headlights
e1 pimp vacm og Light lE'ocus
LGove rnor ad Lightfii'ocus
indshield pers

radiator with cleaner 0
sgect, tighten hose connections Ezry test a!
18 t ry cables

on water pulsp gland

ct for water leaks

eten radiator tie rods
_ighten radiator hold dam bolts

or g as
A ighten steering housing
‘Steering drag link
Steering tie rod
fight and left fruit indle
ighten front springs class
/1 tan front spring clips
:11 gn front wheels

-/ door
flight door

ater
ender

 

Hem-c 1. One thousand lilo maintenance inspection
check-off list. -

56R.“ our 9

TOTAL MIEES :z;22:£g TRUCKINOQ_JILLZL__.

muss man. on. GAS 1.4 ans. 0mm 8M0!) g 3.9 If
ms m an. on. 4168 us. on. {31- mom 3 gm row. con: 3 Kai

3L¥

 

éliflr.

HO.

‘nr 142? .5" a.

 

 

Figure 2. Individual vehicle mileage report made out by tha
gasoline dianenser in his spare tiwe, from the collected middle
sections of the drivcv's report.

Speedomotcr Finiahnq :1 Z Z 2‘ ,_
Specdcuter Started-11L mm. MES 70
3-93.5.3

 

 

 

5th Period 19% DRIVERS REPORT Q2 3258
Eng 599mg No. /9‘J‘9( , 0‘- F ° - I: 24‘ /’9" ’
-uu.- - '1' c ‘0 o ‘1'” ‘. . ' ' ‘ - ;' ' k. 75' —

 

- r M 3mm
am] 46/4 1 god» h/w It“... M

 

 

 

 

 

 

4W
WW
ago 1.22; I Traile; I Driver's Nam J r's Nan.

/207 /26/4

M 'f‘" ““1“” r
. . . . II—st-lmfi‘l-Q

'Ou;~ .‘ -.° 0.. 'L.-.

/ _2 2- / 7 an JZI-fl'fl

‘ 37 7 ‘ - JZ 71" 7o .

 

 

 

 

 

 

 

 

 

 

 

r] '

”07 III-‘14 ‘| [ac-a 54,... m, 1,5ch
is? a? 5" dégfiam" 0*
Egsggggzasgn§§§§g
'1 *1 a u 0 (+01
grgdfiflr EEgéEOE.

35?. Haw \
O- NH O P
5* .313- \ \\.'

I ‘ \KYk b\ ‘

Ix \ 9‘—

 

 

 

 

 

 

 

 

 

 

 

Fig‘uro 3. Th drinr's ”Port in “In. Pm.-

30

The shop foremn then issues a work order to one of his mechafrlcs
to make the inwaction that right, or to hold the vehicle in the shop
the next day, according to the requirements of the delivery operations.
In order that the mc‘i'xanic will not overlook any of the parts to be
inspected, repaired, or adj acted, as the case may be, he uses the form
shown in Figure l as his mrkmoet. lie marks this sheet, as am, and
returns it to the chap office with the ndhage reading at which the
impecti-cm was made. Tide leading is t'ranef‘erred by mmorandum to the
gasoline dispenser, who enters it on the Figu'e 2 mleage sheet. Tm
next retraction is due one thousand miles hteruh

The gasoline dispenser does not attr-myt to fill out the mileage
sheet by having the driver call out his elm.e(-ac‘x.:me'tor reading at the time
he gets gal-«303.5562. This would delay and increase the time of th base--
line Operation for which the driver is paid. The latter'e time does:
not end until his vehicle is gassed and retumed to the garage. Instead
he uses one port of the driver's report, 371mm 111 Figure 3.

The driver's regixort is 3. mm card diwlded into three ;:m'ts by
horizontal perforations. The top part is used to record the Operating
data of the day's work, such as tie weight of the load carried and the
code mmbers of the stores served; the middle section of the cord gives
the starting and finishing; Speedometer readings and the mileage run; and
the bottom part is a faulty condition rejort used to indicate aw unchan-

ical trmflales tint may have develogmd during; the day's work.

 

h. Imon. Gard System Controls Fleet Izmpections. Food Indwfirics.
13(Ju1y, 19146). pp. 1032-1033. *

 

 

31
then the driver finishes at night, he team the card into three
parts. The top part goes to the Operating departmnt office and the
other two parts go to the garage. The bottom part is used to make my
necessary rumfing repairs that night. The middle section is collected,
transferred to the gas dispenser on the follming day and used by him
to build up the ndleage records.

The gasoline dispenser does the above paper wk, along with keep-
ing his gasoline inventory, during the least busy periods of the day,
usuaminthsming,vhsnthsvehiclssdonotlinsup, oneafterthe
other to get. fuel as they do at the end of the day. In this Harmer,
tho'gasoline diapenser has a full day and it is not necessary to hire
an additional man to determine mileage intervals.

' This problem of an efficient maintenance Istup is important
whether the vehicles are compsny—mned or not. The only difference is
that the responsibility of maintenance is placed upon different indi-
viduals according to the system used.

One other important phase of the delivery operation regardless of
truck ownerskdp is the setter of schedules. Emile the stores come
first, not every store can receive nerdnandise on’uonday morning. It
could be done but the cost to the warehouse and to the individual retail
units could be tremndous. It must be Spread throughout the week on a
more or less flexible schedule to take certain local situations into
consideration. Delivery of staple groceries is, therefore, usually
mdotoeaohretsil unit onthe samedayof thoracic, cachweek, so
that the store can be prepared to receive the delivery.

32

Some cmpanies, such as the Albers Super lmkets of Cincizmti,

Ohio, and the Food Fair Stores Company of Pimedelpifie, Pennsylvania,

are not as dependent on regular schedules because of their maul of
deliveries.

These cmijanies use tractor—trailers exclusively for the delivery
of. staple groceries. By this method they can load a trailer with mer-
chandise for one store and drOp the trailer at that store. The mer-
chandise is milooded from the trailer at the store's convenience, with
store help, which is less expensive than truck driver's rates if the
vehicles are comany-owned. As each trailer is delivered the empty
trailer from the preceding delivery is removed and quite often contains
empty cartons and returnable items. .

Vie have thus far been discussing company-owned, central warehouse
deliveries. Slightly less than half of the Super L‘iarket Institute
nember companies have central conpanybomed warehousing. Those who do
not are among the smaller operators. All companies with annual sales
of over fifteen million dollars, and 82 per cent of the companies with
annual sales from five million dollars to fifteen million dollars have
central warehousing. Three out of five of the smaller companies
(those whose annual sales are below five million dollars) do not.5

Throw}: in the larger chains these warehouse deliveries are of the
utmost importance, we cannot overlook the one other imgmrtant delivery

801.11.on

 

““5“. Samoa, EH". Food rerkotmg. New York: Kcm'aw-Hill Book
WI 1110., 1950. D. W.

