In Pursuit of Optimization
Command Alkon is a name that is synonymous with innovation. Its software and technology have changed how ready-mix concrete, aggregate, asphalt and cement producers, suppliers, contractors and haulers do business every day. The company has been headquartered in Birmingham, Alabama since 1976.
Most ready-mix concrete producers currently believe that their daily dispatch decision making is adequate; what they don’t understand is that their efficiency is limited by the dispatchers’ ability to evaluate the sheer volume and complexity of the information available to them. Other industries have realized the benefits of augmenting their logistics departments with optimization engines to remove certain human biases from the decision making process. Everyone from airlines to package delivery companies invests in these engines to improve the utilization of their resources. Optimization sounds like common sense; however, it is more than just software.
Several years ago, Command Alkon was approached by a ready-mix concrete producer interested in developing an optimization solution for the industry. This producer was interested in developing a solution to allow its dispatch team to have better information to make the tough daily decisions on how to use the fleet.
Through a collaboration with ORTEC, a leader in the development of optimization software and analytics solutions, COMMANDoptimize was developed as an extension of the current COMMANDconcrete software. “It’s an engine that works behind the scenes,” explains Dave Donaldson, who leads the Optimization team at Command Alkon. “The engine digests information about all the orders, trucks, plants and other variables and then the engine provides suggestions on the best way to utilize those resources.
“Many producers don’t realize how much opportunity exists to increase their efficiencies,” Donaldson continues. “The average ready-mix driver in the U.S. will spend over three hours a day in non-productive activities. Thousands of man hours are lost every year from inefficient use of the company’s resources; hours that could be eliminated or utilized to deliver more volume.”
“In our industry, a lot of companies see themselves as manufacturing companies,” adds Rick Singh, one of the Senior Business Consultants on the Command Alkon team. “On the material side, they ask how can they build a better concrete mix, how can they design the mix to get optimal performance, how can it be designed using replenishable materials so that you can get LEED credits or do something with the mix that has never been done before? Few see themselves as a logistics company… but they are… and that’s where an Optimization engine provides its value. It introduces a quality control process to the daily decision making for managing the fleet.”
“It’s not just a light switch. You can’t just come in and flip a switch and be optimized. You have to look at your business and be willing to adapt to a new way of operating,” says Donaldson, referring to it as a proactive, disciplined approach. The results have been outstanding for those producers who have adopted what the team has termed the “Optimization Lifestyle.”
Donaldson explains, “When we initially began building the engine, it was just before the great recession. The primary focus was on how we could get more productivity out of the finite number of resources available. This was when the economy was strong and almost everyone was trying to get more trucks, more drivers and more volume. By the time the first iteration of the engine was available, we were in the midst of the recession. Fortunately for the early adopters, they were able to see some benefits during that time as well.”
One such producer is Syar Concrete in the Napa Valley/Sacramento area. “Right when we introduced Optimization into our operations, our volumes dropped by almost 30 percent,” says Steve Thomson with Syar. “We were already a well-run organization, in the upper tier of performance compared to our peers around the industry, before we introduced Optimization but it helped us be even better. Even with the steep decline in volume, Optimization helped us improve our Cubic Yards per Man Hour by five percent and our Utilization went up by over 20 percent. We really feel that Optimization is the one thing that allowed us to stay profitable during the recession.”
Ron Robertson illustrates what he has seen on the savings achievable with Optimization using a basketball analogy. “A dollar a yard savings is like doing a lay-up. Most people can do a lay-up… it’s not that hard. Getting $2 per yard savings might be more like a free throw… harder for some to do but achievable in some situations. Getting more than that might be like shooting a three pointer… some will; some won’t.”
Now that the economy has recovered, the full value of Optimization is starting to be realized. Donaldson illustrates, “Some of the markets that we are working with now are starting to see the same problems that existed before we developed Optimization. They don’t have enough drivers and/or trucks to capture all of the business that they could potentially get. When you start talking about delivering 10 to 25 percent more volume per truck per year through Optimization, the revenue number dwarfs what you see on the savings side. You are winning on both sides of the coin.”
