Project Renaissance: An epoch of technology application

When Jim Ferrell returned from semi-retirement to run the Fortune 1000 company that bears his name in 2001, the 61-year-old industry icon already had decided that drastic change was critical in the face of stiffening competition and spiraling prices.

Five years later, with $63 million poured into new equipment and employee training, a leaner Ferrellgas has rolled out a new business model featuring an integration of technology unprecedented in the propane industry. If company projections to stockholders hold true, the changes could help drop an amazing $30 million a year to the bottom line, starting in this first full year of deployment.

“What we’ve done is unprecedented in our industry. It was a massive undertaking that took four and a half years to complete, but is now in place at every Ferrellgas retail location across the country,” says Ferrell, who took over his father’s Kansas company in 1965.

“I have maintained throughout this process that this represents the future of the propane industry. The results we are seeing today – reduction in delivery and administrative expenses, more accurate prediction of our customers’ demand for propane, outstanding customer service now available 24 hours a day, seven days a week, 365 days a year – has created the model that other companies will have to follow, because it is the competitive model for the future.”

Some 250 Ferrellgas employees staff two call centers that answer customer calls around the clock, 365 days a year.

Dubbed Project Renaissance, the bold initiative has made Ferrellgas the first major propane retailer to fully apply technology used by leading delivery logistics companies – including FedEx and UPS – to link bobtail routing, customer data management, forecasting, billing and accounts receivable to reduce operating costs and boost shareholder value.

“Customer conservation, strong competition, and continually increasing costs caused us to realize that we needed to take a fresh look at the way we do business if we plan to be a major player in this industry for years to come. Our goals were to increase revenue and eliminate unnecessary expenses by improving our delivery efficiencies and customer service,” explains Pat Walsh, vice president of retail operations and chief information officer who was responsible for the project design and implementation.

“Never before has anyone in our industry so aggressively instituted an integrated technology solution.”

The nation’s second-largest propane retailer has outfitted almost 4,000 delivery and service vehicles with new onboard computers to utilize logistics software that determines the most efficient route sequences. Two-thirds of the fleet use satellite domes for two-way communications in areas where cellular communication is not available.

It streamlined its traditional 650 district offices into 125 regional “service centers” from which customer calls are handled and deliveries managed.

It opened two call centers near company headquarters in Overland Park, Kan., to handle all overflow, evening and weekend calls around the clock, 365 days a year.

Ferrellgas drivers and servicemen spent two days training in the field, learning how to use the hand-held devices that direct their deliveries and feed vital customer data back to the home office in real time. Managers and customer service specialists were brought to Kansas City for a week of training on custom-designed software.

The impact

Since it was first rolled out in 2003, Project Renaissance has significantly reduced operating costs.

Company officials say consolidating service centers has pared the number of field managers by 30 percent. Customer service specialists have been cut by more than one-third, and the number of drivers and servicemen was reduced about 13 percent. According to information the company submitted for the annual LP Gas Magazine Top 50 survey, Ferrellgas has chopped its total workforce from 5,400 employees in 2000 to just 3,700 in 2005.

Improved delivery efficiencies (larger average deliveries, fewer miles driven per gallon delivered) have enabled Ferrellgas to deliver the same volume of gas with fewer vehicles. Since 2004, the company has reduced its bobtail fleet by about 23 percent. In fact, officials say the company this year was able to skip its annual purchase of new bobtails, which normally accounts for 10 percent of the fleet.

The impact of these changes has company officials anxious for the final winter heating season numbers, which have not yet been reported. Despite warmer temperatures this year compared to last, the publicly held company reported a 5.6 percent ($18.6 million) improvement in gross profit and a whopping 41.6 percent ($22.7 million) upgrade in distributable cash flow for the six-month period ending Jan. 31 compared to one year earlier.

Company officials Steve Wambold

“We knew there would be an opportunity for us to drive efficiencies and improve customer service in our business by leveraging advanced technologies,” says Walsh, who acknowledges that higher margins also played a role in the financial performance.

