Which roads lead to profit?

Haulier Jimmy Duigan moved with the times and developed his business to incorporate warehousing and packing. Now he needs focus on the business strands with the most potential, but which ones, asks OLIVE KEOGH

JIMMY DUIGNAN started his haulage business 25 years ago with one small van. Today his transport and logistics company employs 185 people and has a turnover heading towards €20 million.

Duignan is a very hands-on owner-manager. An ambitious, hard-working man, he will still roll up his sleeves to get a job done. His company has a reputation for being progressive and for providing a top-quality, reliable service. Duignan has seen huge changes in the transport and distribution industry over the past 20 years and he decided at the outset that his company would always move with the times.

Over the years this has meant taking big leaps of faith, but Duignan is a calculated risk taker with a flair for timing. He was one of the first to invest in refrigerated units when companies three times his size were hesitating. As a consequence he picked up a number of big contracts in the food business, which he still has today. As food distribution became increasingly sophisticated he gravitated towards the more challenging end of the market, transporting time-sensitive chilled and frozen foods.

He also developed a strong presence in the servicing multinational manufacturing sites mainly in the north west, having recognised at the outset that establishing a flexible transport hub close to their operations would be a big advantage when pitching for business. Duignan divided his fleet carefully to make sure he was maximising normal runs, while leaving himself with sufficient capacity to move trucks at short notice to pick up rush jobs.

Duignan was also quick to spot trends in global distribution patterns that presented companies like his with a golden opportunity to become bigger players in the supply chain. In the early 1990s he invested heavily in building a big warehouse close to his main truck depot and began to offer his customers with what was initially a simple warehousing facility. This, in turn, grew into a separate revenue stream offering customers added services, such as inventory management and order assembly. Warehousing services is now the most lucrative aspect of Duignan’s operation.

One of the best ways to grow a business is by “tightening your embrace around your customer,” he says. In practice, he says, this translates into trying to squeeze as much as possible out of existing customers to make oneself invaluable to them before finding new ones.

In line with this view, the company made a significant investment three years ago to upgrade its warehousing IT infrastructure to provide additional services, such as invoicing on behalf of clients and more sophisticated inventory control and order tracking. The money for that upgrade was borrowed.

It has also become involved in co-packing for clients involved in retail marketing initiatives, such as “buy one, get one free” promotions and in repacking products that may have come in with the wrong bar codes or labels.

Both are labour-intensive services and Duignan is already concerned that the demand for them is more sporadic than he had expected. Following discussions with the firm’s existing customers about potential business in this area, he is not sure whether to keep the service going and see if it picks up or to drop it before it drags down other aspects of the business.

In general, providing warehousing services can yield healthy profits and Duignan is keen to keep it that way, especially as competition in the sector is growing all the time. He is thinking of expanding the range of services available by adding document storage and shredding.

During the 1990s, his company also became involved in supplying just-in-time (JIT) products and components for a number of multinational companies. This business strand has suffered in recent years with some high-profile closures but Duignan is still keen to retain the JIT business he has and to increase it as it pays well and creates a good profile for the company.

Where Duignan is really feeling the pinch is in the provision of transport itself. Costs are high while margins are very tight and, in a year’s time, several of the company’s trucks are due for replacement at a cost of more than €120,000 each.

With the transport operation just about breaking even, Duignan is reluctant to make this sort of investment. He is worried that it could drag the whole business down.

Three of the vehicles due to be replaced are specialised refrigeration units, used to service one of Duignans oldest food sector clients. His transport manager believes that the company should not replace the ageing trucks and that it should buy in transport as required instead. This does not sit easily with Duignan who hates the idea of losing control over what he regards as a core aspect of his business.

On a personal level, he also feels that he would be letting customers down by sub-contracting the transport and he is concerned that his company’s reputation might suffer as a result.

His transport manager has also suggested that it might be sensible to consider off-loading this side of the business completely and to focus on the other services. Again, this goes completely against the grain for Duignan who believes in having an integrated operation and can’t envisage his empire being broken up.

Duignan’s argument is that, while price has become an increasingly important factor in winning new contracts, it is the company’s reputation for reliability and literally going the extra mile no matter what the circumstances that makes the difference in retaining them.

As the company is part of the highly time-sensitive refrigerated food sector and part of JIT supply chains, his constant message to staff is: time really is money.

Contracting out transport has the potential to generate significant savings, Duignan readily concedes, but at what cost? With the best will in the world, he insists, no-one will bring the same level of commitment to doing right by your client than you will yourself.

Duignan also recognises that the time has come for a major cost review. He accepts that the firm’s cash-flow management is not as good as it should be and that the company probably is somewhat over staffed.

His accountant has been pushing for the finance function to be out sourced, arguing that the company should focus solely on activities that generate revenue. He also says that the existing small finance department is over stretched and that some debtors are getting away with murder because staff haven’t got time to chase them.

Duignan takes a very conservative business approach when it comes to money, preferring to keep everything in-house, and he is very opposed to this proposal.

Perhaps the greatest concern of all to Duignan is where the empire he has grown is going to next. To a significant extent it has grown on the basis of his own native business acumen, the ability to quickly tell the difference between exciting opportunities worth grasping and equally exciting ones that are not.

Duignan has never been a big fan of detailed spreadsheets and Swot (strengths, weaknesses, opportunities and threats) analysis, even though his accountants are constantly trying to sell him on their virtues.

Now, however, with so many different balls in the air and continuing economic uncertainty, Duigan is beginning to fear that the time has indeed come for the very thing he has avoided for years, a strategic review of his vision for the future.

Which business strand should he focus on?