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Managing Assets: The Gateway to Market Level Profitability

Please allow me a bit of a diversion into another industry that our firm is involved in.

These are difficult times for the U.S. trucking industry. High fuel prices, government regulation, a fluctuating economy and uncertain revenues have combined to create an environment in which profitability has become a major challenge. Record numbers of owner- operators and firms have been unable to meet this challenge and have left the field. It is a classic case of disappearing margins becoming fatal.

Interestingly enough, Dan Walters is one of the happier guys in this “over-the-road nightmare.” Dan has been involved with the trucking industry for more than 20 years and has lived his customer’s downtimes on a daily basis for the past five years. His Grand Traverse Diesel Service is a regional heavy duty service facility covering the northern half of Michigan. It is his customers who are feeling the full weight of the above circumstances.

Why then, you might ask, is Dan so happy. “Its easy,” he says, “I have a solution.” Dan goes on to explain that when margins get tight and profits become illusive, success goes to those who can identify, manage and control those finite details that ultimately govern the bottom line. “In this economic environment,” he says, “the direct route to increased profitability is all about paying attention to the little things.  A savings of one or two percent is enough to drive profitability upward. When the economy is at its strongest, businesses trade volume for focus and allow minimal dysfunctions to occur that take a big bite out of margins, but profits are still generated. However, in a more tentative economy, these dysfunctions become the very factors that make the difference between positive profit and a negative loss.”

Dan goes on to explain that in the trucking industry, these dysfunctions can often be found in how drivers treat their vehicles and execute their trips as well as how effectively owners maintain their vehicles. By way of example, the wrong driving patterns can damage drivetrains way before their design life is up, and even the smallest mechanical disruption can drop fuel consumption by five or 10 percent, resulting in hundreds of dollars of reduced profit from each rig. (Example: UPS discovered that eliminating left turns from driver’s routes saves them millions of dollars per year.) Unfortunately in the past, owners and managers had no way to measure these dysfunctions. They were just tolerated as part of the deal.

Of critical importance in today’s consumer centric business environment, not only do these details adversely impact the bottom line, they also have a significant impact on customer satisfaction. Walters points out that, “today’s customer is also fighting the details in their business.  Saving on material handling, storage and warehousing have become primary objectives. This means that customers are very specific relative to what they want delivered and where and when they want it delivered.  In some industries, such as the automobile industry, a delay of as little as 30 minutes can disrupt a “just in time” system and can cost thousands of dollars.

The similarities of trucking’s challenge and that of the real estate industry are remarkable. The roles of drivers and agents, as human assets, are very similar. In fact, few would deny that in most brokerages, the agents are the drivers. In the same vein, the profitability of both industries is totally dependent upon their human assets and neither has a history of effective human asset management. Both find themselves having to master the management details that generate profitability in today’s business environment with few tools specifically designed to gain the necessary control of their businesses.

For those who are students of contemporary asset management, it will come as no surprise to discover that in Dan’s case it is technology that comes to the rescue. The case in point can be found in a new program that has been introduced by Western Star, a division of Daimler North American. The Western Star heavy-duty truck, as one can well imagine, is the Mercedes Benz of the trucking industry.

But even the best-built truck in the world does not contribute to profitability unless it is perfectly maintained and expertly managed. Those who believe this statement has little applicability to human assets need merely refer back to last summer’s Olympics. Virtually every athlete who emerged as a medal winner enjoyed the benefits of a multi-level monitoring, maintenance and coaching system that allowed that individual to maximize their performance and achievement during both the actual Olympics and the two-year preparation period leading up to it.

The motion picture industry mirrors this process through use of coaches, dietitians and trainers who ensure that stars are in peak condition during filming when a single sick day can cause hundreds of thousands of dollars of loss. The managed health care system has instituted programs that work to ensure that surgeons are mentally alert and physically prepared for their tasks this maximizing production and reducing liability.

To meet this challenge, Daimler has introduced a program called Virtual Technician. The first step in the Virtual Technician process was to identify an appropriate performance experience for owners, their customers, and interestingly enough, the drivers. The second step was to establish the performance standards that would support this experience. The third step was to create an electronic monitoring system that would keep both Daimler and the owner fully aware of how the asset was performing. The last step was to create a system of evaluation and analysis that would both identify performance problems and automatically initiate appropriate solutions and “fixes.” In its current configuration, Virtual Technician has the ability to identify performance-related issues weeks before they appear as a breakdown, recommend the appropriate “fix,” order and direct the necessary parts to the right location and schedule the “fix.” As a result, trucks and drivers are on the road, customers’ needs and expectations are met and owners are realizing the profits necessary to maintain the value of their businesses.

For those who wanted the ultimate system, Daimler also introduced an option called the Visibility Package. With this option, owners and managers can remotely monitor vehicles to make sure they’re being managed to optimum levels. The package tracks location, travel history, stop time, idle time, total mileage by state, fuel consumption, diagnostics, and many other trip-reporting functions.

Dan Walter’s solution exists as an affordable, user-friendly and feasible response to the problems that are facing his industry.

It would save a lot of time and effort if readers rejected their first response that one cannot compare truck drivers and real estate agents, trips and transaction, load and market statistics and customers. Not only can these comparisons be made, they are being used in many industries where profitability is dependent upon human assets.

Moreover, leading-edge brokers and emerging business models are already using asset management technologies across the real estate industry. Dan’s asset management solution is called Virtual Technician and ours is called transaction management. We can do this and now is the time.

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