33
Direct store deliveries such as bread and fluid ml}; are an im-
portant phase of store Operations. hose are generally daily deliv-
eries. The delivery costs to the store are in most casea, included
as part of the merchandise cost, for such item are usually bought
on a delivered basis then pm'chased from outside sources. Occasion-
ally some deliveries are made to the stores by wanders who make a
_ separate clwrge for this delivery service. Til-Lia is the exception

rather than the rule .

501$ ‘L‘L‘RLTL‘IJJTTS OF T2135 TC‘N—LCUE 2.7-33'1210D
Of- LLlDCATIIo' G DELIVERY 1.113.511

The mthod of allocating the exyenseoi' delivering merchandise
to the stores and to each individual degartment in the store, which
isdiscnssedinthis ammonia notwidelynsodinthorotailfood
chain business today. This method has such obvious advantages to»
ward more accurately reflecting the true cost of transportation to a
given store or area, banner, that any peepls interested in the sub-b
Jest believe that in the future we shall see numb rider aoosptanss and
use of it.

This method to be explained is that of applying a transpa'tatim
cost based upon the distance frm the shipping base to the resolving
um.

Two food Chan companies cmntly using this system are the Grand
Union Germany of East Petersen, New Jersey and the First National Stores ,
Incorporated a! Smith, Massachusetts. These two companies, While
using the same method, also have son's variation in the way they apply
the system.

In general, the system of allocating delivery eacpense to the stores
by applying a transportation cost based upon distance from the shipping
bass to receiving station is as explained here.

Usually all inbound freight charges to warehouses (all immrd freight
and hauling expense to the warshouso receiving platform) are added to

   

 

35

the cost of mrdlsndise and, therefore, are included in the cost of
merchandise billed to the stores.

Grand union Cmem

In the Cram Union CW) which is comprised of some 320 retail
units, all merclmm‘s'se - groceries, produce, neat, et cotwa are slipped
on straight loads. That is , no nixed loads such as moot-arias and produce
are delivered to the retail units on the anus truck. In this cornvany
the defivery ozononse for all grocery items dulivercd to the stores from
comm-Md warehouses is charged for at so much per hmiremreigflzt,
that amount varying with the distzmoe from the warehouse to the store.

A possible flzeoretical clwrge might be two cents per hmohechveiffllt
per mile traveled. At this rate , 1‘ or each hmidredrrciglr‘c- of nerchandjlse
delivered to a store located one hum‘ired miles from the warehouse, the
cost would be two cents times the umber of miles (one hundred) or two
dollars.

It she "id be understood that the rates charged vmv with the type
of mrchandise shipped and the type of chiment used. Obviously a re-
frigerated truck transiuorting meat or other perishable mrelundise which
requires 00th refrigeration would be charged for at a rate higher
than that for staple yoeery merchandise deliveries.

In making up the quarterly charge to a single store, each item is
billed for the actual charges paid by the comparnr to the trucker for
mrclmdlse hauled to the store dm‘ing the quarter. Those clmrges are
determimd by multiplying the weight shipped by the charge per hundred-
wight as previously described. The charges per hlmdrezhmiglt, for the
caspany, are determined by arbitration between the coepamr and the trucker.

36

The actual weights of the grocery items are taken. The loaded
truck is weighed and the weight of the truck deducted which lesves the
weight of the load. This weight is then used for billJng.

Inthe Grand Union ConpanyapproximatelyBOpereent cfthegrooery
trucking is handled by contract carriers. The other 20 per cent is han-
dled by its own trucks. In this case, when the deliveries are W
by comw-osned trucks, the rates are quoted to the individual stores,
on a mileage basis. These rates are des'mned- to cover the expense to
the scrawny, of delivering the narciuuidise, but not to yield s profit
from the delivery Operation. In other words, the rates are fixed so that
they only cover the cost of driver's salary, truck operating expenses,
depreciation, taxes, insurance, et cetera.

Though allocating the delivery eacpense of staple pocery merchandise
tothe storosinmucbthosamemmrassamdthoo’dwrfoodchain
dummies, it handles the delivery oxyxanse of produce and meat in quite
a tmique mner.

Ninety per cent of all produce is handled through the away-mm
warehouses, with about 10 per cent being delivered direct to the stores.
Bananasmdpotatoes accomtformost of this lOperoent. crumm-
housed produce item about 50 per cent is bought on a delivered basis.
an. inbound tmcldng charges on the 50 per cent is edits} to the cost of

goods sold. . '
. All produce is delivered to the fierce by contract carriers. The
trucking charges are based on mileage, but are not, however, apportioned
among the stores, as in the case of grocery deliveries. The product

trucldng charges are added in as part of the produce storehouse expense.

37

The total produce warehouse memo is than deducted from the mhouse
gross margin. The warehouse gross margin is the difference between the
retail {rice and the premise price. The total produce warehouse ex-
pense, which includes the produce trucking charges, is then (19de

from the warehouse gross margin. The result is an adJuated goes margin
which is emplied to all stores. Therefore, the produce trucking expenses,
together with all other produce warehouse expemes, are added to the cost

of goods sold.
A theoretical example might be:

fatal Store #1 Store 2

i E e” Z ..
Ram]. meg 10,000 5,” S.”
Coatchoods 00070 h00080 3.00060
cross L‘Ergm , 30 12m 20 he

Total mismEXpenao 1 000 10 600 12 1400 8

undress mgin . 20 "EU 8 1:50: 32

Thedisadvantages ofuflamthodlieinthefactthatallatm
in a division are arbitrarily assigned the same groan margin to begin
with, irrespective of variatiooe in pm‘chases dm to local consumer
Werences, The difference in actual gross margin for the (various r0-
tail units may be the result. of the tyge of produce handled. One store
my realize a large part of its total produce sales in out-of-eeason
merchandise on which there in a. high gross margin, whereas another store,
located in a different type of neighborhood, may sell an abundance of
potatoes, at caters on which the delivery eXpense, due to the bulk of
tho merchandise , in greater and the gross margin is lower.~ From the .

crumb shown above it is obvious that to assign both stores the same

38
goes margin presents a distorted net yrofit picture. Certajm‘l.:.r if store
He. 1 has an actual gross margin of 8 gm cont and store No. 2 Ina an
actual gross rorjfin of 32 per cent, it is not fair to assign both stores
an average gross margin for the entire common)! or division. Since the
Grand Union Com-dry does whitrari v amigo tire az‘jmted gross rru'yln to

all stores, the final not profit figure for the individual store is not
nocessaril,r accurate, and as a result no clear idea of the detail effi-
ciency of the produce operation 511 cry particular store is possible.

The advantage of his method is that it is simple , eliminating the
necessity of clumgirg the produce SCLL;'2;::-‘:::1‘bs to each of more than til-roo-
hundred stores individually. Moreover, it pm a supervisory attention
to be focueecd on a detailed breakdmm of warehouse expenses inclmmig
ready comparisons with figms for the previous year, 'nce all produce
overhead is cI-mrged to the warehouse operation.

