Truth and Perception in Sales
Some people believe that is there no such thing as truth in sales, only perception. However, it is certain that all beliefs cannot be considered equal in truth. Also, what is true or false is independent of what we may believe is true or false. In addition, some statements are neither true, nor false, but a matter of opinion. Although it is apparent that truth is not entirely relative, I advise an approach to sales (and marketing) that calls for tolerance of the views of others, and the ability to use their views as a starting point for persuasion.
There is a group of philosophers called “logical positivists” who said something similar about truth. An English philosopher named G.E. Moore illustrated the difficulty raised when people disagree about statements that are neither true nor false logically, but involve ethical or qualitative statements. Moore said, “If a man said that thrift was a virtue, and another replied that it was a vice, they would not … be disputing with one another. One would be saying that he approved of thrift and the other that he didn’t; and there is no reason why both these statements should not be true.”
This is similar to the ever-present struggle between the price and quality of services provided by transportation companies. Which is more important to you? Prospective customers fall anywhere along a continuum from primarily valuing low cost to those who primarily require excellent service/quality from their transportation providers. In sales, the best approach is to try and achieve the customer’s optimum balance in their perceived levels of both cost and quality/service in order to obtain the best overall value for the customer.
Whenever I read a book, I try to grant the writer his (or her) starting point. Whether you believe that the picture painted by an author is believable or not, you must read a book accepting the starting point that you are given by the author. Similarly, when dealing with others, you must first try to establish their perception of things and begin from their point of understanding. Trying to convince someone all at once of something that they believe unlikely or impossible is much harder than gradually leading them to believe something through the incremental introduction of ideas close to those they already accept as true. Perceptions can be gradually altered in this way. However, it is usually counter-productive to try and tell people that their perceptions are wrong.
Gradually introducing facts that are relevant to changing a person’s perception about something is usually much more effective than attempting to show that the person’s feelings about something are ‘wrong’. For instance, if a person believes that “one trucking company is no different than another”, you must probe the person to discover why they believe this to be true. In the course of listening to them, you will discover the problems that this person has faced with trucking companies in the past and so learn the approach that you must take in altering their perception about your company.
This tolerance of other people’s perception of “truth” makes a big difference in sales and marketing. One can be an aggressive persuader while still maintaining the dignity of all parties involved. A good salesperson will sell ideas in an aggressive way, while maintaining the dignity of all parties, without arrogance.
Talk to your customers, work hard on your questions and really listen to what they say. Use what you hear. I believe that talking to consumers face-to-face is the best place to start and the best place to finish. Once you’ve determined the people who use your service/product, or are good prospects, you interview them until you gain some insights. You’ll get better results if you make the other person feel comfortable, so do everything you can to do so. Be honest, low-pressure, interested, non-threatening and persistent as to “why”. Listen hard for what people mean, not just what they say. Try not to approach the interviews with a predetermined end result in mind. Don’t ask leading questions to achieve that result and do try to determine the underlying reasons for opinions that are expressed. This is a way to determine whether the perceived need of the prospect might actually be a symptom of some other unfilled need. Then, take what you’ve learned and try to develop an insight as to what people really want (or need) and how you can position your product so that your particular brand will fill those needs (if it’s a good fit).
In sales and marketing, sometimes truth really does not matter as much as perception. However, I am not implying a world without moral or logical standards. Rather, an approach that employs tolerance of the views of others, in order to obtain the benefits of appealing to someone from a common starting point of understanding, will benefit you in sales and marketing (and life in general). You don’t have to agree with someone to acknowledge their beliefs and understand their motivation.
Monday, September 14, 2009
Tuesday, September 8, 2009
Globalization
Globalization
Over the past several years, the U.S. economy has become more integrated into the global economy. Many companies throughout the world are managing worldwide production and distribution systems. “Changing patterns of world trade not only affect transport flows, they affect modes used. Products that are received by truck from domestic suppliers may be obtained by containership and doublestack train from overseas suppliers or, if their value is relatively high or delivery speed important, by air freight”. Trucking of some kind is involved in order to bring these shipments to their ultimate destination. However, as production moves more towards overseas suppliers, LTL trucking can expect to lose some market share to other forms of transportation. In response, LTL carriers should adapt and offer new and different services, such as intermodal service, air freight cartage and logistics services.
No steps should be taken to stem globalization of the U.S. economy. Globalization of the U.S. economy, while painful for some individuals and corporations has had a huge positive effect on the entire world. However, in order to protect individuals and preserve the environment, continued attempts should be made to create worldwide standards for such controls as environmental, fair labor and copyright laws.
America has the resources and responsibility to provide a social safety net for its citizens while attempting to be competitive in the worldwide economy. John F. Kennedy once said, “If a free society cannot help the many who are poor, it cannot save the few who are rich” . People expect their governments to serve their interests and to make decisions that will improve their chances to achieve a better existence. This statement applies to all the nations of the world. Policy makers must attempt to shape the forces of globalization in positive ways and work together to reduce inequalities within (and between) countries.
Capitalist ideology should be tempered by the fact that individuals, firms and especially national cultures, are more complex than the rational profit maximizers described by economists. For capitalism to succeed globally, it must be made bearable for the different cultures that are involved. Markets cannot exist independent of a society’s values. It is wrong for the most powerful economies to try and force other cultures to adopt beliefs or methods in order to participate in the global economy. Basic rules of fair trade should be all that are required. If not, we will have many countries, groups and powerful individuals who choose to stay outside the world economy. These outsiders may resort to violent social protest (such as the 9/11 attacks) or war to state their cases, achieve their aims, or simply vent their frustration. For disenfranchised non-participants in the world economy, the most effective way to get attention paid to their situations may be through violent protest or war.
All multi-national corporations and countries are global citizens with global responsibilities. The largest responsibility is to not unfairly exploit the workforce or environment of any country for economic gain. So that basic rules of fair play in business and government are followed, international organizations such as the WTO, World Bank and IMF have been created. So that these organizations aren’t controlled solely by business interests, non-governmental organizations such as The World Wildlife Fund, Amnesty International and Green Peace exist to act as watchdogs. This process of monitored globalization has been proceeding rapidly over the past few decades. Social protest (such as the riots in Seattle) is also a part of the process, influencing decisions made.
Fear of losing one’s job, health benefits and other insecurities that come with globalization have fueled a backlash against it in America. Some politicians try to capitalize on this fact and have been fairly successful in making this case with some Americans, that global trade threatens some American industries and workers. This assertion is correct. But, what is bad for an individual (or a company) is not necessarily bad for the country. This zero-sum view of the world implies that one country’s gain is another country’s loss. If this were so, global trade and investment would not flourish. These fear tactics work best with people lacking confidence in their own ability to compete and so in America’s ability to achieve economic growth through its own people, values, resources and institutions.
In the current recessionary business environment, our government has become more protectionist. I believe that this is a shortsighted step backwards, towards the isolationist policies of the past. America owes it to itself and the other countries of the world to work toward further trade liberalization. Raising barriers to achieve protectionist equality with trading partners will not benefit anyone. Many countries that fear the culture and economic power of the U.S. react with protectionist policies. We must be the free trade leader in these cases and unilaterally open our markets to imports from these countries. In time, the benefits of two-way free trade will become apparent to them. Meanwhile, we benefit from less expensive products and the ability to deploy our capital to its most productive uses. Unemployment may result in certain industries, but the long-term picture for our economy will improve. Our social safety net should help retrain and support those of us affected by the temporary job losses.
We must manage globalization carefully to reduce glaring inequalities and preserve the natural environment throughout the world. The example set by multi-national corporations and the leading industrial countries will determine the success of global capitalism. If globalization weathers the current recession, I believe it will be irreversible.
Trucking will continue to be required in order to bring products to their ultimate destinations. As production moves more towards overseas suppliers, LTL trucking can expect to lose some market share to other forms of transportation. In response, LTL carriers should adapt and offer new and different services, such as logistics services intermodal service and air freight cartage.
Over the past several years, the U.S. economy has become more integrated into the global economy. Many companies throughout the world are managing worldwide production and distribution systems. “Changing patterns of world trade not only affect transport flows, they affect modes used. Products that are received by truck from domestic suppliers may be obtained by containership and doublestack train from overseas suppliers or, if their value is relatively high or delivery speed important, by air freight”. Trucking of some kind is involved in order to bring these shipments to their ultimate destination. However, as production moves more towards overseas suppliers, LTL trucking can expect to lose some market share to other forms of transportation. In response, LTL carriers should adapt and offer new and different services, such as intermodal service, air freight cartage and logistics services.
No steps should be taken to stem globalization of the U.S. economy. Globalization of the U.S. economy, while painful for some individuals and corporations has had a huge positive effect on the entire world. However, in order to protect individuals and preserve the environment, continued attempts should be made to create worldwide standards for such controls as environmental, fair labor and copyright laws.
America has the resources and responsibility to provide a social safety net for its citizens while attempting to be competitive in the worldwide economy. John F. Kennedy once said, “If a free society cannot help the many who are poor, it cannot save the few who are rich” . People expect their governments to serve their interests and to make decisions that will improve their chances to achieve a better existence. This statement applies to all the nations of the world. Policy makers must attempt to shape the forces of globalization in positive ways and work together to reduce inequalities within (and between) countries.
