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The Logistics Problem No One Talks About

By 3 de July de 2024No Comments

The Logistics Problem No One Talks About

‘As a kid did u ever knock on people’s doors and run away before they answered? Well guess what, UPS is hiring..’ I read the other day on Twitter. Behind this joke lies a big truth that, although visible to all, has been ignored for a long time: the driver has a crucial impact on the delivery service.

After researching more about the impact of failed deliveries on last-mile efficiency, I realized that even though there are various tools available to minimize them, there are two main causes:

  • The drivers’ efforts to complete the delivery.
  • Errors in delivery addresses. (If interested in this topic, go to the end)

In this article, we will focus on the first cause, considering not only its influence on failed deliveries but also other key areas. To cover this topic, I will divide it into two main points:

  • Impact of focusing on driver behavior.
  • Tools to achieve this.

Impact of Focusing on Driver Behavior

I want to be transparent about my view of companies, knowing that many may not agree: A initiative based in morality, but not aligned with business objectives, will never succeed.

In conversations with logistics leaders, at Leaders in Logistics Barcelona event, several companies shared their sustainability initiatives, which they had to suspend due to lack of resources, despite their success in terms of environmental impact. I firmly believe that for an initiative to last through time, it must bring profits to the companies.

Focusing on drivers is not only morally right but also significantly impacts areas such as:

  • Service Quality
  • Talent Retention
  • Brand Reputation
  • Operating Costs

Fortunately, I see a prevalent philosophy in the top companies in the sector that I estimate will grow over time. As Gilberto Palomares Armenta, Director of Transportes Pitic, says, “The driver should be seen as a customer.” In conversation with Antonio José López Franco, we concluded that this is due to phenomena like nearshoring, which increases transportation demand and shifts the industry’s bottleneck. Currently, this bottleneck is the capacity to provide quality service as we grow, meaning having drivers we trust.

Service Quality

In transportation, there’s a strange phenomenon where, despite cost being the primary reason for choosing a transportation company, when service quality decreases, there’s no doubt about the change of provider. This forces transport companies to be very meticulous in fulfilling delivery agreements with their clients.

The trap here is that, although the client can demand a certain service level from the transport company, the same cannot happen from the company to the driver; a different approach must be adopted. This is because performance metrics inversely correlate with other delivery efficiency metrics, such as SLANPS, or punctuality.

It’s proven that the quality of the work environment directly influences the quality of work results. An example of that is AMJ Campbell. When speaking with Eno Loci, Director of Final Mile and Home Delivery, I asked why they emphasized employee incentives when, in a low-margin industry, these incentives could make them less competitive. His response was clear: “It generates the opposite. Since adopting this approach, all our retention and performance metrics have improved, allowing us not only to cover the cost of these incentives but also to increase our profits.”

A possible attitude for a transport company is the one that AMJ Campbell adopted, but another entirely different one can be taken: accepting inefficiencies as part of the process. Talking with some companies, I’ve heard phrases like: “We know that 15% of shipments will have to be sent back, and we include that in the cost structure, so it’s not a problem,” or “If a driver doesn’t deliver as they should, we warn them, and if they continue to work poorly, we fire them.” I believe this attitude can yield short-term results but puts the company at a disadvantage compared to those that can retain quality talent.

In a context where 7% of transport positions cannot be filled due to a lack of drivers [1], such attitudes, where only drivers who meet standards are retained, and the rest are discarded, may lead to a midterm crisis.

Speaking with Eduardo Kuoman Jimenez from Savar, he told me that they focus heavily on meeting driver expectations because that differentiates them from their competitors. While other companies exploit their power to delay payments, they ensure that the drivers experience is positive because their business success depends on them.

Talent Retention

Attention to employee well-being also impacts turnover. Incorporating a new person can cost between 30% and 50% of the employee’s annual salary [2]. Additionally, attracting new talent is difficult due to job alternatives with similar salaries and better perks, such as predictable schedules.

Even though aiming to improve talent retention metrics, companies must also focus on accelerating the onboarding process for new talent, as this challenge is intrinsic to a low-wage industry.

As Sebastian Poberschin says, using tools like Bettermile is a great way to speed up training processes, as they not only increase the performance of experienced drivers but have an even greater impact on drivers with little logistics experience. These drivers navigate the learning curve faster and understand the app’s information as an essential tool for their daily tasks.

Brand Reputation

As discussed in the previous article, or as seen in memes like the one below, having unhappy drivers directly impacts customer perception of our brand. The internet is full of content showing drivers failing deliveries due to a lack of willingness to do them correctly.

Just to give a dimension, I leave one of the many cases of unsuccessful deliveries posts in social media and invite you to read the joy with which people publish about them.

Undoubtedly, there will always be cases where drivers, due to demotivation, do their job poorly, but it’s our responsibility to minimize them.

An interesting solution is the one being developed by OCASA’s Innovation Team, led by Bruno Pastrán, where they are creating an anti-fraud model to detect these behavioral patterns.

Operating Costs

Drivers are crucial in a company’s efficiency, even in cases where their salary cost is not as significant in the cost structure. Depending on the type of delivery, the company’s cost structure also varies; however, in all cases, their impact is significant. For example, in long-distance transfers, drivers only impact 15% of costs, but they directly influence the remaining 60%, as their driving affects vehicle fuel consumption, maintenance costs, and even the insurance premium that must be paid due to the frequency of accidents.

It’s essential to get drivers to adopt behavior that aligns with reducing company costs.