In order to mice possible a more efficiBnt analysis of each store's
Operation, a method of charging the produce delivery exoense to the indi-
vidual stores is necessary. At tide tide, the company feels that the ad-
ditioml expense required in tabulating labor can not be made up through
the pinpointing and improving of poor produce operations.

mats are also hauled mach-c:dart-31:,r by contract carriers. Apprwzi-
mately 70 per cent of the meat merchcmiise is delivered directly to the
stores from the e'amalioro, purchased on a delivered-coat basis. The re-
maining 30 per cent of the meat supply is delivered from company-owned
warehouses.

Outgoing tmcking alarms on meat hauled from the warehouse to the

stores are also computed on a tom-mile basis. These meat trucking costs

39
are added in with other warehouse eJcpenses, as in tin we of produu,

but total warehouse expenses are charged to the individual stores on a
prorata basis according to sales volume, instead of being charged against

rarehouse gross margin.

First National Stores, Incorporated

The other compam] referred to in tide chapter which allocates the
delivery expense on a mileage basis, the First Natioml Stores, Incor-
porated, having apprmcimately 990 retail units, do so in the following
men

As with the Grand Union Company, all inbound freight charges are add-
ed to the cost of goods sold. Store delivery costs, however, include
the cost of delivery of all merchandise shipped to the stores frcm com-
pony-owned warehouses, plus trucldng charges to the stores on bulk mer-
chandise dolfirered from freight cars spotted at strategic points for
direct distribution to the stores. This company also has com direct
deliveries to stores by vendors who make a. separate charge for their
delivery service. The charge is arrived at by the vendor and the buyer
and it is also included in the store delivery cost. The delivery charge
is allocated from the company. office ratl'er tlm being added to each
. store invoice.

This comany delivers about 60 per cent of its merchandise using
its own trucks. Its policy as to the use of owned trucks versus hired
trucks is based upon local conditions. F or its hired trucking operati
it uses both common carriers and contract carriers. The contract car-

riers have a contract with the company which usually provides for paymt

he
of the entire load at the rate for the farthest point on the trip. All
rates are fixed by a zone system, wide}; will be described later in de—
tail. These rates are based upon the number of air miles hem the ware-
house. They also include a movision for the return haul of salvage and
empties originating from the merchandise shipped on these loads.

Seprate rate- aro find for straight loads of groceries, meat, prod-
use, and bakery products and, in some cases, for nixed loads. In eon-
traat to the Grand Union Ccmpany method of shipping only straight loads,
this canpaw frequently combines shipments of grocery and promo. mer-
chandise and also of grocery or produce and bakery goods.

For its own truck operations, this company undertakes its own truck
repairs. it has a: garage shop account with Job order- to which are
charged materials, labor, and overhead. It keeps repair cost! by indi-
vidual trucks and deteminea repair costs per mile operated.

Contrary to the oothod used in may companies owning their om
tracks, the First Rational Stores, Incorporated, contract. its tiro
service and tire repairs. It has an arrangemnt with a tire service
manywlfioh provide: not only tire service an the road, but also a
coupleto tire inspection for all of its trucks. This inspection work is
carried out on attn‘daya and Sunday: when the trucks are not in use.
Every tire 1- mmineo periodically, checked for theol augment. air
pressure, cute and brxdaos, ot eaten. Tire changes are moo if needed,
untapeoialreport is compiled ontireabuao. uncommtomu
twatmooruoom-yoatmaotorymdcmmonevortohuotrmhom
upontheroadtormyoxtondedperiodoftinodmtotlrofailm.

 

-----sone 8 from #1 to 50 air miles

------ zone7rrom3lto‘t-Oairmiles

  
  
    
   
 

------zone 6 from 26 to 30 air miles

zone 5 from 21 to 25 air miles
-----zone It from 16 to 20 air miles

------zone 3 from 11 to 15' air miles
-----zone 2 from 6 to 10 air miles

----- zone 1 up to 5 air miles
LO).- zone warehouse

 

     

 

File-sue lb. Diagram shoving zonal arrangement by air
mi es from the zone warehouse. The'delivery'rlte for

' each zone is charged to all steres located within that
zone.

141

It has beenthe policyof this comparvformamryeers toapplya
graduated sane transportation cost based upon distance from the shipping
base, as an actual charge against the operation of each store»

Rather than charge each store 1‘ or the delivery expense by hundred-
Ieight according to actual distance from the warehouse to the store,
it has set up a system of zoning. For each warehouse, it some the
stores, based upon air-udle distance from the warehouse, as follows:

Zone 1 -- Up to 5 air miles from the warehouse
Zone 2 a- From 6 to 10 n " n n n
Zom3~Fromlltols " u a n n
Zoneh~Fm16t020 " " n n a
Zone 3 - From 21 to 25 u u n u .
Zone 6 - From 26 to 30 " “. " H H

From this point on, the zones are measured in ten-mile divisions.

Zone 7 «- 1iron: 31 to ho " " " " “

‘ZoneB-uFromhltOSO " " " “ "

Zone 9 - et oetera

The zoning system outlined above is illustrated in the following
Figure 1;. Al]. stores within each zone are charged the same rate per
hundredweight for mrchandiae delivered.

The problem of preparing the might figures for truck loads is an
important part of the operation. Not only is this mermation needed
for cost purposes, but it is also necessary to furnish the transportation
department with the weights of individual store orders before shipment
so that the loading of trucks can be properly planned. Typically, memos

used by this oomany are as follows:

Io

Groceries. A punched card tabulntmg system for the grocery oper—
ation is used in allpwarehouses. Very accurate information, including
the weight of the individual case of merchandise , is printed on the tab-
ulated invoice which also serves as a warehouse chiming order.

3%. In the case of meet, it is necessary to figure each item
separately after the order has been assembled. Each item is weighed and
the nights are totalled.

Produce. For produce 9 his comany has been able to establish a
very accm'ate daily average piece-weight based upon a tabulation cf the
total quantity of every item which is to be shipped that day. It also
uses this daily average piece-weight in one of its warehouses to deter-
mine the tonnage for paying the contract carrier.

For each zone the delivery expense is broken down in the follcming
manner:

All actual delivery costs are compiled under the account ”Store
Delimry EXpense“. Included in this account are the actual shipping
costs from outside trucking companies as well as transfers from its
"Own Trucking” account.

The charges for the delivery of merchandise via its own trucks are
kept under the account "Own Trucldng" and these figures are then trans-
ferred, quarterly, to the "Store Delivery Eernse" account. This Store
Dehvery fimense for each division (or warehouse) is broken down into
the following accounts:

lo' Ch'ocery Transportation

2. Meat Transportation

3. Produce Transportation

 

For example 3
Store Deliveg hip ones
Grocery heat Produce
hmpgrtation Transportation Iranspcn'taticn

 

 

 

1

Tonnage records are kept q~.1.s:l:'terl;,r for each zone for We, met,
and produce. In the quarterly tonnage record, the produce tonnage is
further broken down into that produce delivered to "straight” grocery
stores and that delivered to the "markets". A straight grocery store is
one which has a grocery and produce departmnt but no meat deputnent
mad 3 market is one which has all. times departments; grocery, produce,
and mat. In a market the produce delivery cost is charged to the nest
department. In a straight grocery store the produce delivery cost is
elmrged to the grocery department. The produce delivery expense is ,
therefore, distributed between the neat degmtments and the yocery de-
partments. This distribution is made on a tonnage basis by zones.

