Few Blues for Yellow


Its trucks are bigger and faster today, but from the outside Yellow Corp. (YELL) seems like the same company it was in 1926, when A.J. Harrell added freight shipping to his Oklahoma City taxi business. But from Chairman and CEO William D. Zollars' insider perspective, the trucking giant is an example of e-biz efficiency.

Almost every aspect of Yellow's operations is automated. Using proprietary software, it calibrates staffing needs daily. It has 23,000 drivers and loading-dock hands, and it can call up only the precise number of employees required for the day's deliveries.

Similarly, Yellow's computers plot the optimal use of its fleet of 10,000 trucks and 30,000 trailers every day. Its sophisticated systems allow the hauler to coordinate international deliveries with foreign partners and to identify any shipments that raise a red flag. Yellow's Web site takes orders from more than 100,000 customers, up from 5,000 three years ago.

BETTER SERVICE. Of course, all this technology costs money. Zollars figures that Yellow spends $80 million a year on computer hardware and software. Is that too much? Perhaps. The $2.6 billion company is the nation's No. 2 hauler of less-than-truckload freight. Outfits such as Yellow pick up smaller shipments, consolidate them at terminals, and then pack them into trailers for drop-off. But Yellow's position was strengthened last year when the No. 3 company, Consolidated Freightways, went bust. And Zollars argues that the outlays are worth every penny because they boost productivity and improve service.

Zollars, 54, who hired on at Yellow in 1996, recently returned to Chicago, where he spent time in the early 1990s during his 24-year career with Eastman Kodak (EK). Over lunch with BusinessWeek Senior Correspondent Michael Arndt, Zollars talked about the pressures facing his Overland Park (Kan.) company, the slo-mo economy, the benefits of using Teamsters, and what it's like to be a trucker. FYI, it's better than you'd guess, at least at Yellow: Base pay that averages $70,000, rich health-care and retiree benefits, and most nights at home. Edited excerpts of their conversation follows:

Q: Before we get into your business, please tell me what you're seeing in the economy today.

A: It's a little bit like the movie Groundhog Day. Every night you go to bed and think the next day's going to be different, but you wake up and Sonny and Cher are singing the same song again.

We've been at about the same level of economic activity for a year. We've got about 400,000 customers, so we've got a good database to slice and dice, and it looks pretty uniform no matter how you look at it. There's no one industry or one piece of geography that stands out.

Q: Big guys like Yellow are doing all right. But little guys are getting hurt, aren't they?

A: You're right, the smaller companies are just under tremendous pressure right now. You've got customers who are demanding more and more, in terms of quality or technology support. They want real-time information, and they want it their way. Most small companies can't afford to make that technology investment.

Customers also are all trying to focus on doing business with fewer partners so that they can have, as one of my colleagues likes to put it, only one throat to choke. You've also got all of these cost pressures hitting them: insurance, health-care, fuel prices.

Q: Some of these cost pressures are squeezing you, too. How do you deal with that?

A: Health care is probably our biggest concern on the cost side. We continue to reduce the number of injuries by 30% a year on average. The most common injury is a bad back either from lifting or a slip and fall in bad weather. But the cost of each injury claim is going up by double-digits.

But even here, we've done some things. Our old philosophy was to postpone aggressive treatment until the last possible moment, so if you needed surgery, we made sure we exhausted all other means first. We analyzed what's been going on the last five years, and we learned that's exactly the opposite of what we're supposed to be doing: We should be as aggressive as possible as quickly as possible. The person who's injured will be back to work more quickly, and the cost will be lower.

Q: Can you give me an example of how you boost productivity?

A: Sure. Labor is two-thirds of our costs. In the old days, if you were running an operation in Chicago and you expected business to improve by 15%, you'd see how many people were working at the dock and driving and boost that number by 15%. So if you had 100 people last year, you'd have 115 people this year.

Today, with the technology we have, we know exactly how many shipments are going to Chicago. We can then take that information and determine down to the person how many we should have in Chicago so that every shift, every day, you're staffing at the proper level. So today, instead of 115 people, we might have 104. That has allowed us to take the total cost of our business and make 80% of it variable.

Q: So what happens to labor if your staffing needs are going up and down on a daily basis?

A: Our Teamster contract allows us to send people home if we don't need them. If we need only 115 people, we work only 115 -- that's all. If we were at a nonunion company, it would be a lot more difficult to go down to 115 a day and then go back up to 120 the next day. Where would we find drivers?

Now the downside, of course, is that it's more costly. But all in all, the Teamster contract turns out to be a real advantage. Our turnover rate is under 2%.

Q: Have you been affected by new security requirements since September 11?

A: Yes, and I think there's a lot more to come. We've always had high security. Because our business is a lot of small shipments moving very rapidly, it has been a target for delivery of illicit drugs -- say stuffing drugs inside a hot-water heater to be shipped across the country or across the border.

We've upgraded our technology even further, so if a customer calls in today, we know exactly who they are, what their profile is, what goods they usually ship, where they usually ship. So we've got a pretty good feel for something that doesn't look quite right.

We've also increased surveillance around our facilities and put in electric fences. We have human guards at almost all of our facilities. We also went to a photo ID for everybody in the company. Even though we've done a lot -- and it has probably increased our costs by $10 million a year, I think the real impact on our business is yet to be felt. There are still a lot of holes in freight shipments.

Q: Do you think tax breaks will help the economy?

A: The real way to get the economy recovering is to get people to start spending money on the nonconsumer side. As a CEO, I know exactly what's going on in most CEOs' minds, and that is "I'm not doing anything till I've got a better view of the future."

When you start to believe your business is going to pick up, you're much more likely to hire somebody and buy them a computer. But people have been planning for the second-half recovery for the last three years, and it has never showed up.


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