Driving Out Costs
Oct. 25, 2011
by Dan Malovany
Veterans of the baking industry remember the old days when the hot distribution topic involved designing the proverbial Route Truck of the Future. Experts in shipping and transportation spent endless hours engineering a truck that reduced workplace injuries, enhanced driver safety, provided fuel savings, weighed less and carried maximum loads in minimal space. The American Bakers Association (ABA) even had a full-size prototype of what this futuristic truck might look like at a Transpo show in the 1990s.
How times have changed, according to Robb MacKie, ABA’s president and CEO. With smaller fleets and the movement toward outsourcing distribution, including direct-store delivery (DSD), the focus has shifted to broader logistic issues and driving costs out of the system, he said.
Baking companies face a host of issues such as tray loss, cumbersome regulations, aging fleets and equipment that’s more expensive to replace partly because of new emission requirements, according to Bob McGuire, chair of the ABA Logistics Committee. He noted that new trucks offer better miles per gallon, but the price of fuel has risen so much that the cost per mile is greater than ever. As he put it, “Most of the low-hanging fruit has been already picked. We’re running about as efficiently as we can. Any regulatory or infrastructure issues that disrupt this system add costs to the bottom line.”
Working with Jula Kinnaird, Washington representative and ABA liaison to the committee, Mr. McGuire and Logistics Committee members are exploring tray tracking systems and alternative-fueled fleets. This interview with Mr. McGuire, who is vice-president, director of logistics, Alpha Baking Co., Chicago, IL, is part of an exclusive series from Baking & Snack magazine on how ABA’s key committees’ decisions can affect its members’ bottom lines and why more bakers should become further involved and be at the table. For more information, visit www.americanbakers.org. Baking & Snack: What are the biggest logistical issues facing the baking industry today? Bob McGuire:
One of the challenges we grapple with all the time is tracking of trays, dollies, carts, baskets and other reusable fixed assets. We’re trying to employ a technology that will provide a sustainable program to comfortably track these assets so we can continue to use them instead of continually buying them. It’s not a new initiative, but hopefully, technology has caught up to assist us with this initiative. In the past, it has been hard to calculate the return on investment (ROI) with a tracking system, but that might be beginning to change.
Another serious issue involves the purchase price of new equipment. As an industry, we are replacing trucks up to 10 years old, and the new trucks are 40 to 50% more expensive because of new emission standards and other regulations. Talk about a demand on cash flow! Where do the efficiencies come to offset such a cost increase? Years ago, a step van cost in the mid-$40,000 range. Today, it’s more than $60,000. Talk about sticker shock! That’s because of stricter regulatory programs. How big of an issue is tray loss?
With the rise in oil prices, we’re seeing organized crime and theft as an issue because they are getting more and more for regrinding these trays, and there is more motivation to make a living by stealing trays or other reusables, including dollies — their casters are very expensive. All of us have hundreds of thousands of trays, and every day, you send out a fourth or a fifth of your inventory of trays. You hope they come back. The problem is we have not been tracking where we sent out trays and which ones come back.
If you are sending out 50,000 trays and each one costs about $4.50, we may be sending out $250,000 in assets every day without knowing how many are going to return. It’s a major source of frustration because so many don’t come back, and it is impactful to the whole operation because you don’t have baskets where you need them most. Reverse logistics is critical to an efficiently run operation. Our inability to track these assets is a real source of costs to all of our bakeries, flat out. What can be done to track trays and dollies?
Technology is getting there. Previously, tracking trays was cost-prohibitive for radio frequency identification (RFID). About 15 years ago, RFID devices cost about $3 apiece, but that cost has come down significantly to where it’s potentially 50¢ a tray to track these reusables. It could be a tray or a dolly. Dollies cost about $20 and casters about $15 each; you want to know where they are going. For many ABA members, the dolly issue is greater than the tray issue.
We’re working with current technology. We’ve had a pilot test at Alpha Baking for about eight months now with very promising results, but there’s work to be done. It’s just very difficult to track 50,000 or 100,000 trays a night and be able to account for them. The aggressive forces in law enforcement in the Mid-Atlantic area have assisted in cutting down on losses by almost 40%, and that’s just money to the bottom line. In areas like in Chicago, we’re working with other bakers to return trays and minimize one another’s losses. How effective has your pilot program been, and what challenges still exist?
RFID provides information, but how far into the distribution channel do you track the tray before it becomes cost-prohibitive? Our pilot program has been set up to see where the trays are going and if they are ever returned to the production facilities. With technology today, you can track them by depot, by route and at the customer level, but those tests still need to be done.
In the end, however, the system can get pretty sophisticated. Even though you are using simple technology, setting up the infrastructure can get expensive. You have to ask, “At what point does the ROI start to diminish? How much do I need to do to solve this problem?” What do you see as the most significant regulation affecting the trucking industry?
