The first time the headhunter called about the top job at Yellow Freight System, Bill Zollars said that he wasn't interested. He was perfectly happy as a senior vice president at another big transportation company, Ryder, where he had helped build the integrated-logistics unit into a $1.5 billion business. But the recruiter kept urging Zollars to reconsider: Here's a chance to build a new company out of one that's been around for more than 70 years.
It was Summer 1996, and Yellow was trying to set out on the road to recovery. The previous year had been the worst in the company's history: It saw $30 million in losses and the second round of layoffs in two years. In 1994, the Teamsters had gone on strike for 24 days, which cost the company dearly.
Zollars, who had left Kodak after 24 years for the chance to run Ryder's logistics unit, was intrigued. He met with Maury Myers, the new CEO of Yellow Corp., the holding company that included Yellow Freight and two regional carriers. Yellow Freight generated $2.5 billion in annual revenue, or about 80% of Yellow Corp.'s total sales. The survival strategy, Myers told Zollars, wasn't to reestablish the Yellow brand as a long-haul carrier, but to transform the company into something completely different: a carrier that offered multiple services and that was built around unprecedented customer service.
It was an opportunity that Zollars couldn't resist. He signed on with Yellow to help a troubled company start over. And today, nearly six years later, Yellow is a different company. It still transports primarily big, heavy freight — minimum 100 pounds — called "less-than-truckload" (since a single shipment doesn't fill an entire trailer, workers load multiple ones on the same vehicle). But how and when those parts and products reach their destination is another story. Gone is the one-dimensional long-haul approach and the complacency ingrained from years of regulation. No more telling customers, "Sorry, we can't do that." The new mantra is literally, "Yes we can." In an attempt to offer what Zollars calls "one-stop shopping," Yellow has added a variety of services, including regional and expedited shipping, to satisfy a broader range of transportation needs.
The old Yellow gave customers a rough estimate of when a shipment would arrive. It might show up then. It might not. The new Yellow is faster, more precise, and, the economic meltdown notwithstanding, more profitable. The four years before 2001 were the most successful in the company's history, with the annual revenue for 2000 reaching a record $3.6 billion. Even as the overall tonnage and revenue fell off in 2001, the newest services continued to grow — a sign that Yellow is headed in the right direction, says Zollars.
That financial success has deep strategic roots. Long known for its bright orange trucks, the company is now considered to be a technology leader in its industry. Yellow's systems monitor 13,000 trucks nationwide and around 70,000 national and international shipping orders each day. The once-rigid delivery schedule is flexible. Customers decide when their freight will be delivered: in a week, three days, or several hours. They specify morning or afternoon delivery or, if they prefer, the exact hour. Yellow offers a money-back guarantee on expedited deliveries.
"We've gone from being a company that thought it was in the trucking business to being one that realizes it's in the service business," says Zollars matter-of-factly. That's a pretty simple way to describe a pretty big transformation.
First, Say What's on Your Mind
Before he began shaking things up at Yellow, Bill Zollars decided that he had to explain himself and his ideas to the staff. He also decided that he had to do it quickly, frequently, and in person. But there was a problem: Only a fraction of the 25,000 employees at the time worked at the company headquarters in Overland Park, Kansas, outside of Kansas City. Most worked at terminals that were located in several hundred cities. So in early 1997, after a few months on the job, Zollars hit the road. For the next year and a half, he regularly visited terminals around the country, where he conducted a series of town-hall meetings. There were no fancy slides or videos. Just Zollars, an affable former college-football player from Minnesota, standing on a loading dock or in a sales office, talking to the people responsible for carrying out his plans. "There were days when I gave the same speech 10 times at 10 different locations," he says. "I'd start at 6:30 AM with the drivers, then I'd talk to the dock workers, the people in the office, and the sales staff. At night, I'd meet with customers. I wanted as many employees and customers as possible to hear it from me face-to-face."
Zollars didn't meet every employee, but he did reach thousands. His presence made a strong impression. "People thought, 'He's the president of the company, but here he is talking to us,' " says Mike Brown, vice president of strategic market planning and marketing communications. "It's something this company hadn't experienced before. It was a breath of fresh air." The goal went beyond putting a face on the new leadership. Zollars, who returned to many terminals more than once, wanted people to know that his vision for a new Yellow wasn't just this year's fad — it was a long-term shift. "Repetition is important, especially when you're trying to change the way a company thinks about itself," he says. "You're trying to create new behaviors."