To get the difference for each zone, the estimated total delivery
cost is applied against the actual total delivery cost which gives a
per cent figure. For example:

Estimated total delivery cost (51 000 000 .4
Actual total delivery cost 90mm - 90 p

The percentage is then applied against the estimated sons costs Which
results in the actual sane delivery costs. As sheen above, the differ-
misusuallyemllmdtlincethe congaaw‘epuehssemwcfitl
trash.

L5

The meat and produce delivery expense is distributed in the some
manner. As stated previously, since the produce department in the
markets is operated by the meat departmnt, it is necessary for the
produce delivery expense to be split between the meat and grocery de-
partmnts. This is done on _a tonmge basis by zones.

Since the produce tonnage going to straight grocery stores has
been recorded separately, this produce echnse is distributed to those
stores in each zone on a. per cent-to-eales basis. The remainder of the
produce tormage, that going to markets, is further distributed to the
meat departmnt of each market in the zone. his distribution is made
on a per cent-to-eales basis. This shave the store delivery costs
distributed to individual stores on a zone Basis.

According to MT. ”‘51an R. Rosexmerger, Assistant Treasurer of
the First National Stores, Incorporated, there are four main reasons why
this compamr uses a zoned delivery cost ratl‘zer than a uniform distri-
bution rate for all stores.

1. The differences in actual delivery costs to individual stores
are substantial in this case and the application of a uniform per cent-
to-cales or similar basil would distort the store Operation results
considerably.

For example, the delivery costs in one of the divisions average
1-1/5 per cent of total sales. Using the zoned delivery cost method, a
range is found of 1/2 of l per cent of total sales for the zone nearest
the warehouse, to h-l/Z per cent for stores in the zone farthest from

the warehouse. (bvioush if all stores in that divisim were charged at

‘

the l-l/S per cent rate, it would be iiqvmraicle to law the true priit
of any store in that cflfision.

2. Trough t‘.is mum better fierce are zoned for ocean g
delivery costs by divisions. Since {1171: 33m! distmces are Imii‘m for
each warehouse, this congrany Me a good basis for axing carves-"Leone of
these coote by cones. Since the erase sowed by each warehouse smut
be More as to nice, am comarison based upon worm Operations is
not a fair one.

3. (h'iggimlly this (accept-1w did dates-@163 its delivery costs by
dietrihutin;_; its total delivery menace among all atoms on a. More
per oent-to—eales basis. then it changed to the zone-delivery-sost
mthod and secured a more accmate figzmo for each store, it desovered
that some of the stores, located at more exist-mt {mints}, showed a. loss
instead of a. profit. The result of tie discloeure no.8 that mgrofitable
stores were closed and, in soon cases, the business of these stores Ia
consolidated into a more efficient unit.

1;. tit}: these we accurate figs-m available , it has been able
to use them in its studies to (Seteruinc the location of new: warehouses.
In sow cases, it has been able to eetirnte very acsnurzsltte3L3r the mm
of savings in delivery cost which could result from the establishment of
s warehouse in a new Intuition.

One further action taken by $1.13 core-any is the breiizmg “. of
the omtrol account .. "Dun Truck Operations“ . into times min classi-

ficatiom

h?

1. Fixed Charges, consisting of depreciation, registration and

 

taxes, garage rent, garage overhead, insurance (including workmen's
cosponsation) and miscellaneous ei'pense.

2. Mile Cost, consisting of gasoline, oil, tire costs and truck
repair costs.

3. M, consisting of the wages of drivers, helpers and loaders,
plus their social security taxes.

These fig-fines are accumulated on a. weekly basis and are broken down
into the three classifications of Grocery, meat, and Produce. Fixed
charges are distributed to these classifications 119011 the basis of the
number of trips made, mile cost on a mileage basis, and labor according
to time cards.

From this information and from weekly diapertch records, a weekly
statistical report is prepared. A separate report is comiled for each
department (Grocery, lieat, and Produce) shoeing the following information:

Ember of trips made

Total miles covered

Number of trucks used

Miles per trip

Total tons carried

Tons carried per trip

blues traveled per ton carded
F or cost informtion, it shows the cost per mile operated and cost per
ton carried, both broken dorm by fixed clmrges, mile cost, and labor.

The managemnt of this organization watches very closely the labor
element in its cost and any fluctuation met be fully investigated and
explained. ’ Vacations, holiday pay and bonuses for accident-«free per-
formnce, while included in its labor cost, are shown as a separate

figure. Since these charges are not incurred uniformly throu --hout the

 

 

'Illl'l'llllllllllul'|

 

ha
year and yet are livable enough to distort its figures, it feels that
it can better ascertain its true labor mrformanoe bi? showing them sep-
arately. These statistics are used if or comariaon with previous periods
to establish trends for planning current operations.

In conclusion, the First National Stores, Incorporated, feels that
thwgh this system of ellocating delivery costs 1- far from perfect, to
nekc it perfect would be prohibitive from the standpoint of expemo.
However, realising the importance of delivery expense in the operation
of every single otore, it attemts to mrk on the principle that each

store mzst carry its complete coat;

Colonial Storesfincorporeted

The Colonial Stores, Incorporated, of Atlanta, Georgia, previously
Operating on a zone system smile; to the First National Storm, Incor-
porated, as of August, 1951, decided to distribute delivery expenses to

he stores on a. direct ton—mile basis. t feels that, with this method,
a more equitable means of distributing delivery oxgonee is obtained.

The method decided upon is as follows:

1. Each city (other than warehouse cities) is to be assigned its
woagofranthocerflngmhoueototheoentcroftho city,thmelin-
mating mileage me with different rate: applicable to each.

2. An extra mileage distribution factor of 50 per cent has been
established for atom-es in warehouse cities such as Ncn'folk, Virginia,
Atlanta, Cowgia, and Richmond, Virgirfia, where only a for Idle: but
very heavy traffic is involved in serving the stores.

3. 0n the basic of eidfiuative studied a mileage distribution
factor of 30 pct cent higher than that applicable to staple grocery

L9
deliveries has been assigned to produce, dairy, meat, frozen food, and
bread deliveries.

Formerly a mileage distribution factor of 50 per cent had'boen in
effect. The decrease from this 50 per cent to a 30 per cent distribution
factor was primarily due to the addition of dairy and frozen food tonnage
delivered'with produce on the same trucks.

1;. The actual del:'L'-.r(~2r3,r expense is separated from indirect over-
head expense such as insurance, taxes, and.depreciation. This actual
delivery eXponec is called direct delivery expense.

5. Different from.thetuu previously discussed metxods, this
company'deducts the unload' 5 cost from the direct delivery expense
and distributes it to the stores on the basis of actual tonnage unloaded.
This tonnage is calculated on a predetermined.basis fromipast records.

