Cost-Effectively Calculating Tire Costs
This simple method can save you big bucks.
Jim Winsor
Executive Editor
You can spend fortunes to capture every cent you've spent on tires or retreads, but is it cost effective? Here are highlights of a simple system invented by fleet maintenance executive Darry Stuart, a 35-year fleet veteran whose ideas he's shared with me (and you.)
With all the new technology coming into the trucking industry, I asked him how he tracks tire cost per mile on a comparison basis, especially with such things as RF chips and new software on the horizon.
"Keep it basic and don't allow yourself to get tangled up in all kinds of details that don't really matter. Follow the ÔKISS Principle' as much as possible," Stuart said.
Stuart has had his own fleet management business for four years now and this basic tire program is part of what I call the "Stuart approach," which is extremely result-oriented. When he was VP at Keen Companies about 16 years ago, he and his assistant, Doug White, developed a system that is remarkably simple. Doug is now director of fleet maintenance for Dunbar Armored, a large national armored truck company. The basics of their program is built around four management concerns:
1. Purchases: Buy the right tire for each application at the right price from the right supplier, who can give the right services for your fleet and location.
2. Physical inventory: Ensure all tires are always accounted for at all locations. Use a tag-type theft-deterrent system that will keep top management and the accounting department off your back.
3. Touch: Tour the pile of "off" tires daily. Visually ensure they're properly inspected and tagged for repair, retreading, etc. (This is part of Darry's MBWA (Management by Wandering Around) philosophy.
4. CPM: Costs must be reasonably accurate, by vehicle. Nothing more, nothing less.
In capturing cpm, Darry says he looked at all sorts of ways, ranging from tracking DOT tire numbers, numbers of recaps, age of casings, positions on the vehicle — and on and on. And then there are scores of tire software programs, some very sophisticated and expensive. Stuart's answer, echoed by Doug White: What for? Keep it simple and build tire costing around these three basics:
• All tires are kept in inventory by costs per 32nd of an inch of tread.
• Tires are charged to each vehicle as they go on by 32nds of rubber.
• All tires removed with value are credited to the vehicle by 32nds remaining.
Tire costs on a vehicle are averaged by group: steer, drive, trailer and recaps. The cost is divided by 32nds, i.e., a $360 steer tire with 20/32nds of tread is charged or credited $18 per 32nd.
Example: A new tire installed at 20/32nds equals a $360 charge. 80,000 miles later, the tire is removed with 10/32nds remaining and credited accordingly. Net cost to the vehicle is $180 or $ .00225 cpm for that tire. No credits are given under 5/32nds. If all 10 tires on a tandem-axle tractor had the same rubber on and off — under that scenario — costs would be $ .0225 cpm. Such a cost system can easily be tracked by computer or manually. This is a maintenance-based cpm, not GL (general ledger) cpm.
Other costs that go in: average retread price (if retreaded), average cost for nail hole repairs, section repairs, etc., plus any rim refurbishing costs. Averages are all you need. Additional detail is too costly and tells you little. Keep part numbers to a minimum so as not to confuse mechanics capturing the data.
All tires are given a physical tag with a number and basic data. Tag stays with that tire while it's in your inventory. A copy of the tag flows to the central office or wherever control of the fleet's physical tire count is maintained. Inventory each month is done of all physical tag numbers and 32nds of rubber noted on each tag. Data is reconciled with the office copy count and computer inventory in 32nds.
If you need more data, you can assign part numbers. #17RF would mean a steer tire mounted in the right front position. If you needed to know how many right front tires you put on, run a parts usage report on that vehicle under Part No. 17RF. (This assumes your computer system doesn't have VMRS codes.) At the end of each month after reconciliation, reports can be run for the dollar value for each type of tire and totals. Those figures go to accounting.
For more details, you can reach Stuart by e-mail at darrywst@aol.com.