Tools to Improve Driver Behavior

There are various tools to enhance driver behavior, divided into three categories:

Monetary Incentives

Variable Pay

This is the model most companies want to adopt for their payment scheme. It involves rewarding the driver with a payment based 100% on the deliveries done. Besides being beneficial for generating an immediate reward for the driver, it gives the company the freedom to have a cost structure more aligned with the income scheme, allowing them to predict their profits more clearly.

However, this model can also have a negative impact, as a 100% variable scheme can turn into a punitive model. An example is MercadoLibre Flex, which only makes the payment when the delivery is completed, ignoring the possibility that a delivery might not be completed for exogenous reasons. While this model minimizes unsuccessful deliveries, it leads to industry inefficiency that harms all involved in the long run.

Safe Driving Compensation

Companies like DHL Mexico reward drivers who don’t have accidents throughout the year with half their salary as a bonus. This is a brilliant idea to encourage cautious driving, although it can also be a bit unfair for those drivers who have accidents where its not their fault. In this case, a more behavior-focused approach could be adopted rather than focusing on driving results.

Dynamic Incentives

This type of incentive has a lot of potential. It involves giving incentives based on the routes the driver has to travel rather than static incentives. If one route typically has a higher average consumption than another, it makes no sense for two drivers on different routes to have the same fuel consumption target.

With dynamic incentives, various stimuli could be tested to identify which one most improves driver performance. It’s undoubtedly an interesting area to study.

Non-Monetary Incentives

Weekly Rewards / Performance Table / Reputational Reward

This method involves giving rewards to drivers who meet certain milestones. Besides compensating for good driving quality, it also generates competition among drivers to see who will win the weekly prize, gamifying the work.

Flexible Schedule

What drivers working under a Gig Worker model (like Doordash or Uber Eats) value most is time flexibility[3]. This same benefit has been implemented by some transport companies.

While Quick Commerce companies usually offer flexibility in working slots, this is impossible to implement in e-commerce last-mile companies due to the need to reduce parcel wait times to achieve the fastest possible delivery. All drivers must be ready to start their routes immediately after the parcel sorting is done.

Even with these conditions, companies like AMJ Campbell have implemented this flexibility, allowing drivers to block certain delivery time slots to perform personal activities if needed, like a medical appointment.

Point-based Payment

Companies like Andreani and PedidosYa have systems that reward drivers with points that can be redeemed for work materials like tires or clothing.

Labeling

In conversation with Lucía SavignanoConstanza Gaset and Alex Gejtman, I learned about a philosophy regarding driver treatment that, although intuitive, I saw absent in most companies I spoke with: “We cannot treat all drivers the same.” In companies like PedidosYa, high-performing drivers unlock certain benefits, such as choosing their work hours and zones with priority, besides receiving preferential payments.

It is important to differentiate this incentive strategy from favoritism. In this case, the reason a driver moves from one category to another is objective and based on metrics, whereas in many companies, special treatment is given to certain drivers subjectively, which is perceived as unfair by the rest of the group.

Improving the Manager’s Role

I included this third category because, today, one of the main reasons for employee resignation is poor leadership, making it crucial to improve manager performance.

Reducing Unnecessary Conversation

In many cases, due to the overwhelming day-to-day, supervisors ask drivers questions that could be found in already existing information systems. Even if not available there, these could be calculated by dedicating a few minutes to the task. However, this doesn’t happen, and multiple questions are asked throughout the day to the drivers, wearing down the relationship.

Currently, there are interesting solutions that allow a conversational format between the supervisor and an AI that processes this information to make it more accessible.

Intelligent Coaching

Feedback is a great tool for drivers to feel accompanied by their leader. Until recently, it was difficult for supervisors to analyze each driver’s behavior throughout the day to identify improvement opportunities and achievements. However, recent tools analyze this information so managers can understand these cases and have valuable 1:1 conversations with drivers.

Comprehensive Visibility

While there are various telemetry tools, integrators of all these systems’ information for a complete analysis are scarce. It is possible that a driver’s average speed is low, but if we integrate this information with the assigned route, historical vehicle data, and real-time traffic data, we can understand that it was not a performance drop but behavior influenced by external factors.

Without this integrated information, supervisors often reprimand drivers for situations where they shouldn’t, generating negative emotions in them. Therefore, it is important for supervisors to have tools that allow comprehensive analysis.

Final Thoughts

The driver incentive space is very interesting for building solutions that allow transportation companies to innovate in the way they empower drivers to exhibit the best possible behaviors.

While some companies have taken the initiative and tested several of the methodologies mentioned, they are still scarce, and the vast majority have a much more basic model than the one presented in the article.

As you know, this series of articles is part of a #BuildInPublic project, where I document my learnings on the way to building a logistics startup. The reason I brought this topic is because we are building a driver performance enhancement tool, focusing on each individual’s behavior.

If you want to contribute to this process or are interested in learning about the solution we are currently validating, I invite you to connect on LinkedIn for a conversation.

Additionally, we are doing updates about the company in a more casual, focusing in the startup life. If you are interested in recieving them, you can suscribe here.

Bibliography

Errors in Delivery Addresses

At the beginning of the article, I mentioned that one of the two main sources of failed deliveries is errors in delivery addresses. This topic exceeds the scope of the research I am conducting, so I will not write an article on the subject. However, I have included some interesting bibliography below:

🌟 Thanks for reading! For more updates on the supply chain industry, follow us on LinkedIn.

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