By changing culture of operations, Con-way Freight expects to enhance competitiveness.
A company can spend millions of dollars on new equipment and systems in an effort to become more efficient and profitable, but if it doesn’t understand the way its people operate within the workplace then these investments are likely to fall far short of expectations.
Four years ago, less-than-truckload carrier Con-way Freight announced to its shareholders that it wanted to gain a better understanding of its workflow and enhance efficiency, a practice known as “lean” management. Based on engaging employees and their knowledge to help drive out waste and create standard processes, it was a radical approach to problem-solving and making improvements that hadn’t been seen before at Con-way Freight.
“There’s a fundamental shift in thinking by leadership and employees,” said Douglas W. Stotlar, president and chief executive officer of Ann Arbor, Mich.-based parent company Con-way Inc. in a recent interview. “This industry has been stuck in a traditional top-down approach to management and has worked with that.”
He explained “lean is messier… You have to have a trust factor and assume your employees want to do the right thing. Thus, we have to remove barriers and ask them how to do things better.”
Lean traces its origins to a manufacturing concept devised by Japanese automobile manufacturer Toyota in the 1980s to eliminate unnecessary steps and waste on the factory floor. Recommendations for improvements came from employees working on Toyota’s production line, rather than exclusively from upper-management.
In recent years, lean has permeated the logistics industry. Con-way Freight’s non-asset-based sister subsidiary, Menlo Logistics, had a few years earlier started instituting lean practices within its ranks and has shown substantive results.
As an asset-based company, Con-way Freight was under no impression that implementing lean practices would be easy and the road to demonstrable results would be quick. “People need to know that you care about them before they’re willing to make the necessary changes,” Stotlar said.
Before announcing its intent to implement lean, Con-way Freight had reduced truck capacity and curtailed some employee benefits to weather the economic recession that slammed the freight transportation industry a year earlier. “We had to reestablish trust with our employees,” Stotlar said.
Even long-time senior management at Con-way Freight had to be convinced that lean was the way to go toward making operational improvements.
“I had to change first,” said Tom Clark, senior vice president of operations and 29-year company veteran. “It’s not easy, but we see it can work. It’s really opened up communications.”
The company decided to conduct its first lean exercise on safety and damage reduction at its service centers and within its truck fleet. This required it to establish a Kaizen event, which under lean requires a company to form teams of employees from across the spectrum of an operation to provide widest input and recommendations.
This too required trust building among Con-way Freight’s employees. “How do you identify near-misses [in trucks],” Stotlar said. “No one likes to identify these incidents personally.”
That’s where recently installed technologies for preventing front-end collisions and unintended lane changes, and improving trailer stability in its fleet of 9,200 trucks helped get the process started. Last year, the company also installed two-way event recorders (in-cab cameras) which capture driver behavior behind the wheel and road conditions ahead. When triggered by an event, such as sudden braking, the system makes a brief recording of the incident and notifies Con-way Freight’s safety department. The incident is then reviewed, with the recording used as a positive teaching tool by a driver-trainer who works with the driver to help correct the behavior that led to the incident. The system also is used to recognize drivers whose skill and superior driving performance avoided or prevented an incident. As many as 85 driver-training modules have since been created for the program. The in-cab technology may even exonerate a driver involved in an incident, Stotlar said.
Safety was also put under the microscope at its 300 service centers scattered throughout North America. These facilities have a central platform, or dock, surrounded by doors on three sides to which trailers back up. Employees wheel around these platforms in forklifts, shuttling cargo between trailers in a process known as cross-docking. Injuries and cargo damage may occur in this fast-paced environment. “Within the first year of implementing lean, we decreased injuries by 40 percent,” Stotlar said.
Before the start of lean at Con-way Freight, “we had a lot of rules but not a process,” Stotlar added. “Lean is about standardizing work; create standards for work and they became the norm.”
He was most pleased by the 27 percent reduction in truck-related accidents within the first year of starting lean. The company has about 15,000 LTL drivers nationwide. “We have the best score for driver safety in the LTL industry. It’s our obligation to be safe on the highway,” he said.
