Delivery driver Featured

8:00pm EDT September 21, 2006

FedEx Ground’s fiscal 2006 started out looking like it was going to be one of its worst performances. It turned out to be one of its best.

The disparity wasn’t the result of poor forecasting. On the contrary, it came out of an early realization that the company was in some danger of missing its goals for the year, and it was able to reverse its fortunes with quick action.

A cruel convergence of conditions had conspired to create the problem. A brutal hurricane season in the Southeast that crippled the Gulf Coast for months had put a dent into its business. Fuel costs already on an upswing were soaring as a result, and the company was in the middle of a hotly competitive pricing environment.

For a company that had grown accustomed to annual double-digit or high single-digit growth, a 5 percent growth rate in the early stages of fiscal 2006, which ended May 31, was like an overnight delivery taking three days to reach its destination: It was simply unacceptable.

“We had to take some extraordinary measures last year to reduce costs across the enterprise to get our business back in line to meet our goals, and we were able to do that by affecting a very detailed plan in every aspect of our business, through communications to our people all the way down to people who do the work in the field, and that’s critically important,” says Dan Sullivan, president and CEO of FedEx Ground, the small-package transport division of giant FedEx Corp.

FedEx Ground was far from collapse, but Sullivan’s full-court press to head off a threatened sag in meeting the company’s goals is indicative of how he runs the business and how he’s grown it into company that did $5.3 billion in sales in fiscal 2006. He works tirelessly to protect the company’s competitive position, not giving an inch on financial performance or customer service and keeping the company fit and ready for any bump in the road that might appear, such as a threat to its financial goals.

“I think the sense of protecting the lowest cost structure in the industry is part of our DNA,” says Sullivan. “We’ve always been very focused on our activity, very focused on control of costs and expenses, so our people were already in good control of the business.”

Instead of across-the-board cuts to make up the shortfall, Sullivan and his team took a comprehensive surgical approach to its plan for the year. He says nothing was sacred, but the adjustments were made with a scalpel rather than a hatchet, made possible by the extensive data that the company collects and uses to make its business decisions.

And that’s that kind of attention to detail Sullivan has used to keep FedEx Ground on the move since Day One. Sullivan stays close to the business, close to his customers and close to the cutting edge. He makes sure that every message gets out to everyone in the organization, from senior vice president to package handler. He and his team pay relentless attention to the details, continually analyzing reams of data to improve performance and find ways to cut costs and speed service in a business where a $7 package might be handled more than a dozen times in its system before it reaches its destination.

Sullivan says with that analysis has to come a willingness to change when the information dictates it, even if it’s sometimes to the consternation of his team. He sees that as his principal role, even if it makes some people uncomfortable.

“I think as a leader, that’s your No. 1 job, the vision of the business, and with that vision the understanding of where you’ve got to change it,” says Sullivan, who plans to retire in January.

Sullivan, who describes himself as a CEO who doesn’t always follow the chain of command, preferring to go to people in the organization he is sure have the answer he’s looking for, led the launch of RPS Inc. in 1983 as a spin-off Roadway Express and an upstart competitor to behemoth UPS. By 1998, the company was so successful that FedEx Corp. acquired it as its small-package ground transporter and renamed it FedEx Ground.

During that time, he has applied some basic concepts to continue to grow the company that he started in a Moon Township hotel room near the Greater Pittsburgh International Airport.

Listen to the customer

For Sullivan, undivided attention to the customer is required to remain competitive in the small package delivery business. To stay in touch with customer needs and, in some cases, their disappointments, Sullivan convenes an annual customer summit to find out where FedEx Ground is doing well and what it can do better.

“We meet in the customer summit with senior vice presidents,” says Sullivan. “We bring in about 65 customers, we break out in groups, and we listen to them. Boy, can it be painful, because you think you’re pretty good, but you find out there are some chinks in the armor. We take that information very seriously and then attack the root causes.”

Listening to customers has pushed the company into new business ventures. A subsegment of the industry cropped up called the consolidation space, which allows carriers like FedEx Ground to pick up packages and then tender them to the post office for final delivery to the customer. FedEx Ground had customers asking it to get into that area because it offered them lower shipping costs for some packages.

As a result, FedEx Ground bought a consolidator, rebranded it as FedEx SmartPost and picked up some very large customers in the deal.

Stay on top of the business

Sullivan’s emphasis on attention to the customer isn’t a once-in-a-while or as-needed activity. He stays close to the business and keeps the focus of his team on what’s occurring on a day-to-day basis.

