Hermes Staffordshire University Overnight Position by MikeJenny


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									Hermes Couriers Ltd


    The managing director of Hermes Couriers Ltd, Diane Hunter, has recently recognised that the
    company is facing a crucial stage of development following a successful period of expansion
    during the last 5 years. Hermes, part of a larger diversified group, are now in position to offer
    both courier and contract distribution services throughout most of Great Britain. Whilst not in
    position to challenge market leaders such as Parcelforce and TNT they can offer services that
    can be tailored to the needs of smaller and medium sized companies and to individuals. This is
    achieved through concentration upon geographical markets based around regional distribution
    centres, with trunk links providing for national coverage. Hermes do not operate outside Great

    Because Hermes have historically grown by amalgamation of several regional companies; a
    process has taken much management resource, they have not been in a position until recently
    to look closely at their operating systems on a company-wide basis. The feeling has been
    gathering that Hermes are loosing out in relation to investment in new technologies and,
    because they have grown in a rather haphazard fashion, are failing to gain the expected
    advantages of scale such growth should bring. Thus, although sales growth has been
    maintained within a tough market, margins are under severe pressure.

    Diane Hunter considers that a review of current operating systems and strategic investments in
    information systems and technology will yield considerable benefits; but, where to start? A
    senior management planning group has been convened with a remit to develop
    recommendations for strategic information systems investments.

    Company description

    Hermes offer a service for delivery of parcels and packages up to a size of approximately 25
    kilograms. The aim is delivery upon next working day for consignments collected before 15.00
    hrs. Working days include Saturdays. Tariffs are based upon package weight and distance as
    measured between Hermes operating regions. In general Hermes deal with 3 main categories
    of customer.

    (i) Contract Distribution: These customers have a contractual arrangement with Hermes for
    delivery of goods. They are charged on a basis related to the contract and the volume of
    packages. At present this category accounts for 44% of business by value and somewhat more
    than 51% by volume, so these customers are of great value to Hermes since they effectively
    cover a large proportion of the fixed cost of the company.

    (ii) Credit Account Customers: These are mainly small and medium sized companies and
    businesses. They are often regionally based. These customers represent some 42% of
    business by value and 38% by volume.

    (iii) Individual Customers: Representing the remaining customers these are mainly private
    individuals plus "one-off" business customers. The distinguishing feature is the sporadic nature
    of the business and the fact that payment is normally up-front.

    Hermes will deliver most goods within reason but reserve the right to refuse certain categories
    of fragile and valuable goods. Their contract of sale effectively limits their liability and places the
    onus for appropriate packaging and insurance of such goods on the customer.

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Regional Structure

The company is organised into regions based upon centres in the following towns:

 Office/depot        Region covered

 Coventry            Midland Region (inc. Mid Wales)

 Nottingham          East Midland Region

 Peterborough        Eastern

 Dagenham            London NE

 Watford             London NW

 Guildford           London S

 Swindon             Southwest

 Warrington          Northwest (inc. North Wales)

 Wakefield           Yorkshire & Humberside

 Newton Aycliffe     Northeast

 Glasgow             Lowland Scotland

 Aberdeen            Highland Scotland

 Bridgend            South Wales & Avon

Distribution is based upon small vans and light goods vehicles (i.e. Ford Transit class) for
regional deliveries and articulated lorries for trunking between regions. For distribution out with
main regional coverage a network of small subcontractors is employed (e.g. Wales and the
West Country). For outlying customers the next day delivery is not guaranteed.

The company employs 757 people divided between delivery drivers, depot staff and office staff.
The total owned and leased vehicle fleet is 316 and turnover during 2008/09 was 22.68 million,
representing a total of 1,084,000 packages handled.

Each regional centre has a regional manager supported by depot manager, office manager,
transport manager, personnel, sales and finance. Headquarters is in Birmingham where the
company board, central planning, marketing, finance and personnel are based. Company
structure, including an example region, is shown in appendix I to these notes. Regional
structure and coverage is shown in appendix II.

Current Operations and Systems

Systems vary in detail between regions. This is because of the way in which the company has
evolved. The following description is of the "core" operating system with differences relating to
customer types explained.

A customer places an order for a package to be delivered and it may be either collected from
the customers address or dropped off at the regional centre for delivery.

