The need to maintain top-rank customer service has a number of distributors hitting the brakes before deciding to outsource their fleet management.
Many retailers and wholesalers are either keeping all transportation operations in-house or outsourcing only those functions that will not affect the high service levels expected by their stores.
"We have been able to maintain a 95% [on-time] delivery schedule. That would be hard to do without control over routing and drivers," said Dave Norman, fleet service manager for Hughes Family Markets, Irwindale, Calif.
Keeping transportation in-house, however, requires a serious investment in information technology and extensive preventive maintenance programs, distributors said. Otherwise, the costs of keeping up fleets could easily spiral out of control, thus making an even greater case for outsourcing.
"When you outsource, the other company makes money off your business. We try to operate economically so we can save that money for ourselves," said John Pfister, director of transportation, Big Bear Stores, Columbus, Ohio.
That is not to say that outsourcing does not have a critically important role to play in the supermarket industry's quest to cut costs and enhance operating efficiencies substantially.
But for some retailers and wholesalers, in-house fleet management remains the option of choice for maintaining service levels and for successfully launching complex initiatives such as cross-docking and continuous replenishment.
Hughes recently decided to take back its fleet management in-house, primarily because the retailer felt it needed greater driver accountability.
"It means a lot to Hughes to have good customer relationships. We are concerned about how the drivers act when they're at the stores," Norman said. "I don't know that we would have had any control over outside drivers, but there is a measure of control when we do it ourselves."
For example, a driver hired by an outsourcing firm may be unaware of a particular store's rules and may drive through the main parking lot to make his delivery -- something that can irritate many retailers, he said.
Such concerns are making John C. Groub Co., Seymour, Ind., keep all store delivery servicing in-house while outsourcing its fleet maintenance to a third party, said Bill DePriest, distribution transportation manager.
"We are so retail-sensitive that every effort is made to service the stores at the very highest level possible. That means [high] frequency of deliveries, timed deliveries and same-day deliveries," he said.
"We felt we were much more understanding and more committed in the whole area of service" than an outsourcer, DePriest added. "That is the driving force here. I also think we can do it more efficiently and economically."
Even retailers who make much more widespread use of outsourcing said they are adamant about having the final say on supply-chain-related decisions, such as truck routing.
"We did not feel comfortable outsourcing our entire transportation operations," said Andrew Westlund, vice president of distribution for Hannaford Bros., Scarborough, Maine. "The decision to outsource is based on a blend of pricing and [outsourcer] reliability."
When the decision is made to keep fleet management in-house, however, a distributor must be prepared to make serious investments and have top-level commitment in two major areas, retailers said:
Enhanced Truck Maintenance: Retailers must go above and beyond national inspection requirements to nip any potential maintenance problems in the bud. Otherwise, costly fleet repairs could cancel out any benefits gained by keeping transportation in-house.
Improved Driver Management: Fuel costs represent a key variable in the transportation budget, and inefficient driver performance could add unnecessary expenses. To prevent that from happening, a growing number of distributors are using technology to monitor trucks, improve driver productivity and more accurately track fuel usage.
Having routine preventive truck maintenance may be the linchpin in maintaining an affordable and profitable in-house transportation fleet.
"It is cheaper for me to do preventive maintenance than have to take the truck off the road," said Big Bear's Pfister. "Our trucks are brought in for a grease job and a checkup of every component every 2,000 miles," he said. The checkup covers everything from the engine battery to fluid levels and tires.
A vigilant maintenance program is enabling Roundy's, Pewaukee, Wis., to extend the lifetime of its fleet, said Tom Loggia, corporate vice president of wholesale operations.
"We maintain [our trucks] better than the norm," he said. "Because of the number of miles we drive, we feel that if we maintain the equipment better from the frame up we will be able to rebuild the engine and get more bang for the dollar."
John C. Groub practices "overkill" in terms of Department of Transportation-required levels of truck maintenance and inspections, DePriest said.
Key to the retailer's strategy is having truck drivers keep daily maintenance reports. "One driver may service three stores in a day, but for each trip he turns in a report of the condition of the total equipment, tractor and trailer," he said.
Should any problems be reported, "we are on same-day or overnight repair to ensure that the following day the equipment has been repaired and is ready for road service," DePriest added.
"When you turn drivers loose on something like that, they can get nitpicky, but it keeps us on top of maintenance and ahead of the game," he said.
The need to keep a lid on fuel expenses is topping the priority lists of many distributors who aim to keep transportation in-house. Big Bear, for example, credits its use of fuel efficiency initiatives with increasing its average miles per gallon from about 5.12 to 7.23 per shipment, Pfister said.
Roundy's equips all its new truck purchases with electronic engines, which enables Roundy's to more accurately track how much fuel is being used by each of its trucks.
The wholesaler is also targeting its drivers with financial incentives to encourage more fuel-efficient driving habits, such as reducing idling time. Instead of being paid an hourly wage, drivers are paid upon completion of their assignments, with incentives for completing tasks ahead of schedule or under budget projections.
"That is a built-in incentive. The drivers make more money and we get more productivity," Loggia said.
Associated Wholesale Grocers, Kansas City, Kan., is reducing the costs and labor associated with oil changes by using synthetic lubricants in its trucks that use oil more sparingly.
For each truck, "at 12,000 miles we used to dump 4 gallons of oil and add a new filter. Now at 36,000 miles we put on a new filter, then can continue up to 100,000 miles before changing the oil," said Michael Frank, vice president of distribution. "This represents a big cost savings opportunity, predominantly in labor and oil [replacement] savings."
AWG's Frank said the wholesaler is also using on-board truck computers to provide an "electronic report card" of driver performance.
"This does not change the actual performance of the engine but tends to rein in drivers as far as tractor idling time, speed or inappropriate acceleration," he said.
By linking the on-board computers with its routing and scheduling software, Associated is now able to get a "before and after" picture of driver performance.
"First we look at what we hoped to do, then, when the truck comes back, we can download what was actually performed. This gives us a better basis on which to plan for tomorrow," Frank said.
Routing software also plays a part in reducing transportation costs, he said. "It gives us greater utilization of our equipment. We have a higher cube-weight load factor, fewer and more efficient routes, while at the same time it tends to satisfy the customers."