Opinion: Restructuring for LTL Success

By Dave Ward

Partner

ThoughtDrivers

This Opinion piece appears in the June 15 print edition of Transport Topics. Click here to subscribe today.

A carrier’s primary mission is to operate profitably while keeping customers loyal. However, less-than-truckload carrier sales teams often fall short of the mark because they work separately from the operations division and often are at cross-purposes unintentionally. By coordinating their activities, sales and operations teams can significantly improve their companies’ profitability.

The roots of “disconnect” between sales and operations lie partly in the industry’s regulated past, when protected pricing allowed carriers to organize in a relatively inefficient way and still operate profitably. Today, there is an opportunity — especially for mature companies — to think differently about the relationship between sales and operations, including realignment that accelerates improved operating efficiencies.

An LTL’s ability to add business that optimizes utilization rates reduces unit costs and helps to increase market share. Excess capacity occurs daily when service commitments for yesterday’s pickups require expensive investment in pickup-and-delivery routes.

When LTL capacity goes unused, it perishes, spelling the difference between profit and loss. Improving utilization rates means business opportunities that previously fell below costing/pricing cutoffs can be profitable. If an LTL is performing at acceptable contribution margins, i.e., revenue minus variable cost, the more fully utilized an LTL system is and the more profitable the carrier becomes. This formula is the LTL’s key to profitability. Top and senior management’s understanding of that simple math can help them organize the LTL’s capabilities.

Restructuring responsibilities around the profit formula can be difficult because it means erasing departmental boundaries, which runs counter to the natural human desire to build and protect one’s domain. Structures at the top often replicate in the field, where organizational barriers become obstructions to the work that needs to get done.

When the sales, operations and pricing departments accept a paradigm shift, however, and coordinate their functions, they increase the probability of creating a thriving, profitable business. Add marketing and customer service to the mix, and this reconstituted organization creates powerful competitive advantage that results in improved profitability.

When silo-spanning, i.e. cross-functional, teams or “huddles” are responsible for overseeing thousands of customers served by hundreds of truck routes, positive results magnify. As on a football team, each member of the “huddle” has a specialized function to contribute toward the team’s success.

These days, computer technology enables carriers of all sizes to leverage vast amounts of customer and operational information not available a decade ago. Sophisticated business intelligence tools can empower carriers to understand quickly the effects individual customers have on route utilization and profitability.

By decentralizing business development planning and forming huddles of sales and operations professionals in the field around shared performance expectations and incentives, LTLs can better serve customers and target new business opportunities.

Every huddle needs an unbiased facilitator who understands the profit formula so the team can meet or exceed minimum contribution dollar levels. The facilitator knows how and when to manipulate the “price valve” that controls new business development. It becomes a game that is mastered with discipline and requires the entire team working as a unit, much like a football squad.

When market conditions don’t support business development at minimum contribution levels, the facilitator should decide whether to reduce capacity with modified combinations of drivers and equipment, without compromising service.

Because business conditions are fluid and utilization numbers move continually, this process is dynamic. In fact, individual huddles that include sales representatives and terminal management professionals should meet weekly with their assigned facilitators, isolating one geographical area at a time to look at every possible way to maximize contribution dollars.

A logical agenda for the huddle includes:

• Reviewing essential quality of service.

• Reviewing macrotrends in route and line-haul utilization.

• Determining how new, existing or substituted opportunities can optimize contribution dollars.

With the desired performance improvement strategy in place, sales and operations professionals, including drivers, can set and achieve business targets in a coordinated manner. Interdepartmental prejudices melt away as a new sense of urgency forms around shared goals aligned with the organization’s continual improvement.

Imagine the competitive advantage you’ll create when your company’s utilization needs align with business opportunities created through a coordinated business development process. And imagine the power of thriving in the field where sales, customers and trucks meet. Is there more to LTL success than that? Yes, but coordinating the sales and operations functions is a good place to start.

Based in Pittsburgh, ThoughtDrivers — an independent spinoff of Pitt Ohio Express — specializes in business performance improvement for the trucking industry. The author was CEO of Ward Trucking for 17 years.