Overall Driver Effectiveness (ODE) Achieving a Highly Effective Workforce By Jim Buchanan

Successful trucking companies are always looking for a solid way to measure revenue. Yet today, most measurement systems focus on asset utilization or production as measurements of revenue per mile. Most fleets measure time and mileage carefully, but few have a method of understanding the effective use of their workforce. This discussion will provide a description of labor efficiency and discuss how to use it as a tool to improve the overall effectiveness of the labor force. Why Driver Effectiveness Should be the Next Initiative in Overall Fleet Productivity Fleet operators know the problem well. Entering the quarter with a sizable book of business, the management team is optimistic about steady revenues and strong profits. The period shows no important equipment failures and no labor issues that drained productivity, yet when the results are tallied, the profitability expected does not materialize. The disparity? Beyond operating failures, the problem can most likely be traced to workforce-related issues. Some probable causes: • • •

The fleet assets were not used efficiently due to difficulty scheduling Absenteeism, driver shortage or lack of critical individuals Ineffective training

Factors like these are drawing attention to labor as the next critical element to optimize. During the past decade, manufacturers poured resources into supply chain improvements as a way to increase competitiveness and profitability. It was a successful strategy, but now it is hitting the law of diminishing returns. Savvy managers have realized their workforce can drive supply chains and manufacturing to the next level. Similarly, trucking organizations must evolve to prioritize effective labor principles. The pressure is greater than ever. For many trucking executives, dealing with a changing workforce, competing with offshore manufacturing and logistics providers, and maintaining profitability are factors of corporate survival. Only those companies that can optimize their workforce performance will survive the times. Defining Driver Effectiveness Optimizing workforce performance requires new insight. To attain that insight, a company must establish methods of quantifying, diagnosing, and ultimately predicting the performance of their workforce. Simply put, it is the analysis of the cumulative effect three workforce factors have on productive output: • Availability: percentage of time the workforce spends making effective contributions • Performance: amount of product delivered • Quality: percentage of perfect or saleable service delivery produced

Trincon Group 1683 Old Henderson Road, Columbus, OH 43220 Copyright © October 2008

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Driver Effectiveness: A Partner to Asset Utilization Overall driver effectiveness has a precursor in a metric known as asset utilization. Designed to ensure maximum utilization from fleet assets, asset utilization has long been a gauge of performance for manufacturing managers in asset-intensive industries. To understand driver effectiveness, we must understand asset utilization, the relationship between the two, and how they work together to raise overall productivity and performance. Asset utilization is a formula that shows the overall performance of a single piece of equipment, or even an entire fleet, and is governed by the cumulative effect of three factors: • • •

Availability: percentage of scheduled revenue producing time available Performance rate: percentage of revenue produced compared to standard Quality: percentage of meeting service standards, safely, compared to the number of loads picked up

Asset utilization takes a holistic view; one that many managers feel is the best tool for managing operations. While asset utilization is an effective measure, it does not tell the whole story. In today’s demand-driven operations, many fleet operations no longer place a high value on volume production. Shorter routes and more frequent pickup and delivery cycles are more important, lessening the value of longer mileage as an indicator of fleet productivity. The shortcomings of asset utilization as a stand-alone measure are related to the interactions of labor with equipment: • •

•

In asset-intensive industries, the ratio of employees to assets is very low. If a certified operator is not available to start a machine, asset utilization looks negative—but impaired output was not caused by the machine’s potential. Asset utilization does not capture the interdependency of the direct and indirect workforce. For example, asset availability may be high, driving good potential for meeting customer needs and delivery criteria. A deeper look, though, may show that the maintenance staff is spending significant amounts of time to keep certain segments of the equipment running. As a result, other areas suffer indirectly, causing overall fleet productivity to drop. Similarly, attendance, scheduling, retention, shop efficiency and other workforce issues are not directly captured. Asset utilization does not work when there are not adequate in-service assets to measure. Many critical fleet operations do not have a dedicated lane or customer to analyze measurements. For example, a dedicated route may depend upon multi-location recruiting pools to obtain adequate experienced and qualified drivers when economic conditions are favorable and fleet assets are not enough to handle increased capacity.

Achieving a Highly Effective Workforce Asset utilization and efficiency do not have a comparable cost metric—and for good reason. While fleet equipment generally offers predictable costs, such as depreciation and scheduled maintenance, adding a labor element to an operation brings in three dimensions of variable costs. First, drivers have different wage rates. Second, drivers may earn premium wages, such as bonuses, experience premiums and earned vacation. Finally, a difference in cost attributed to performance against a standard may actually be caused by labor. To get a true picture of operational performance, we also need to look at driver efficiency, which provides insight into the critical elements of workforce preparation and execution. This helps managers see how the workforce influences profitable fleet production and points to the root causes of ineffective labor utilization. In its own way, analysis of driver optimization can show how assets and employees come together to drive performance. Some examples: • Driver optimization provides the ability to analyze the labor impact at the operator, terminal, division, fleet, and even corporate levels of the organization. • Driver efficiency can expose the interaction of interdependent variables. Changes made to improve one area may have a negative impact elsewhere. For example, a process change makes it faster to get load volumes and service to the customer floor but complicates warehouse operations. • Trends that are too small to be noticed individually are highlighted earlier because of their cascading effect on total performance.

