Private Fleet Management: Silent Success
Successful private fleet managers take unique paths to achieve operating efficiencies, but what they all have in common is their commitment to continuous improvement. Here’s how three fleet managers are quietly making a difference.
By John D. Schulz, contributing editor -- Logistics Management, 4/1/2008
They include some of the biggest names in U.S. commerce—Wal-Mart, U.S. Foodservice, Pepsi Bottling Group, Walgreens, Tyson Foods, and Halliburton, just to name a few. Their ranks also include names that aren’t well known, yet their smooth operation makes a huge—yet often undetected—contribution to American business efficiency.
As a matter of fact, the size of America’s private fleet operations just might surprise you. Gary Petty, president and CEO of the National Private Truck Council, says private fleet revenues exceed $300 billion, a figure that includes revenue from private fleets’ for-hire operations. When it’s all added up, private trucking accounts for nearly half of the $635 billion in truck transportation revenue, according to the 2007 State of Logistics Report by the Council of Supply Chain Management Professionals.
To put that $300 billion revenue into better perspective, that’s approximately one-fourth of the nation’s total logistics cost of $1.305 trillion in 2006. Yet few outside the transportation world are aware of how private fleets have evolved and are now even dabbling in the for-hire world for backhauls and other revenue generating opportunities. “We’re a secret weapon,” says Gary Kelly, director of transportation and logistics for Schwan’s Logistics LLC, a frozen food and baked goods retailer based in Marshall, Minn. In one special example of how Kelly put this weapon to good use, Schwan’s fleet was recently recognized for its humanitarian and operational services in the wake of hurricanes Katrina and Rita that ravaged the Gulf Coast during late 2005. While other basic services languished, Schwan’s was able to make both routine and extraordinary deliveries in and out of the area in the wake of those hurricanes.
A generation or two ago, private fleets were just that—private. They were hauling only for that corporation, usually on a fixed-route schedule. But then came deregulation, and that ushered in a new era for America’s private fleets. They received for-hire authority and began competing with contract carriers—where it made sense—for backhauls and other loads in order to help freight balance and improve load optimization. Today, these so-called “blended” operations are often some of the most efficient and service-oriented fleets on the road.
Many private fleet operators have grasped this concept of continuous improvement and are constantly striving to add value—not just at the transportation end of the equation but though the entire supply chain all the way to the customer. “Our private fleet is a very integral part of that value proposition,” says Larry Brown, director of logistics, for Salisbury, Md.-based Perdue Farms, “and is a natural component of our commitment to outstanding quality and service.”
Today, as rising fuel and equipment costs dog even the best-run for-hire carriers, private fleets continue to evolve to make the best use of their companies’ resources and improve overall corporate efficiency through improved service. Here’s a closer look into how fleet managers at Walgreens, Pepsi, and Batesville Casket are making a difference by implementing continuous improvement measures in their private fleet operations.
Walgreens: Thinks green, saves green
About eight years ago, Walgreens—the Deerfield, Ill.-based pharmacy powerhouse—was opening a drive-through pharmacy concept called Rx Express, a network of smaller stores that operate mostly in the West. These Rx Express stores only sell pharmaceuticals and medical supplies and are staffed by just two people: a pharmacist and a technician.
As the concept was rolled out, these mini-stores received a pallet or two of product each week from a distribution center in Woodland, Calif., that was as far as 400 miles from these stores. For a while, the company used a major regional LTL carrier to keep the stores stocked. And although deliveries were made next day, they often varied greatly by time; and because they were only staffed by two people, the location would often have to hire an extra person to help unload the deliveries.
The new fleet route
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Thomas Stedman, director of corporate transportation, Walgreens |
“Finally, our store operations people came to transportation and said, ‘We have to bring another person in to help unload this freight,’” says Thomas Stedman, the longtime director of corporate transportation for Walgreens. So, Stedman put on his thinking cap and designed a private fleet route consisting of about 10 stops. The new route would be able to deliver to the stores at precisely the same times every week. “It can be an exact time because we’re running our own trucks and we have total control over them,” adds Stedman.
There were other ancillary savings as well. For example, when it was using common carriage to service the Rx Express, Walgreens had to use cardboard boxes that cost about $1 each and could not be reused. Utilizing its private fleet, Walgreens now uses reusable plastic totes, ideal for small loads. “We’re always thinking green,” adds Stedman.
Bottom line: “We have improved service, improved timely deliveries, and we ended up saving $70,000 a year in Southern California,” Stedman says. “Plus, we’re helping the environment.”
Walgreens has operated a private fleet basically since the company was founded 107 years ago. That’s back when the company manufactured its own ice cream and needed timely deliveries so it wouldn’t melt. Walgreens no longer makes ice cream, but the same service requirements now exist for its dizzying array of pharmaceuticals, supplies, and everyday items it sells at its 6,237 stores in 49 states and Puerto Rico.
Service matters
Like many private fleets operators, Walgreens has tried for-hire carriage; but Stedman says the carriers lost the service edge that the pharmacy needed to survive the cutthroat pharmacy wars. “As we expanded into new markets, we used common carriers for awhile,” Stedman says. “But in the 1970s we fully recognized the advantages of using our own fleet. Generally we end up saving money because we manage and control it ourselves.”
Stedman says Walgreens “is not unique in retail” where even a lost day of deliveries can mean losing that competitive edge. “Our biggest challenge is speeding up unloading times at stores,” Stedman explains. “Our forte is our ability to offer a wide breadth of items to our customers. But we have so many items that sometimes it’s feasible for a common carrier to ship a full load. With our own private fleet, we can use split-case picking. That allows more deliveries of smaller loads.”
But that type of picking is very expensive for a for-hire carrier. “So we automated it with our private fleet so that it’s fast and efficient,” Stedman says.
As far as being an expense for his corporation, Stedman says that the efficiencies his fleet has ushered in more than offset the cost. “We’re a very small part of the total operating cost of our company (which had $53.8 billion in sales last year). If we doubled our private fleet expense, we still wouldn’t amount to a large expense,” he says.
>> Next: Pepsi: The joy of high service
>>> Skip ahead to Batesville: Winning the backhaul battle
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