When a firm makes something, should it also take responsibility for delivering the product? For many firms, the answer is a firm”no”. They happily hand over the logistic of schlepping products to some third party. Most firms are happy to let someone else own trucks and recruit drivers. That’s what make the story of Ashley Furniture so interesting (A Radical Supply Chain Idea: Own Your Trucking Operation, Apr 29, Wall Street Journal).
Ashley Furniture Industries Inc., the largest U.S. maker and retailer of furniture, has resisted that trend. It owns and operates about 800 trucks and delivers the vast bulk of its own products from factories to stores. “We think it is a core competency,” says Todd Wanek, chief executive of the family-owned company.
Ashley employs about 3,000 people in transport and warehouse functions in the U.S., nearly a quarter of its U.S. head count. Its distribution centers feature racks specially designed to speed loading, and its managers arrange for trucks returning after they deliver their furniture to carry loads for other companies for a fee. Its drivers, dubbed Ashley Ambassadors, are also charged with building customer relations.
The article hits on several points that help explain why Ashley has decided to keep shipping in-house. First, moving furniture is lot harder than delivering, say, consumer packaged goods. Cases of mac-and-cheese are a standard size. They form nice regular shapes. They can be packed in and easily secured so they don’t get damaged in transit. Furniture has irregular shapes so it is lot more complicated to figure out which orders can be stuffed into a truck going to a particular destination. Plus it is easily damaged. Given that, the choice for Ashley is between doing it themselves and being dependent on specialized freight haulers. That is, Ashley cannot count on being able to play off a large number of general trucking companies in order to get a good price.
The second point is that Ashley has scale. Yes, owning trucks is expensive, but they at least get to spread that expense over a large volume. Indeed, the article notes that a few other big furniture makers have their own trucks.
A third point is that the greater control that an in-house fleet offers can actually be a competitive advantage. The article quotes one retailer saying that Ashley is “unbeatable” when it comes to delivery reliability. That’s got to matter when a couple is hoping the new living-room set arrives before family visits. If they are indifferent between two options, being told that the Ashley always delivers on time is compelling tie breaker.
So what does this take to pull off? Ashley does a couple of things that keeps its costs under control. First, it actively seeks out backhaul business. They send out trucks from their distribution centers to stores across the nation but then have them haul random stuff on the way back home. 80% of the time, their trucks are moving other people’s orders on their return trips. Second, they treat their drivers well. This means paying well (in part because their drivers are taking on additional responsibilities like loading and unloading goods) and offering predictable schedules. As a consequence, they have extremely low driver turnover (which in turn feeds back to having drivers maintain relationships with retailers).
Taken together, this all suggests that keeping logistics in-house is not an odd choice but a coherent part of how Ashley competes.