Trincon Group 1683 Old Henderson Road, Columbus, OH 43220 Copyright © October 2008

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The identifying familiar asset utilization factors—availability, performance and quality—are the basic elements used in measuring overall driver effectiveness. However, in measuring the contributions the workforce makes, it is useful to look deeper and consider additional factors. Asset Utilization Availability

Labor Element Availability

Key Workforce Drivers Utilization and absenteeism Scheduling of indirect activities

Performance

Performance

Availability of processes, instructions, tools and materials Training and skills Indirect support staff

Quality

Quality

Employee knowledge Proper use of instructions and tools

Behind the Driver Efficiency Equation: Powerful Diagnostics for Improving Workforce Contribution Effective labor contribution is accomplished when managers can see and manage the three labor efficiency elements—availability, performance and quality—in concert. A fleet can improve operations productivity, and therefore the level of profitability, by understanding the interdependency and trade-offs of these three factors and managing them in real time. Let’s examine these elements. Achieving a Highly Effective Workforce = Availability – Performance – Quality The Driver Evaluation Process Availability Clearly, availability is a basic criterion, and utilization is the most important component of availability. Many things influence workforce availability, and therefore the potential output of equipment and the plant. For example: • • •

Absenteeism and utilization: Standard labor utilization measures come into play here and include employee illness, approved or unapproved leaves, and times when people are unavailable due to training, hours of service, or other company-defined activities. Scheduling: Involves having the right skill at the right time. Beyond merely providing a driver, we must consider employee skills and certifications, as well as flexible work schedules. Indirect time: Includes equipment delays, idle time, equipment failures, and downtime due to poor operations planning.

Performance This is the recording of output, which determines whether producing or delivering a service took as long as company labor standards indicated it would (whether tangible measurements or specific services are delivered). Performance output includes: • • •

Availability of processes, instructions, tools, and equipment: Fleet maintenance issues, such as parts failures, lack of parts availability, or missing instructions, will slow production, limit output, and likely have a negative impact on quality of service and employee morale. Training and skills: Do employees know how to do the tasks they are assigned? Certainly, these factors affect the ability to deliver the expected output throughout a complete delivery cycle. Indirect support staff: A workforce that is insufficiently trained or skilled will require additional support staff, including supervisors, maintenance technicians, and customer service personnel.

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Quality At the end of the day, we need to know if the output of production met specified quality levels. While quality is certainly a function of the processes used, it is impacted by important human factors: •

•

Employee knowledge: Do employees understand the quality drivers of their specific operations? Employee skills directly affect the quality of output. Knowledgeable operators know how to measure their work and understand how the processes operate, how variability affects quality, and what adjustments keep processes to spec as they run. They should also know when to stop for corrective actions, should fleet equipment fall below specified limits. Applying this type of knowledge reduces the amount of downtime and increases utilization, that when properly structured, will increase profitability. Proper use of instructions and tools: Did workers use the right judgment and follow the right procedures?

With labor evaluation analytics, interdependencies between factors are brought to the surface. Here’s a scenario: Something disregarded in fleet dispatch as a minor issue shows up as a troubling performance shortfall. Labor evaluation analytics track the problem back to a failure to meet standard job times, which was caused by production that was not started on time because the right employees were not aware of a problem requiring a solution and ready for the work at hand. When performance consistently falls below expectations, evaluation of labor quickly highlights the root causes, including inaccurately set labor standards. Moving from Administering Human Resources to Measuring the Workforce Investment: What Employee Optimization Can Tell Managers Managers in the trucking industry have invested in workforce management tools, but until recently, most money was spent managing human resources from an administrative point of view. The true power of employee optimization is its ability to show cause and effect. It identifies problems that cut into profitability and shows how investments in human resources pay off. Examples of what managers learn from labor evaluation include: •

•

•

Root-cause insights: For example, recognizing that maintenance costs increased at an inordinate rate in one fleet operation, a manager sees that either that particular type of equipment needs to be replaced or the operators are using it improperly. Digging further into labor evaluation, the manager finds the root cause—a higher volume of the type of equipment assigned to a dedicated route that correlates to a change in incentive pay, which, unfortunately, promoted bad operational practices. Predictive measures: Labor efficiencies can provide insight into the root causes of less than optimum asset utilization. For example, seeing that recruiting costs rose 10 percent in a recent period, a manager learns that when several new drivers were hired, the average skill level dropped and the average productivity fell 15 percent. Spending resources to improve the new hire introduction program can be weighed against the incremental recruiting costs of the new hires. Either way, the effect of additional new hires can be forecast better. Return-on-investment from training: Measuring the effect of education is something everybody wants, but few have been able to do. Using labor evaluation, a fleet can pinpoint the root cause, invest in training for both drivers and lower level management, monitor specific increases in quality or performance, and recognize the improvement in productivity. Most importantly, the results of training can be monetized for ROI calculation and justification.

