As supermarket chains and wholesale grocers strive to drive cost from the distribution chain, third-party logistics providers play an increasingly important role. The array of logistics services offered to wholesalers and retailers ranges from inbound freight management to contract warehousing to outbound transportation to direct store delivery from vendors.
Total Logistic Control, a logistics provider and truckload carrier based in Zeeland, Michigan, provides all these services. As a truckload operator for simple transactional transportation services, TLC runs a fleet of 167 tractors and 210 trailers, of which 95% are refrigerated. In addition, the company provides dedicated contract carriage for one large supermarket chain and for suppliers to that chain. When dedicated equipment is added to the mix, the TLC fleet totals 285 tractors and 400 trailers. In addition, TLC provides freight management services with access to equipment from more than 3,200 motor carriers furnishing dry and refrigerated services in all 48 contiguous states. In any given month, TLC contracts for service from more than 150 different truckload carriers.
TLC is projected to generate more than $50 million in 2001 from its truckload carriage, dedicated carriage, and freight management (brokerage) operations. In addition, the company operates 13 warehouses. These provide contract and public service for refrigerated and dry storage. TLC also provides seamless international freight forwarding that has access to company warehousing in a Foreign Trade Zone.
Brokerage Provides Equipment
Freight management provides a valuable source of equipment for TLC as well as available service for shippers. “The brokerage gives us the flexibility to book as many loads as possible for our truckload operation and to cover those loads with partner carriers as needed,” says Chris Kozak, TLC vice-president transportation. “We book loads and sort out who will cover them over a 24- to 48-hour time frame. We know where our fleet is, and we know where our partner carriers like to go. The value of this flexible operation to our customers is that TLC can provide a wide range of service without asking its customers to pay the rates required to cover the overhead of a 1,000-truck fleet.”
Just as outsourcing of distribution functions is growing among supermarket chains as they seek to concentrate on their core business, dedicated fleet operation is growing at TLC. “We have the tools within TLC to engineer complete solutions from contract warehousing to dedicated store delivery for the food industry,” Kozak says.
Those dedicated operations cover the entire spectrum from ice cream and frozen foods to auto parts to hospital beds to full-line grocery delivery. In a typical dedicated fleet, TLC purchases new equipment to match the customer's job requirements and marks the trailers with customer graphics. Tractors carry TLC graphics. Most dedicated fleet contracts are for five years, although TLC will agree to three-year contracts under some circumstances. Once a dedicated contract is in place, the company has a high likelihood of renewal, Kozak says. “We can usually keep the business, but we must always look for ways to add value to our service,” he says.
Two Fleets for Meijer
Two TLC contracts serve a single supermarket customer. Meijer Stores is a chain of 149 supermarkets in Michigan, Ohio, Indiana, Illinois, and Kentucky. Based in Grand Rapids, Meijer has several distribution centers spread across western Michigan. One of the dedicated fleet operations serves eight new stores in the Chicago area from a distribution center in Lansing, Michigan. The other contract is with Dean Foods for the delivery of ice cream to all Meijer stores from a TLC dedicated warehouse in Paw Paw, Michigan. Dean provides category management for ice cream and novelties in the stores and outsources warehousing and transportation to TLC. Ice cream for the Paw Paw warehouse is manufactured in Belvedere, Illinois, and trucked in by TLC.
The Dean fleet consists of 15 tractors and 18 trailers. Stores get two deliveries per week in winter and three per week during summer months. Routes contain six to 10 stops per load. Ice cream is wheeled directly into stores on wheeled carts. The longest routes are overnight or 1½ days at most. The carts limit the use of trailers for backhauls, so the TLC truckload fleet augmented at times by Meijer contract equipment hauls ice cream from Belvedere to Paw Paw.
The fleet for delivery to Meijer stores in Chicago is much larger — 36 tractors and 95 refrigerated trailers. Depending on seasonal demand, the Meijer fleet handles 130 to 190 loads per week with each store getting 25 to 30 deliveries a week on a 24-hour basis. The fleet is so large, Kozak says, because it contains a minimum of two trailers for every store as well as equipment for loading at the Meijer distribution center and at backhaul vendors in the Chicago area. In most cases, store delivery is a drop-and-hook operation with a loaded trailer arriving at a store about every four hours. Although nearly all store-bound loads are for a single store, a few may require two to three stops.
