St. Paul, Minn.-based carrier redefines dedicated transportation around service rather than equipment.
For Tom Wintz, good enough wasn’t good enough. Several years ago, Wintz – chief executive
officer of St. Paul, Minn.-based Dedicated Logistics Inc. – faced a turning point. He had acquired the foundation of what is now DLI from his father in 1995 and had grown the company from about $18 million in revenues to more than $100 million. With diversified operations in dedicated transportation, brokerage, local pickup-and-delivery and warehousing, DLI was doing well – but he was concerned about the future.
Wintz had read “Straight from the Gut,” the best-selling book by then-General Electric Chairman Jack Welch. Welch’s message was potentially discouraging: If you aren’t dominating a market, figure out a way to do so – or get out. In some specialized and technical fields, it’s not implausible for a relatively small player to dominate. But even in high-quality transportation, size matters.
Rather than take a hint that perhaps he should pursue a new career, Wintz saw Welch’s advice as a challenge. He drew together managers throughout the enterprise for intense strategy sessions.
“We asked, ‘What does it take to create an entity that is far afield of the competition?’ We knew that if we developed an industry reputation of being the best, the rest would follow.”
Fair enough, but exactly what would such a “game changer” be in transportation? Ultimately, Wintz and his team needed to figure out how to offer superior service and cost savings, because customers were motivated by both concerns. Dedicated transportation traditionally has been all about service and not so much about efficiency.
Re-engineering the model
DLI’s strategic planning began with an overview of the situation and challenges it faced:
- Dedicated local fleets typically are billed hourly.
- Most trucks return empty as the inbound materials typically come from outside of the customer’s service area.
- From the customer’s perspective, there often are integrity concerns because they see drivers paid by the hour with little incentive to maximize productivity.
- Perceived and actual downtime in equipment utilization bothers some customers.
- Even though dedicated transportation is attractive, driver competition effectively caps capacity.
- Customers increasingly worry about pricing and cost.
- Traffic congestion in the Minneapolis-St. Paul metropolitan area adds to the constraints on utilization.
While these all were daily concerns for DLI, it took the perspective of a formal planning exercise for Wintz and his team to focus on them and, more importantly, begin to see how interrelated these challenges were. In essence, dedicated local transportation creates an excessive amount of empty miles, Wintz says. Every day, hundreds of DLI trucks ran much of the time empty while drivers got paid and fuel burned in traffic. The entire system was rife with inefficiency.
True, this was precisely the situation customers had bargained for in choosing to pay a premium for dedicated equipment and drivers, but as far as Wintz was concerned, it didn’t have to be that way. Why couldn’t customers have the dedicated service they demanded without tying up specific trucks and drivers in ways that promoted inefficiency?
“We set out to re-engineer the local fleet business model,” Wintz says.
To prove that DLI customers could have their cake and eat it too, Wintz needed data, and he didn’t have it because customers handled dispatch. So DLI installed a mobile fleet management system in 100 dedicated tractors so it could collect data for about three months with an eye toward finding ways to manage the assets more efficiently. During the test, customers continued to dispatch as usual, but DLI collected detailed information on truck movements. The point of the exercise was to answer a basic question, Wintz says: “If we dispatched, how much money could be saved?”
The answer was a significant amount. So DLI built a route optimizer system that would minimize the number of tractors and miles and also ensure that a tractor would end the day where it started. The system – called Integrated Fleet Solutions – takes orders through the Web and generates load assignments.
IFS highlights exceptions such as major delays or excessive loading or unloading times so that dispatchers can adjust, if possible, to ensure an on-time delivery. IFS also gives customers access through the Web to load status and other metrics at no additional charge. And rather than pay by the hour, customers would pay a flat rate based on zone pricing from pickup to destination. The result would be lower and more predictable transportation costs.
About two dozen DLI dedicated transportation customers expressed initial interest in the IFS concept, although only about a half dozen have taken the plunge so far. Wintz isn’t certain why the holdouts are choosing to stick to the traditional dedicated model, but he acknowledges some likely reasons, including comfort in the status quo, a desire for direct control and perhaps the realization that some employee positions would no longer be necessary.
In some cases, reluctance appeared to be grounded in an unwillingness to change standard operating procedures. For example, so that it can establish daily routing assignments that maximize efficiency, DLI needs the day’s orders entered by 4:30 a.m. But many interested customers said that wouldn’t be possible until 9 a.m., Wintz says.
Customers choosing the IFS approach had to make other adjustments, too. For example, now that the truck and driver were no longer linked to a specific customer, excessive delays threaten the success of the whole system. So customers who previously treated DLI trucks as their own now are subject to detention charges. DLI and the customer receive warnings at 30 and 45 minutes; at one hour, detention begins.
The notion that delays mean higher costs has driven customers to create efficiencies that are more significant than even the rate cut, Wintz says. Of course, that incentive really was always there since customers previously paid by the hour and fewer hours would have meant lower transportation costs, he adds. But for whatever reason, that incentive to be efficient wasn’t as effective as the threat of detention charges.
Although more trucks in the IFS model would yield even greater routing options and potential efficiency gains, participating customers are seeing net savings of at least 15 percent – and in some cases more, Wintz says.
“I didn’t realize how much inefficiency there was in the system.”
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