How Roadway Outmaneuvers CompetitionBy Edward Cone | Posted 2002-10-10 Email Print
The freight company has been tracking every action its workers perform to avoid the potholes that have sidelined its competitors.
John Majorkiewicz works fast, snugging packages into place in the back of a truck, using cargo pillows he inflates with a fat air hose. The tall, wiry dock worker, more commonly known as "John Major," is working to make sure a trailer bound for Valdosta, Ga., will go out full. He prides himself on "packing them high and tight."
The scene, pieced together from interviews, is a typical night at the Roadway Express distribution center in Copley, Ohio. Major is one of more than 200 employees who break apart and sort shipments from many customers and many local terminals, then load the rearranged goods onto outbound trailers.
As Major finishes loading each shipment, he turns to a wall-mounted terminal on a post by the dock door. He swipes a bar-code wand across the waybill, a document that shows the contents and destination of the shipment. He drags the wand across the cover of the terminal itself and across his own ID badge, then presses a couple of keys. All this adds up to a record of "five skids loaded by forklift, Door 135, 2:58 a.m." Years ago, he would have scrawled these details on the waybill itself.
Looking to fill the trailer, Major finds several shipments bound for Orlando, Fla., one of the satellite terminals serviced by Valdosta. But when he scans the waybill he gets a beep loud enough to be heard over the rumble of the forklifts and the bustle of this "breakbulk" facility operating at full tilt. The tiny screen reads: "WARNING: MISLOAD STACK."
All night he's been loading shipments for Orlando at Door 135, but now the computer tells him that freight for Orlando is being loaded from Door 98. A dock manager has reassigned doors because a customer has paid extra to expedite a delivery to Orlando.
To meet a guarantee of delivery within two days, Roadway needs to send the trailer containing those shipments on its way by 4 a.m., even though right now it's only three-quarters full. But to maximize margins, Roadway wants to pack in as much other Orlando-bound freight as possible for what amounts to a free ride; the trucker also saves the expense of handling those packages at Valdosta. Once the special-order trailer is full, Major will be able to load the remaining Orlando-bound freight onto the Valdosta trailer without any rude beeps.
Major has a simple answer for how Roadway's information systems have changed his job. "It means I don't have to get my pencil out so much anymore," he says, producing one from behind his ear.
By repeatedly tracking the labor required for him to handle shipments for one customer versus another, Roadway's systems do a lot more for the company, headquartered just down the interstate in Akron. Through a practice called activity-based costing (ABC), Roadway has committed itself to analyzing everything from the size, number and content of shipments, to each step in moving a pallet of toasters from factory, to truck, to retailer, and the time each step takes.
What Roadway gets is an electronic extension of the kind of time-motion efficiency study espoused by "scientific management" pioneer Frederick Taylor a century ago: a clear, statistically based view of every activity serving a customer that is performed by Roadway workers. And with the backing of a huge warehouse of this data, Roadway can put a number on how much each activity costs and how effective the result is for each customer. This clear understanding of its own business helps Roadway reduce fixed costs, identify profitable customers and price its services to maximize operating margins.
"We see this as a source of competitive advantage," says Chief Information Officer Robert W. Obee. "We know the difference in profitability between different services, so we know how to grow our profitability. That can lead us to move away from, or not emphasize, certain types of business. It's also very effective at a low-level, tactical, customer-by-customer basis. Every time we go to the negotiating table, we just pull that business apart."
Roadway, for instance, may define one activity as "move shipment across dock" at a breakbulk facility. That movement for one shoe manufacturer's regular shipment may prove to cost $100 a load. But the activity involved in another manufacturer's same-size shipment may work out to just $80, because the shipment is better labeled and arranged when it arrives. With this kind of precision, Roadway knows what it has to charge each to recoup costs fairly.
Such attention to detail is critical in Roadway's chosen field of freight: the less-than-truckload segment where profits amount to fewer than three cents on the dollar and underperforming companies can become roadkill. Last month, $2.2-billion-a-year Consolidated Freightways, the third-largest, less-than-truckload hauler behind Roadway and Yellow Corp., announced it would discontinue operations.
"Consolidated made decisions in the marketplace that indicated they didn't understand their costs well," says Dawson Cunningham, chief financial officer of Roadway Corp. "They were not pricing their service offerings based on the costs we would have expected to incur."
And Consolidated was only the latest partial-load competitor to fail. Two-thirds of the largest such haulers who were in business prior to the deregulation of the industry in 1980 have since gone bust, according to industry journal Transport Topics. Casualties included PIE Nationwide and McLean Trucking, which were right behind Roadway, Consolidated and Yellow in 1979 revenues.
Yet some companies have thrived, and the difference is partly due to the intelligent use of technology to understand costs and set prices.