6. The remainder of the direct delivery'eXpense'which variOS'with
distance is distributed to the stores on a ton~mile basis. That is,
the distance involved in serving each storo:multiplicd.by'the weigh
delivered. The indirect delivery'expcnse (insurance, taxes, and de-
preciation) is distributed to the stores on a tonnage basis.

7. It feels that, via this method, a more accurate and fair
distribution of delivery expense to stores and departments within the
stores will result. the change was made possible through the use of a
machine method of allocation as against the previously used manual method.
This new method.was put into effect without the addition of clerical
or administrative capense. The unloading rate remains constant from.
month to month while the ton~mile rate varies with miles driven and ton-

nage hauled.

50
The Colonial Stores, Incorporated, have taken all factors attribut-
ing to its method of allocating delivery escgense to the stores and set
them down in a formla as follows:

Fmfla for Distributing Delivery fineness to Stores

1. Constant Grocery or Produce Pate=Prodeterndned1 Indirect
Deliver? Expense per cvrt.+-Predcterr.dred [balsam-g Rate
per cvrt.+Predctean.ncd Ferris-is Rate per cr-rt. (when applicable)

2. Constant Grocery or Produce Fate 2: cut. shipped to each store:
total indirect and unloading: cost.

3. tionth's Net Transportation Expense (after deduction of backhaul
credits)-anount predctcrvtfincd b; item No. 2: ~non th's Direct
Delivery Expense.

I ’4. Amount determined by item No. 3-:- out. mJesaDirect Delivery
Cost per out. mile.

5. Item :30. Mart. miles for each store addedto item No. 2 for
corresponding stores=month's total delivery cost for each
store.

This chapter has pointed out just times ways by which the tm—nfile
rosthod of allocating delivery expense may be applied. As can be seen,
there are so many variable factors present in applying such a system
that it would be difficult to find two corrmiies applying this method
in exactly the same manner.

Each camera does use, though, tne same basic principles in apply-
ing the system. And each dose, in its own way, attempt to reflect
the true cost of transportation to the individual store and to the depart-
ments within the store as accurately as pose ibls.
sttcmcd'; as referred to above, refers to expense

of the type involved 1' or the previous six months period divided by the
number of hmdredneight hauled during that period.

cxmymn v

T123 PER CEEIT-TO—SMES MID Till-.3 NOII-MJDCATIOII METHODS
OF ACCOUNTING FOR Dh’lVLY HEEIISE

I One of the most sermon :12th of allocating delivery sequense, in
use in the food chain industry today, is that of prora‘cing it on a per
cenMo—sales basis. It is that of prore ting it to each store in a di-
vision or to all stores operating out of a Binge warehouse, and to the
departments in each store.

' From the food chain cmanies eaultacted, it was found that company
size, in number of retail units and in goog’aphical expanse, plays an.
important role in the method used for allocating the delivery expense.

The per cent-to-sales method was found to be in matest use in
comxmies i‘mving over fifty but fewer than two hundred retail units.
_ These are, in the min, those 01mins vii-Lose Operations are confined to
one or two states, or, in many cases, to one or two commune.

more imortant than the amber of retail units which comprise a. com-
pmuy, is the factor of geograpmcal expense or store location from the
supplying warehouse. A per cent-#to—sales method appears to be in Widest
use by those companies whose stores are all located in close proximity
of the supplying warehouse. In may instances "in close proximity of
the sue lying warehouse“ may be fifty miles or more for the outlying
stores.

The question imaediately arises as to the reasons why a campzmy,

regardless of size or store location from the warehouse, resorts to a.

52
per cent-to-eales method when it is aware of the increased accuracy
realized in reflecting; the true cost of tmnSportation to a given store
or area by using; the ton-mile method.

It is best, perhaps, to describe the Operation of the per cent-to-
sales method before explaining its merits and weakmsses.

Iz'xitially the total sales for an inflvidual division, or for all
stores Operatmg out of a single warehouse, are totalled for an account-
ing period. The fiscal year is broken down into operating periods ac-
cording to COIEBIU policy. GeneraJM, the period consists of four o:"t1:ir-
teen weeks. The thirteen-week period is c‘omuonly called a qua: ter.

me total sales 1' or the period are also classified into three cat-
egories; grocery, meat, and produce sales. The following is A theoret-
‘ ical male of the way in which a. per cent-to-szfles mthod of allocat-

ing delivery expense is carried out:

 

First Quarter
Division A
Grocery Sales $8,000,000
Meat Sales 2 ,500,000
Produce Sales 750,000

If a specific store, which we shill call Store No. 22 , realizes for
this first qmrter, a grocery sales of 5,160,000, a meat sales of $50,000,
and a produce sales amounting to $15,000, the per cent of the transpor-
tation expense to be charged to this store would be allocated in the
following manner I
I Store No. 22 First Quarter Grocery Sales of $160,000 divided by
Division A First Quarter {h'ocery Sales of $8,000,000 equals .02 or 2 per

53
cent of the total grocery delivery cameras for that quarter. 11" the
total grocery delivery expense for Division A for this qmrter muted
to $80,000, Store No. 22 would be charged with 2 per cent of the $80,”
or $1,600 for its chm of the division grocery delivery expense.

Store IMo. 22- First erter mat Sales of $50,000 divided by DiVi-
sion A First Quarter Sales of $32,500,000 equals .02 or 2 per cent of the
total meat. delivery expense for that quarter. It the total. net delivery
expense for this quarter annotated to $25,000, Store No. 22 would be charged
Iith2percent cfthc$25,000m‘€3500forits shmofthsdivisionmeat
delivery expense.

Store No. 22 First Quarter Predues Sales of $15,000 divided by mu.-
sion LFirst Quarter Produes Sales of 3750.000 equals .02 or 2 per cent
of the total produce delivery expense for this quarter. If the total
produce delivery expense for this quarter amounted to $7,500, Store No.
22 would be charged with 2 per cent of the $7,500 or $150 for its share
of the division produce delivery expense.

After striving the relative simplicity of this method, it is not
difficult to understand vrrw many comanies feel that it is an adequate
scans of charging this expense to the retail. stores.

Since the amount of mrchsndise delivered to a given store correlates
favorably with the sales voltme, it is felt that it presents a fairly
true picture. This method is favored where the distance from the van--

house to all retail units does not vary to am appreciable dogma. *9
example of this 18 a food chain cmpsny whose retail outlets are all

located within or adjacent to one city.

5h
Jewel Tea Company, Incorporated

The Jewel Tea Company, Incorporated, allocates the delivery expense
to its 150 retail outlets and to the individual departments of each store
by the per cent-to—ealee method. Some of the reasons given for using
this method of allocating delivery eXpense are:

All of the retail units are Operated within a radius of fifty miles
from the supplying warehouse. This is one of the most important factors
which induces the Jewel Tea Germany, Incorporated, to use a per cent-to-
sales system.