Capitalist ideology should be tempered by the fact that individuals, firms and especially national cultures, are more complex than the rational profit maximizers described by economists. For capitalism to succeed globally, it must be made bearable for the different cultures that are involved. Markets cannot exist independent of a society’s values. It is wrong for the most powerful economies to try and force other cultures to adopt beliefs or methods in order to participate in the global economy. Basic rules of fair trade should be all that are required. If not, we will have many countries, groups and powerful individuals who choose to stay outside the world economy. These outsiders may resort to violent social protest (such as the 9/11 attacks) or war to state their cases, achieve their aims, or simply vent their frustration. For disenfranchised non-participants in the world economy, the most effective way to get attention paid to their situations may be through violent protest or war.
All multi-national corporations and countries are global citizens with global responsibilities. The largest responsibility is to not unfairly exploit the workforce or environment of any country for economic gain. So that basic rules of fair play in business and government are followed, international organizations such as the WTO, World Bank and IMF have been created. So that these organizations aren’t controlled solely by business interests, non-governmental organizations such as The World Wildlife Fund, Amnesty International and Green Peace exist to act as watchdogs. This process of monitored globalization has been proceeding rapidly over the past few decades. Social protest (such as the riots in Seattle) is also a part of the process, influencing decisions made.
Fear of losing one’s job, health benefits and other insecurities that come with globalization have fueled a backlash against it in America. Some politicians try to capitalize on this fact and have been fairly successful in making this case with some Americans, that global trade threatens some American industries and workers. This assertion is correct. But, what is bad for an individual (or a company) is not necessarily bad for the country. This zero-sum view of the world implies that one country’s gain is another country’s loss. If this were so, global trade and investment would not flourish. These fear tactics work best with people lacking confidence in their own ability to compete and so in America’s ability to achieve economic growth through its own people, values, resources and institutions.
In the current recessionary business environment, our government has become more protectionist. I believe that this is a shortsighted step backwards, towards the isolationist policies of the past. America owes it to itself and the other countries of the world to work toward further trade liberalization. Raising barriers to achieve protectionist equality with trading partners will not benefit anyone. Many countries that fear the culture and economic power of the U.S. react with protectionist policies. We must be the free trade leader in these cases and unilaterally open our markets to imports from these countries. In time, the benefits of two-way free trade will become apparent to them. Meanwhile, we benefit from less expensive products and the ability to deploy our capital to its most productive uses. Unemployment may result in certain industries, but the long-term picture for our economy will improve. Our social safety net should help retrain and support those of us affected by the temporary job losses.
We must manage globalization carefully to reduce glaring inequalities and preserve the natural environment throughout the world. The example set by multi-national corporations and the leading industrial countries will determine the success of global capitalism. If globalization weathers the current recession, I believe it will be irreversible.
Trucking will continue to be required in order to bring products to their ultimate destinations. As production moves more towards overseas suppliers, LTL trucking can expect to lose some market share to other forms of transportation. In response, LTL carriers should adapt and offer new and different services, such as logistics services intermodal service and air freight cartage.
Tuesday, September 1, 2009
Business Ethics
Business Ethics
It seems that every week we hear about another company that attempts to defraud its customers or employees. The recent Bernie Madoff scandal, real estate scams, insider trading, betrayals of confidentiality, telemarketing and ads that prey upon the fears of the elderly and other business ethics violations are common occurrences. Ethical violations usually result from conflicts between doing what is best for you and what’s best for others.
Business ethics cannot be separated from personal ethics. Many people try to make a convenient distinction between what is allowed in business and what it means to be ethical in their private lives. What is considered duplicity in a person’s private life is often called shrewdness in business. However, a clever falsehood that makes one financially prosperous is still a lie. Moral weakness takes possession of people (and businesses) by slow and imperceptible degrees. The effects of being unethical are much the same for businesses and individuals. Unethical behavior threatens the bonds of community that allow people to live and work together and so adversely affects us all, both businesses and individuals.
Here are some ways that unethical behavior adversely affects individuals and businesses:
First, unethical behavior creates a lack of trust towards anyone who develops a reputation for it. Conversely, if a person (or business) has the reputation of being fair and upright in all dealings, they will possess the confidence of all who come in contact with them. Companies and individuals are both affected in this way. Would you invest your money with Bernie Madoff’s company?
Second, a sense of self-respect, based upon good character, is important to both individuals and businesses. If your reputation is grounded in deception, your opinion of yourself (or your company) will be poor. Self-respect is nearly impossible if one is constantly worrying about being caught in a lie. Both individuals and businesses possess character. Character is formed by a course of actions, by many little acts and decisions over time. A person (or a business) should have a determination to form its own character, after the pattern of its own ideals and ethical values. No one should allow their character to be determined solely by the circumstances of the marketplace, or their job description.
A third, and very important, factor to consider are the legal problems that companies and individuals might experience when they violate ethical standards. Lying in a court of law, insider trading, falsifying documents and many other examples of business ethics violations are also violations of the law. Even if honesty does not appeal to you based upon the good that it does for your reputation and character, it is still a good policy to be honest, if only because breaking the law could mean legal trouble for you.
My solution to navigating the ethical conflicts between doing what is best for you and what is best for others is to apply certain tests to all decisions that you make, both in business and your private life.
First, ask yourself if you think the decision would be fair if your role was reversed with that of the other party and the situation were similar otherwise. What’s good for the other person should also be good for you.
Second, ask yourself if you are being honest. Are you exaggerating? Exaggeration is a form of falsehood. Are you omitting any relevant information? It is always better to admit shortcomings before they are discovered by the other party and so be able to present them in the best possible light.
Third, are you making or implying any promises that might not be kept? Most people know that guarantees should be in writing. However, none should be implied where they don’t exist. Always tell the truth about your company and yourself. The buyer should not have to beware.
Both in personal and business situations, these three tests (at a minimum) should be applied before making any decision. Ralph Waldo Emerson said, “Nothing astonishes men so much as common sense and plain dealing.” Good business ethics are built on good personal ethics and are the key to profitable, long-term relationships.
It seems that every week we hear about another company that attempts to defraud its customers or employees. The recent Bernie Madoff scandal, real estate scams, insider trading, betrayals of confidentiality, telemarketing and ads that prey upon the fears of the elderly and other business ethics violations are common occurrences. Ethical violations usually result from conflicts between doing what is best for you and what’s best for others.
Business ethics cannot be separated from personal ethics. Many people try to make a convenient distinction between what is allowed in business and what it means to be ethical in their private lives. What is considered duplicity in a person’s private life is often called shrewdness in business. However, a clever falsehood that makes one financially prosperous is still a lie. Moral weakness takes possession of people (and businesses) by slow and imperceptible degrees. The effects of being unethical are much the same for businesses and individuals. Unethical behavior threatens the bonds of community that allow people to live and work together and so adversely affects us all, both businesses and individuals.
Here are some ways that unethical behavior adversely affects individuals and businesses:
First, unethical behavior creates a lack of trust towards anyone who develops a reputation for it. Conversely, if a person (or business) has the reputation of being fair and upright in all dealings, they will possess the confidence of all who come in contact with them. Companies and individuals are both affected in this way. Would you invest your money with Bernie Madoff’s company?
Second, a sense of self-respect, based upon good character, is important to both individuals and businesses. If your reputation is grounded in deception, your opinion of yourself (or your company) will be poor. Self-respect is nearly impossible if one is constantly worrying about being caught in a lie. Both individuals and businesses possess character. Character is formed by a course of actions, by many little acts and decisions over time. A person (or a business) should have a determination to form its own character, after the pattern of its own ideals and ethical values. No one should allow their character to be determined solely by the circumstances of the marketplace, or their job description.
A third, and very important, factor to consider are the legal problems that companies and individuals might experience when they violate ethical standards. Lying in a court of law, insider trading, falsifying documents and many other examples of business ethics violations are also violations of the law. Even if honesty does not appeal to you based upon the good that it does for your reputation and character, it is still a good policy to be honest, if only because breaking the law could mean legal trouble for you.
My solution to navigating the ethical conflicts between doing what is best for you and what is best for others is to apply certain tests to all decisions that you make, both in business and your private life.
First, ask yourself if you think the decision would be fair if your role was reversed with that of the other party and the situation were similar otherwise. What’s good for the other person should also be good for you.
Second, ask yourself if you are being honest. Are you exaggerating? Exaggeration is a form of falsehood. Are you omitting any relevant information? It is always better to admit shortcomings before they are discovered by the other party and so be able to present them in the best possible light.
Third, are you making or implying any promises that might not be kept? Most people know that guarantees should be in writing. However, none should be implied where they don’t exist. Always tell the truth about your company and yourself. The buyer should not have to beware.
Both in personal and business situations, these three tests (at a minimum) should be applied before making any decision. Ralph Waldo Emerson said, “Nothing astonishes men so much as common sense and plain dealing.” Good business ethics are built on good personal ethics and are the key to profitable, long-term relationships.
