The Business of Independent Service Provider Contracting

A Colorful New Ranking System For The Future

Posted by Jeff Walczak on 2/2/23 7:30 AM

By now, most of us have seen or heard the news that FedEx is rolling out a new system for rating contractor performance. 

Initial indications are that there will be three tiers (Gold, Silver & Bronze) and your operation will be classified as one tier or another based on several safety, serviceMedals and customer experience metrics, on a monthly basis. Word out there is that some operating efficiency data will also be included, so productivity will be a part of this too.

It appears that the days of simply meeting contractually accepted service & safety performance standards to assure continued contracting participation are about to be gone.

So the question being asked is, what does this really mean for contractors?

What’s Going On?

On the surface, and when initially announced by FXG, it didn’t look like too much more than just a change in the process for the previously termed “exclusive right to look undernegotiate”. But now that more detail is coming out, it looks like there’s more at stake from this new process than originally met the eye. 

For example, it could be that the amount of work you dispatch per truck each morning will have an impact on what your Service Provider Results Summary shows at the end of the month.

Previously, many contractors considered just getting all the packages picked up and delivered as the only cause for daily worry. 

But now, doing it safely and efficiently will be just as important as service.

But What Does This Mean For Contractors?  

Simply put, contractors will need to change the way they think about providing results for FXG. It’s going to get more complex.

It means a focus on not just service and safety, but maximizing operational efficiency as well. CHange Thinking

It means ignoring productivity and efficiency could contribute to putting your contract in jeopardy of non-renewal.

It means achieving a level of awareness and operational control that many have not had in the past.

It means that you’ll need to take ownership of your business results, instead of blaming others for lack of performance.

It means service is no longer the biggest and only thing you’ll need to achieve in order to ensure the future of your contract. 

What It Doesn’t Mean

It doesn't mean that FXG is abandoning the contractor model. On the contrary, it means it is trying to strengthen the contractor's operational prowess.

It doesn’t mean FXG is gunning for veteran contractors in favor of new contractors so they can pay new contractors less.Conspiracy

It doesn’t mean that this move was created in an effort to punish contractors for last year’s events.

It doesn’t mean they are cooking up stuff just to make the contractor's lives difficult.

It doesn’t mean that they are going to, by default, give you the tools to manage the manner, method or means of your daily operation. (You get this from eTruckBiz)

It doesn’t mean they are just trying to increase pressure on contractors for fun.

Why Are They Doing This?

There are likely reasons behind this move that will not reveal themselves for some time. However there are a couple of reasons that make sense.

In order to align with the operational needs of Network 2.0, contractors will probably Why 4need to implement and adapt to the logistical needs of absorbing Express. Current operating thinking of just getting done, however inefficiently, is not compatible with the operational challenge of on-call same day (late day) pickups, just to name one new challenge.

“Cutting in” new contracts to absorb increased volume (yes, we know that this doesn’t seem relevant right now, but stay tuned) means additional weekly fixed service fees for new contracts. Productive, efficient contractors reduce the need to add contracts. Fewer contracts means fewer weekly fixed service fees. Savings of any kind support FDX’s commitment to save $3.7 Billion dollars per year.

Higher productivity also means less dock space needed, which equals fewer facilities. This also equates to additional savings.

Actually, we could (and maybe this should be a subject addressed with its own post or web-meeting) go much further into the savings realized by FDX with increased contractor efficiency, but we’ll park it for now.

Savings, of all types, is the simple answer to why an effort to monitor and hold contractors accountable for efficiency is being undertaken.  

What’s The Good News?

This is pretty simple.

An emphasis on efficiency and productivity ultimately leads to improved financial performance for contractors.

Financially stable and healthy contractors produce better operating results, which is good for FXG.good news

Success breeds success, and that’s what they are shooting for. 

Ultimately, we believe this process will benefit contractors by giving them a clear metric by which to evaluate their business performance through the eyes of FedEx. With the help of our exclusive data-sharing arrangement with FedEx, our systems will be able to track your metrics DAILY instead of waiting for the monthly rating.

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Topics: Business Outlook, FedEx, Management, Business Metrics, FedEx Ground, Business, Dashboard

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