The fact that the mileage factor is negligible, according to the
management of this comm, mines for a more «mate reflection of true
delivery costs by use of this method than in the case at the First r"ad-donal
Stores, Incorporated, or the Grand Union Conn-mgr, both of which have stores
one hundred rile-s and more from the supplying warehouse.

Another reason atom from two of the conpany'a operating policies:
(1)1110 Jewel Tea Cm, Wfied, operates on the basis of a four-
week period, and (2) the store nanagere are partially compensated on a
bonus plan.

At the end of each four-week period, the manager of each store is
notified as to the profit picture of his store. If a ton-mile method
of allocating the delivery expense were in use, the Jewel Tea Germany,
Incorporated, feels that the additional time involved in making the more
accurate comutatione would distort the profit picture to the manager from
the standpoint of time passed. In otter words, to present each maxmger
with this information as soon as possible after the tour-meek period has

ended, the per cent-to-ealee method is best.

55

By being able to observe the past four-week operation as soon as
possible after it has ended, hat specific period remains fresh in the
manager's mind and he is more able to rectify any existing trouble spots.
In order to show him a true profit picture, all expenses must be comuted,
inclining delivery expense 0

At the end of each four-week period the store W is sham the
profit picture by the district manager, who presents the information on
a "Ch'ocery and iiarket Operating Record". (In this company "market" refers
to the meat department.) on the record, presented by the district man-
ager‘, is shovm the gross margin for the grocery, mat, and produce depart-
ments; all expenses broken down into the various categories of payroll,
supplies, et ceterag the total eXpenses, the gross earrdngs, and the per
cent of profit and actual amount of the bonus to be received by the man-
agar.

From the above earplanation of the system and the description of some
of its write, one might assume that it has few serious weaknesses. Hour-
ever such is not the case.

The basis for the correct distribution or allocation of the delivery
' expense should be service rendered. If one retail unit, Store No. l, is
located a few blocks from the supplying warehouse, it is obvious that to
distribute fairly the delivery expense, the store which is fifty miles
away should be charged for its merchandise deliveries at a higher rate
than Store No. 1-. '

If Store No. I realized a weekly salt-s volume of $20,000 and Store
No. 2 had a weekly volume of $10,000, than, by means of a per cent—to-

56
Isles nthod of allocating the delivery expense, Store No. 1 located
only blocks from the warehouse would be charged twice as much for its
merchandise deliveries as would Store No. 2. Is this, then, a fair
(distribution of costs according to service rendered? It is understood
that since Store No. l, in order to realize twice the sales volume of
Store No. 2, must receive approximately twice the amount of merchandise,
it should be charged relatively more for its merchandise deliveries.
However, in all fairness, it must be realized that from the standpoint
of actual cost, including labor, equipment depreciation, gas and oil,
et cetera, a fifty-mile distance factor is not negligible. In actual
cost, to deliver merchandise to Store No. 1, located near the warehouse,
and to Store No. 2, located fifty miles from the warehouse, the difference
is simii‘icant.

In the case where a company wholly or partially compensates its
managers or other employees on a bonus plan, the per cent-to-sales method
appears to be most inequitable. In the above example, the manager of
Store No. l is helping to support the manager of Store No. («2“2 and is
being charged for more than his fair share of the delivery orpense.

When a ton-mils method is used a similar problem appears. {slaw
people feel that it is not fair to penalize a store, by charging a higher
rate for the delivery menu, simply because that store happens to be
located a greater distance from the warehouse.

This is the type of problem confronting management today. Are the
variable factors in. the food chain industry too great to apply a system
of standard work unit costs? If not such costs would facilitate the work

'l

S7
of plarming and would free management of many companies iron the curse
of the "per cent-to—sales" technique which may have 'damagixg results.

For example, the First National S bores, Incorporated, found that,
by using the ton-mile method, actual delivery costs of one division
ranged from 1/2 of l per cent of sales for stores ns erect the warehouse
to h-l/Z per cent for stores farthest from the warei'xouee. Furthermore,
when it changed from the per cent—to-ealee mthed to the ton-uh method,
it discovered that seas of the e tores located at the more distant points
showed a. loss instead of a profit. Still, when using a per cent-to-
salee method of allocating expenses, the mgcre of stores that are '
Operating at a. loss may receive, if compensated by a bonus plan, as large
0:. even larger peymnt by bonus than the managers of stores Operating
at a. true profit.

Another important factor which enters into the picture is the pres-
ence of the Office of Price Stabilization. Under its regulations all
retail food stores are divided into four groups. The food chain stores
are placed in three and four. Group three is com-:rised of all food chain
stores realizing an annual sales volume of less than $375,000. Group
four is comriscd of all food stores doing an annual sales volume of over
tit-375,000. Group three stores, those doing the lower sales volume, ere
allowed a higher markup on merchandise than are stores in Group for.

By use of the ear cent-to—salee method of allocating the delivery expense,
the stores in Group three are penalized for being low-avolmm atoms.
Since, in general, they charge a slightly higher price per item than
stores in Group four, they are, in effect, charged a higher rate per unit
delivered.

58

These are but a few of the many problem facing management today
in making decisions relative to methods of allocating eXpensrzs. It is
possible, mat in order to distribute fairly the delivery eXpense in
the food crmn industry, some further refinemnts of the methods already
in use may be necessary.

The Jewel Tea Company, Incorporated, feels that the difference in
accuracy which would result from the use of the t on-mile mthod would
not offset the cost of the additional office help tich would be required
in order to use tlmt method.

Of the many companies which might possibly feel this way, has many
have ever actually attempted to use another method? The First National
Stores , Incorporated, realizing the inadequacies of the pear cent-to-sales
system, rather than assundng that some other method of allocating deliv-
ery expense would not be worth its added costs, tried another system (the
ton-mile method) and found it very profitable to do so.

There are, perhaps, numerous other factors which may influence an
individual company in deciding upon and using any one of the methods
discussed in this thesis. I

Until m attempt is made, however, few companies can be sure that it
will not be profitable to clungs from their present method of allocatgzg the

delivery smashes.

Non-Allocation of Delivery Ezrpense
The reclaim” of this chapter will be devoted to a discussion of
the method used by many of the smaller food chain com-sanies for handling

the delivery eXpense.

S9
- \ It would seem, from the previous discussions, that most of the
food cimin comf-sniel are aware of the imaortmce of charging each retail
unit with its fair share of the operating capenses. There is in use, the
mthod in WhiCh no attempt is made to allocate the delivery expense to
the individual retail. units.

From observations made, it was found that trail! situation prevails
chiefly muons; the so—called smaller food chain companies. Whether com-
pany-size in number of retailmits is truly a determining factor, can
not definitely be stated. It has been noted, however, that virtually
every food chain company having sixty retail units or more does 'ezaploy
some means of allocating the delivery exyense.

The question at hand is: what are the factors an ich influence the
smaller chain companies to treat the delivery expense in this manner?

In 'mswerim; tide question it is important that we examine the structure

of the smaller company as compared with the large food (main organisa-

tion. In the main, both the null and the large food chain commies

are corporations. The small companies are generally closed corpora-

tions. This mans that they are not listed on the stock exchange and
that the stock is not for sale to the public.

