Best PracticesSeven

Carriers Follow to Compete in the

Supply Chain

Seven Best Practices Carriers Follow to Compete in the Supply Chain

By Lisa H. Harrington

In the world of global supply chains, where bigger carriers grab headlines with news of service expansions, acquisitions and mergers, there continues to be a healthy need for small- to medium-sized carriers. In the United States, this is particularly true in geographic areas that are slightly off the mainstream routes or with companies that require special services.

As supply chains become more complex, what role do small- to mid-sized motor carriers play? Where do they fit in? How can they compete? This article addresses these issues. It discusses strategies and tactics that smaller trucking firms deploy to stay competitive and maintain or further develop their position within the supply chain.

“Lately, many of our clients seem to be very interested in renegotiating or re-bidding their transportation networks,” says Brooks Bentz, a consultant with Accenture. “We typically find there is a mix of carriers in their portfolio. You have the usual suspects -- the Schneiders, JB Hunts, Swifts and Werners of the world. But there is always an array of small to mid-sized carriers that fill a niche the big guys don’t -- either by design or by circumstance.”

“What a small to mid-sized carrier brings to the table that gives them a competitive edge vs. larger carrier – is responsiveness and flexibility. This contrasts to the often rigid service offering provided by a large carrier.”

--Brian Widell, president of Profit Tools Inc.

“A retailer might have eight to 10 distribution centers (DCs),” Bentz explains. “The buyers/category managers for the retailer are buying product from Europe and Asia to go on store shelves here in the United States. When containers carrying these goods arrive at the U.S. port, they flow to the retailer’s DC, are stripped out, and the merchandise cross docked in a push environment for delivery to the stores. Or, the goods go into the DC, are stored in racks and shelves for picking and shipping later.”

The import inbound movements to the DC tend to be full truckload and often longer haul. “These truckload movements tend to be provided by a select group of fairly good-sized carriers,” Bentz notes.

“But the DCs are located so they are in a geographic spot best situated to serve the retailer’s stores,” he continues. “If I am looking for trucking capacity to handle these moves from the DC, I may need to rely on some people who are major players in that geography and that might be the mid- to small local carrier. We may be talking about the hills of North Carolina or the hinterland of upstate Illinois – places that are out of the main stream. Or we may be talking about using a mid- to small sized carrier that specializes in retail freight and store distribution on a dedicated contract carriage basis.”

“Small to mid-sized trucking companies provide a service the large carriers typically can’t or don’t want to provide,” observes Mark Domzalski, regional vice president, XTRA Lease. “They can do this because they have lower overall costs than the JB Hunts or Schneiders of the world.”

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Brian Widell, president of Profit Tools Inc., a software firm specializing in trucking management systems for intermodal carriers, agrees with these observations. “What a small to mid-sized carrier brings to the table that gives them a competitive edge vs. larger carrier – is responsiveness and flexibility. They can handle a variety of different moves and services for a customer, as well as making special accommodations on rates or service agreements. They can be very responsive to a

customer’s needs and offer one-stop shopping to address their range of situations. This contrasts to the often rigid service offering provided by a large carrier.”

Smaller carriers – and their drivers – often form close relationships with their customers. These personal relationships are highly valued. “When we go through a sourcing agreement with a client, we often tell them, ‘You can save 18 percent by changing carriers,’” Bentz says. “They say, ‘Yeah but Nick’s been delivering to us for 18 years. He knows exactly how to back down the alley and make our delivery.

Doug Grane, president of Central States Trucking of Bensenville, Ill. Agrees that smaller carriers are in the relationship business. “The chief reason we’ve grown so quickly,” he observes, “is because we offer our customers service similar to what they get with larger companies, but still offer the personal touch of a small, family-run business. So we offer the best of both worlds. We don’t take customers for granted. Our goal is to develop long term partnerships. Our strategy is to listen to what the marketplace asks for and give it to them.”

Adds Tom Burke, president of TRX Trucking in Minneapolis, "Our competitive strategy is customer service, customer service, customer service … period."

In addition to providing higher levels of service and more personalized attention to customers, there are a number of other best practices you can use to secure your company’s spot in the supply chain.

1. Stay on top of IT. Responsiveness and flexibility is what gets a lot of small trucking companies into business. But high quality, reliable performance is what keeps them there. Such performance stems from good carrier management practices. It also derives from information systems that give customers the data they need to manage their businesses.

“Smaller carriers need to be able to compete at the same level as the big guys with regard to information.”

--Brooks Bentz, a consultant with Accenture

“Most big carriers are more sophisticated from an IT standpoint,” observes Bentz. “That matters to shippers. One of my retail client’s warehouse management system feeds off of the EDI information coming from its inbound vendors. So when a trailer shows up at the DC, all that freight is pre-assigned to specific destinations. This means the freight spends only 45 minutes in the retailer’s DC before it is on an outbound truck headed to a store.”