In the case of contract customers there will normally be an arrangement for a vehicle to call on
a regular basis (often daily but sometimes on specific days or weekly). Contract customers may

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cancel a pickup if they know that no packages are available for collection but often do not. In
cases where they do seek to cancel, or perhaps request an additional pickup, the information
may be slow in reaching the depot team who are responsible for scheduling pickups and

Ad hoc requests for pickups and deliveries are recorded and fed to the scheduler who works for
the depot manager. The scheduler is responsible for preparing a worksheet for each delivery
vehicle and team. This is based upon 3 main inputs. Firstly the scheduled calls for pickup at
contracted customers, secondly the ad-hoc requests and thirdly the list of packages received
via overnight trunk deliveries.

To ease the tracking of packages a job numbering system is used. This varies between ad-hoc
and contracted packages. In the case of ad-hoc a number is assigned based upon the regional
identification and the customer information. In the case of contracted items, numbers are
assigned by the delivery drivers based upon contract worksheets and fed back to the office staff
who are responsible for accepting jobs, tracking and billing. Once a job number is assigned to a
package it is written on a package label and also entered upon the worksheets for each delivery

Delivery drivers thus follow a worksheet for each trip they make. This will contain job numbers
supplied to them and job numbers generated from contract information and packages that they

Customers are responsible for addressing of packages and labels can be supplied. Job
numbers are simply attached to the package using a separate sticky label.

Within this basic system it can be seen that regions are able to operate reasonably
independently. The work to be done is dictated by the business generated locally from both
contract and ad-hoc customers and work received via the overnight trunk deliveries.

      1.1.1     Trunking

      A company-wide trunking operation is carried out and operated by headquarters
      (although staff are based at each regional location). When a regional depot has a
      package for delivery outside its area it is assigned to the appropriate trunk-route for
      onwards distribution. The trunk operation and schedule is such that a package received
      in the depot prior to 15.00 hours will be delivered to the depot in the relevant
      geographical area for onward distribution the following day. If it is received later, it is still
      possible that it may be delivered the following day depending upon distances and exact
      timings. Timings and operation of the trunk routes are under constant review in order to
      get best effective use of the expensive articulated trucks.

      1.1.2     Job Recording

      Most ad-hoc jobs are received via telephone with some "personal" callers. A customer is
      quoted a price for the package based upon its weight, delivery distance and whether it is
      to be collected (most cases). A job-sheet is made out and passed to the scheduler for
      incorporation in a delivery driver‟s worksheet. The job is recorded on a computer system
      for accounting purposes and billing is based upon reconciling returned drivers worksheets
      to recorded jobs.

      1.1.3     Workload

      Work loading upon delivery drivers can vary considerably. In some case a single
      worksheet will take a day for a driver to complete in other cases several trips may be

                                                                                                Page 3 of 10
      made. In most cases drivers operate alone, however where particularly heavy packages
      are concerned members of depot staff may be assigned to assist a driver.

      1.1.4     Sales & Marketing

      The company is constantly seeking to expand both their contract distribution and credit
      customer base. This is achieved through sales representatives based at each regional
      centre. The representatives are responsible both for generating new contract business
      and customers and looking after existing customers. There is only a limited national
      account co-ordination via headquarters, local sales representatives are responsible for
      looking after allocated contracts in their area.

      Additionally to the sales efforts, the company advertises in yellow pages and other local
      directories. Occasionally local advertising campaigns are conducted, mainly as a means
      of attracting new credit customers.

Information Systems and Technology

There are headquarters based information systems for finance and vehicle fleet records. These
are run on a medium sized server networked to PC workstations. The finance system has
recently been installed and is state of the art. The vehicle fleet records has been criticised by
operational staff in the regional because it seems difficult to use despite extensive training and
does not have a facility for managing vehicle maintenance.

All regions use IT; most they employ (various) microcomputers to record and prepare job
information and to bill customers. They report financial information back to head office via a
“floppy disk” one a week, again using various standard financial packages. Each regional; office
also runs it‟s own and payroll system using modules within their finance systems.

The Glasgow operation differs in that they have a custom designed integrated system running
on a client server network provides for job booking, standard scheduling, job completion, billing
and vehicle maintenance scheduling. This system dates to the time prior to its precursor
company being acquired by Hermes. The system is effective in that is covers all core
operational functions but somewhat dated in terms of presently available technologies. In
particular is does not use a GUI and users often complain about the poor usability.