Again and again, he reminded employees of the company's new focus: customers. He knew that this represented a different way of thinking about the business. Early on, during a visit to one of two customer call centers, Zollars listened to calls to get a flavor of the process. Although he was impressed with the instant transfer of information to the terminals, he noticed a problem: When customers contacted Yellow, its representatives didn't ask them when they wanted their freight. Instead, the reps told customers when Yellow could deliver it. The schedule was convenient for Yellow but not necessarily for its customers. "I remember one caller who said, 'I'd like to get this stuff from Chicago to Atlanta in two days,' " says Zollars, "and we said, 'We can get it there in three days.' The customer thanked us and hung up. We didn't think there was anything wrong with that. The attitude was, If you don't like what we do, too bad."
For a long time, he says, Yellow adhered to an "operational obsession." Employees monitored how much freight moved through the network daily, how full the trailers were, and other internal metrics. Yellow was a model of efficiency. But it had no idea whether its customers were satisfied. At the town-hall meetings, Zollars would ask employees to guess the defect rate: how often shipments were picked up or delivered late, billed wrong, or damaged. Usually, they'd say it was 10% or 20%. Try 40%, he'd tell them. "I'd never seen a defect rate in any industry that bad," he says. "The response was classic denial. People thought, 'We're as good as anyone else in the industry.' "
In many ways, when Zollars arrived, Yellow still behaved as though deregulation hadn't occurred in 1980 — as though everybody's rates and service were the same. Meanwhile, the competition was reducing its long-haul transit times, and smaller, more nimble outfits were grabbing up regional shipments. "We were a defensive company — a follower, not a leader," says James Welch, who became president and COO of Yellow Freight in 2000 after Zollars replaced Myers at Yellow Corp. "We were yearning for leadership. This company was ready to change."
Next, Listen to What Customers Want
If Yellow was going to satisfy its more than 300,000 customers as never before, it needed to hear from them. That was Mike Brown's job. In late 1997, with the help of an outside firm, Yellow surveyed 10,000 randomly selected customers. Since then, the company has been surveying 600 different customers a month. Those 15-minute conversations are vital. "It used to be that one anecdote or the opinion of one customer would carry the day," says Brown. "Now we have the opinions of tens of thousands of consumers."
For a company that relied on internal criteria, letting people from outside the company — its customers — evaluate performance wasn't easy. Especially when Yellow learned that its assumptions about customers were wrong. "We'd had the attitude that speed and price were the most important things," says Greg Reid, senior vice president and chief communications officer. "But according to our research, what matters most is that you pick up when you say you're going to, deliver when you say you're going to, and don't damage the freight."
The customers made a compelling case for dramatically improving reliability: Those who said that they would use Yellow again and recommend it to others had gotten good service. Those who hadn't were less loyal. It was a fairly obvious lesson for a traditional service provider, says Reid, but it was a critical one for a company that was trying to become customer-centric. "What happens when consumers anywhere get bad service? They don't go back," says Reid. "Why should we expect our business to be any different?"
Nothing epitomizes the company's new commitment to customers better than Yellow's Exact Express. Launched in 1998, it represents a breakthrough for Yellow: its first expedited, time-definite, guaranteed service. Everyone involved, from the customer rep to the driver, is committed to doing what it takes to satisfy the customers' needs — even if that means using an outside air-cargo partner to meet a deadline. So far, says Valerie Bonebrake, senior vice president of new services, which includes Exact Express, the deliveries have arrived when they were supposed to 98% of the time.
Exact Express is Yellow's most expensive and most profitable service. It's also growing at the fastest clip, with double-digit increases every year. Because of the service's guaranteed on-time delivery and its speed, Yellow is moving the sort of "hot" freight that it didn't get before: an overnight shipment of 40,000 flashlights from Los Angeles to Washington, DC for an outdoor event that took place during the 2001 presidential inauguration; marketing material that related to an acquisition, which had to reach 349 banks on the same Monday morning; 10,000 pounds of air freshener that was rushed to ground zero of the World Trade Center attack. Although customers call on Exact Express in emergencies, says Bonebrake, the goal is for them to make it a routine part of their just-in-time supply chain. Yellow no longer measures itself against the competition alone, says Zollars. It strives to be as fastidious about service as Nordstrom, Starbucks, and FedEx.
Exact Express is helping Yellow win back customers such as Timothy Slofkin, the traffic and purchasing manager for Interprint, a printing company in Clearwater, Florida. About six years ago, he stopped using Yellow because its shipping schedule was simply too inflexible, too limited. "Yellow was never willing to work with me," he says. A few years later, one of Yellow's sales reps told Slofkin about the company's online-ordering-and-tracking capability. Slofkin was skeptical, and since he didn't have a computer, he didn't have much use for the Web. But Yellow persisted, persuading Interprint to equip its shipping department with a computer and then training Slofkin on how to use MyYellow.com. Now he's one of 51,000 users registered on the site, and he's hooked. He routinely places orders online, tracks his shipments while they're en route, and reviews past shipments.