Specifically, it’s CSA 2010, or the Compliance, Safety, Accountability program of 2010, where the Federal Motor Carrier Safety Administration (FMCSA) works with state and industry partners to reduce commercial motor vehicle crashes on the highway. It’s a tremendous program that will have a positive impact on the trucking industry and safety.
It takes the inspection from a company’s corporate office to the street level. FMCSA added thousands of inspectors who conduct inspections of targeted carriers or, more often, at random [carriers]. FMSCA then develops a profile of a carrier based on the results of these inspections. You don’t know when they’re going to inspect your drivers, and every carrier gets a scorecard every month. It’s put everyone in the industry on alert.
You’re able to incorporate this scorecard into your safety program. We send the scorecard out to all of our distribution centers to communicate the message to our drivers.
It’s a fantastic program. If there’s anybody out there who is driving like a bad actor, it gives us an opportunity to employ corrective action. If maintenance isn’t completed properly on trucks, we take corrective action. This program is going to do for the trucking industry what the commercial licensing program did, and that’s to get the bad actors off the street.
CSA 2010 should make us all feel better because it’s going to result in safer fleets on the street, and we fully endorse and embrace this program. It’s changed the way we do business. How is CSA 2010 different from the way FMCSA previously rated fleets?
CSA 2010 is more performance-based while the previous programs were more of paperwork audits. It’s almost real time because you get monthly updates on your fleet’s performance as opposed to the old days when maybe you got inspected after too many accidents and other occurrences. Previously, FMCSA inspectors came in after a carrier got on its radar screen, and they came in after the fact. CSA tries to prevent these accidents upfront with on-street inspections. It takes the bad actors off the street before the accident. How does CSA affect hours of service and regulatory attempts to limit nighttime driving?
CSA 2010 gives distribution managers the opportunity to put a safe fleet on the street. As a result, it’s not necessary to change the driver’s hours of service. We changed the hours of service a few years ago, and now when you lay CSA 2010 on top of it, you have a pretty safe program with positive safety trends. Why do we need to limit the hours we can drive between 10 p.m. and 6 a.m. to 18 hours in a week? Studies show the safest time for driving our trucks has been during those hours the government is trying to limit our driving.
In addition, the proposed changes to hours of service would put more trucks on the roads when they are the busiest. Our infrastructure can’t handle existing traffic during the morning rush hours. All major urban areas would be negatively affected as well as our ability to deliver products.
If you are properly managing your drivers and your fleet, we think CSA 2010 addresses the hours-of-service issue. How did ABA take the bull by the horns with the issue of heightened regulations with CSA?
ABA jumped on this program in 2009. We were ahead of the curve on this issue. Through ABA, we wanted to ensure that all members were up to speed. When we first heard about it, we asked, “What is CSA 2010 all about? How will it impact our operation, and what do we need to know?” We even tried to figure out how regulators were going to do the ratings before the ratings came out.
Regulatory compliance is so dynamic, and the ABA Logistics Committee is constantly focusing on the ever-changing rules, in addition to labor issues. Many bakeries operate with very large fleets involved in different distribution programs, including DSD, independent distributors, tractor-trailer drivers and others. We run the gamut on every type of equipment that’s manufactured for this baking industry. We need to be effective in managing all of these pieces and their regulation issues. That’s the real value of the ABA Logistics Committee because we can get ahead of the curve of any pending legislation. What can bakeries do to offset higher fuel prices?
The one thing that’s good about the new engines is that we’re seeing better miles per gallon (mpg). The new emission systems get better mpg. However, the mpg we get today is not much different than 20 years ago. Back then, we were getting 5.5 mpg, and up until 2010, with the newer engines, we were getting 6.5 mpg. We haven’t seen a huge increase in productivity. I applauded the Obama administration for wanting to improve the mpg of trucks, in addition to greater mpg for cars.
To save fuel, we have put electronics on trucks that reduce idle times by automatically shutting off engines after a certain time. We’ve grabbed the low-hanging fruit. We try to keep abreast of the latest and greatest technology, but it’s not there yet, especially when it comes to hybrids. We looked at hydrogen injection and propane injection. We tested them all. Nothing has jumped off the page, and when you look at a lot of the new technology out there, it is extremely expensive.
Even though mpg has increased, the cost of fuel has increased proportionately more. If you think about it, we used to get 6 mpg when the price of fuel was $1 a gallon many years ago. Today, we may get 7 or 8 mpg, but the price of fuel has risen to $3.50 to $4 a gallon, so your costs per mile have significantly increased. What is the biggest challenge for fleets in the future?
The ages of our fleets have gotten significantly older. People have avoided new purchases not only because of the economy but because of the high costs of new trucks and because of concerns about the new emission engines. No one wants to be on the “bleeding edge” with this issue. Maybe some of the new technology has been proven in Europe, but it hasn’t been proven in the US. The jury is out so people are hanging onto their fleets and relying on used equipment. That’s going to change.