Thursday, August 27, 2009
Fuel Surcharges
Fuel Surcharges
The entire investment of a small carrier can be in motor trucks. Even for the largest carriers, by far the greatest share of investment is in trucks. For this reason, fuel costs are second only to labor costs as a percent of total variable costs. Truckload carriers can have fuel costs as high as 30 percent of their total costs, while LTL carriers usually are closer to the 10 percent mark. The reason for the difference is that LTL carriers have higher fixed plant and labor costs associated with the consolidation of many smaller shipments for each trailer loaded. Fuel prices for LTL carriers represent a smaller percent of greater total costs.
The most unusual thing about the implementation of fuel surcharges by motor carriers is that the carriers with the highest ratio of fuel costs to total costs have not been the first to implement the surcharges. These surcharges have been instituted first by the LTL carriers.
One explanation for this is that the LTL pricing structure is more conducive to the acceptance by shippers of these extra charges. The complex system of LTL freight classifications, combined with regular base rate increases, has created an atmosphere of acceptance of charges that are imposed by all carriers in the LTL market simultaneously. The truckload carriers that charge on a per-mile/lineal foot basis are in a more competitive situation. With no base rates to increase as a group, they individually decide when to add fuel surcharges. For this reason, they usually follow the LTL carriers in implementing fuel surcharges. However, the smaller profit margins of the LTL carriers probably also contribute to their being first to implement fuel surcharges.
Although motor carrier deregulation has been good for the economy in general, it is agreed that there are instances where regulation is good for everyone. I propose that government-mandated fuel surcharges would benefit all parties. They would make the motor carrier industry more competitive by leveling the playing field for all carriers, by weakening the fuel surcharge advantage of certain carriers. Mandated fuel surcharges would bring uniformity of fuel surcharges and predictability for both shippers and carriers.
Are surcharges bad for the economy? At worst they fail to protect the U.S. consumer, in the short run, from the inflationary effects of oil supply shocks. Fuel surcharges actually may be good. Passing price increases quickly down the economic chain causes the adjustment mechanism of decreased demand for oil to occur more quickly. Protecting consumers from the effects of oil price shocks simply prolongs the crisis. Mandated fuel surcharges make good sense.
The entire investment of a small carrier can be in motor trucks. Even for the largest carriers, by far the greatest share of investment is in trucks. For this reason, fuel costs are second only to labor costs as a percent of total variable costs. Truckload carriers can have fuel costs as high as 30 percent of their total costs, while LTL carriers usually are closer to the 10 percent mark. The reason for the difference is that LTL carriers have higher fixed plant and labor costs associated with the consolidation of many smaller shipments for each trailer loaded. Fuel prices for LTL carriers represent a smaller percent of greater total costs.
The most unusual thing about the implementation of fuel surcharges by motor carriers is that the carriers with the highest ratio of fuel costs to total costs have not been the first to implement the surcharges. These surcharges have been instituted first by the LTL carriers.
One explanation for this is that the LTL pricing structure is more conducive to the acceptance by shippers of these extra charges. The complex system of LTL freight classifications, combined with regular base rate increases, has created an atmosphere of acceptance of charges that are imposed by all carriers in the LTL market simultaneously. The truckload carriers that charge on a per-mile/lineal foot basis are in a more competitive situation. With no base rates to increase as a group, they individually decide when to add fuel surcharges. For this reason, they usually follow the LTL carriers in implementing fuel surcharges. However, the smaller profit margins of the LTL carriers probably also contribute to their being first to implement fuel surcharges.
Although motor carrier deregulation has been good for the economy in general, it is agreed that there are instances where regulation is good for everyone. I propose that government-mandated fuel surcharges would benefit all parties. They would make the motor carrier industry more competitive by leveling the playing field for all carriers, by weakening the fuel surcharge advantage of certain carriers. Mandated fuel surcharges would bring uniformity of fuel surcharges and predictability for both shippers and carriers.
Are surcharges bad for the economy? At worst they fail to protect the U.S. consumer, in the short run, from the inflationary effects of oil supply shocks. Fuel surcharges actually may be good. Passing price increases quickly down the economic chain causes the adjustment mechanism of decreased demand for oil to occur more quickly. Protecting consumers from the effects of oil price shocks simply prolongs the crisis. Mandated fuel surcharges make good sense.
Monday, August 24, 2009
Asset-Based LTL Companies and Short-Haul Brokerage Services
Asset-Based LTL Companies and Short-Haul Brokerage Services
Because neither rail service nor air freight present LTL trucking companies with a significant threat as substitute products, there are really no good substitutes (other than same mode competitors and the third-party logistics industry) for the services provided by asset-based LTL trucking companies in the United States. For this reason, many LTL trucking companies have created third-party logistics or brokerage divisions in order to counter the threat posed by 3PLs.
Third-party logistics services usually own no assets, but instead act as brokers of asset-based transportation company’s services. These logistics services rely upon their technical expertise with computers and software, as well as their bargaining power with asset-based transportation companies, to provide shippers with a variety of low-priced transportation alternatives.
If all services offered by the company are sold by every salesperson, there is no danger of cannibalization of an asset-based company’s LTL business when providing a brokerage service of this kind. By acting as a broker, the company can offer low pricing for “out of area” shipments, as well as for large volume LTL and truckload shipments (using another trucking company’s equipment) thereby ensuring that their own capital equipment is used for more profitable business.
Between 1993 and 2002, the total amount of freight transported in the United States grew 18% to 16 billion tons, and the value of that freight grew 45% to $10.5 trillion. Of that amount, trucking moved 64% by value and 58% by weight. It is sure to have grown since that time. I apologize for the dated information.
The majority of shipments made by the average U.S. shipper are less-than-truckload (LTL) shipments that require next day service within approximately a 300 mile radius of the origin terminal, or second day service within 500-600 miles, but not at a specific time of day. There is a great demand for this type of service, but also a great number of companies able to provide it.
The majority of tonnage hauled by motor carriers today travels fewer than 500 miles. Regional trucking was the fastest growing segment of the trucking industry in terms of change in net spending between 2001 and 2002. During that same period, spending on national LTL service declined by 4.4 percent. Since then, the situation cannot have changed completely.
Brokering short-haul truck shipments presents a great opportunity. Destinations that might be otherwise difficult to serve because of their location in remote rural locations (for instance, half-way between break-bulk terminals), can be more profitably served in this way. The company’s geographic area covered can also be expanded. At start-up, the company can simply obtain rate quotes from various LTL companies (letting them know that they have competition). Hopefully, the company can eventually use their volume of business to convince other asset-based trucking companies to conform to a standardized bid process, while keeping a searchable database for rate comparison purposes.
Establishing services such as this, that increase switching costs and discourage substitutes, should be a key strategy for any company. Offering the customer multiple services helps to increase switching costs and discourages the customer from seeking other out other transportation companies. However, each of the products sold must be clearly defined (in order to prevent cannibalization of other products/services) and each individual shipment must be profitable. The company must gain competitive advantage through an integrated offering of differentiated, profitable services.
Because neither rail service nor air freight present LTL trucking companies with a significant threat as substitute products, there are really no good substitutes (other than same mode competitors and the third-party logistics industry) for the services provided by asset-based LTL trucking companies in the United States. For this reason, many LTL trucking companies have created third-party logistics or brokerage divisions in order to counter the threat posed by 3PLs.
Third-party logistics services usually own no assets, but instead act as brokers of asset-based transportation company’s services. These logistics services rely upon their technical expertise with computers and software, as well as their bargaining power with asset-based transportation companies, to provide shippers with a variety of low-priced transportation alternatives.
If all services offered by the company are sold by every salesperson, there is no danger of cannibalization of an asset-based company’s LTL business when providing a brokerage service of this kind. By acting as a broker, the company can offer low pricing for “out of area” shipments, as well as for large volume LTL and truckload shipments (using another trucking company’s equipment) thereby ensuring that their own capital equipment is used for more profitable business.
Between 1993 and 2002, the total amount of freight transported in the United States grew 18% to 16 billion tons, and the value of that freight grew 45% to $10.5 trillion. Of that amount, trucking moved 64% by value and 58% by weight. It is sure to have grown since that time. I apologize for the dated information.
The majority of shipments made by the average U.S. shipper are less-than-truckload (LTL) shipments that require next day service within approximately a 300 mile radius of the origin terminal, or second day service within 500-600 miles, but not at a specific time of day. There is a great demand for this type of service, but also a great number of companies able to provide it.
The majority of tonnage hauled by motor carriers today travels fewer than 500 miles. Regional trucking was the fastest growing segment of the trucking industry in terms of change in net spending between 2001 and 2002. During that same period, spending on national LTL service declined by 4.4 percent. Since then, the situation cannot have changed completely.
Brokering short-haul truck shipments presents a great opportunity. Destinations that might be otherwise difficult to serve because of their location in remote rural locations (for instance, half-way between break-bulk terminals), can be more profitably served in this way. The company’s geographic area covered can also be expanded. At start-up, the company can simply obtain rate quotes from various LTL companies (letting them know that they have competition). Hopefully, the company can eventually use their volume of business to convince other asset-based trucking companies to conform to a standardized bid process, while keeping a searchable database for rate comparison purposes.
Establishing services such as this, that increase switching costs and discourage substitutes, should be a key strategy for any company. Offering the customer multiple services helps to increase switching costs and discourages the customer from seeking other out other transportation companies. However, each of the products sold must be clearly defined (in order to prevent cannibalization of other products/services) and each individual shipment must be profitable. The company must gain competitive advantage through an integrated offering of differentiated, profitable services.