If a retailer uses a smaller carrier that doesn’t have EDI capability, the trailer shows up blind at the DC. “The facility has to take people off the pick line to manually work the freight,” Bentz notes. “This is very labor intensive, and drives the retailer’s costs up. Retailers don’t want that.”

“Smaller carriers need to be able to compete at the same level as the big guys with regard to information,” Bentz stresses. But smaller carriers are faced with a challenge. “They don’t have the economies of scale that a big carrier has to spread the cost of technology across hundreds of customers.

Fortunately, smaller motor carriers have one trend on their side. Information systems that may have required a multi-million dollar investment five to 10 years ago are now available in highly flexible, responsive, portable and affordable web-based or installed formats.

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“Companies are transitioning to hosted solutions,” Bentz notes. “There’s a lot more availability of solutions, they are much more affordable and flexible, and they have greater capabilities.”

“Customers expect more from their carriers in terms of information accuracy and automated customer service tools,” Widell agrees. “They want a system that automatically generates status emails to customers, they want automatic alerts if a container is about to start incurring per diem or storage charges. They want electronic proof of delivery, EDI and so on.”

“Having this technology – even today – is not typical for the Mom and Pop carriers,” notes Burke. “They still don’t have computers and are running their business on manual scheduling systems. As a result, they have a difficult time meeting their customers’ needs. But they are being forced into computerization and will eventually need to make a technology investment if they want to stay in business.”

2. Develop proactive driver recruitment and retention practices. In 2006, the American Transportation Research Institute ranked the driver shortage and driver retention as numbers one and three in the top five issues facing the trucking industry. Charles Itz, president of Boston areas carrier Itz-Ohlson Transport Inc. agrees, saying, “Having reliable drivers is critical. We invest in our drivers. We treat them all as individuals. The customer knows their driver and has a relationship with him.”

“Eighty to 90 percent of the answer to retaining drivers is offering them competitive pay,” says Grane of Central States. “If you’re out of line with the market, your drivers will let you know.

“But it’s also important to offer drivers steady volume, rather than spikes and valleys,” he continues. “Drivers don’t want a rollercoaster. We try to keep our drivers busy 52 weeks a year. As a result, our driver turnover figures are nowhere near the triple digits that are common for a lot of the trucking industry.”

Like, Central States, TRX monitors its driver pay packages constantly to make sure they are competitive. “We need our drivers to be professional and good representatives of our company, and our compensation package must encourage that.”

In addition to compensation, TRX offers drivers a number of benefit options such as fuel cards, driver advances and group bobtail insurance. “We have a Driver of the Month program at every dispatch center,” Burke reports. “Drivers receive prizes for winning this award, which means they are on time, are a good communicator, receive compliments from our customers or even have our customers request specifically that a certain driver be the only one to service their account. We also have a Driver of the Year award that carries a significant prize.”

3. Train drivers in your service processes and ethic. Good driver training is an essential ingredient in any motor carriers’ success, but with their concentration on high service levels, it is especially important for smaller firms.

TRX puts new drivers through a one-day training program that walks them through the entire process of managing a load for a customer. “This training includes a section on how drivers should operate in order to maintain our image to our customers,” Burke notes.

TRX also requires new drivers to ride along with experienced drivers to “get a flavor of how we expect them to behave,” he says.

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The other critically important focus of TRX’s driver training involves “teaching drivers that they have to over-communicate on anything they do,” the president stresses. “Drivers are part of a long supply chain that usually involves not one but 10 parties and hand-offs. We want our drivers to be in communication with our customers prior to anything out-of-the-ordinary happening -- like late arrival, a problem with the equipment, a paperwork issue, an overweight load and so on.

“We want the driver to be good documenters on our side,” Burke continues, “showing that we have a communications chain that we follow when something comes up.”

4. Invest in a robust telecommunications systems

To facilitate this level of communication, Burke says, “It pays to invest in a great phone system. Our drivers are out on the road all day with very little human interaction. They like to talk, so our dispatchers are on the phone with them all the time – they are our drivers’ lifeline.”

TRX’s phone system helps dispatchers prioritize inbound calls, identifying which are customers and which are drivers. “While he’s speaking with one driver, the dispatcher can see he has five other drivers on hold,” says Burke. “So he can tell the driver he’s speaking with that he needs to wrap the call up to get to the other drivers. All the drivers understand – it could be them waiting on hold.”

The dispatcher can also push inbound customer calls to top priority.

“We made the investment in a new phone system three years ago,” Burke recalls. “The phones used to be ringing off the hook, and we had no way of knowing who was waiting on hold. We had flashing hold lights everywhere. It was chaotic. Today, when you call our dispatchers, you never hear phone ringing.”

