Private fleet managers have discovered that they can no longer focus solely on managing trucks and drivers; they need to become logistics experts to survive
If you want an example of how private fleet management is changing, look no farther than Gordon Ray. Ray used to be the fleet manager for VF Corp., a $5.5-billion clothing conglomerate that makes Wrangler, Lee, and Rustler jeans, as well as a host of other apparel goods, including lingerie, children and infants clothing, swimwear, and JanSport backpacks.
However, that changed in 1997 when VF embarked on what it called "consumerization," a strategy designed to increase investment in consumer and brand marketing, while improving efficiency and driving cost out of VF's supply chain.
That's when Ray received a new title: dedicated logistics manager. No longer would his primary focus be the fleet's 138 tractors, 375 trailers, and 190 drivers. Instead, Ray must also coordinate inbound pickup and delivery of raw materials for VF's domestic factories.
"The importance of the private fleet to our company has never been greater," says Ray. "They have to rely on us more than ever because they need more control due to just-in-time and inventory-reduction issues.
"In the old days, we were just a trucking department," Ray continues. "Today, we're a key link in the manufacturing chain. But we never forget that if we don't do it right, we won't be here."
The backbone of trucking This shift to a more "logistics-focused" position for private fleet managers is significant for trucking in general since private fleets make up a larger portion of the industry than most people realize.
A study conducted by the National Private Truck Council (NPTC) and Transportation Technical Services found that private carriers hauled $208.4 billion, or 52%, of all freight transported by truck in 1997, compared to the for-hire segment's $193.2 billion. In addition, private fleets operate 82% of the freight-carrying trucks in the U.S.
Companies may try to cut more costs out of their transportation and supply chains, but those numbers are not likely to change much - especially as private fleet managers take on a wider, logistics-focused role.
"[Companies] won't even look at private fleets as a logistics tool, much less as trucks," says Joel Sutherland, senior vp-supply chain integration for J.B. Hunt Logistics, Lowell, Ark. "They'll look at them as pure capacity because capacity is now more critical than price."
Sutherland points out that the demand for lower inventory levels, coupled with the need for on-time delivery, may be beneficial to private fleets. "Many private fleets exist because shippers can't get consistent capacity from for-hire carriers. Companies need to be assured that they are going to have capacity and the correct equipment at their disposal. They need the fleet to come through 100% of the time."
That, in turn, is what's driving the need for private fleet managers to adopt a more logistics-oriented role, says Daniel P. Smith, corporate director of transportation for food distributor Smart & Final, Los Angeles.
"Whether they like it or not, private fleet managers have to focus more on logistics," he says. "When I joined Smart & Final in the 1970s, I focused on the outbound side of things: tractors and drivers. Today, 50% of my time is spent coordinating and dealing with inbound freight. I have to make sure not only that we pick up on time, but that we're not overloading our warehouses."
Sea change However, if private fleet managers are to become more logistics-focused, it will require them and their operations to undergo a fundamental shift in how they do business, says John McQuaid, president and CEO of NPTC.
"You have to preface any discussion of this whole [private fleet] industry with the recognition that for the most part, in any manufacturing firm, transportation is still considered a cost center," he says. "As a consequence, the challenge to private fleet managers now is to contribute to the company's bottom line."
McQuaid believes that over the past five years more and more private fleet managers have realized they can play a significant role in achieving the corporation's financial goals and enhancing shareholder equity through a wider focus on logistics.
"One of the keys to that is what I call a 'renewed flexibility,'" he says. "That means recognizing that what they do and how they operate does not happen in a static environment. The biggest change is a move away from a very hard-and-fast, black-and-white mentality about private fleet operations to one defined by substantial shades of gray. In other words, I think private fleets resisted some of the options that would have enhanced the company's overall objectives because they didn't meet the fleet manager's personal responsibilities and perspectives."
According to McQuaid, fleet managers had to take the lead in outsourcing freight-hauling responsibility to for-hire carriers or third-party logistics providers when it made sense from a cost standpoint - an almost unheard of scenario just five years ago.
"A lot of that was fostered by a view that you were 'either/or.' I think what's changed considerably is the level of sophistication of people in understanding that what they do and how they do it doesn't have to be an 'either/or' proposition," McQuaid says. "We're seeing that manifested particularly in fleet managers who are using what I call targeted outsourcing in lanes where they have difficulty controlling costs or where they have significant imbalances that make cost control a challenge," he explains.