Achieving a Highly Effective Workforce Labor evaluation can show how assets and employees come together to drive performance. Interdependent variables and difficult-to-identify relationships are exposed by a balanced key performance indicator such as labor evaluation, showing how changes made to improve one area could have a negative impact elsewhere. Trends that individually are too small to be noticed are highlighted earlier because their cascading effect on total performance is recognized earlier. Executives throughout the organization have facts to help them analyze the effective contribution of the workforce and do not have to rely on anecdotal evidence.

Trincon Group 1683 Old Henderson Road, Columbus, OH 43220 Copyright © October 2008

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A simple example Imagine a fleet operator that has full employment, sufficient customer orders to run the fleet at full output, and equipment that is in good operating condition. It is a positive outlook, but experience tells the fleet operations director that something is just not right. Margins are looking good, but given the opportunity, shouldn’t they be better? How can proper labor evaluation illustrate how the workforce is affecting profit potential? Let’s consider some simple specifics for each element of labor evaluation: •

•

•

Availability: Utilization is hampered by several items in the fleet. First, driver shortage accounts for a capacity shortfall of approximately two percent each period. In addition, poor scheduling and hours of service factors causes an inordinate amount of downtime in a 24-hour period under the usual operations parameters. Performance: Revenue is down somewhat. An insufficient number of drivers available to run the equipment often means productive output is stalled at every phase of efficient utilization. The impact: lost productive time of about five percent. Quality: Given the shortfall of productive hours, the supervisors attempt to make up the lost time by running at increased fleet performance. The result: quality begins to slip as time wears on, and production drops. The impact is a four percent loss of scheduled deliveries.

The cumulative impact: The labor evaluation value for the fleet is 78.2 percent — a far cry from what the operations director and his staff expected. Keep in mind, this is not meant to illustrate service failures, but to illuminate a decrease of full optimization or potential gauged to 100%. Category Availability Absenteeism Idle Time

Individual Performance

Total Individual Performance

98% 87.5%

85.8%

Labor Efficiency (Cumulative)

78.2% Effective Labor Use

Performance Hours of Service Planning

95%

95%

Quality Service Standards On Time Delivery

96%

96%

The takeaway is that this fleet converted only 78.2 percent of the potential for profitable output—potential that can never be regained. Effective use of driver and planning efficiency uncovers the data that fuels root-cause analysis and points to corrective actions. Likewise, labor utilization exposes trends that can be used to diagnose more subtle problems. It also helps managers understand whether corrective actions did in fact solve problems and improve overall productivity. The Call to Action: Using Driver Efficiency to Master the Next Trucking Frontier You get what you measure. Surprisingly, although fleets track time and delivery, they seldom have a method of measuring, or understanding, how the actions of the labor force directly influence profitability. Now that customers have squeezed productivity from their supply chains, fleets are looking for ways to further increase competitiveness. Identifying ways to help the workforce become more productive affords that next big opportunity. Using driver efficiency concepts and backing them with the power of analytics provides a real-time method of recognizing the cumulative effect of workforce variables. It gives managers hard data to diagnose, correct, and improve the financial performance of fleet operations. Just as people influence performance throughout the operation, labor evaluation data can quantify the effects of their actions. Driver efficiencies address smaller details, such as ontime performance, and answers larger questions, such as whether a training budget is justified.

Trincon Group 1683 Old Henderson Road, Columbus, OH 43220 Copyright © October 2008

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Three things will power the competitive advantage of the next generation of fleet operators: • • •

A stream of innovative services that excite customers Highly flexible and effective supply chains A highly motivated and trained effective workforce

Proper driver utilization helps fleets develop a highly motivated, effective workforce by helping them identify where people need better processes, materials, training, or indirect support. It is a productivity tool for managers that help them manage better as they convert labor dollars into profits. The weakest link in labor retention in the trucking industry is proven time after time to be the inefficient planning, faulty communication, and poor human relations initiatives that drive a turnover rate upwards of 135% in the trucking industry. Rather than accepting this turnover and associated costs, perhaps fleets might review their qualifying, orientation, and retention strategies and include all levels of management and ownership to be part of the solution. Jim Buchanan is vice president of operations for the TRINCON GROUP. He has extensive P&L, operations, and logistics experience. Buchanan earned his Masters in Business Administration from The Ohio State University and studied engineering at the United States Military Academy at West Point. He is also CDL Class A certified. The TRINCON GROUP is a business advisory company that, since 1982, provides strategies, planning and implementation services to ownership and management teams in the trucking and transportation industry. President Duff H. Swain has more than 30 years of industry experience and has authored several white papers and trade articles on the subjects of driver turnover, cost-based accounting and other topics. A member of the Truckload Carriers Association, Mr. Swain is also a principal in TruCost Systems, LLC, a provider of activity-based cost analysis systems and software for the trucking industry. For more information, visit www.trincon.com, call (614) 442-0590, or e-mail [email protected]. For more information about TruCosting®, visit www.trucosting.com or call toll-free 1-877-878-2678.

Trincon Group 1683 Old Henderson Road, Columbus, OH 43220 Copyright © October 2008

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