5. Do what you promise. “Doing what you say you’re going to do, on schedule when you said you’d do it, is absolutely key to survival and competitiveness,” insists Burke. “If something is not going to happen when you promised, then you better communicate that as soon as you know it to your customer. If we do that, they will give us a break every time. Our customers only get angry when they’re blindsided.”

6. Control your growth. “We have been living with double digit growth in the intermodal sector for several years,” Burke says. “So we are expanding to take advantage of those growth numbers in the right locations. For example, we saw the migration of freight moving down the east coast because of congestion in northern ports, so we went to Jacksonville.”

“We take on a new market, absorb it, meet our customer service levels and don’t start looking again until we’re completely comfortable serving the expanded market.”

-- Tom Burke

TRX also wanted to establish a more nationwide operating strategy. “We thought that if we covered both coasts and worked inward, we could network between our offices,” Burke explains. “We see a lot of that happening between San Bernardino and Houston, for instance, where Houston has the ability to use the San Bernardino driver making that Houston delivery.”

Before it makes a move, however, TRX first talks to its customers and asks them where they need help.

, president of TRX Trucking

XTRA Lease All rights reserved. 2007

The Minneapolis carrier then manages expansion on a step-by-step basis. “We take on a new market, absorb it, meet our customer service levels and don’t start looking again until we’re completely comfortable serving the expanded market. This way, no one is overburdened. When we expand, we bring new people in and train them fully before we start serving customers. This way, our customers don’t feel any strain.”

7. Go with your strengths. “Go where the big guys aren’t and the little guys can’t,” advises Grane. “Figure out your strengths and stick to offering those.”

“We all have things that we do better than others or vice versa,” Itz points out. “So it’s a matter of knowing your strengths, continually investing in them, and performing them better than your competition.”

Essential Ingredient Small to mid-sized trucking companies play a vital role in today’s supply chains and, from all indications, will continue to do so in the future. They provide high levels of personalized service and cover geographic areas that are often outside the large carrier’s route structures. The need for both of these offerings is not likely to go away.

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The question of whether to own, lease or rent highway equipment is a critical one for small- to mid-sized motor carriers. Capital is limited, and management must make the right choices in how and where to use it.

“For smaller carriers, renting and/or leasing are very good options,” says Mark Domzalski, regional vice president, XTRA Lease. “These companies have limited capital resources, so the question becomes where are they going to spend their money? They have to buy trucks and insurance, pay wages for the driver or owner-operator, and then pay for fuel. Buying trailers ranks fifth, sixth or seventh in the pecking order of capital expenses.

Renting and leasing trailers offers a number of advantages for the small- to mid-size carriers.

“The easiest point of entry is rental,” Domzalski explains. “You can rent a trailer for anywhere from one day to three years. You get a price break after one month, with additional price breaks at one and two years.

“If a customer has a sudden surge in volume,” he continues, “you can rent a semi trailer for a week, three weeks – whatever time period you need -- to immediately capitalize on that customer’s additional loads without having to make an investment in a trailer. When freight levels drop, you can just return the trailer. So your expenses and revenues marry up with each other. This is a very low risk option.

“The second option is longer-term leasing,” Domzalski says. “If you can commit to a longer term, then we can trade on the leasing rate. So if a carrier negotiates a two- to five-year contract with a client, and doesn’t want to own the asset at the end of that term, then they should lease.”

Leasing gives companies immediate access to equipment. At the same time, it doesn’t force a capital outlay. “You don’t have to go in for financing, or go into your line of credit because all you’ll be doing is using the asset,” the XTRA Lease VP notes.

Also, under a full service lease, the leasing company handles all trailer maintenance.

“For the small to mid-sized trucking companies, we’re usually heavily involved in their quoting of new business,” Domzalski says. “The trucking companies come to us for trailer pricing, and build that into their quote to a prospective customer. We become a team in helping them serve their customers.”

Harrington, Lisa H. - Principal, Harrington Associates - Lisa Harrington is principal of Harrington Associates, a consulting and marketing/communications services firm focused on supply chain management, logistics, transportation, warehousing and related technology. Ms. Harrington is co-founder of and a senior fellow at the Supply Chain Management Center, R.H. Smith Graduate School of Business, University of Maryland – where she is also an adjunct professor of supply chain management. She is the co-author of two books, In Real-Time: Managing the New Supply Chain (2004), and Logistics and the Extended Enterprise: Benchmarks and Best Practices for the Manufacturing Professional (1999). Ms. Harrington’s frequent articles appear in FORTUNE, Industry Week, The Economist, Inbound Logistics, CIO and many other publications.

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