Other focuses of the company’s lean initiative include customer service, pricing and sales sophistication, and cost and efficiency. Each of these areas is being analyzed in tandem but to varying degrees of implementation based on priority.
In 2012, Con-way Freight began getting a better handle on its cargo pricing structure and methodology, using new technology and a business intelligence database to more accurately understand and analyze the freight it was getting from customers. Initially, the tools were used to build a new lane-based cost and pricing module for its 360 largest accounts, which has since been expanded to more of its customer base.
To get a baseline for its cargo pricing, Con-way Freight had employees on the cross-docks “measure each piece of freight that entered our network” and input that data into handheld systems which connected to the company’s central database, Stotlar said.
He said the exercise allowed the company to move from traditional weight-based load planning to “dimensional” planning – an important shift since its trailers typically fill up their cubic capacity before reaching maximum weight limits. The two moves have enabled Con-way Freight to become much more sophisticated and accurate in its pricing and cost practices, Stotlar said.
“We have now eclipsed most customers’ TMS (transportation management systems) and can price cargo down to the five-digit zip code,” he added. “Overall, we’re lowering our operating costs because we’re properly filling that network.”
Lean has also allowed Con-way Freight to start approaching its customers more strategically rather than battling with them over freight rates. “It changes the conversation from ‘we sell hammers’ and now we’re coming in and saying ‘we have a toolbox. You have needs and how can we use the right tools to solve your problems,’” said Jeff Rivera, the company’s vice president of national sales.
Con-way Freight is the second largest LTL carrier by revenue after FedEx Freight and ahead of UPS Freight, respectively, and is followed by other traditional national LTL fleet operators such as Old Dominion Freight Line, YRC and ABF, along with a half-dozen small and regional players.
In 2007, the company made the shift away from its traditional structure of decentralized regional management to a centralized one based in Ann Arbor. The move coincided with a rebranding of the business under a single Con-way Freight banner. Prior to that, the company, which traces its roots to 1983 with the start of Con-way Western Express, consisted of a handful of regional brands, including Con-way Central Express, Con-way Southern Express, and Con-way Southwest Express.
While the recession that hit the U.S. economy in 2009 was especially unkind to the trucking industry, Con-way Freight helped itself by completing a major rationalization of its business the year before. Namely, it reduced its network by 40 service centers to about 300 without diminishing the number of cities it served. Con-way Freight provides shippers with next-day LTL services, as well as two-day and even three- and four-day services across North America.
Like most of its counterparts during the recession, Con-way Freight actively diminished investments in new trucks and trailers and quickly phased out aged equipment. “Within 60 days of the recession’s start, we saw a 15 percent tonnage dip. These were dark days for the industry,” Stotlar said.
Employees were also asked to accept wage concessions and some curtailment of benefits in order for the company to preserve capital.
The changes at Con-way Freight over the past three years haven’t gone unnoticed by analysts.
“An enhanced focus on lane balance is reducing the company’s reliance on purchased transportation, pulling cost out of the model and building density into one of the largest LTL networks,” wrote analyst Nicholas J. Bender of Wunderlich Securities in Memphis, Tenn., in a June 13 note to investors.
In a June 5 report, Independence, Ohio-based Longbow Research noted LTL carriers like Con-way Freight “see continued strong growth in heavier weight shipments, which we believe to be a function of TL (truckload) volume being pushed into the LTL market given capacity constraint issues.”
Stotlar agreed that rates for LTL services are getting better. “I’m not claiming victory, but it feels different today,” he said, adding the trucking industry is still in a slow post-recession recovery.
However, Con-way Freight’s senior management believes the continuation of implementing lean practices will allow it to stand out competitively within the LTL industry.
“We’re trying to change the underlying DNA of how this company behaves and works with customers more efficiently,” Stotlar said. “We’re repositioning all of that to become a far more competitive force.
“But none of this stuff is free. We have millions of dollars tied up in systems, training and development. In the end, however, cultural transformation is hard to replicate. Culture will be our differentiator,” he said.
This article was published in the August 2014 issue of American Shipper.