A Thestockofthistypoofcorporationisusuallyheldbyasmll

group of people; quite often by the mnbers of one family. In fact,

one man may own all or most of thsstock, having incorporated to benefit

from the advantages of limited liability. ’

In a small comany the stockholders are frequently the compamr

executives. The method of operation is less formal than that of a large

firm.

60

A large corporation listed on the stock exchange must comply with
certain rules and regulations of the exchange, and met mintain an
efficient, reliable accounting systems Being listed on the stock ex-
change, the large corporation must be as an ogren book to the public.
Operatingexmnses rather than being presented as a. single coinined
figure, as in the case of many smaller commune. mist be broken down
into individual expenses. There are often thousands of stockholders
who are interested in the specific exgense fists-es for certain branches
or divisions of a omny.

In the small food chain operation, since the stockholders are often
the management, they are aware of the operating picture and such of the
operating information concerning sales and expenses is passed between
them by word of mouth. The retail. units are, for the most part, ell
situated near to the supplying warehouse , thus making the difference in
delivery cost less important. Quite often, too, in a small. comm the
sales volum or the stores does not vary greatly.

In a small organisation there are fewer branches, districts, and
retail units. Therefore, fewer reports need be prepared for management.
A smaller office force is necessary and since the allocation of We!
to individual retail units entails additional wcrk, the existing office
oomplimnt would not be able to handle this added responsibility.

In many of the large food chain camsrfies the line supervision (man-
sgers, district managers, md division mmgere) is empemted to 80m
degree on a bonus plan based on the earnings of m individual retail unit,
district, or division. In order to View clearlyr the earnings of any

61
operating unit, the hidividuel Operating engenses must be Imam. Since
the superfisim of most of the smiles CCXZIj-lJIIii:fS is remunerated on a
salary system, the exact Operating essences for the individual omrating
units is less innortant.

As mntioned in Clnptor III, 51.1.31th less hen half of the Super
market Institute member commies have central warehousing. Those who
do not are among the smaller Operators. The! comanies having central
warehousing consist of all those with amunl sales of over $15,000,000,
and 82 per cent of those having an annual sales of from $55,000,000 to
$15,000,033. Times out of five of the Smaller commdes (those lmvfing
an az'munl soles of less than $5,000,000) do not have central. warehousing.
Obviously, in a comany which does not have central warehousing, it would
involve an men greaser task to allocate efficiently the extensa of de-
livering mrchamiise to the retail. stores. The cost of delivery would
often be included in the cost of the goods received.

For these reasons mug of the small food chain commies treat the
delivery exyense mmh me some as their overall Operating expenses, such
as advertising and administrative costs. Since onlyr a small office force
is necessary, maintainmg an accurate system of delivery ez-qmnse allo-
cation to individual retail mute would be prohibitive from the stand-
point of the cost involved in additional clerical help.

(If the three smaller food chain companies contacted~ directly,
namely: the Daniel Grocer Congeny of liurphyeboro, Illinds which has
twenty-one retail units; the trigley's Stores, Incorporated, of Detroit,

liichigma, which has apprmdmately sixty retail units; and the Albors Super

,‘D

 

62
Markets , Incorporated, of Cincinnati, Ohio, which has apj‘roorimtely sixty
retail unite , all were found to handle t’e delivery eoqoense in this mn-
ner. That is, they mil-cc no attemit to allocate the deil_‘f.vsur3r exj'eztse to
the retail units. It is interesting: to note that each of the tl'mee com-
panies is controlled. by a shell from»; the Damiel Grocer Compare! by the
Bardel family, .‘Jfrigley's Stores , *‘Lcomorat ed, by the Erie Brothers,

and Albers Smear Ehrlcets, Licorporzz 1, by :r. Albert-3.

A3 a 00:17" .3“ increases in size (in mate: of retail wits and szlea-ie

do

from the warehouse) more thoujzt is given to the subjec of allocating
expenses, I-Ir. Nathan "'35. Lurie, Sometimumreesurer, of the trigloy's
Stores, Incorpori. ed, . nich is currently 0:15:39d in an oceansion program,
expressed the opinion that some method of char-51m: the (123:.er expense
to the retail miits would undozmtedly bicz-éeese his cozspew’s operating
efficienq'. He further stated that serious consideration is being given
to the institution of Some system of d-:.‘-.L;"_'\.'€3.""' enqense allocation.

Thus, after medal :; he dzterrdning factors which influence the
small companies to handle the} delivery sequence in this Harmer, it is

safe to essgm thit they may have some justification for using; tl'uis

method.

CHAPTER VI
SIEZCARY AND COHC UJ'SION

Since the end of World War II, with the reappearance of govermont
price regulations and with increased competition, the not-profit pic-
turs in the food chain industry has steadily declined. Today a not
profit of from 1 per cont to 1-1/2 per cent is not unccmom In fact,
during the latter half of 1951 the not profit of sons food chain
companies oven dropped to the dangerous low of approximately 1/2 of
1 per cont.

Because of this trend toward lower net profits. it has become
increasingly important for each rctail unit to carry its fair and
hill share oftho company's operating expenses.

Prior to World War II, profits were higher and tax” were lower.
which made for an Operating situation in which the proper allocation
of expenses was not given serious consideration. Since the importance
of charging such retail unit with its chars of tho expenses has boon
realized, sovertl methods of allocating the delivery expense have come
into use.

This thesis is written us an aid in pointing out, to the student
or food distribution and the food chnin industry, the importance of
transportation and merchandise delivering; some of tho important facts
concerning methods of delivery, delivery schedules, truck «nor-ship.
mointonnms of equipment, and problems oncountmd during a. natioml
emergency; and to explain in detail sons of the methods of delivery

cxpcnss allocation in use at the present time.

64
Importance of Merchandise Deliveries

With the exception of the role which the retail unit plays, no
other function ie of greater importance in the food chain industry
than the delivery of merchandise. The delivery of merchandise from
the warehouse to the stores is as important as the delivery of
ammunition from the arsenal to the front-line troops. Since the bulk
of merchandise handled in a. food chain company is received from a.
central company-owned warehouse, the disruption of the flow of mar-
olmndiee behveen the warehouse and the store: would be more serious to
that company than would the disruption of any other phase of the

business.

Delivery Schedules

Deliveriee from company-owned enrehcueee ere clceeified ee (1) the
staple grocery delivery, (2) the produce delivery, and (3) the meet
delivery. The frequency of deliveriee depende upon the perichebility
of the merchandiee delivered, the etore size in weekly eelee volume,
end the company policy regarding delivery eohedulee. 'Begardleee or
compenv eiee in number or retail unite, it hee been found that with few
excepticne, by edhering to regular echedulee for the delivery of mer-
chandiee, the entire retail etoreoperetion ie more efficient.

Quite often the frequency of deliver-ice depends upon the type of
trucking equipment which is used. “here large semis-trailer trucke are
in nee, leee frequent deliveriee of staple groceriee are necessary.
Thie ie cbvioue from the fact that e greater mutant of merchandise can

be delivered at one time one ”mi-trailer than on a etraight truck.