“I meet with my office team twice a week, all officers on Monday morning, a three- or four-hour meeting, where we’ll review every bit of our business, and every Friday afternoon with my senior officers to review what’s happened the last five days as everyone’s been scattered around the system, with whatever they’ve been doing,” says Sullivan.

One of the items on every week’s agenda is the service quality index, a measurement of what FedEx Ground has determined are the 10 key issues to customers.

“We roll up that information every week,” says Sullivan. “I review it in those meetings ... with the officers each week, but it gets pushed down through the organization. We understand how we’re doing in these measures, then we go into the W.A.R. process, weekly analysis and review, and that’s done at the officer level here every Monday.”

The W.A.R. process goes into substantial detail, focusing all the way down to the individual employee level, in some cases.

“We get pretty granular in terms of trying to understand if we have a service failure or we have a quality issue or we have a complaint,” says Sullivan. “We have high levels of proficiency in all these areas, a great track record of continuous improvement, but you have to keep getting better.”

Push technology

A hallmark of FedEx Ground from its beginning as RPS has been the innovative use of technology — the company pioneered the use of barcodes on packages — and Sullivan presses his technical team to come up with new ways to squeeze more productivity out of the system.

“I’ve got great technologists, and I challenge the heck out of them,” says Sullivan. “I don’t know near what they do, but I challenge the heck out of them. I talk to a lot of customers and I understand our operations and I understand customers’ operations.

“I spend a lot of time with those guys, just brainstorming and just trying to think about what we can do next for our customers to meet their specific needs or challenges that they have, and again, make ourselves better because of that.”

For example, FedEx is testing the leading edge of satellite mapping and plotting that will allow it to look at hundreds of packages and optimize and sequence them on a particular delivery vehicle. And while that RFID technology isn’t yet cost-effective enough to replace the barcode, Sullivan says that’s likely the next phase in package information technology, and he is keeping his technology team focused on it.

Get out of the office

Sullivan doesn’t like to get tied down to his desk, although he finds that the demands of his job keep him in his office too much of the time. Getting out into the field keeps him in touch with the business and close to its real needs and challenges.

“You get out there,” Sullivan says. “That’s what it’s all about. We’re overhead, we’re support. We have certain responsibilities, but the work is done in the field. I try to tell our people that we have a lot of people in the company, but nobody’s more important than anyone else. No senior manager or package handler or contractor is any more or less important than any of the other folks that are here.”

Sullivan also does a companywide tour, visiting and meeting with all of the senior executives in the company.

“Every other year, I go out and visit with every senior manager in our company in a series of small meetings,” Sullivan says. “I talk with them about what’s going on, but I want them to talk with me, tell me what’s going on with their team, and I think you build a bond, you build a trust with your team doing that. That’s a grueling run over a series of a few weeks where you get to see 508 folks out there, but I think it’s important.

“You get to learn so much from what they say to you. They’re not going to tell you what you don’t like to hear unless they feel they can trust that they’re not going to hear about it a month later when somebody comes down on them for a bad idea. That only has to happen once, and you’ve blown it.”

And Sullivan doesn’t limit his contact to the senior executives only. He visits hubs and terminals and even makes periodic trips with delivery drivers.

“I like to drive with a contractor every year to just go out and pick up and deliver with them, what’s on his mind, how’s it going,” Sullivan says. “He’ll make 110 stops. I run four miles every day, but he’ll wear me out.”

Encourage innovation

Sullivan says the kind of innovation that FedEx Ground needs to grow its 18 percent share of the small package delivery market requires a willingness to take risks on innovative ideas and an openness at the highest levels to welcome them, even those that sound a little unusual. An idea that turned the package delivery business upside down — overnight delivery — he points out, was the one that launched parent company Federal Express.

“I think innovation is still a very important part of what we do,” says Sullivan. “We celebrate innovation, we have process improvement awards. A lot of these ideas are really off the charts, ideas that people come to us with that work. I think if people get excited about that and know what we want as a team and an organization, (the ideas) are going to get out there.”

And every CEO, he advises, needs to keep the pedal to the floor if he expects his business to survive, let alone grow. Standing still just won’t cut it.

Says Sullivan: “If anybody ever sits back in business and thinks they’ve got the job done, everything’s cool, they’ve got a problem.”

How to reach: FedEx Ground,