Thursday, August 20, 2009
Sales Strategy Synopsis for Transportation Companies with Multiple Services
Sales Strategy Synopsis for Transportation Companies with Multiple Services
A transportation company with several divisions, and/or offering multiple services, should cross-sell their services, in order to increase switching costs and discourage substitutes. Offering the customer multiple interwoven services helps to increase switching costs and discourages the customer from seeking out other transportation companies.
Convergent Marketing- The Company’s services should be branded with the parent company name. The company should have a collaborative sales team operating under a single brand, with customized service offerings to serve individual customer’s needs.
Diversification- The greater the number of businesses in a company’s portfolio, the more difficult it is for management to find time to keep well enough informed about the complexities of all the businesses to manage them properly. Companies have the best chance of being successful at diversification if they capitalize on the existing relationships between business units by having them transfer skills and share activities.
Companies that sell multiple services should also determine the most powerful method(s) for showing prospects both the cost savings and the intangible benefits that they offer. Concrete examples of past successes should be used (such as case studies), including the details of how cost savings were achieved, concentrating on companies where the company acted as a lead logistics provider, or provided multiple services.
Sales Strategy- Listen to the customer. Understanding consumer needs and perceptions is the key to good strategic customer planning. Good companies will use both simple (point of service response cards) and sophisticated (customer focus groups) methods to find ways to improve their products and services in ways that are desired by customers.
Assess the competition’s market position, plans and strength- Competition has increased so much that achieving continuous improvement and exceeding customers’ expectations no longer assures faster-than-market growth in profits. It is the underlying strategy that will lead to sustainable competitive advantage. Accelerated profitable growth requires strategic cross-selling of the company’s transportation services (that the customer perceives are needed).
Account Retention: How to be a preferred vendor and more profitable. As the relationship matures into the retention phase, the account becomes very profitable if it is retained. Sales and service costs drop because the customer and vendor know how to work with one another. If the account is lost, the profit stream stops. If the account was a fairly new one, the acquisition cost might not even be recovered.
Customer satisfaction leads to customer retention, which provides the opportunity for account dominance or primacy. The long-term primary supplier typically gets higher realized prices as well. This may not be much as a percentage of sales, but it goes right to the bottom line. The preferred vendor also tends to have the ability to take a richer product mix with higher profit margins.
The salesperson plays a critical profit-generation role either in negotiating individually or in providing the information upon which headquarters-level executives make pricing decisions. These decisions are often clouded by customer threats and competitive activity.
The sales force, more than any other function, is responsible for profit-generation. If it falls down by choosing the wrong accounts, makes promises that can’t be kept, poorly manages the accounts or neglects its customer liaison role, the profit machine falls apart.
Productive salespeople often make the difference between company success and failure. Although CRM programs can monitor sales productivity, the best approach to driving sales productivity should be focused on the interaction between the salesperson and the customer. Teaching salespeople standard methods of prospecting, follow-up, cross-selling and making sure competitive pricing proposals are presented to prospective customers, on-time and administratively correct, are examples of the sort of sales enablement that works best.
A transportation company with several divisions, and/or offering multiple services, should cross-sell their services, in order to increase switching costs and discourage substitutes. Offering the customer multiple interwoven services helps to increase switching costs and discourages the customer from seeking out other transportation companies.
Convergent Marketing- The Company’s services should be branded with the parent company name. The company should have a collaborative sales team operating under a single brand, with customized service offerings to serve individual customer’s needs.
Diversification- The greater the number of businesses in a company’s portfolio, the more difficult it is for management to find time to keep well enough informed about the complexities of all the businesses to manage them properly. Companies have the best chance of being successful at diversification if they capitalize on the existing relationships between business units by having them transfer skills and share activities.
Companies that sell multiple services should also determine the most powerful method(s) for showing prospects both the cost savings and the intangible benefits that they offer. Concrete examples of past successes should be used (such as case studies), including the details of how cost savings were achieved, concentrating on companies where the company acted as a lead logistics provider, or provided multiple services.
Sales Strategy- Listen to the customer. Understanding consumer needs and perceptions is the key to good strategic customer planning. Good companies will use both simple (point of service response cards) and sophisticated (customer focus groups) methods to find ways to improve their products and services in ways that are desired by customers.
Assess the competition’s market position, plans and strength- Competition has increased so much that achieving continuous improvement and exceeding customers’ expectations no longer assures faster-than-market growth in profits. It is the underlying strategy that will lead to sustainable competitive advantage. Accelerated profitable growth requires strategic cross-selling of the company’s transportation services (that the customer perceives are needed).
Account Retention: How to be a preferred vendor and more profitable. As the relationship matures into the retention phase, the account becomes very profitable if it is retained. Sales and service costs drop because the customer and vendor know how to work with one another. If the account is lost, the profit stream stops. If the account was a fairly new one, the acquisition cost might not even be recovered.
Customer satisfaction leads to customer retention, which provides the opportunity for account dominance or primacy. The long-term primary supplier typically gets higher realized prices as well. This may not be much as a percentage of sales, but it goes right to the bottom line. The preferred vendor also tends to have the ability to take a richer product mix with higher profit margins.
The salesperson plays a critical profit-generation role either in negotiating individually or in providing the information upon which headquarters-level executives make pricing decisions. These decisions are often clouded by customer threats and competitive activity.
The sales force, more than any other function, is responsible for profit-generation. If it falls down by choosing the wrong accounts, makes promises that can’t be kept, poorly manages the accounts or neglects its customer liaison role, the profit machine falls apart.
Productive salespeople often make the difference between company success and failure. Although CRM programs can monitor sales productivity, the best approach to driving sales productivity should be focused on the interaction between the salesperson and the customer. Teaching salespeople standard methods of prospecting, follow-up, cross-selling and making sure competitive pricing proposals are presented to prospective customers, on-time and administratively correct, are examples of the sort of sales enablement that works best.
Monday, August 17, 2009
Collaborative Logistics is Trapped within Four Walls
Collaborative Logistics is Trapped within Four Walls
The second half of this paper has been excerpted from: 7 Immutable Laws of Collaborative Logistics, Dr. C. John Langley, JR www.idii.com/wp/7ImmutableLaws.pdf)
Collaborative relationships between shippers and carriers (or, between shippers) result in greater efficiency and profitability, while satisfying the interests of all parties. An ideal collaborative logistics network promotes a high degree of visibility and activity coordination between multiple shippers, carriers, ancillaries and third-party providers. This results in optimum utilization of assets and benefits for all trading partners.
Shipper to shipper collaboration can mean co-loading trucks to make same route deliveries or co-occupying warehouses. Carriers gain by keeping their assets moving and full, assured of regularly scheduled assignments and hence dedicated revenue streams.
The ideal network should contain an optimizer that can determine the mode to be used for each shipment, whether LTL, truckload, parcel, rail, airfreight, or other. This optimizer should receive information electronically from shippers and use the information to create optimal shipments based upon many criteria. The rules that need to be programmed into the optimizer should consider such factors as what mode/carrier provides the lowest rates for the required transit times, the density, skid height and packaging of the product shipped (stackability), the dimensions/weight for loose carton (carton weight/dimension rules for parcel companies), acceptable hazardous goods classification for each mode (airfreight/truck/parcel), perishability of products shipped, appointment scheduling requirements (time limitations for truckloads with stop-offs and LTL transit time requirements), inside delivery requirements, tail-gate delivery requirements, and other possible accessorial charge considerations.
The ideal network should provide shippers with the carriers that offer the best rates within the prescribed transit times. After that, the optimizer must make sure that the truckload rates in place for each destination with the shipper’s truckload carriers will “kick in” at the point where the LTL rates match the truckload rate. LTL rates should not exceed published truckload rates in place for the same destination. The truckload rates must act as LTL caps and the optimizer must be able to determine when these thresholds are reached. In addition, the optimizer should be able to determine when the LTL carrier’s minimum charge exceeds the parcel rate for the same shipment weight and also determine situations where the number of cartons in a parcel shipment cause it to be more expensive than an LTL minimum (even though the shipment’s weight may be low). As far as I know, no optimizer currently on the market does a good job of optimizing between LTL and parcel.
In addition, collaborative networks employ customer-centric tools like tracking and tracing, which can be leveraged by the transportation service provider to better implement strategies like cost effective route planning, dynamic routing and rerouting. These networks can provide considerable savings on fuel, driver scheduling and help to avoid traffic congestion.
One big problem with providing this high level of optimization, tracking and tracing is that the networks currently capable of providing this level of IT sophistication must force their members to operate within their four walls. How can we accomplish the same goals, while opening up the network to a much larger group of shippers, carriers, third parties and ancillaries, such as warehouses?
(The following has been excerpted from: 7 Immutable Laws of Collaborative Logistics, Dr. C. John Langley, JR www.idii.com/wp/7ImmutableLaws.pdf)
“Co-suppliers have enormous opportunities for collaboration centering on logistics. The possible cost savings are huge for both truckload and less-than-truckload shipments: avoiding the potential problems associated with spot rates, arranging complementary backhaul (or reverse direction) movements, planning routes and consolidating shipments.