Daily Round Trips
Driving time from Lansing to the most-distant Chicago store is 4½ hours. A full run including store delivery and backhaul pick-up can be completed in a single day. The trip from Lansing to Chicago can include a stop for equipment maintenance, because the routing takes the fleet past the TLC maintenance shop in Kalamazoo, Michigan.
Working in a dedicated fleet, especially the Meijer or Dean operation, is a dream job for drivers, Kozak says. “They are almost always out and back on the same day, and they deal with the same people on a constant basis,” he says. “On the grocery delivery side of things, it is a difficult job, but it is repetitive and stable — two factors that seem extremely attractive to drivers. As a result, our fleet driver turnover rate is only 38% annually compared to rates of 100% or more for many operations. One thing that seems to help is the interaction between drivers and Meijer personnel. Instead of seeing a given customer every week or so, drivers in the dedicated fleet work with the same customer personnel on a daily basis.”
In fact, driving for TLC as a truckload operator looks attractive. Drivers run a 585-mile average length of haul, a distance that can usually be completed overnight. Drivers handle four to five deliveries a week. Nearly 85% of the driver force is home on weekends, Kozak says. The key to making the Meijer operation successful is optimizing both legs of the trip, Kozak says. Every trailer must leave the Lansing distribution center fully loaded, because partially loaded equipment destroys productivity for both TLC and Meijer. The inbound leg is just as important; every trailer must return to Lansing fully loaded with a backhaul for Meijer.
“To make the contract work, we analyzed the availability of vendors to Meijer in the Chicago area,” Kozak says. “Working with Meijer's buyers, we identified five vendors who ship to Meijer weekly and who could offer efficient loading and a high, stable volume of freight. The program works because we drop loaded trailers at stores, pick up an empty trailer, and proceed to the backhaul shipper. At the shipper, we drop the empty trailer in a holding lot and pick up a loaded trailer for Lansing. Back at the Meijer distribution center, we drop the loaded trailer and contract with an unloading service to move product onto the dock. With the exception of a few multi-stop loads where the driver supervises unloading at the stores, our drivers are rolling almost the entire time they are away from Lansing.”
An operation like this works because all parties benefit, Kozak says. The benefit to TLC is fully loaded equipment on both trip legs as well as efficient use of that equipment at loading and unloading. The customer benefits because it receives an outbound rate that is effectively lowered by receiving a share of the inbound backhaul rate.
Profit Potential
Dedicated operations have the potential to be much more profitable than simple transactional trucking, Kozak says, because the carrier can control costs easier. “Dedicated service is built around a contained operation where costs are easy to monitor,” he says.
Dedicated fleets offer a good strategy for motor carrier growth, Kozak says. Unless the customer issues a request-for-proposal to a number of carriers, competition for a contract is usually fairly limited. This does not mean uncompetitive pricing, he says. Pricing has to beat what the customer can do with a private fleet. “That is a challenge, but one that is fairly easy to manage because of the controlled environment,” he says.
Putting together the bid for a dedicated fleet usually takes about three months of research, Kozak says. Customers who want dedicated service are usually fairly forthcoming about the nature of the job. However, the carrier nearly always has to extract more data from the customer than was originally offered. “Most customers just don't realize how much information is needed to present a complete bid,” he says. “For instance, on the Meijer bid, we had to do extensive research about shippers in Chicago. As presented to us, the job required delivery 24 hours a day, seven days a week. With equipment in Chicago at all hours, we needed backhaul shippers that worked on a similar schedule. Before we could complete the bid, we had to identify shippers that would load our trailers for weekend departure or would allow us on their drop yards late at night.”
Fleet size is another important factor in setting up a dedicated fleet. TLC works from the premise that the dedicated fleet can be sized toward the low end of the spectrum to take care of average demand. Equipment and drivers from the truckload fleet can be assigned to dedicated runs temporarily to help meet peak demand around holidays, Kozak says.
In general, the mileage rate for a dedicated fleet is higher than for transactional trucking, because the length of haul is shorter in regional dedicated operations than in most truckload situations. For instance, the average round trip under the Meijer contract is 440 miles. In addition, dedicated operations are more likely to be delivery-intensive, Kozak says.
Once a contract is in place, TLC emphasizes two factors, Kozak says. Service is a given. Trucks must be available when needed, and deliveries must be made on time. The other dominant factor in a dedicated operation is safety. “When we put the customer's name on the side of our trailers, we involve them in our operation,” he says. “That requires us to maintain a safety program that protects the customer and that enhances their image. We have a responsibility to operate in a way that encourages the public to patronize their stores.”
