Decision making in the motor carrier industry: A preliminary investigation

Tr,nqm Rtr.4 Vol 164. Eio 4, pp. !I$-X8. Printed in Great Bnram

0191-!M)718!1040?8~-04u)3.Wl0 c 1982 Perpamon Press Ltd.

19X:

DECISION MAKING IN THE MOTOR CARRIER INDUSTRY: A PRELIMINARY INVESTIGATION WADE

FERGUSOK

Business Analysis and Research. College of Business Administration. TX 11843, U.S.A.

Texas A%hl University.

College Station,

(Received 13 July 1981; in revised /arm 30 October 1981) Abstract-This study was a preliminary investigation of the use of operations management principles in the motor carrier industry. The primary objective was to determine the degree to which sophisticated computerized planning and control systems are used in the normal course of operations of motor carriers of various sizes. The large carriers use these methods extensively, but many of the smaller carriers do not. The results of this study identif) areas where managerial decision making_ might _ be improved by using operations management methods more effectively. -

The extent of application of operations management methodology to decision making in the motor carrier industry has been virtually ignored in the recent academic and practitioner literature. However, a recent article (Stock, 1979) examined the role of motor carriers in forming new regulatory legislation and emphasized the necessity of using operations management methods. He suggested such methods be used to develop policies. plans, and procedures which would allow the carriers to operate at peak efficiency and profitability within the changing environment (Stock, 1979, p. 65). The objectives of this study were to identify how operations management concepts are presently used in decision making by motor carrier executives and determine other problem areas where they could be employed to improve profits. Specifically, the study sought answers to the following questions: (1) How is financial analysis used in the motor carrier industry? (2) How is customer service monitored and what standards are used in measuring performances? (3) How are operations management principles applied in the motor carrier industry? (4) How are computers used in the motor carrier industry, and what is their role in operations planning? MErE0DoL.oGY

Apart from marketing planning the literature contains a dearth of information about managerial decision making in anticipation of a less regulated environment. Current data was obtained for this study by mailing a questionnaire to approximately 2000 motor carriers. The mailing list was comprised of 1000 motor carriers with intrastate operating authority and 1000 with interstate operating authority doing business in Texas during the spring of 1980. Every attempt was made to balance this mailing list by company size and type of material transported. Special care was taken to ensure that the same company was not selected from both of the operating authority lists. A total of 420 usable questionnaires were returned and 58 were returned that could not be del-

ivered by the Postal Service. The actual response rate of approximately 21.6% was judged to be adequate based upon similar results from other survey research studies. The data were grouped into relevant categories using standard one and two variable cross tabulations in an attempt to identify the application of operations management principles to solve problems in the motor industry. The research objectives were to establish broad categories rather than specific group delineation for precise analytical purposes. In this study, motor carrier executives were asked how they solved specific operational problems which were divided into four functional areas: Financial Analysis, Customer Service, Operations Analysis, and Computer Applications. FINANCIAL ANALYSIS The application of financial analysis examined in this study is limited to investment decisions concerning expansion or contraction of revenue producing facilities. Table 1 illustrates the use of financial analysis in allocating company resources to maximize contribution to operating profits. Motor Carriers indicated that a detailed financial analyis almost always performed before resources are spent on additional terminals or rolling stock. Less emphasis was placed on evaluating the contributions of existing terminals and rolling stock. The decision to replace existing rolling stock is often a matter of established policy in that the asset may be replaced when it has reached a certain age, is fully depreciated, or has reached an established milage limit. Somewhat of a surprise was the result that only 9% of the firms with 1979 gross revenue of $1/2 million or less and only 16% with 1979 gross revenues over $1 million perform an annual financial analysis of each piece of existing rolling stock. CUSTOMER SERVICE

The information contained in Table 2 indicates motor carriers are concerned about the level of customer service they provide, but they focus efforts on that market

WADE FERGUSON

186

Table I. Use of financial analysis

in investment decisions

Application

Existing Proposed Proposed

Frequency of Use

Terminals New Terminals New Rolling

Stock

Table 2. Carrier actions and views related to customer service Level of agreement

S tacement

L’sually Fionitor Practice Require

Each Shipment Segmented lkrketing

Long Lead Time for Small LTL Shiomenr Pick-up Subsidize Small Favor Abandoning

City Shipments Small City

Shipments

segment that they want to serve. Even though the current literature contains numerous articles expressing motor carrier executives’ concern over increased competition from new entrants in the motor carrier industry, 30% of the respondents indicated that little or no effort is expended in checking to insure that a shipment arrived at its destination on the promised date. Also, a large percentage or motor carrier executives indicated they would seriously reduce their service to small cities given the opportunity. Motor carriers with the highest revenue per mile for 1979 placed less emphasis on customer service and required long lead times for picking up small shipments. The typical motor carrier with 1979 gross revenues over $1 million made little attempt to monitor customer service, limited sales efforts to large shippers. and favored abandoning some of the small cities they currently serve. OPERATIONS PLANNING

is difficult to measure the actual level of operations planning used by motor carriers. As a result, surrogates which infer a level of operations planning were used in this study. These surrogates are actions which, having occurred, should have been the result of substantial planning before they were initiated. Particular actions include: operations and service changes, reorganization, merger, operating cost recovery, and reductions in fleet sizes. The data contained in Table 3 indicates that in the last three years, 74% of the motor carriers have made significant changes in both their operating methods and the services they offer their customers, 68% have undergone a major reorganization, and 39% have merged with another company. These resu!ts indicated the use or extensive long-range planning which has had a major effect on the company. The use of short-range planning is illustrated by reductions in fleet sized by 42% of the It