If only two shippers could know what each other is doing, they could leverage each other in innumerable ways. The payoffs start with lower costs but extend into even more important areas such as reliability, shorter cycle times, and greater flexibility. Multiply these benefits many-fold as more players get involved. All that is needed is a place on the Internet where communities of shippers and carriers can do business together.
Shippers want increasingly consistent service, predictable capacity, and lower freight charges on a unit cost basis. Carriers are interested in expanding revenue opportunities and asset utilization. Through the agility and efficiency of Web-based technology, everyone in the supply chain has the potential to achieve those objectives. Excellence in logistics is a must for many shipper firms, with the consistent delivery of product to the customer viewed as an ongoing, strategic objective.
Transport providers have stated repeatedly that they are operating on thin or non-existent margins, with little or no room for price negotiation. Thus, the e-commerce winners will be those companies that can deliver more efficient solutions that impact both the buy and sell side of the equation. For the shipper, that translates to increased product velocity in the logistics pipeline while reducing logistics unit costs. For the carrier, it means a dramatic improvement in logistics asset utilization and improved transaction efficiencies.
The Internet has become the key enabler for shippers and carriers to collaborate for mutual benefit. Winning e-commerce solutions will be integrated with shippers’ ERP and order systems, delivering forward visibility to demand for logistics services to carriers, while efficiently re-circulating and sharing excess capacity through collaborative networks.
Application developers are offering logistics software that they claim will create efficiencies, despite the inability of the application to allow collaboration outside of the organization’s four walls.
The degree to which organizations share information and resources depends on their needs and the rules established jointly by members. The more an organization participates, the greater the potential benefits.
1. For collaboration to be successful, all members of a specific collaboration must be able to quantify the benefit they are enjoying from the process.
2. Rules for shippers and carriers when joining a collaborative network:
Investigate – Understand the value proposition prior to joining the network.
Integrate – Synchronize individual firm business process with those of the network.
Acclimate – Find potential partners on the network that may add value.
Negotiate – Establish the rules of engagement with a collection of partners.
Cooperate – Share resources according to the rules of engagement, transact on the network creating gains via shared resources.
Evaluate – Measure the benefit/cost of collaboration for each member firm.
Regenerate – Extend or regenerate the collaboration assuming it has benefited each of the member firms.”
7 Immutable Laws of Collaborative Logistics, Dr. C. John Langley, JR www.idii.com/wp/7ImmutableLaws.pdf)
How can we accomplish these goals, while opening up the network to a much larger group of shippers, carriers, and ancillaries, such as warehouses? How can we optimize the allocation of costs and benefits, so that the gains of a collaborative network will be equitably shared by all participants?
The second half of this paper has been excerpted from: 7 Immutable Laws of Collaborative Logistics, Dr. C. John Langley, JR www.idii.com/wp/7ImmutableLaws.pdf)
Collaborative relationships between shippers and carriers (or, between shippers) result in greater efficiency and profitability, while satisfying the interests of all parties. An ideal collaborative logistics network promotes a high degree of visibility and activity coordination between multiple shippers, carriers, ancillaries and third-party providers. This results in optimum utilization of assets and benefits for all trading partners.
Shipper to shipper collaboration can mean co-loading trucks to make same route deliveries or co-occupying warehouses. Carriers gain by keeping their assets moving and full, assured of regularly scheduled assignments and hence dedicated revenue streams.
The ideal network should contain an optimizer that can determine the mode to be used for each shipment, whether LTL, truckload, parcel, rail, airfreight, or other. This optimizer should receive information electronically from shippers and use the information to create optimal shipments based upon many criteria. The rules that need to be programmed into the optimizer should consider such factors as what mode/carrier provides the lowest rates for the required transit times, the density, skid height and packaging of the product shipped (stackability), the dimensions/weight for loose carton (carton weight/dimension rules for parcel companies), acceptable hazardous goods classification for each mode (airfreight/truck/parcel), perishability of products shipped, appointment scheduling requirements (time limitations for truckloads with stop-offs and LTL transit time requirements), inside delivery requirements, tail-gate delivery requirements, and other possible accessorial charge considerations.
The ideal network should provide shippers with the carriers that offer the best rates within the prescribed transit times. After that, the optimizer must make sure that the truckload rates in place for each destination with the shipper’s truckload carriers will “kick in” at the point where the LTL rates match the truckload rate. LTL rates should not exceed published truckload rates in place for the same destination. The truckload rates must act as LTL caps and the optimizer must be able to determine when these thresholds are reached. In addition, the optimizer should be able to determine when the LTL carrier’s minimum charge exceeds the parcel rate for the same shipment weight and also determine situations where the number of cartons in a parcel shipment cause it to be more expensive than an LTL minimum (even though the shipment’s weight may be low). As far as I know, no optimizer currently on the market does a good job of optimizing between LTL and parcel.
In addition, collaborative networks employ customer-centric tools like tracking and tracing, which can be leveraged by the transportation service provider to better implement strategies like cost effective route planning, dynamic routing and rerouting. These networks can provide considerable savings on fuel, driver scheduling and help to avoid traffic congestion.
One big problem with providing this high level of optimization, tracking and tracing is that the networks currently capable of providing this level of IT sophistication must force their members to operate within their four walls. How can we accomplish the same goals, while opening up the network to a much larger group of shippers, carriers, third parties and ancillaries, such as warehouses?
(The following has been excerpted from: 7 Immutable Laws of Collaborative Logistics, Dr. C. John Langley, JR www.idii.com/wp/7ImmutableLaws.pdf)
“Co-suppliers have enormous opportunities for collaboration centering on logistics. The possible cost savings are huge for both truckload and less-than-truckload shipments: avoiding the potential problems associated with spot rates, arranging complementary backhaul (or reverse direction) movements, planning routes and consolidating shipments.
If only two shippers could know what each other is doing, they could leverage each other in innumerable ways. The payoffs start with lower costs but extend into even more important areas such as reliability, shorter cycle times, and greater flexibility. Multiply these benefits many-fold as more players get involved. All that is needed is a place on the Internet where communities of shippers and carriers can do business together.
Shippers want increasingly consistent service, predictable capacity, and lower freight charges on a unit cost basis. Carriers are interested in expanding revenue opportunities and asset utilization. Through the agility and efficiency of Web-based technology, everyone in the supply chain has the potential to achieve those objectives. Excellence in logistics is a must for many shipper firms, with the consistent delivery of product to the customer viewed as an ongoing, strategic objective.
Transport providers have stated repeatedly that they are operating on thin or non-existent margins, with little or no room for price negotiation. Thus, the e-commerce winners will be those companies that can deliver more efficient solutions that impact both the buy and sell side of the equation. For the shipper, that translates to increased product velocity in the logistics pipeline while reducing logistics unit costs. For the carrier, it means a dramatic improvement in logistics asset utilization and improved transaction efficiencies.
The Internet has become the key enabler for shippers and carriers to collaborate for mutual benefit. Winning e-commerce solutions will be integrated with shippers’ ERP and order systems, delivering forward visibility to demand for logistics services to carriers, while efficiently re-circulating and sharing excess capacity through collaborative networks.
Application developers are offering logistics software that they claim will create efficiencies, despite the inability of the application to allow collaboration outside of the organization’s four walls.
The degree to which organizations share information and resources depends on their needs and the rules established jointly by members. The more an organization participates, the greater the potential benefits.
1. For collaboration to be successful, all members of a specific collaboration must be able to quantify the benefit they are enjoying from the process.
2. Rules for shippers and carriers when joining a collaborative network:
Investigate – Understand the value proposition prior to joining the network.
Integrate – Synchronize individual firm business process with those of the network.
Acclimate – Find potential partners on the network that may add value.
Negotiate – Establish the rules of engagement with a collection of partners.
Cooperate – Share resources according to the rules of engagement, transact on the network creating gains via shared resources.
Evaluate – Measure the benefit/cost of collaboration for each member firm.
Regenerate – Extend or regenerate the collaboration assuming it has benefited each of the member firms.”
7 Immutable Laws of Collaborative Logistics, Dr. C. John Langley, JR www.idii.com/wp/7ImmutableLaws.pdf)
How can we accomplish these goals, while opening up the network to a much larger group of shippers, carriers, and ancillaries, such as warehouses? How can we optimize the allocation of costs and benefits, so that the gains of a collaborative network will be equitably shared by all participants?
Wednesday, August 12, 2009
Strategy, Structure and Sales Budgeting
Strategy, Structure and the Sales Budgeting Process for a Multi Mode Freight Transportation Company
Many transportation companies have gone through some difficult changes in the past few years. These companies now need to communicate a strategy to employees for the future. A structure must also be designed to support this strategy.
In many multi-mode transportation companies, each product/service has had its own separate sales force in the past. The strategy of maintaining separate sales forces for different products has unnecessarily increased sales costs. In-house sales training should be required for all salespeople to teach them how to sell all products, as part of a total transportation package. Salespeople must be trained to determine which service or services are desired by each account to satisfy their needs and instruct the customers in how to request each type of service when completing bills of lading and calling in pick-ups. In this way, misunderstandings about service levels requested can be minimized and sale of all products can be maximized.
