What's it worth to you?
In lean times, private fleet managers must make a strong case for the value the fleet brings to the company.
By James A. Cooke, Senior Technology Editor -- Logistics Management, 4/1/2002
Even in the best of times, managers know they must be ready to justify their private fleet's existence to corporate management on short notice. They've come to expect the request—or mandate—as a normal part of the job. The phone rings or an e-mail arrives informing them that the chief financial officer has been asking why the company can't simply use a for-hire motor carrier or outsource the private fleet operation. The fleet manager crunches some numbers showing that the fleet is cost-competitive with outside service, turns in the report, and that's that.
In tough economic times, however, the pressure to justify the fleet becomes much more intense. Not only do fleet managers have to show that their operation is cost-competitive, but they also must demonstrate that it supplies some additional value that the company can't purchase from an outsider. More often than not, the extra value involves superior customer service. "You have to look at your overall supply chain," says Tom Jolly, operations manager for dedicated fleets at General Mills Co. of Minneapolis, "and then determine whether having your own private fleet will provide incremental value."
Focus on Costs
Back in the pre-deregulatory era when the government set motor carrier rates and regulated service, thousands of corporations operated fleets to deliver their products to customers. But then came the Motor Carrier Act of 1980, which unleashed aggressive price and service competition. Soon afterwards many corporations discovered they could get the same level of service at a lower cost from an outsider and abandoned their private fleets.
That threat remains today. "With the economy being the way it is," says consultant Tony Vercillo, president and CEO of International Fleet Management Consultants Inc. in Ontario, Calif., "you have to be 100 percent sure that [your fleet is] cost competitive or the company will go to a third party."
But how do you do that? You can start by analyzing the fleet operation itself. "Most fleets have too many trucks by 10 to 20 percent," Vercillo notes. Consultant George Edwards agrees. "You want to size the fleet to a level where you can achieve full utilization year round," says the consultant, who heads his own firm, George L. Edwards and Associates in Opelika, Ala.
Pay structure is another area for scrutiny. Vercillo advises managers to create a compensation system that rewards both drivers and mechanics for performance. "You have to make sure you have the right pay structure," he says, "one that rewards drivers for productivity on the right measures such as cost per case." Edwards adds that companies should invest in driver training to ensure high levels of productivity. "You need to train the drivers exceedingly well," he contends. "You need to look at training as an investment, not a cost."
In the end, though, it's all in the metrics. To justify the fleet, Vercillo says, the private fleet manager should be able to demonstrate to management, on a lane-by-lane basis, that the private fleet can operate for 3 percent less than it would cost to use a for-hire carrier on the same route. He also advises fleets to solicit backhauls to fill empty trailers on return trips, becoming a profit center whenever possible.
Adding Value
Once the private fleet can demonstrate that it's cost-competitive with for-hire carriage, the next step is to show that the operation brings value that can't be readily obtained from an outside carrier. In most cases, that extra value involves customer service; in fact, a recent survey of National Private Truck Council members found that customer service was the most frequently cited reason for operating a corporate fleet. (See the accompanying sidebar.)
"The number one reason [why we operate a private fleet] is customer service," confirms Gary Strausbaugh, a vice president of transportation with Mennel Milling Co. in Fostoria, Ohio, which sells flour to wholesalers and manufacturers. "Our drivers are more than just drivers. They are our customer service reps and the eyes and ears for our companies."
Mennel Milling's private fleet, which consists of 22 tractors and 27 trailers, serves the Midwest and Mid-Atlantic states, hauling loads as far east as New York. As for extra value, Strausbaugh says his drivers are more than willing to handle extra tasks, such as putting load information into a customer's computer systems or making deliveries on short notice. "If a customer calls late in the day, we can react to that," he says. "We have the flexibility to make quick deliveries."
Besides customer service, the private fleet can sometimes offer value just by ensuring a consistent level of service and the availability of truck capacity during crunch times. That's the case with Boise Cascade of Boise, Idaho, which makes office products, building materials and paper. Boise Cascade's decision to maintain a private fleet, which hauls about half of the company's truckload freight, ensures that the corporation will have a steady supply of trucks for transport in the northwest corner of the United States.
"We're a safety valve," explains Roger Olds, general manager of the trucking division. "At certain times of the year, there are all kinds of trucks in the Northwest. Other times there are none because the common carriers go to some other part of the country where the money is. We're guaranteed capacity for those seasonal swings."
Private fleets can even play a critical role in overall corporate success. Snack-food maker Frito-Lay Inc. of Plano, Texas, believes its large in-house fleet is vital to its "powerhouse distribution network," one of the company's "pillars of success." "The private fleet is an integral part of the network in that it guarantees an uninterrupted supply chain," says Mark R. Whittaker, Frito-Lay's director of transportation logistics. "When you have a short network that depends on velocity and product that's perishable, you have to guarantee an uninterrupted supply chain. If you're shipping perishable products, it makes sense to have a private fleet."
Prove Your Worth
Even in those cases where it's universally acknowledged that the fleet exists solely to provide exceptional service, Vercillo urges managers to offer some kind of quantitative proof of the fleet's value. "People argue for private fleets based on emotion, often citing factors like the goodwill created by better service," the consultant says. "But that's defined by what? If you can somehow demonstrate values such as personalized service and enhanced image with the consumer, you have increased value. But you have to support it with solid evidence."
Vercillo acknowledges that obtaining that solid evidence isn't an easy task, but he offers some suggestions. Perhaps the private fleet can show that it has a better on-time delivery record than an outside carrier does, he says. Or maybe it can develop detailed key performance indicators such as cost per case or per pallet that offer additional evidence that the in-house operation provides more value than a for-hire competitor can. "But all this is easier said than done," he admits.
Whatever extra value the private fleet brings to the company, it's critical that the manager communicate the operation's importance clearly to those in upper management. "The manager should ... let the company know what the fleet is doing," says Lisa Deyo, president of the online professional development site efleetmgmt Inc., which is based in Woodbridge, Va.
For a private fleet to succeed in today's cost-conscious environment, Deyo adds, fleet managers must learn to tie their objectives directly to the corporate mission. "You can't say our cost per mile is this. You have to communicate your value in benchmarks that the company understands," she says. "You need to be more of a corporate manager than a truck fleet manager."
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