All sites have modern PABX equipment and there are dedicated tie lines between the following

 Birmingham – Nottingham

 Birmingham – Warrington

 Birmingham – Swindon

 Birmingham – Peterborough

Birmingham recently bough a GIS (Geographic Information Systems) designed to help vehicle
routing for deliveries. The system is very modern and has a good user interface but driver often
joke about the system as it cannot take account of traffic loadings and the drivers believe they
have better local knowledge with which to determine the „best routes‟.

The responsibility for "information technology" within the company rests with a small team at
headquarters. This is managed by Peter Rock who joined the company some 2 years ago. The
energies of Peter and his team are largely spent in maintaining existing Headquarters systems
and monitoring contracts with IT suppliers. Very able technically, Peter has been a little
frustrated by his recent experience within Hermes since he would like IT to play a more

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important role within the company and exploit some newer technologies. To date however, no-
one has shown a lot of interest in new developments.

Strategic Directions

An analysis (appendix II) has shown that there is considerable disparity between costs and
margins achieved by the various regions. This may be a result of business mix but it is
considered significant that the Glasgow operation appears to perform better in this area than
others. Could this be because they have better information systems in place?

What about the economies of scale that should accrue from the growth that Hermes has
achieved? Confidential research commissioned by Diane Hunter suggests that Hermes may
only be achieving around 60% of the margin on unit sales of their key competitors. Clearly there
is more value to be gained by looking at operations and systems.

Finally, what of integration. At present each region operates reasonably independently. Is this
the best way to service the requirements of contract customers who have nation-wide
requirements for package distribution. Do such customers need to be managed differently to
more ad-hoc business.

The Board have therefore identified the following main thrusts for the next 2 to 3 years.

 Maintain growth in sales revenue.

 Greater standardisation of operating procedures & systems.

 Better information systems in all areas.

 Integration of company operations to ensure that customer service is optimised.

These are clearly linked.

It has been decided that significant investment will probably need to be made in new information
systems. Such investment is expected to pay for itself in the medium term based upon cost
savings and improvements in efficiency and effectiveness; reasonable and justified capital
expenditure in this area will thus be sanctioned. Additionally, the Board is prepared to increase
support staff available broadly in line with capitalisation.

                                                                                            Page 5 of 10
APPENDIX I – Company Organisation

The Managing Director has the following direct reports:

 Operations Director

 Marketing & Development Director

 Finance Director

 Company Secretary

The Operations Director has the following direct reports:

 Trunking Operations Manager

 Fleet Management Manager

 Operational Planning Manager

 Numerous Regional Managers

                                                            Page 6 of 10
APPENDIX II – Regional Business Analysis

(Results of analysis carried out for financial year to April 2009):

 Region               Vehicles    Staff    Parcels        Turnover          Gross profit

          Coventry           45      100       160,000            3,102             124

      Nottingham             25       55        94,000            1,984             333

    Peterborough             20       44        69,000            1,444             332

       Dagenham              30       62        97,000            2,100             420

           Watford           23       50        75,000            1,580             300

          Guildford          23       48        78,000            1,680             353

          Swindon            16       35        49,000            1,007             215

       Warrington            17       34        49,000            1,024             266

        Wakefield            14       32        37,800                790           135

  Newton Aycliffe            34       68       121,450            2,640             766

          Glasgow            40       86       156,850            3,240            1,069

        Aberdeen             14       33        42,800                880           238

          Bridgend           15       34        54,100            1,140             302

          TOTALS            316      681     1,084,000           22,611            4,853

                                                                                           Page 7 of 10
APPENDIX III – Five Year Business Summary

All figures in £000,s. Accounting year end to April.

                          2009             2008         2007     2006        2005

 Turnover               22,680           22,546        20,107   16,245     13,892

 Net Profit                 146              676        1,206     649          567

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APPENDIX IV– Company Balance Sheet


Fixed assets                                      5,274

Current assets

                            Debtors               3,122

                            Cash                    788

                            Creditors            (2,873)

Net current assets                                1,037

Total assets                                      6,311

Capital and reserves

                            Share Capital         3,453

                            Retained Earnings     2,892

                            Total                 6,345

APPENDIX V – Profit and Loss Summary


Sales                                            22,680

Cost of Sales

                            Depot operations      6,225

                            Other direct costs    9,623

                            Depreciation          1,123

                            Total                16,971

                            Gross profit          5,709

Overheads Costs

                            HQ operations         3,461

                            Other overheads       2,102

                            Total                 5,563

                            Net profit              146

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