The current product-oriented structure of many organizations needs to be changed in order to make more efficient use of the functional managers and sales force of the company. A team structure is needed that will encourage all managers to act as integrators of a single-company strategy throughout the company and in turn bring local (and product) concerns to the attention of upper management. In the past, many transportation companies have had separate business silos pushing independent product lines, to meet standard customer needs. Instead, these companies should have a collaborative sales team operating under a single brand, with customized service offerings to serve individual customer’s needs. A change in company structure may be required to ensure information sharing (and effort) to help drive these cross-product sales. This would give these companies advantages related to economies of scope, as well as a single company contact for the customer.
Employees must identify with the parent company, not with a particular product offering or terminal location. A healthy, single company culture should be encouraged in order to make the changes necessary to successfully implement the company’s strategy. Company parties, picnics and outings should be arranged, so that everyone gets to know and better understand the people with whom they work. A company newsletter should be published (on-line), at least quarterly. This newsletter should be sent to all employees and customers. Company-wide contests and recognition awards should be planned to reward the extraordinary efforts of individual workers and customers throughout the system. Annual Sales and Operations meetings should be held, to encourage a cohesive company culture, reward accomplishments and good ideas and to discuss the company’s strategy and goals.
The budgeting process relies on the sales budget being prepared accurately. Obtaining accurate sales forecasts and receiving employee support for achieving results beyond the established goals, can best be achieved through inclusion of employees in the decision-making process. This should be accomplished with an emphasis on rewards for company-wide results. A company-wide profit-sharing plan encourages profitability and limits unhealthy forms of internal competition between individuals, geographic areas and product lines.
Strategy:
I) The Company must gain competitive advantage through an integrated offering of differentiated, profitable services, selling all services as part of a total transportation package. Each of the products must be clearly defined and each individual shipment must be profitable.
II) In order to support this differentiation strategy, the Company must become a superior customer service company that sells all separate products with one cross-trained sales force.
III) The Company must become a company that communicates well across product lines, functions and terminal locations.
IV) The Company must use the proper control and coordination systems to support this strategy. Control should concentrate on measuring output and coordination on inclusion in the decision-making process, with an emphasis on results and a lack of emphasis on managing behaviors.
Proposed Structure:
I) An Executive Committee composed of the President/CEO, the Vice Presidents, the C.F.O., the Functional Department Managers (Upper-level Operations, I.T., Pricing, Customer Service, etc.,) and the Regional Sales Managers should be formed. Monthly meetings of the executive committee should be held to discuss operational issues (conference calls, or webinars) and annual (third quarter, fiscal year) meetings held to discuss strategy. This team will jointly decide strategy, yearly revenue goals, deal with operational challenges/problems and help to determine the budget.
The Functional Managers, Regional Sales Managers and Terminal Managers should be technically equal positions on the organizational chart. Issues should be discussed openly and considered from all relevant perspectives but the President/C.E.O. has the final say in all matters. Decisions should be reached by consensus whenever possible. The Executive Committee thus acts as a node at the center of the network, to coordinate product, functional and geographic information.
Functional Department Managers should be located at headquarters. Each functional department will be responsible for all services/products. The Functional Department Managers report to the Vice Presidents, with each V.P. handling assigned functional departments. For instance, the Pricing Manager and Customer Service Manager might report to the V.P. of Sales/Marketing, the Line-haul Managers and Claims Manager report to the V.P. of Operations and the Safety Manager and Loss Prevention Manager report to the V.P. of Human Resources. Other departments will be divided between the Vice Presidents. The I.T. Manager should report directly to the President/CEO.
Regional Sales Managers are responsible for training salespeople in the sale of all products. They may work from home offices. They will also be responsible for National Account sales in their areas. There should be no product-specific sales managers at this level in the company. They report directly to the Vice President of Sales/Marketing.
Regional Sales Managers should act as full-time integrators, who coordinate the communication of executive committee strategy across the company and help to ensure a uniform company culture. Regional Sales Managers also bring questions and problems from the salespeople and customers in the region they serve back to the Executive Committee.
Terminal Managers run local operations. They are responsible for their terminal’s profit and loss. This responsibility includes all aspects of local operations and sales, as well as maintaining a pool of local-area, owner-operators, if needed. Terminal Managers report to the V.P. of Operations. The monthly conference calls/webinars should be run by the V.P. of Operations to consult primarily with the Terminal Managers about operational issues, as well as the issues discussed in the two quarterly Executive Committee meetings.
Operations Managers (both dock and dispatch) are responsible for the aspects of each terminal that are assigned to them. They report to Terminal Managers.
Line-haul Managers are located at headquarters and coordinate movement of freight between terminals throughout the network. They are also responsible for coordinating expedited trucking moves (if that service exists). They report to the V.P. of Operations.
Line-haul Dispatchers are located at headquarters. Line-haul Dispatchers report to the Line-Haul Manager.
Customer Service should consist of local Customer Service representatives at each terminal, and a central Customer Service Unit at headquarters. All Customer Service Representatives report to the Customer Service Manager. They must also consult their Terminal Manager regarding operations capabilities before making commitments. Pick-ups and deliveries may be coordinated at the corporate or local level, but must be entered into the central computer as the pick-up is arranged.
Salespeople sell all company products. They may work from home offices. In-house training by the Regional Sales Managers, at each terminal location in the specifics of selling each product, should be thorough and ongoing. Both group training sessions and one-on-one training should be required. Salespeople report to the Regional Sales Managers. However, they must also consult the Terminal Managers regarding operations capabilities and the Pricing Manager for pricing. If disagreements arise, they are arbitrated by the executive committee, or the CEO. There are no single-product salespeople.
The I.T. Manager is located at headquarters and reports directly to the President/CEO. This is the only functional management position that does not report to a vice president, since the I.T. system is equally crucial to all departments and functions of the company. The Information System should include all functional departments in one, integrated computer network.
The Pricing Manager is located at headquarters. All spot quotes (e.g., volume rates), F.A.K. pricing and high discounts/low pricing must be requested through the Pricing Manager’s office. The Pricing Manager reports to the V.P. of Sales and Marketing. The Pricing Manager, in conjunction with the Revenue Accounting department, will periodically review all outstanding pricing to determine if rates are being used and if each account’s shipments are profitable.
An output control system should be employed, where planned annual profit sharing for all full-time salaried employees is based upon the operating ratio for the company. This encourages profitability and limits unhealthy forms of internal competition between individuals, geographic areas and product lines. This planned profit sharing for all full-time employees goes into effect after the operating ratio reaches a certain predetermined threshold. A certain percent of net income is set aside each year for this program.
Establishing Yearly Revenue Goals:
About three months prior to the start of the new fiscal year, the Terminal Managers and Regional Sales Managers meet with the Vice Presidents at the annual meeting, to begin work on establishing rough goals (and the methods to achieve them) for the upcoming year and to discuss the concerns of each terminal unit and sales region. The Regional Sales Managers then discuss individual goals (and the methods to achieve them) with each salesperson. Each individual is considered separately and goals are determined for each, based upon the nature of their individual market situation and the previous fiscal year’s results.
After the annual meeting, the VP’s bring the results to the President/CEO to discuss along with the entire Executive Committee. The Executive Committee then discusses company, product, regional and terminal concerns with the CEO and they jointly establish firm yearly revenue goals (and the methods to achieve them) for the products, terminals, sales regions and the total company. The respective Regional Sales Managers, Terminal Managers and Salespeople meet again at the terminal level after these high-level meetings, for a final chance to discuss their goals in-person with the salespeople and plan how to implement their plans before the beginning of the new fiscal year.
These yearly revenue goals are the basis for the sales budget, which is the basis for the entire master budget. This budget indicates the sales levels, cost levels, and the income and cash flows expected for the next year. The master budget is prepared with the estimates agreed upon in the executive committee. Involving all managers (as well as front-line salespeople) in the sales budgeting process, involves more of the company in the decision-making process than may have been the case in the past. This makes employees feel as if their input is valued. I believe that the estimates and quotas set in this way will be more accurate and more widely accepted than if they were simply established by a few members of upper management. The budgeting process relies on the sales budget being prepared accurately and employee support for achieving results beyond the established goals relies upon inclusion in the decision-making process, with an emphasis on rewards for company-wide results.
Many transportation companies have gone through some difficult changes in the past few years. These companies now need to communicate a strategy to employees for the future. A structure must also be designed to support this strategy.
In many multi-mode transportation companies, each product/service has had its own separate sales force in the past. The strategy of maintaining separate sales forces for different products has unnecessarily increased sales costs. In-house sales training should be required for all salespeople to teach them how to sell all products, as part of a total transportation package. Salespeople must be trained to determine which service or services are desired by each account to satisfy their needs and instruct the customers in how to request each type of service when completing bills of lading and calling in pick-ups. In this way, misunderstandings about service levels requested can be minimized and sale of all products can be maximized.
The current product-oriented structure of many organizations needs to be changed in order to make more efficient use of the functional managers and sales force of the company. A team structure is needed that will encourage all managers to act as integrators of a single-company strategy throughout the company and in turn bring local (and product) concerns to the attention of upper management. In the past, many transportation companies have had separate business silos pushing independent product lines, to meet standard customer needs. Instead, these companies should have a collaborative sales team operating under a single brand, with customized service offerings to serve individual customer’s needs. A change in company structure may be required to ensure information sharing (and effort) to help drive these cross-product sales. This would give these companies advantages related to economies of scope, as well as a single company contact for the customer.