One producer who presented at a recent Command Alkon Customer Conference shared that they were delivering over $77,000 more revenue per truck annually compared to the best they have ever done in the history of the company. Another producer showed how they were delivering slightly more volume but using 14 percent fewer hours to do so. “That’s usually the story that Optimization can provide: you can either gain more market share or do the same volume with fewer resources required,” Donaldson adds.
Why isn’t everyone in the industry doing this today? Donaldson explains, “We have slowed our adoption process for Optimization because we realized that we have to make sure that a customer is ready for Optimization before we introduce it. I would like to tell you that we were smart enough to do this initially but unfortunately, we have learned this the hard way. Our early adopters of Optimization were not all wild successes mainly because we didn’t help them get ready to be successful with Optimization. It’s not just software; it is a process. You can’t achieve greater results by installing the software but continuing to do things the same way you have for the last 20 years. There is a Change Management process that is now integrated with any Optimization project… and it actually starts well before any project really begins.”
Donaldson continues, “We won’t sell the Optimization software to a customer just because they want it. We learned the hard way that if we don’t first get them setup for success before introducing the software then we only make their jobs and our jobs more difficult. We like to start by doing an assessment, what we call an Operational Assessment, that looks at almost all facets of the operations and then recommends improvements that can be made today and what would be critical changes needed before Optimization could be introduced.”
“Best money that we have ever spent with Command Alkon,” says Pablo Vásquez Tejos with Melón Hormigones in Santiago, Chile when talking about their experience. Rick Singh conducted an Operational Assessment for Melón last year. Singh explains the process further: “We go well beyond just how our software is being used today. We conduct interviews with all of the key members of the management team and any employees directly involved in the ready-mix dispatch operations. We are looking holistically at the processes and procedures followed daily and comparing them to best practices that we have observed from successful Optimization customers.”
Not everyone who completes an Operational Assessment ultimately installs Optimization. “There have been some customers that we recommended not to move forward with Optimization,” says Singh. “Sometimes there is not enough opportunity to share orders/trucks between plants. Sometimes there are business rules that make it impossible to gain the benefit of Optimization.”
One customer that was willing to change was Hahn Ready Mix in Davenport, Iowa. Hahn’s Vice President Wayne Lawson explains, “We spent a year changing many things about how we ran our business before we introduced Optimization. Some of the changes were structural such as moving to central dispatch and organizing the team into various roles. We introduced new Will Call policies to our customers and had to engage with our sales team on how to handle those objections. When we finally introduced the Optimization software, we realized that we could not have been successful if we had simply installed the software when we first wanted to do so. The Command Alkon team helped us get ready to be successful and it has paid off for us.”
A lot of producers currently accept less than optimal utilization of their assets as either the cost of doing business or profitability too difficult to recapture, but what they don’t understand is the amount of money being left on the table is really under their control to recapture.
According to an industry survey, the average cost for a yard of concrete has about 11 percent invested in fixed assets which means the remaining 89 percent has some variability to it. That variability includes materials, plant and delivery costs. “In some cases, the most underutilized opportunity to be more profitable comes from material savings.” Donaldson offered an example of a customer who initially resisted some suggestions coming from the optimization engine. The engine repeatedly made suggestions with which the customer disagreed. “We did the math for him and came back and explained how it all worked, and he responded that if he did that before optimization he would have been fired.”
Andrew Dyment worked on the development of COMMANDoptimize after decades in the industry. “I see this as the next generation of ready-mix dispatch. Optimization gives the shipper the best chance to make the best decision for the company and the customers. It also provides for some consistency in the decisions being made regardless of how tired the person is; it never asks for a day off; it is always evaluating the current situation and adjusting its plan. It goes beyond what we can do as human beings.”
In time, optimization will become an industry standard just like GPS systems and other advancements. “Optimization is not the norm in our industry like it is in others… but someday it will be. You will look back and ask, ‘why would you ever try to manage a logistics business without an optimization engine?’ We’re trying to bring our industry down that road… to help producers be more productive and profitable as well as better prepared for the future,” explains Donaldson.