A Focus on Fundamentals Can Help Transportation Companies Survive the “Freight Recession”
In last week’s blog, I looked at a number of cost reduction programs that are being implemented by some carriers to survive the current economic downturn. These include by-passing “hub and spoke” terminals and re-routing freight directly to “corridor hubs,” combining or eliminating certain unprofitable operations and creating a new class of “utility” employee who (through job enrichment and increased union flexibility) will undertake an array of functions previously performed by several individual classes of workers.
There are two groups that are often most affected by cost reduction programs - - employees and customers. In this post, I would like to share some thoughts on how each of these groups should be managed.
In the March 3 issue of Business Week, Jack and Suzy Welch make the point that the cost reductions made by a (trucking) company should not appear at the customer’s door. During tough times (of which the current “freight recession” would surely qualify), companies should cut excess fat. The Welch’s argue that during good times, companies, including motor carriers “bulk up.” They put on a layer of fat that very quickly begins to be perceived as muscle. When the inevitable cutbacks are required, company management is often in denial and there is an outcry over removing a layer of fat that was not in existence even a short time ago. This phenomenon is something that I have personally observed on a number of occasions in trucking companies that I have worked for. Jack and Suzy refer to it as “Recovery Pound Syndrome.”
They make the point that one of the tests of the leader is to look for and find the “extra pounds”. While a certain amount of trimming is required, it should not manifest itself in sloppy freight handling, degraded transit times and/or lower quality or non-existent customer service. Your valued customers will quickly recognize that their freight is arriving a day late, that their usual customer service person is no longer there and that your company is taking extra time to respond to their needs. With customer loyalty being such a valuable commodity, this is not a time to place it in jeopardy by cutting corners that are visible to customers. Jack and Suzy’s encourage companies to “stay focused on your customers. You may be on a diet but they don’t need to know it.”
During these difficult times, many employees are looking over their shoulders, wondering if they are the next ones to receive their pink slips. Employee morale is critical. Not only is it mandatory to maintain Best Practices, it is also essential to have enough staff in place to provide these Best Practices. Your employees wish to perform at a high level. If customer service levels cannot be maintained due to staff cuts, this will undermine your company’s performance, undermine customer confidence and ultimately result in revenue erosion.
In addition, it is important to act responsibly and decisively with respect to staff cuts. As stated earlier, as business weakens, it is often necessary to adjust staffing levels to freight volumes. Transport companies throughout the industry are making the necessary adjustments to survive. The point is that these moves should be well planned and executed in one wave rather than multiple waves. If the cuts are made over a series of weeks or months, this will serve to unnerve your employees and encourage the good ones (out of fear) to start looking. Having your employees huddling around the water cooler discussing who they think is next to go will create a “downward spiral” that may ultimately become a “self-fulfilling prophesy.”
The best policy is honesty. If full time work cannot be maintained for everyone, reduced work hours and job sharing are worth considering. The freight recession will come to an end and your long service, high quality employees will be much in demand. Losing good employees through poor management practices may come back to haunt you.
During tough times, it is helpful for the leader to engage in a zero-based budgeting exercise. This involves a reassessment of every project, person and terminal with a view to re-establishing a set of priorities that are most likely to sustain and enhance the company’s bottom line. This may result in some dramatic changes (e.g. outsourcing certain non-core tasks to a third party, combining operations, no longer providing service in non-profitable areas, de-marketing unprofitable accounts etc.). Jack and Suzy make the point that the leader should resist the temptation to provide an “across the board” cut. While this may be more politically acceptable, it may not be in the best interests of the company.
Companies should also place more responsibility and accountability on their sales teams. It is difficult to grow a business successfully solely on the back of cost reductions. It is also difficult to increase revenues by cutting sales staff. This is the time for the company sales leaders and sales team to step up and deliver. The pre-recession list of projects looks very different when viewed through the lens of which ones will have the most immediate impact on top line growth or on short-term cost reduction.
It is also not the time for reckless rate cutting. Taking on additional business where the revenues do not even cover the variable costs is only going to move you closer to financial ruin. This is the time to know your costs and contribution margins and focus on business that will add rather subtract contribution dollars. These are difficult times. By focusing on your company’s bottom line and treating your employees and customers with respect, you will ensure your company is well positioned to face the economic rebound which may be only a few months away.