And Don't Forget About the Power of Technology
One of the main reasons that Yellow has been able to expand and improve service is its state-of-the-art technology. Since 1994, the company has spent about $80 million a year on its highly integrated information systems. The investment has led to significant changes in virtually every stage of the business. It has affected how orders get processed and relayed from the call centers to the terminals, how the dispatchers assign drivers for pickups and deliveries, and how the dock workers load and unload trailers.
Yellow's early years were rather low-tech by comparison. In the 1920s, the Harrell brothers, A.J. and Cleve, who once hauled freight by horse- and mule-drawn wagons, operated a small but growing fleet of yellow Model T taxicabs (according to company lore, the original yellow cab) and buses in Oklahoma City. In 1924, the Harrells incorporated the Yellow Cab Transit Co. Two years later, they acquired a couple of trucks to handle the freight that they had been hauling on their buses, mainly oil-rig parts bound for Tulsa. Back then, there was no way to track shipments or to guarantee that freight would arrive at a certain time. It got there when it got there. How long it took often depended on the condition of the two-lane highway that day.
Nowadays, even though Yellow essentially does the same thing that it did then, the operation is considerably more involved. What was a small regional company for many years has become a global enterprise with more than 14 million shipments a year, 377 terminals across the country, and partners around the world. And yet the technical demands are often overlooked. When Lynn Caddell left America West Airlines to become president of Yellow Technologies, a Yellow Corp. subsidiary with 350 employees, a colleague remarked on how boring trucking seemed compared with the airline industry. Caddell didn't see it that way. "We're moving a product from one place to another, but there's a lot more complexity to it," she says. "Each of my 'passengers' is a different size and weight and needs a different amount of space. And they don't simply go from airport to airport. They go to hundreds of zip codes and addresses. Many of them need to arrive at their final destination at a specific time. Coordinating all of that is a huge challenge."
When customers call 1-800-MY-YELLOW, the system automatically opens a customer profile that corresponds to the caller's number. The representative instantly knows where the customer's company is located; what type of loading dock it has; the size, weight, and contents of previous shipments; previous shipping destinations; and who has signed for deliveries. If a customer calls back at a later point with the identical shipping order, say, several thousand pounds of freight from Memphis to Seattle, the process takes about 15 seconds. In other words, less time than it takes to order a pizza.
Each dock worker is equipped with a wireless mobile data terminal, or MDT, designed to speed up the loading and unloading process. Before a tractor trailer arrives, the worker can see what's on board, as well as which doors on the dock correspond to those destinations. If he is taking longer to unload the pallets than the system estimates that it should take given the amount of freight, an alert is sent to his MDT. The dock supervisor also has access to the incoming and outgoing freight at his computer station. If he notices that a truck is running behind, he can dispatch a second employee and a forklift to speed things along. The old system was inflexible: one employee per trailer.
The technology enables Yellow to give the employees who are closest to the customers the information they need to solve problems quickly. And the leadership style allows those employees to make decisions themselves, rather than wait for a supervisor's response. That's how Yellow's facility in Chicago is able to operate as effectively as it does, says Bob Zimmerman, its director of operations. With 367 doors and two terminals that are a quarter-mile apart, it's the largest distribution center in the network. The staff fills 500 trailers a day, loading and unloading thousands of shipments. Many trucks are in and out in half the time that it used to take. "We call it the 'zoom process,' " says Zimmerman.
A sense of urgency has replaced the long-haul mentality. Yellow used to hold a trailer on the platform for hours, he says, eager to fill every inch of available space, even if it meant that the truck fell far behind schedule. These days, in order to meet the shorter transit times, the terminals have regularly scheduled departures, just like the airlines. But the trailers aren't leaving the terminals half full, says Zimmerman, because about 90% of Yellow's freight is predictable.
Yellow's Regional Advantage represents another crack at the lucrative regional market for the company. The deliveries are shorter, including two-day shipments within 550 and 1,100 miles. And the demand is growing, unlike that for long-haul deliveries, which have been on the decline. The difference for Yellow this time is the technology, says Zimmerman. Dispatchers and dock workers can identify regional shipments in the system and keep them on schedule. About 70% of Yellow's shipments take three days or less, a significant decrease compared to several years ago. But the trucks aren't traveling any faster. The engines are equipped with governors that limit the top speed to 62 MPH. The fleet runs faster because Yellow is managing its network smarter: fewer stops, fewer freight transfers, and fewer damaged shipments. "Every time the freight is handled," says Zimmerman, "it's slowing down, and the risk of damaging it increases."
The central dispatch office in Overland Park serves as Yellow's air-traffic control tower. Dispatchers have what John Braklow, senior manager for service improvement, calls "a 40,000-foot view" of the day's shipping activity on a map of the United States. They identify service failures in the making and work with the terminals to devise solutions. The system, which updates every 10 minutes, allows the dispatchers to see each shipment in the system, color-coded according to whether it's on schedule, or each driver in the system, color-coded according to his availability. The red shipments are the ones that are in danger of arriving late. "One of the guys calls it the 'Visine system,' " says Braklow, "because you're supposed to get the red out."