Employees must identify with the parent company, not with a particular product offering or terminal location. A healthy, single company culture should be encouraged in order to make the changes necessary to successfully implement the company’s strategy. Company parties, picnics and outings should be arranged, so that everyone gets to know and better understand the people with whom they work. A company newsletter should be published (on-line), at least quarterly. This newsletter should be sent to all employees and customers. Company-wide contests and recognition awards should be planned to reward the extraordinary efforts of individual workers and customers throughout the system. Annual Sales and Operations meetings should be held, to encourage a cohesive company culture, reward accomplishments and good ideas and to discuss the company’s strategy and goals.
The budgeting process relies on the sales budget being prepared accurately. Obtaining accurate sales forecasts and receiving employee support for achieving results beyond the established goals, can best be achieved through inclusion of employees in the decision-making process. This should be accomplished with an emphasis on rewards for company-wide results. A company-wide profit-sharing plan encourages profitability and limits unhealthy forms of internal competition between individuals, geographic areas and product lines.
Strategy:
I) The Company must gain competitive advantage through an integrated offering of differentiated, profitable services, selling all services as part of a total transportation package. Each of the products must be clearly defined and each individual shipment must be profitable.
II) In order to support this differentiation strategy, the Company must become a superior customer service company that sells all separate products with one cross-trained sales force.
III) The Company must become a company that communicates well across product lines, functions and terminal locations.
IV) The Company must use the proper control and coordination systems to support this strategy. Control should concentrate on measuring output and coordination on inclusion in the decision-making process, with an emphasis on results and a lack of emphasis on managing behaviors.
Proposed Structure:
I) An Executive Committee composed of the President/CEO, the Vice Presidents, the C.F.O., the Functional Department Managers (Upper-level Operations, I.T., Pricing, Customer Service, etc.,) and the Regional Sales Managers should be formed. Monthly meetings of the executive committee should be held to discuss operational issues (conference calls, or webinars) and annual (third quarter, fiscal year) meetings held to discuss strategy. This team will jointly decide strategy, yearly revenue goals, deal with operational challenges/problems and help to determine the budget.
The Functional Managers, Regional Sales Managers and Terminal Managers should be technically equal positions on the organizational chart. Issues should be discussed openly and considered from all relevant perspectives but the President/C.E.O. has the final say in all matters. Decisions should be reached by consensus whenever possible. The Executive Committee thus acts as a node at the center of the network, to coordinate product, functional and geographic information.
Functional Department Managers should be located at headquarters. Each functional department will be responsible for all services/products. The Functional Department Managers report to the Vice Presidents, with each V.P. handling assigned functional departments. For instance, the Pricing Manager and Customer Service Manager might report to the V.P. of Sales/Marketing, the Line-haul Managers and Claims Manager report to the V.P. of Operations and the Safety Manager and Loss Prevention Manager report to the V.P. of Human Resources. Other departments will be divided between the Vice Presidents. The I.T. Manager should report directly to the President/CEO.
Regional Sales Managers are responsible for training salespeople in the sale of all products. They may work from home offices. They will also be responsible for National Account sales in their areas. There should be no product-specific sales managers at this level in the company. They report directly to the Vice President of Sales/Marketing.
Regional Sales Managers should act as full-time integrators, who coordinate the communication of executive committee strategy across the company and help to ensure a uniform company culture. Regional Sales Managers also bring questions and problems from the salespeople and customers in the region they serve back to the Executive Committee.
Terminal Managers run local operations. They are responsible for their terminal’s profit and loss. This responsibility includes all aspects of local operations and sales, as well as maintaining a pool of local-area, owner-operators, if needed. Terminal Managers report to the V.P. of Operations. The monthly conference calls/webinars should be run by the V.P. of Operations to consult primarily with the Terminal Managers about operational issues, as well as the issues discussed in the two quarterly Executive Committee meetings.
Operations Managers (both dock and dispatch) are responsible for the aspects of each terminal that are assigned to them. They report to Terminal Managers.
Line-haul Managers are located at headquarters and coordinate movement of freight between terminals throughout the network. They are also responsible for coordinating expedited trucking moves (if that service exists). They report to the V.P. of Operations.
Line-haul Dispatchers are located at headquarters. Line-haul Dispatchers report to the Line-Haul Manager.
Customer Service should consist of local Customer Service representatives at each terminal, and a central Customer Service Unit at headquarters. All Customer Service Representatives report to the Customer Service Manager. They must also consult their Terminal Manager regarding operations capabilities before making commitments. Pick-ups and deliveries may be coordinated at the corporate or local level, but must be entered into the central computer as the pick-up is arranged.
Salespeople sell all company products. They may work from home offices. In-house training by the Regional Sales Managers, at each terminal location in the specifics of selling each product, should be thorough and ongoing. Both group training sessions and one-on-one training should be required. Salespeople report to the Regional Sales Managers. However, they must also consult the Terminal Managers regarding operations capabilities and the Pricing Manager for pricing. If disagreements arise, they are arbitrated by the executive committee, or the CEO. There are no single-product salespeople.
The I.T. Manager is located at headquarters and reports directly to the President/CEO. This is the only functional management position that does not report to a vice president, since the I.T. system is equally crucial to all departments and functions of the company. The Information System should include all functional departments in one, integrated computer network.
The Pricing Manager is located at headquarters. All spot quotes (e.g., volume rates), F.A.K. pricing and high discounts/low pricing must be requested through the Pricing Manager’s office. The Pricing Manager reports to the V.P. of Sales and Marketing. The Pricing Manager, in conjunction with the Revenue Accounting department, will periodically review all outstanding pricing to determine if rates are being used and if each account’s shipments are profitable.
An output control system should be employed, where planned annual profit sharing for all full-time salaried employees is based upon the operating ratio for the company. This encourages profitability and limits unhealthy forms of internal competition between individuals, geographic areas and product lines. This planned profit sharing for all full-time employees goes into effect after the operating ratio reaches a certain predetermined threshold. A certain percent of net income is set aside each year for this program.
Establishing Yearly Revenue Goals:
About three months prior to the start of the new fiscal year, the Terminal Managers and Regional Sales Managers meet with the Vice Presidents at the annual meeting, to begin work on establishing rough goals (and the methods to achieve them) for the upcoming year and to discuss the concerns of each terminal unit and sales region. The Regional Sales Managers then discuss individual goals (and the methods to achieve them) with each salesperson. Each individual is considered separately and goals are determined for each, based upon the nature of their individual market situation and the previous fiscal year’s results.
After the annual meeting, the VP’s bring the results to the President/CEO to discuss along with the entire Executive Committee. The Executive Committee then discusses company, product, regional and terminal concerns with the CEO and they jointly establish firm yearly revenue goals (and the methods to achieve them) for the products, terminals, sales regions and the total company. The respective Regional Sales Managers, Terminal Managers and Salespeople meet again at the terminal level after these high-level meetings, for a final chance to discuss their goals in-person with the salespeople and plan how to implement their plans before the beginning of the new fiscal year.
These yearly revenue goals are the basis for the sales budget, which is the basis for the entire master budget. This budget indicates the sales levels, cost levels, and the income and cash flows expected for the next year. The master budget is prepared with the estimates agreed upon in the executive committee. Involving all managers (as well as front-line salespeople) in the sales budgeting process, involves more of the company in the decision-making process than may have been the case in the past. This makes employees feel as if their input is valued. I believe that the estimates and quotas set in this way will be more accurate and more widely accepted than if they were simply established by a few members of upper management. The budgeting process relies on the sales budget being prepared accurately and employee support for achieving results beyond the established goals relies upon inclusion in the decision-making process, with an emphasis on rewards for company-wide results.
Monday, August 10, 2009
Pat Ryan's Price Elasticity of Demand Mileage-Based Pricing Method
Pat Ryan’s Mileage-Based Tariff Concept
The price per-mile used as a base for an LTL tariff (or any ground-based transportation) can be determined by using a cost formula that is based on an optimal mark-up on cost. This method not only considers all relevant costs, but also takes into consideration the effect of price sensitivity of demand for a company’s service. Additionally, this price-per-mile will not be constant, but should vary depending upon the length of haul. Longer distances than the average have a lower average cost per mile, as the pick-up and delivery costs are averaged over more miles.
Cost:
The operating cost, per-hundred-pounds, per-mile is the relevant cost to be used to compute the price charged for a carrier’s service (MC). The relevant costs to be included in the calculation of this figure are the differential costs. Differential costs include all variable costs (but not all fixed costs). All fixed costs do not need to be included when not operating at full capacity. In the long-run, all costs must be included in the equation, as increasing capacity requires increasing fixed costs. All costs are differential in the long-run.
