Should a water quality company consider distribution or fleet outsourcing? The question already has been answered. Companies in this field have been outsourcing fleet and distribution in some form or another since the industry began. In the fleet function, the tire service dealer, the body and paint shop and the electrical component rebuilder all are examples of outsourced fleet vendors. FedEx, UPS and Consolidated Freightways are core transportation service providers but, in fact, they also outsource many of the elements of their own transportation requirements. The question, therefore, should be presented in terms of degree, so as to ask, "How much fleet/transportation outsourcing is right for my company?"
Let’s begin with an overview of the current environment for business, with a particular interest in fleet and transportation, and follow with a discussion of some of the quantitative and qualitative considerations that should be considered in an analysis of "own vs. outside" in your fleet function.
It’s no revelation that we are competing in an ever more difficult business environment. We face larger and more aggressive competitors with many companies now acutely driven by annual reports and daily stock prices. The comments of an industry analyst on Wall Street ultimately can affect a company’s survival. We also must be prepared to compete with a constant flow of new and hungry smaller competitors, some with a lower overhead to carry, and some pricing below reality for the chance to gain a foothold with volume at any price. Water quality industry owners and executives live with the constant potential of a buy-out, re-organization, downsizing or bankruptcy. The day of the "safe" job is gone.
Customers are demanding a constant array of new and innovative products, more intensive and flexible service options and higher quality, all at a lower price. One individual’s problems may create another’s opportunity. Alvin Toffler’s book, Future Shock, predicted "acceleration in the rate of change" back in the early ’70s. Who among us could not confirm this premise? You will never be sure that what sells today will sell tomorrow. Today’s free market capitalism is a marvelous economic engine, but it is not going to stop to let you off the train for a breather.
Water quality company fleet management is dealing with a host of new issues that include changing operating and environmental conditions, revolutionary and evolutionary new vehicle equipment and hardware, and new vehicle management control systems. One also should acknowledge the exciting growth of the relatively new concept of "supply chain management," which seeks to integrate production scheduling, marketing, financing, warehousing, material handling and delivery of inbound and outbound materials. It depends on increasingly sophisticated information management systems and management techniques.
Private fleets in the United States are under increasing pressure to justify their existence. No longer can the fleet remain secure in the service niche that existed prior to trucking de-regulation in 1982. With the waning of the various protective tariffs and operating authorities controlled by the ICC, there emerged a competitive and dynamic market that reduced the influence of the old regulated carriers and the organized labor groups who were their employees. Not only did rates fall for freight bills and transport labor, but new and innovative carriers entered the marketplace providing specialized services previously unavailable from anyone but private fleets.
These competitive pressures also allowed many alert private carriers to negotiate less punitive labor agreements and to appropriately complement their operations with specialized contract carriage and rigorous back-haul solicitation. Today’s remaining private fleets are indeed the fittest survivors of the species. Many other fleets were forced into a brutal comparison-shop environment for which they were ill prepared. Some private fleets have ignored the changes, to their current and future detriment. Many companies have failed to separate their transportation labor costs from other components of their business, resulting in higher cost indexes than in transportation-specific industries in the de-regulated, competitive trucking industry.
In today’s environment, American business has increasingly adopted a philosophy of "core business competence" and has become suspect of its former vertical integration and diversification. Support services of all kinds are being analyzed for alternatives, and the option to "outsource" to competent contractors is even more attractive. The emergence of a large number of knowledgeable and competent outsourced fleet and transportation service providers has made this possible, providing value by lowering costs and maintaining or improving service levels. An ever-expanding array of outside contract services has emerged, with increasing competence and specialization, and is focused on providing a complete soup-to-nuts menu of options at competitive cost, service level and shared risk.
The attraction of outsourcing also is being driven by the increasingly complex and specialized nature of operating a fleet today. Let’s take a look at the new environment including the legal restrictions and changes in vehicle operating conditions.
So, how can someone decide what level of outsourced fleet/distribution to use? The answer to this question requires an honest and rigorous analysis of existing proprietary cost structure and operating profile and a comparison with the various alternative services and costs available from outsourced providers. It also must include a realistic view regarding the company’s cultural prejudices and disposition to support any substantial change from current practice. An analysis of existing contractual obligations for labor and facilities also is necessary. In all cases, be sure to project cost comparisons out at least five years into the future; after all, the current cost is already history.
Outsourcing makes sense, in particular, when the following conditions exist.
To insure the success of any outsourced fleet or distribution initiative, be sure to secure the following.
About the Author
Ralph K.F. Stockmayer is the industry development manager for baking and snack foods at Penske Truck Leasing in Reading, Pa. He handles the coordination of the company’s sales efforts and unique product developments in these business sectors. He also is a certified transportation professional by the National Private Truck Council.
Benefits of Outsourcing