The expanding supply chain

The recent move by FedEx to acquire Genco Supply Chain Solutions is proof of the growing trend of companies looking to stretch their traditional supply chain borders. The huge transportation company sees embarking into the contract warehouse business as an integral part of its future.

In doing so, it matches UPS, DHL, and other transportation providers who see a link between moving products and processing them in a distribution center.

Up until now, FedEx has not been a big player in this arena. With Genco under its umbrella, it has a proven commodity that has a nationwide footprint in warehousing and distribution – 35 million square feet in 130 locations.

Genco is also recognized as a leader in handling returns, which of course must be transported back to the distribution center. Once processed, FedEx can leverage its transportation network to deliver the returns to other parts of the supply chain. It should be a profitable union – one that recognizes the symbiosis within the supply chain of these important functions.

The move comes as no surprise to those of us at DC Velocity, confirming a core belief here. From its initial edition, DC Velocity has stressed the marriage of both transportation and distribution in an evolving, forward-thinking supply chain.

Manage like a coach, not a dictator

Common sense sometimes isn’t as common as it should be. This came to mind in correspondence with the folks at West Monroe Partners.

 

Michael Harris, manager of workforce optimization at WMP makes a very strong case for a shift in mindset and approach for warehouse managers in dealing with team management. The bottom line: managers who coach their team will yield more positive result than those who dictate.

 

Harris notes it is very common in warehouses with standards to discipline based solely on a performance percent – for example, John only achieved 80% of his target for the week.  The problem is deeper than John’s performance, though, because there is typically no detail on what caused the subpar performance. For example, was it because an environmental condition was not present, i.e., a wheel on John’s picking cart is broken? Or was it due to something John is or is not doing? 

 

Managers have two ways to approach this matter with John. They can discipline him for poor performance, or they can coach him to improve his performance.

 

In a disciplinary approach, says Harris, the associate is instructed to react to a course of action dictated to them through the company’s formal discipline process. There is little to no opportunity for the associate to have input into this course of action and it ends up creating low morale and a lack of trust. It can also strain the relationship between the associates and the management team.

 

By instead taking a coaching approach, he suggests, a manager engages John to actively work together to address the issue. This creates a process of supervisors observing the associates and their environment to determine a root cause. It also gives the management team and the associates an opportunity to improve their relationship and create a team environment where both sides are working together towards a common goal.

 

If the root cause is a methods issue with the associate, the supervisor can explain what the associate is adding to the work or doing different from the preferred methods and how that equates to their underperformance.

 

“Coaching should be utilized as the initial steps to newly-identified underperformance, Harris states. “Supervisors should give the associate an opportunity to learn from mistakes and fix any issues prior to launching into the formal discipline process, which may still be necessary if the associate continues to show an inability or unwillingness to address the issue.”

 

According to Harris, this approach helps the associate understand exactly what activities hurt their productivity and gives them hands on understanding of how to fix the issue as well as how it benefits them to do so. It also gives the supervisor and manager insight into any issues outside of the associate’s control that are affecting overall productivity.

 

Managers, Harris maintains, can foster this environment by utilizing the same coaching approach between themselves and their supervisors. In addition, having regular discussions on the process and helping supervisors to understand how a coaching approach will benefit the operation in the long run will go a long way. Some key benefits include:

• Increased morale
• Stronger relationship between management team and associates, manager and supervisors
• Reduced turnover
• Consistent performance and increased productivity

Supervisors applying the coaching approach have an intimate knowledge of the functions under their responsibility (the methods for each job) and incorporate the following steps into their typical day:

• Identify consistently underperforming associates.
• Schedule time to observe identified associates as soon as possible.
• Address any root cause issues immediately during observations.
• Practices good listening skills when working with associates.
• Utilize proper training techniques to ensure understanding and buy in.
• Document each associate interaction related to coaching or discipline.
• Spends as much time as possible in the operation even when not performing formal observations.
• Have an “open door” policy and a process for associates to report operational concerns or other issues.

Managers applying the coaching approach also have an intimate knowledge of the operation and incorporate the following steps into their typical day routines:

• Have an “open door” policy and a process for associates to report operational concerns or other issues.
• Works with supervisors on a regular basis (including occasional role plays) to help them develop their communication and conflict resolution skills which are essential to the coaching approach.
• Develops and trains supervisors on how to identify coaching opportunities versus when discipline is necessary.
• Performs regular walk through of their operation over the course of each shift to ensure visibility and to give the opportunity for associates to approach with questions and concerns.

The Fuel Surcharge Head-Scratcher

I’ve been doing this stuff for awhile, and I must confess that I don't really get the mechanism of fuel surcharges.

 

In its fourth-quarter conference call last week, UPS Inc. executives talked about the headwinds its three units—in particular less-than-truckload operator UPS Freight—would face as a result of lower fuel surcharges that would negatively impact revenues. But all the comments did was reinforce a basic question: Wouldn’t UPS offset those revenue headwinds from the lowered costs that would come from the cheaper cost of fuel purchases?

 

I have asked this general question of many analysts, especially in the wake of a dramatic fall in oil prices and recent moves by FedEx Corp. and UPS to raise their surcharges despite the dramatic decline in the price of the commodity. I get what appear to be cogent responses, but they are just not sinking in.

 

I am guilty of looking at this in a symmetrical way. That is, fuel costs and expenses should even out, albeit with a time lag that should be appropriately priced in by the shipping and investment community. Yet I am reminded that such thinking is off base. I’m told through analysts’ comments that the decline in oil prices is a negative for some of the largest consumers of fuel in the country. I read that some LTL carriers historically over-recover fuel expenses, and that when prices decline they have to give back some of that recovered revenue.

 

Fuel surcharges were created in the early 1970s after the first Arab oil embargo. They were designed to help carriers recoup the volatile—and in those days unprecedented—moves in oil prices without resorting to the difficult practice of hedging. Surcharges disappeared for about 20 years before returning as a permanent fixture in 1996. At that time, diesel prices had risen to about $1.19 a gallon, a high price in those days. A group of retail outlets was formed to report diesel prices to the Department of Energy. DOE compiled the data into a weekly index of chart of average prices on a national and regional scale. The DOE index would allow carriers to keep fuel charges separate from the line-haul rate, thus ensuring transparency on the impact of fluctuating fuel prices.

 

Over the years, surcharges have taken on different forms. For example, one approach has been to calculate daily fuel prices along a specific route and to set surcharges based on the prevailing daily changes. Whatever the case, a mechanism originally meant to be a pass-through to help carriers cope with fuel price volatility has turned into its own revenue stream. Today, somewhat perversely, it is better for carriers when fuel prices are higher so they can impose higher fuel surcharges in the hope that the surcharges run ahead of their costs. And conversely, in an environment like today’s, where in theory lower oil and fuel prices should benefit those who consume lots of the product, it’s actually a bad thing.

 

 I think I’m getting it…