Using activity-based costing to analyze the breakdown of an organization’s costs, a company can break down the operating cost-per-mile into its component costs. The component costs (drivers) of the operating cost-per-mile can be identified and measured as a percent of total sales, in order to determine the percentage change in each cost category from year to year. In this way, a company can see which costs are increasing the fastest, whether year-to-year cost increases are due to fixed or variable costs, and whether the costs are within their control. Here is an example of the operating costs that should be included in the analysis:
1. Driver/owner operator, P&D costs
2. Insurance cost
3. Fuel cost (Including price increase cost and fuel efficiency deterioration cost)
4. Fleet maintenance cost
5. Equipment capital cost
6. General operating cost
Some cost increases are addressed through surcharges and accessorial fees by most carriers and so do not need to be included in the calculation of class rates. For instance, one cost that is outside of a company’s control, fuel price fluctuations, has been addressed through fuel surcharges. However, other costs beyond a company’s control, such as the recent fuel efficiency deterioration (caused by new environmental emissions regulations) are costs that cannot be addressed by surcharges or accessorial fees and so must be included in the MC figure used in the optimal mark-up on cost formula. Other costs are at least partially under a company’s control, such as driver costs, insurance, fleet maintenance and equipment capital cost. However, these costs still tend to increase every year (especially labor costs) and so should also be included in the MC figure. Knowing what current costs to include in the MC figure (and the projected cost increases) is essential to creating a profitable tariff when using the optimal mark-up on cost tariff. What costs to include in the MC figure must be left up to each carrier to decide.
The Competitive Factor:
Price elasticity of demand (εp) measures the responsiveness of quantity demanded to a change in price. Own price elasticity of demand measures how much business will be lost to another company within the same mode, with a given price increase. Quantitatively, an estimated price elasticity measures the percentage change in quantity demanded (or supplied) resulting from a 1 percent change in the price, other factors constant. Within each mode, each company will have its “own” price elasticity of demand. “Own Price Elasticities of Demand” average (-.5) for North American Trucking.
The equation below will yield the average price per-hundred-pounds, per-mile that optimizes profit, given the company’s costs and price sensitivity of demand. We can use this average price per-pound, per-mile for the price of the average shipment (average length of haul, freight class and weight), extrapolating from this average optimal price to all other pricing. We will use the NMFC classification system’s relative values to extrapolate from the average price to all weights and freight classes, while using the equation below to supply the average base price per mile used as input for the price per mile of the average shipment.
The equation for computing the profit-maximizing price based upon cost and the firm’s own price-elasticity of demand is:
1
P= MC (1 + 1/єp)
For the purposes of this illustration, we’ll estimate the operating cost, per-hundred-pounds, per-mile to use in the equation below (although this figure is usually known) in order to compute the optimal price that should be charged per hundred pounds, per mile for our average shipment (at average class and average level of discount). I estimate that the operating cost per hundred pounds, per mile is close to 1 cent. However, this figure would not be an estimate if I had the shipment information that already exists in most company’s records. I also estimate the price elasticity of demand for an imaginary company to be -.7 for the purposes of this illustration. The reason for this higher price elasticity of demand might be due to the fact that the carrier has a limited coverage area and/or an extra call has to be made in order for the shipper to use the carrier’s services.
The calculation below is based upon two estimates. Usually, the price elasticity of demand is the only figure that is estimated.
___1___
P= .01 (1 + 1/-.7) = .023 cents, per-hundred-pounds, per mile.
This converts to .23 cents, per mile. So, the average (1,000 pound-class 70?) shipment, moving 750 miles=$172.50. The average shipment handled by any company is easy to determine, using historical records. This price is probably low when compared with a competitor’s rates for the same shipment. The same shipment moving 2,000 miles= $460.00. The rate for the 2,000 mile shipment is probably high when compared to a competitor’s rates.
The reason for this is that a static price-per-mile cannot produce consistently competitive rates over different lengths of haul. Longer distances than the average have lower average cost per mile, as the pick-up and delivery costs on each end are averaged over more miles. Similarly, shorter hauls than the average have higher average cost per mile. Adjustments can be made to reflect this reality, while making sure that the average rate per mile equals the optimum. In this way, you can both retain your profitability on the short-haul freight and price competitiveness on the long-haul shipments. If we gradually adjust the base rate per mile downward by some percentage from the optimal price as mileage increases from the average length of haul and upward as mileage decreases from the average length of haul, we will produce a tariff that works.
The price per-mile used as a base for an LTL tariff (or any ground-based transportation) can be determined by using a cost formula that is based on an optimal mark-up on cost. This method not only considers all relevant costs, but also takes into consideration the effect of price sensitivity of demand for a company’s service. Additionally, this price-per-mile will not be constant, but should vary depending upon the length of haul. Longer distances than the average have a lower average cost per mile, as the pick-up and delivery costs are averaged over more miles.
Cost:
The operating cost, per-hundred-pounds, per-mile is the relevant cost to be used to compute the price charged for a carrier’s service (MC). The relevant costs to be included in the calculation of this figure are the differential costs. Differential costs include all variable costs (but not all fixed costs). All fixed costs do not need to be included when not operating at full capacity. In the long-run, all costs must be included in the equation, as increasing capacity requires increasing fixed costs. All costs are differential in the long-run.
Using activity-based costing to analyze the breakdown of an organization’s costs, a company can break down the operating cost-per-mile into its component costs. The component costs (drivers) of the operating cost-per-mile can be identified and measured as a percent of total sales, in order to determine the percentage change in each cost category from year to year. In this way, a company can see which costs are increasing the fastest, whether year-to-year cost increases are due to fixed or variable costs, and whether the costs are within their control. Here is an example of the operating costs that should be included in the analysis:
1. Driver/owner operator, P&D costs
2. Insurance cost
3. Fuel cost (Including price increase cost and fuel efficiency deterioration cost)
4. Fleet maintenance cost
5. Equipment capital cost
6. General operating cost
Some cost increases are addressed through surcharges and accessorial fees by most carriers and so do not need to be included in the calculation of class rates. For instance, one cost that is outside of a company’s control, fuel price fluctuations, has been addressed through fuel surcharges. However, other costs beyond a company’s control, such as the recent fuel efficiency deterioration (caused by new environmental emissions regulations) are costs that cannot be addressed by surcharges or accessorial fees and so must be included in the MC figure used in the optimal mark-up on cost formula. Other costs are at least partially under a company’s control, such as driver costs, insurance, fleet maintenance and equipment capital cost. However, these costs still tend to increase every year (especially labor costs) and so should also be included in the MC figure. Knowing what current costs to include in the MC figure (and the projected cost increases) is essential to creating a profitable tariff when using the optimal mark-up on cost tariff. What costs to include in the MC figure must be left up to each carrier to decide.
The Competitive Factor:
Price elasticity of demand (εp) measures the responsiveness of quantity demanded to a change in price. Own price elasticity of demand measures how much business will be lost to another company within the same mode, with a given price increase. Quantitatively, an estimated price elasticity measures the percentage change in quantity demanded (or supplied) resulting from a 1 percent change in the price, other factors constant. Within each mode, each company will have its “own” price elasticity of demand. “Own Price Elasticities of Demand” average (-.5) for North American Trucking.
The equation below will yield the average price per-hundred-pounds, per-mile that optimizes profit, given the company’s costs and price sensitivity of demand. We can use this average price per-pound, per-mile for the price of the average shipment (average length of haul, freight class and weight), extrapolating from this average optimal price to all other pricing. We will use the NMFC classification system’s relative values to extrapolate from the average price to all weights and freight classes, while using the equation below to supply the average base price per mile used as input for the price per mile of the average shipment.
The equation for computing the profit-maximizing price based upon cost and the firm’s own price-elasticity of demand is:
1
P= MC (1 + 1/єp)
For the purposes of this illustration, we’ll estimate the operating cost, per-hundred-pounds, per-mile to use in the equation below (although this figure is usually known) in order to compute the optimal price that should be charged per hundred pounds, per mile for our average shipment (at average class and average level of discount). I estimate that the operating cost per hundred pounds, per mile is close to 1 cent. However, this figure would not be an estimate if I had the shipment information that already exists in most company’s records. I also estimate the price elasticity of demand for an imaginary company to be -.7 for the purposes of this illustration. The reason for this higher price elasticity of demand might be due to the fact that the carrier has a limited coverage area and/or an extra call has to be made in order for the shipper to use the carrier’s services.
The calculation below is based upon two estimates. Usually, the price elasticity of demand is the only figure that is estimated.
___1___
P= .01 (1 + 1/-.7) = .023 cents, per-hundred-pounds, per mile.
This converts to .23 cents, per mile. So, the average (1,000 pound-class 70?) shipment, moving 750 miles=$172.50. The average shipment handled by any company is easy to determine, using historical records. This price is probably low when compared with a competitor’s rates for the same shipment. The same shipment moving 2,000 miles= $460.00. The rate for the 2,000 mile shipment is probably high when compared to a competitor’s rates.
The reason for this is that a static price-per-mile cannot produce consistently competitive rates over different lengths of haul. Longer distances than the average have lower average cost per mile, as the pick-up and delivery costs on each end are averaged over more miles. Similarly, shorter hauls than the average have higher average cost per mile. Adjustments can be made to reflect this reality, while making sure that the average rate per mile equals the optimum. In this way, you can both retain your profitability on the short-haul freight and price competitiveness on the long-haul shipments. If we gradually adjust the base rate per mile downward by some percentage from the optimal price as mileage increases from the average length of haul and upward as mileage decreases from the average length of haul, we will produce a tariff that works.
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