“At the end of the day,” he said, “what we really do is move product around from one center to another.”
During a recent CFO magazine webinar, Diaz and Ryder SVP of Sales John Gleason discussed how outsourcing fleet management and maintenance has allowed Diaz Foods to lower operational, distribution, fuel and maintenance costs; free up resources; and grow the business, without having to make a capital investment in owning and servicing its own vehicles. The strategy also boosts driver retention and allows the company to maintain high levels of customer service.
Such outsourcing has grown at least three-fold over the past several years, Gleason noted. Capital costs have risen alongside equipment costs, and the skills needed to maintain and service vehicles has become a financial burden on many companies that choose to buy their fleets, Gleason said.
“There’s a variety of trigger events and we’re seeing more of those come to bear as industry challenges,” he said.
Since opening in 1980 as a mom-and-pop grocer in Atlanta, Diaz Foods has grown to become one of the nation’s largest providers of Hispanic and specialty foods. With distribution centers, produce plants, cross dock operations, and other facilities throughout the Southeast and Mid-Atlantic region, Diaz Foods will do $200 million in sales in 2015, with $300 million forecast for 2016, and $500 million by 2020.
For its part, Diaz Foods needed a 3PL partner to keep pace with its growth. With Ryder, Diaz said he gets access to the latest, specialized and temperature-controlled equipment, integrated shop management solutions, and worry free maintenance and emergency services. If a breakdown occurs, Diaz is able to quickly get back on the road.
“Every time I have a tractor that’s not moving,” he said, “I’m not making money.”
The company also enjoys a host of other benefits. Predictable fuel pricing and visibility – the company uses 30,000 gallons of fuel weekly – keeps fuel economical and plentiful in current and new markets. This was critical in the aftermath of Hurricane Katrina in 2005. When competitors were unable to find fuel, Diaz’s trucks had access throughout its routes, including those in hard hit areas.
Then as now, with every refueling stop, each truck undergoes a 19-point inspection. This helps ensure Diaz Foods enjoys strong compliance, safety and accountability (CSA) scores. If maintenance or repairs are needed, vehicle technicians are trained in servicing increasingly complex vehicles as required by stringent environmental regulations.
This fleet leasing and maintenance strategy allows Diaz Foods to invest in other areas of its business, like adding facilities or growing its route network. The company also gains thought leadership and expertise. With every new customer, Diaz Foods managers collaborate with Ryder to maximize route network efficiency. They also optimize equipment and loads to help reduce fleet size.
By outsourcing certain operational elements critical to maintaining a favorable balance sheet, including its fleet, Diaz Foods is able to drive overall value to its customers and its own bottom line. The company enjoys improved opportunity costs by leasing its vehicles, instead of borrowing or investing $150,000 or more in a tractor, he said.
“Opportunity costs to me are the driving force,” Diaz said, adding that under current tax rules, leasing keeps loan debt off the balance sheet. “We have $2 million in equipment from Ryder. But if I purchased [the same equipment], there’s $2 million less I can get in credit.”
Moreover, where Diaz otherwise would be looking to sell aged equipment in seven years, under his lease, he’s turning in the old equipment and trading up for the latest vehicles available.
Another critical benefit is employee retention. When a vehicle driven by a long-time employee who preferred manual transmissions recently broke down on a route, one call had a replacement stick-shift vehicle sent. At a time when drivers are in short supply and see work opportunities at every turn, having the latest equipment drivers prefer aids retention.
“Our commitment to our customers is to deliver the best fresh, frozen and refrigerated products when and where they need it. That means we need to source the most reliable delivery vehicles outfitted specifically to meet our needs – even as they change over time,” Diaz said. “I’m in the food distribution business, so I don’t want to have to worry about fixing a clutch on a truck in the middle of nowhere. I want to concentrate on my core – what I do best.”
To listen to the recorded webinar, hosted by CFO magazine and sponsored by Ryder, in its entirety, click here.