 

65
With the wide use of walk-in coolers for dairy products, meat merchan-
dise, produce, and frozen foods, a larger inventory in the store is
possible and fewer deliveries per week are necessary.

Durim the past fear years he trend has been toward designing
trucks to meet specific needs of the merchandise to be carried. Among
the developments in truck design have been the installation and use
of refrigeration and heater units which help to protect the perishable
merchandise.

In order to speed up the delivery Operation, several methods of
loading and unloading have come into use. The use of pallets for
loading and unloading nnrohandise has both merits and weakneeue. The
opinion or several food chain companies , however, is that the merits
outweigh the weak points and that the use of palletised deliveries will

eventually become a common practice.

Wartime Emergency Problem

While gathering the material for this study, it was found that
virtually every food slain company encountered difficulties, relative
to merchandise deliveries, during the World War II emergency period.

Sam of the most important problems that food chain companies faced
were:

1. The need to reduce the umber of deliveries (mileage) and still
maintain an efficient delivery program.

2. The necessity of intensifying the use of present cquipncnt.

3. Pastor means of loading and unloading merchandise.

4. Kethode of procuring new equipmnt and repair part.

 

(1.1!:‘i‘l I

'l‘Ill’ll. ill! i v

CG

5. Necessity of having an adequate maintenance program.

6. Importance of driver personnel records and a driver training
program.

A useful checklist for:measuring a company's ability to meet pos-
sible regulations and restrictions in the current (the Ebrean) emergency
based en'world'war II experience was prepared by‘mr. A. J. Pick; a
warehousing and transportation executive of the Grand Union Company,
and is included in Chapter II. This checklist is an.effeetive means
of taking stock of a transportation operation. especially, for those

companies'she own.snd.0porate their own equipment.

methods of Delivery

In deciding whether to own, lease, or use contract carriers for
merchandise deliveries, most companies have specific reasons for choosing
their particular method. '

The Alpha Beta Stores of los Angeles, California, is in favor of
company-owned trucking equipment. It reached this decision after dis-
covering that it was realizing a saving of aporoximatcly $34,000 below
a trucking company‘s bid on an annual basis.

The Jewel Tea Company, Incorporated,is in favor of leasing its
trucking equipment because:

1. It keeps company capital free for primary Operations.

2. The leasing service assumes all responsibility for maintenance
and repair work.

3. Cost of fleet operations can.be budgeted well in advance.

i. It found that when.1easing its trucking equipment it had decreased
its hauling cost approximately one cent per hundredeeight below the cost

of a contract-carrier relationship.

67

An important factor to be considered if companybormed tmoldng
is to be an economical and efficient operation, is that truck owner-
ship muet be backed up by complete mechanical facilities for proper
maintenance of the equipment and records which provide an intimte pic-
ture of the operation.

The National Tea Company has three ferns which it has. succecsmlly
used to keep a constant check on the condition of each of its trucks.
These fem are:

1. A one thousand—mile inspection form on which is listed all
important truck parts to be inspected and checked off by the mechanic.

2. An individual vehicle mileage record.

3. A driver's daily report.

Virtually everyone connected with the momhandiu delivery Opera-
ticn of a food chain comm agrees than an adequate mintenenee pro-
gram it a necessary requirment for company-owned equipment. This does
not mean, however, that a computer-owned garage as well as other facilities,
including the employment or a mechanic are also necessary. In the
smaller companies it is often more economical to contract for equipment
repair and maintenance work.

Methods of Allocating Delivery Expense
Ton-nah methotd; A: with most other expenses incurred in the oper-
ation of a business, there are several methods of allocating the delivery
expense to the retail units and to the departments within each retail
unit.
The ton-mile method, which is that of applying s. transportation

cost based upon the distance from the shipping base to the receiving

68
stores, is used more often by those. companies in which the distance
from the warehouse to the stores varies greatly.

In £1 compare! there the distance from the stores to the warehouse
may vary from less than a mile to over one hundred miles , this method
much more accurately reflects the true cost of transportation to a
given store or area. The ton-mile method not 0x21;r take: into consid-
eration the distance factor, which is haportant from the standpoint of
cost, but it also includes (though indirectly) the sales volume of the
retail unit. This is accomplished by basing; the mileage rate upon the
weight of the merchandise delivered, and the physical volume of merchan-
dise delivered to the store correlates very favorably to the sales
volume of that unit.

The manner in which this system is applied varies from company to
company, but the basic principles of the method are employed by all
companies using this type of allocation as pointed out by specific ex-
mp1”.

for cent-tvo-oales method. This method of allocating erponsec relies
only on sales 7011mm ea :5. measure of charging the delivery expense to
the particular retail units or departments. Distance is not considered
an important factor and for this reason it is difficult to obtain a
fair distribution of expenses.

Ito simplicity and the cone with which the results can be determined
arc the major advantages or the per cont-tc-oaloc method. The disadvan-
tages of thin system far outweigh the odvantegec.

Deliver! ezggenu not allocated. Although most of the smaller con-
panics do not charge the delivery expense to the individual retail units,

Ill 1 I' [II

69
many have never even attempted to do so. Therefore, they actually do
not know mother it would or would not he worthe'hile. Lit-my of these
companies feel that the difference in distance between the central
warehouse and the retail units is not great enough to warrant the
allocation of the delivery expense to the individual stores. Buoy also
feel tlmt it is not feasible due to the cost of allocation.

Since the general structure of the small company (management, super-
vision, and store location from the central warehouse) is different
from that of the large operation, their method of handling expenses
may be justifiable. -

i In conclusion, it should be pointed out that when presenting the
merits and wedhiesses of the various systmns of allocating delivery ox-
pense, no partielity was intended to be shown toward any one system.

If the render finds that the author tends to loan in favor of any one
particular method, it is only because that system has such obvious
advantages that to do otherwise would have been restricting the purpose

of the 12116818.

Emilio-131;“: 1‘1

BIBLIOGRAPI-i

B '90ng

 

Sevres, Paul, editor. Fcod Marketin . New York: Mocha-Hill Book
Company, Incorporated, I555, 3% I? pp.

PERIODICALS
Anon. card 5313:3523: Controls Fleet homotionc. food Industries.

18011113 1911-6), PP. 1032-10330
Anm. Fleet leasing Spreads. giantess Week. (July 23 , 1919), pp. 56-58.

 

Handlemsn, Sol. Hang Truck Ownership Pay. Chain Store Age. 28(Feb-
ruary 1952), pp. 160, 211. w

‘ B ULLETEIS

National Aassociation of Food (31mins Smear; Report on the Warehousing
and Deliveg Clinic. National Association 07543006 Chains, Washing-
ton, 13. 0., January 15-17. 1950, 37 PP.

com mm Hemmer-41:;

United States Department of Commerce Modernism and Operating Grocer;r
Warehouses. Domestic Commerce £8er a No. 55. U. 5. Government

Wrm, tamington, D. c. , 1951.