Best Practices Consortium Supply Chain Best Practices Consortium Private Fleet Practices and Performance Executive Seminar Track 3, Session D September, 2006

Scope This session will cover dedicated truck fleet operations including strategic fit in supply chains, best practices, costs and performance. Private Fleets – Truck fleets owned and operated by the shipper. Outsourced Fleets – Truck fleets owned and operated by a third party (i.e., truck common carrier or 3PL provider), but substantially dedicated to a single shipper. Mixed Fleets – Truck fleets composed of a mix of owned and third party equipment, drivers and management.

Your Expectations What would you like to learn from this session? Important issues? What’s working? What’s not working? What’s changing? Shared good and bad experiences? Reasonable performance expectations?

Equipment Profiles – Leased and Owned The largest fleets with power are in the grocery segment. The trailer to power ratio is 5.1.

Equipment Profiles – Outsourced Outsourced fleets tend to be smaller than private fleets. The trailer to power ration is 1.8. Power is more likely to be outsourced.

Drivers 27% of driver groups are represented by a union. Teamsters are the dominant union. Average driver turnover is 25%, but turnover varies significantly between fleets.

Fleet Providers – Leasing and Outsourcing Irregular route truckload carriers dominate the outsource market. Large shippers often use small carriers. Penske and Ryder dominate the lease market.

Fleet Applications Private fleets have an advantage over common carriers on short, multiple stop routes. Private fleets also have an advantage on balanced routes.

Fleet Applications (continued) 74% of fleets do not have a limit on route length. 47% of fleets discourage routes that require a lay down layover for company drivers.

Cost Structures 65% of fleets charge other departments or internal operating units for their services. On average, 63% of costs are charged back. 41% of fleets have 100% chargeback. 14% of fleets charge back more than 100%. Activity based 3PL charges are typically the most cost effective.

Fuel Only 23% of “wet” leases and 76% of 3PL contracts include fuel surcharge provisions. In part, this result is likely due to older contracts that have not yet been renewed. 11% of private fleets indicated that they have a hedge program in place for a significant part of their fuel price risk.

Fleet Technology Fleet operations systems that provide dispatch, manifest, operations and performance reporting are the least likely to implement technology. Can fleet performance be optimized without this management tool?

Performance Metrics Outsourced fleets seem to perform well compared to private fleets.

3PL Performance Ratings Outsourced fleets receive the lowest performance ratings of any transportation mode or 3PL service.

Potential Discussion Points What changes are needed in fleet fuel programs to respond to the recent increases in fuel costs? Hedging? Revised fuel surcharges? Over the road vs. base fuel? Is the best sourcing strategy for outsourced fleets to consolidate one way and dedicated operations in the same carriers? Are dedicated fleets cooperating to fill empty miles? Is this strategy practical? Are intermediaries needed? Are there other opportunities to share resources between private fleets (e.g., cross docks)? How important is technology in the operation of a private fleet? What are the most important technologies?

Potential Discussion Points (continued) What are the primary considerations in managing employee drivers? Recruitment? Compensation? Benefits? Unions? Extensions of your customer service function? Is the decision to outsource primarily driven by costs? Is the own versus operating lease decision primarily financial, or are fuel and vehicle maintenance key considerations?

Important Takeaways While there are many private fleet takeaways in Benchmarking & Best Practices, some of the more important are: Cost – On a cost per total mile basis, outsourced fleets appear to be more cost effective than private fleets. However, unique route, service, equipment and size profiles make comparisons difficult. Satisfaction – These ratings for outsourced fleets are not high, particularly on rates and status tracking. Reasons may include the setting of appropriate expectations and provider commitments to continuous improvements. Performance – Many fleets are doing well on cost and efficiency metrics, but several fleets are significantly below acceptable levels.

Important Takeaways (continued) Leading providers – Large leasing companies dominate the private fleet market, while irregular route truckload carriers dominate outsourced fleets. The ability to integrate one-way equipment where appropriate and provide surge capacity favors truckload carriers. Technology – Optimization software is widely implemented in large private fleets. However, fleet operations software–the software that is most responsible for managing daily operations and monitoring overall fleet performance–is often not used.

Questions?

Benchmarking & Best Practices References Information on Dedicated Fleets can be found in the following references: Online Interview: Dedicated Fleets Section Report: Best Practices – Dedicated Fleets Report: Private and Dedicated Fleets Note: Reports can be downloaded from the B&BP Resource Center at www.supplychainconsortium.com