"They're turning to outside partners who have either the economies of scale or scope that can make those kinds of lanes work. In a sense, what they're doing is putting a few more arrows in their quiver, if you will. That has led to a greater degree of sophistication on the part of the private fleet manager."
That sophistication also means broadening the private fleet manager's knowledge to include other modes of transportation, says Jerry Sheehan, vice president of Leprino Transportation Div., a subsidiary of Leprino Foods in Denver.
"We have to look at the total picture. How do we best handle our freight? By rail? By truck?" he asks. "We even have to step outside of transportation entirely and look at issues such as warehousing, or anything else that affects the movements of our goods."
For example, Leprino, which makes mozzarella cheese in plants throughout the U.S., ships nearly half of its outbound goods by rail and the rest by truck. However, all the raw materials to make mozzarella cheese are shipped to its plants via its fleet of 200 tractors and 350 refrigerated trailers.
"We distribute in the lower 48 states and overseas, so we need to have knowledge of containerization as well," Sheehan says. "We need to understand the whole logistics picture."
Requirements Yet understanding and helping manage the complete logistics picture will require a host of new job skills for private fleet managers, and will change the makeup of the traditional private fleet manager in the bargain.
"In my view, the most important thing is that no one's goal is to be a fleet manager forever anymore," says NPTC's McQuaid. "What you're going to see are companies using the management and business skills of their employees in a myriad of occupations that are in the whole arena of logistics and supply chain management. It's going to be important for people who have been traditional fleet managers to be able to do many other things."
What private fleet managers will be required to do, however, depends on their company's strategy, says Bill Foltz, corporate director of logistics for Foster Farms, a turkey and chicken producer based in Livingston, Calif.
"I believe where you have to go as a private fleet manager ties directly to your company's strategy," he says. "If, for example, your company wants to explore JIT logistics, you have to ask, 'How do I position myself to help? What's my role?'"
Foltz believes it's critical for private fleet managers to stay one step ahead of the company so they can take a proactive approach to new logistics strategies.
"Preparedness is everything," he warns. "You have to be ready now, so when you walk into the boardroom and they ask you for ideas, you have something to offer. And you have to be ready now, whether or not your company is looking at corporate logistics strategy because sooner or later they'll have to face it. A power shift is taking place and you have to be in position to benefit from it."
Yet to interact successfully with company executives will require private fleet managers to learn how to communicate better with them, McQuaid says.
"First thing the private fleet manager needs to do is communicate," he explains. "I think one of the changes necessary in terms of the new calculus of logistics and fleet operations is to not be afraid and to establish effective communications with people that matter, e.g., the CFO and, to the extent that you can, the CEO."
McQuaid also points out that in the past, when the corporate brush painted fleet operations strictly as cost centers, private fleet managers were often reluctant to communicate with the higher-ups.
"The idea was that you'd hunker down, do your job, and not say too much about what you were doing, and everything would take care of itself," he says. "But when companies start to reassess and look at restructuring, it's the people that nobody knows about that end up paying the price.
"I think it's important to communicate with management, particularly about how the fleet operation is contributing to the overall financial goals of the company. That means establishing regular contacts, submitting reports that highlight the ways in which the fleet is operating more efficiently and productively. In other words, how cost reduction is contributing to the company's bottom line," McQuaid says.
The vital link It's crucial that private fleet managers focus on logistics so they become vital links in their companies' supply chain.
For VF Corp.'s Ray, that means managing a flow of raw materials with numerous points of entry into the U.S., getting them to the company's factories on time and in the right quantities.
"Sometimes, we get deliveries from Mexico, Spain, and China," he says. "We get plenty of warning as to when a shipment will arrive, but the biggest hurdle is getting it through Customs. We don't know when it'll be released, yet we have to be there when it is so we can move it."
That puts a premium on Ray's ability to coordinate logistics. "Coordination is the key. We need to know when the goods will be ready, so we can get a team there on time, get the goods to their destination, and then get the team on to their next destination - with no idle time along the way," he explains. "That takes a lot of communication and coordination."
Yet Ray can't afford to overlook the basics of operating a truck fleet.
"Safety is important because we have to run a safe operation," Ray says. "We have to give good service or the company will get someone else to do the job. And, finally, we have to provide cost savings. We must do the job competitively, or someone else will get the business."
Dealing successfully with all of those issues is a real challenge, yet Ray accepts it as an integral part of private fleet logistics. "That's the way we give value to the company."