The Road Ahead
These are tough times for the ground-freight industry. As James Welch, the current head of Yellow Freight, says, "We truck the economy." So when the economy hit the brakes and manufacturing came to a stop in 2001, there was less freight for Yellow to move. The company's stock price dropped, it missed its earnings estimates, and it had two rounds of layoffs that totaled 591 nonunion employees. About 800 drivers were issued furloughs as well. Immediately after the September 11 terrorist attacks, there was speculation that ground-freight carriers might see more business as companies avoided using air cargo. But it didn't happen.
Despite the setbacks, Zollars remains upbeat about the road ahead for several reasons. First, Yellow's defect rate is down from 40% to 5%, and its on-time performance (excluding weather delays) is in the high nineties. The number of customers surveyed who said that they would recommend Yellow has doubled since 1997. And in an industry that is notorious for slim margins, the company continues to create promising sources of revenue, including Transportation.com, a logistics service for small- and medium-sized businesses. Zollars predicts that, like the airline and telecommunications industries after deregulation, a handful of big ground-freight companies will ultimately survive. One of them will be Yellow. "We were a one-trick pony before, and now we're able to provide a full suite of transportation services," he says. "This is the time to be even more aggressive. We should be grabbing more market share and thinking strategically."
Yellow, which used to advertise primarily in trade journals, is going to great lengths these days to make its brand more visible. The company has produced its first-ever television ads; the "Yes we can" spot features Ray Simon, a truck driver in St. Cloud, Minnesota, who won the 2001 National Truck Driving Championships, making him the event's only three-time champion. Yellow also sponsors a racing team in NASCAR's Busch Series. Beyond network exposure that Reid estimates is worth about $5 million in equivalent advertising, Team Yellow Racing has proven popular with customers and employees alike. For a ground transportation company with about 20,000 union members, says Reid, "This is a big deal."
Apparently, so is wearing orange. Employees don't just wear shirts featuring the Yellow logo to the office or the terminal. Some of them wear more orange than the students at Syracuse University and Clemson University combined. (Why, you ask, does a company named "Yellow" choose orange as its official color? When A.J. Harrell asked DuPont for the color that would be most visible — and presumably safest — on the road, Harrell was given "swamp-holly orange.") Without a doubt, vice president Mike Brown is the Cal Ripken Jr. of Yellow fashion. Brown has worn orange socks to work nearly every day — "99% of the time," he says — since October 22, 1997. That was the day that he and Reid, another orange-sock devotee, made a presentation on the company's new customer-centric brand to senior management at Arrowhead Stadium. The highlight was a video called How to Kill a Business, which featured movie clips that showed the worst service imaginable. That was the old Yellow.
After going through a serious metamorphosis, the new Yellow began hosting an annual conference in Las Vegas called "Transformation." Each year, 1,000 employees and 500 customers attend workshops on change. The underlying message is that the changes at Yellow are far from over. "Now that people have gotten used to how we do things, I'll tell them, 'Well, it'll be different five years from now,' " says Zollars. "And some of them will say, 'I thought we were done.' But I don't think that you're ever done. You have to keep reinventing the company, because the market keeps changing. If you don't, you end up coasting."
Chuck Salter (email@example.com) is a Fast Company senior writer. Learn more about Yellow on the Web (www.yellowcorp.com).
Sidebar: Road map for Reinvention
Yellow has become a different company since 1996. It is driven by CEO Bill Zollars and a frontline revolution that emphasizes the customer. The following principles are its road map for reinvention.
Share the new vision every day. Early on, Zollars spent 18 months visiting employees and explaining why and how Yellow had to focus on its customers. Zollars believed that because this was a new way of thinking, employees needed to hear it more than once. They also needed to hear it directly from him so that they could gauge his conviction. "If the people doing the work don't believe what's coming from the leadership," he says, "it doesn't get implemented. Period."
Avoid behavior that undermines the mission. When a new leader joins an organization, actions tend to get magnified, for better or for worse. "For every negative thing you demonstrate to people, it takes 50 positive things to overcome it," Zollars says.
Get out of the office. During his first year at Yellow, Zollars spent most of his time in the field. "It's the only place where you find out what's really going on with customers and operations without any filters," he says. "At headquarters, you don't hear any of the bad stuff."
Don't be afraid to tell the truth. Zollars uses an employee newsletter, YFS Week, to give the staff an honest assessment of its performance and the industry on a regular basis. "We don't just talk about victories. We talk about losing business, about claims problems. We want to give a clear picture of where we were."