Last week I wrote an article titled “Economic of Scrap Collection & Aggregation India” which went into detail about the economics of the scrap collection trade. This is the third article in the series & as mentioned in my previous article I will be discussing the costs associated with logestics along with the mathematical calculations that one must not ignore in order to arrive at a precise per kilogram cost of collection. Collection is one of the most costly cost heads associated with waste management & must be given carful consideration.
This article will discuss the following points:
- Cost associated with logestics:
- Provide guidance on how to calculate per kg/cost
Trucks/Logistics: Weather you own one truck or a fleet of them you must take into account the following monthly, quarterly & yearly costs of operating a commercial vehicles:
- Truck instalments
- Truck Papers: National Permit, Insurance, Fitness, Road Tax
- Drivers & helpers salaries
- Diesel/CNG
- Maintenance including cost of replacement of tyres
- Police: Underhand payments & trafic violation fines
- Cost devision: If the same vehicle is servicing multiple clients
- Opportunity cost: Would deploying the truck for another task deliver better financial results?
How to calculate these costs: In the list above there will be certain costs that are fixed & some that are variable. Variable costs will include fuel costs, maintenance, Police. The rest will be fixed for at-least for year.
Fuel Cost: To calculate your fuel costs you must know the average your vehicle gives per litre or kg of fuel. This average will of course depend on the load factor that your vehicle carries. How do you find out this average? Say your truck gives 5 kilometres to the liter, you would calculate the the distance to and fro to your destination, calculate the average fuel used for such a trip & then multiply it with the cost of the fuel that your vehicle uses. Eg: Truck Average (22 foot Ashok Leyland, 10.5 Ton Load Capacity) : 5km/per litre, Distance to & fro from destination: 100 Km, Diesel price: 72 Rupees a litre. The formula would be: 100 (Distance)/5 (Truck Milage) = 20(Litres of Fuel)*72 (Cost of Fuel) = 1440 Rupees as the total cost of fuel.
Maintenance: Look at your records to see what the average cost of maintenance that you have incurred on the said vehicle. If you are new to this then take 7% – 10% of the cost of the truck per year as maintenance costs. Let’s stick to 10% per year because you most likely will be crying load, so ware & tare on both the engine & tyres will be more than usual. Plus lets keep into account the conditions of our roads here in India that have a massive impact on the overall maintenance cost, specially tyres! So the cost of the truck mentioned above (Ashok Leyland 10.5 Tons Lad Capacity) is around Rupees 17 Lacs. 10% of that amount will work out to Rupees 1.7 lac yearly, Rupees 14,166 monthly & Rupees 472.22 on a daily basis. How do you use this number in your cost of collection calculation? The first thing that you need to figure out is how many different clients is this particular truck servicing? Say its just one, then this entire cost will be lumped onto the single collection, if two then you divide it by two and three then it gets decided by three. You get me! We can get very fancy with this by putting in the cost of time also, but to keep it simple this is enough. So let’s say for this example the truck is only servicing one client. All we do is add the total fuel cost mentioned above to the daily maintenance cost: Rupees 1440 + 472.22 = 1912.22 is now our new cost of collection which includes fuel & maintenance.
Police: From our experience, for interstate travel take rupees 1000 as police cost & within a city take Rupees 500. If you don’t incur this cost, then its a bonus, but best to add it to your cost of collection. Let’s say that we are collecting in a different state, so we add rupees 1000 to the above number: 1912.22 + 1000 = 2912.22. This is now you new cost off collection, which includes, fuel, maintenance & the cost of corruption.
Fixed Costs: Fixed costs in this case will include, truck instalments, insurance, RTO fees for papers, salaries for drives & helpers. As per our calculation for the Ashok Leyland Truck the total yearly cost of these cost heads works out to Rupees 36,583 Per month or Rupees 1219 per day. Let’s add this to our total cost thus far: 2912.22 + 1219 = Rupees 4131. Again keep in mind that all these cost would be divided propositionatley if the vehicle is servicing multiple clients, but for the purpose of this article we taken a singular client being serviced.
Opportunity Cost & Depreciation: This is important. Why? Due to multiple reasons. The first one being you must know the the revenue & profit that yo can generate from leasing you truck out for similar activities. Secondly you must pay your self! Just because you own the truck does not mean that you use it for providing services at cost. Yes its a competitive market out there and you sure can use your truck as a competitive advantage to maybe offer the client a better rate but not at the cot of your profitability. Remember its an asset and that to a depreciating one. So you either add that to your cost or account for its as additional fee thats an activity for your accountant to figure out, depending on what gives the best returns on paper. We generally add 20% to our cost as a depreciation expense. So finally adding 20% to the cost of the truck (Rupees 17 Lac) works out to Rupees 340000 annually, rupees 28,333 monthly or Rupees 944 daily. So let’s add Rupees 944 to our total thus far: Rupees 4131 + Rupees 944.44 = Rupees 5075 is now our final cost of collection. You may choose to add an addition profit on this if you like, but we as of now don’t do that.
So now we have a total figure in regards to logestics to work with. The amount is Rupees 5075. But how do you use this number? It’s simple. What ever load that you have lifted in kilograms, just divide it by this number to get a per kilogram cost that you then apply to the concerned material. Eg: Total cost Rupees 5075, total load 7027, total cost per kilogram would be: 5075/7027 = .722 Paisa!
Note: When looking to purchase a truck, keep in mind that it’s an expensive proposition with monthly fixed costs that you must pay out every month whether the truck is on the road or not. Evaluate your options, would it be better to lease than own?
I hope that this article has provided you value! The next article in this series will touch upon these different Cost Heads:
- Warehousing
- Machinery
- Labour (On site & off Site)
- Administrative
If you have missed the other articles that I have written as part of this series please click on the links below to give them a read: