How to Make Variable Costs Less…Variable

April 11, 2019 Karli Langner

How can you manage your variable costs as effectively as you do your fixed costs?  Ready mix concrete producers spend a significant amount of time evaluating their needs for fixed assets: people, plants, trucks, etc.  The luxury in this decision making is that there is typically time for the management team to run reports, evaluate various scenarios and sit in conference rooms to discuss how to manage fixed costs.  However, a much larger percentage of your costs are derived from variable costs…and typically you are not the person making most of those decisions that directly impact these variable costs.  Decisions that more directly impact variable costs are typically being made in real time by shippers, schedulers, batch personnel, drivers, etc.

Most ready mix concrete producers will tell you they run a “good” dispatch operation that allows them to control the variable costs associated with delivering the materials to the customers.  Those “good producers” can often be heard making statements such as ‘we are still making money’ and ‘we are as efficient as the next guy’.  The real truth is that they have become comfortable losing money in their dispatch environment because it is the way it has always been done.

Those same “better than average” producers accept over three hours of unproductive time from their drivers daily (not including lunch breaks).  That inefficiency leaves a massive amount of opportunity to convert that nonproductive time either into productive time or reduce the number of resources required to deliver the materials.  The only problem: no one has time to evaluate all of the options.  The capacity to digest all of the information available (driver hours, travel times, pouring rates, plant speeds, etc.) is impossible for a human to do in the few minutes (often seconds) that are available.  That is where our transportation management solution, COMMANDoptimize, becomes a tool that can allow a producer to achieve never before seen results.

Instead of guessing, Command Alkon’s COMMANDoptimize can evaluate complex variables to create real time and future day dispatch plans that balance cost and service to deliver more volume with fewer resources required. The tool also continually evaluates and dynamically updates the plan thousands of times during the day to make the most cost-effective suggestions on how to best utilize the resources available.

Producers who have successfully adopted the ‘Optimization Lifestyle’ have begun to see the dual benefits of Optimization:  1) variable costs have been reduced and 2) they are now delivering more volume than ever before without the need to add more fixed assets.

One area where COMMANDoptimize uniquely shines is going beyond just the variable delivery costs to also evaluate the potential impact of variable material costs. Dispatchers often “fly by the seat of their pants” making guesstimates about which concrete mixes cost less.  Oftentimes, the dispatcher isn’t provided this material costing information because it is closely-held, confidential information.  In other cases, they are told that ‘in general, the mixes are cheaper out of this plant’.  Even if the dispatcher has access to all of the material costing information, the ability of the person to digest that information on top of everything else happening is virtually impossible…especially in the time constraints they are operating in.

In a previous blog, we mentioned that one study showed that the average cost of materials to produce concrete is $57 per yard (or $75 per cubic meter).  Obviously, this varies greatly not just from producer to producer but even plant to plant.  Producers often see the cost of a single mix will vary by several dollars from one plant to another plant due to how the materials reach those plants. 

Very few producers understand (and even fewer achieve) the leverage needed to source cheaper materials when the situation allows for it.  The Dispatchers fall into a pattern that today is the same as yesterday and tomorrow will be more of the same.  They don’t realize that today they may be able to go to a plant further away to source cheaper materials.  They might spend $10 more in transportation costs but save $50 in material costs.  Tomorrow might be a totally different scenario where that cannot be done without incurring a large amount of lateness. 

Where decision making biases might limit how much flexibility your dispatchers put into their plan each day, COMMANDoptimize is not constrained by these biases.  Leading producers are changing how they approach their dispatch operations to optimize variable costs and resource utilization. Click here to see how COMMANDoptimize can help take you from good to great.

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