Sometines

OCCaSiOlldly

70% 66%

15% 8%

15” 26%

51% 5:::

10% 8%

39% 40%

4 5%

14x

41%

respondents, and the 41% of the respondents that have been able to pass on increases in operating costs to their customers. Even the 47% of the carriers who have not been successful at passing on their increases in operating costs acknowledge their inability to do so. In either case some level of operations planning in day-to-day activities is indicated. A secondary measurement of the level of operations planning in the motor carrier industry is the number of employees whose primary function is planning. Table 4 contains the number of employees whose primary function is planning by percent of the respondents. COMPUTER APPLICATIONS

Only 52% of the respondents indicated their company owns or leases at least one computer. The data in Table 5 provides a break-down of computer usage in the motor carrier industry. The limited response from companies with more than $1 million in annual revenue precludes further delineation. As one would expect, motor carriers with large gross revenues are more likely to use computers. Of the companies with 1979 gross revenues less than $1 million, only 13% were using computers. The functional areas of accounting departments (accounts payable, accounts receivable, and payroll) are the most common computer applications. These areas probably have the greatest number of readily available software packages which require little or no modification to meet the needs of major carriers. The record keeping needed to control a fleet preventive maintenance program is the most common usage of computers in a semioperational area. Only 2% of the respondents with 1979gross revenues less than $1 million who use computers have a computerized preventive maintenance program. The operations area is the least likely to use computers. Only a relatively small percentage of motor carrier executives indicated that they use computers to schedule and route

287

Decision making in the motor carrier industry trucks, produce bills-of-lading, ments.

and consolidate

ship-

AFINALASSESSMENT The

results of this preliminary study provides some insight into areas that need further investigation. The motor carrier industry as a whole has ken more conservative than manufacturing industries in applying many of the commonly accepted tools of operations management. The large carriers have implemented some of these techniques, but the medium and small carriers have not. Additional research is needed to identify how financial analysis can be extended beyond present applications to improve resource management. Financial analysis is used

to evaluate new investments in terminals and rolling stock, but it is seldom used to evaluate the present status of past investments in facilities or equipment. Such an extension would identify what investments were being under utilized, which facilities need to be expanded, and which investments should be sold. The result of this study indicate that motor carrier executives’ interest in customer service is limited to providing good se:vice to the particular market they want to serve. Sales activities are largely directed toward market segmentation. The larger companies and the companies with the lowest operating cost indicate that they make little or no attempt to measure the level of customer service they provide. Additional research is

Table 3. Frequency of occurrence of actions implying operations analysis Occurred

Activity

Operational and Service Changes Major Reorganization (last 3 years) Involved in Merger (last 3 years) Increased Operating Costs Passed 0" Changes in Fleet Sire Due to operating Costs

lJnk"ows

Did Rot Occur

17:,

94

74% 682

0

32"

39%

0

6 1"

41%

12%

47%

42%

14%

44%

Table 4. Employeesin planning Annual Revenue NWlbeK

Less than $1 mill.

0 1 2 3 4 5 or more

TOTAL

$4 to Sl mill.

$1 to $10 mill.

47% 40% 7% 6%

7% 36% 29% 20%

13% 42% 12:: 16% 6% 9%

100%

100%

over $10 mill.

,

100%

15% 9% 7% 23% 8% 38%

100%

Table 5. Percentageof carriers using computer applications Activity

Annual Revenue Less than S+ mill.

Companies Owning or Leasing at least one Computer Audit Freight Bills Vehicle Scheduling 6 Routing Vehicle Gintenance Producing Bills-ofLading Accou"ts Payable Accounts Receivable Payroll Freight Consolidation

$4 to $1 mill.

over $1 mill.

6% 7%

7% 2%

87% 36%

2% 0

0 2%

25% 30%

2% 5%

4% 2% 5% 5% 4%

35% 07% 89% 87% 15%

5%

5% 0

288

WADE

needed to determine if the larger companies maintain such high levels of service that monitoring activities are no longer required. If this is so, it would be interesting to know how large a carrier must be before high service The use of operations levels are virtually automatic. planning was evaluated by identifying specific activities which should require detailed planning efforts. Recent events (mergers, reorganizations, etc.) reported by a significant number of motor carriers indicate a high level of long-range or strategic planning by upper management. Operational or tactical planning was investigated in an attempt to learn how motor carriers have adapted to

FERGUSON the increase in operating costs that have plagued the transportation industry. The area of computer applications in the motor carrier industry needs to be thoroughly studied. Most of the computers used by motor carriers are the large mainframe type. The growth of mini-computers and the general increase in acceptance of computer technology should bring technology to even the smallest firms. REFERENCES

StockJ. R. (1979)Regulations,regulatorsand regulatoryissues: a motor carrier perspective. Transpn. I. 19(3),65-73.