The plan was incrementally rolled out to one-third of the company through 2004, continually getting tweaked based on feedback from the field. The rest of the company went live from March to August 2005, just in time to face an early winter heating season.

Company leaders say it passed the first test with flying colors.

“The difference in our execution during the cold snaps we had in November versus February was incredible,” says Steve Wambold, who in May was promoted to company president from his position as chief operating officer and executive vice president.

“Although two-thirds of the company was going through its first winter on the new system, by most every statistical measurement we use (gallons per mile, miles per stop, gallons per stop) we did much better the second time around (February).

“And because this was a first-year rollout for so many, we feel it offers us an opportunity to do even better. It’s an evolution. There is no question you will see even more and better expense savings in the future.”

Pat Walsh say Project Renaissance already is paying big dividends in its first full year of deployment.

Frontline care

Competing independent propane retailers say the cutbacks at Ferrellgas will push it farther away from the kind of personal service that endears customers to their propane supplier.

“In my market, I’m picking up Ferrellgas customers who do not want to be served from Kansas City. They want to do business with people face to face,” says an independent marketer from Wisconsin who wants to remain unnamed. “I hear a lot of similar sentiments from my fellow independent marketers.”

Ferrellgas officials counter that the features of its new call center will do just the opposite. Having a customer service representative available for customers to report an emergency, schedule a delivery or ask questions about an invoice is a powerful way to differentiate Ferrellgas from its competitors, officials maintain.

“Many of our competitors roll their telephones to voice mail at 5 p.m. This 24/7/365 availability is something customers will soon come to expect and demand from their propane supplier,” Walsh says.

Ferrellgas customers continue to call the same phone numbers as always, and most calls during business hours are still answered at the local service center. If that line is busy, the call rolls to the call center. Calls placed after business hours or on weekends go directly to the call centers.

“We still believe that our customers value having the option to talk to a local person if they choose, and they’re able to do so during normal business hours. But we’re also finding that customers who have their daytime calls roll to our two call centers during regular business hours are fine with that as long as we effectively handle the call,” Walsh says.

“The key is to provide great service and address the callers’ needs professionally and effectively. With our customer relationship management system, anyone answering a customer call in our service centers, our call centers, or our home office has immediate access to the same information about the customer.”

Ferrellgas officials admit they blundered with an earlier call center pilot located in Tucson, Ariz. Its operation was outsourced to a company unfamiliar with the propane industry; the propane giant is still working to regain the loss of a sizeable number of customers in North Dakota and Minnesota who were unhappy with their service.

The first in-house center opened in 2003 and doubled in size the next year. A second site opened last December. Two hundred fifty Ferrellgas employees staff the centers, handling overflow, evening and weekend calls, emergency customer service calls for Ferrellgas and Blue Rhino, as well as overflow mail from the payment-processing center. They also manage the customer complaint process and provide bilingual assistance for Spanish-speaking customers.

Customer Care Center employees undergo 80 hours of classroom and hands-on training in online customer data management and propane industry orientation before taking their first live call.

Laura Hoffmann, director of the centers, says the centralized model provides consistent hiring, training and performance evaluation to enhance customer service.

Through its first full winter, the centers answered one-third of the company’s 22,000 daily calls, including 4,000 each weekend.

“We are seeing a lot more evening and Saturday calls now that people know they can get a live voice,” Hoffmann says.

Change management

A key hurdle to the program’s success was getting employee buy-in.

For almost a year, Ferrell and Walsh personally visited most every site scheduled to go live the first year of implementation. They met with employees in the field, answering questions about the equipment, new computer software and changes in day-to-day operations.

Project Renaissance not only changed daily operations, it virtually redefined everyone’s job. Customer service specialists who used to be buried beneath a mountain of delivery receipts and driver trip reports now spend most of their time answering customer concerns.

Managers not only have responsibility for a larger region, they must learn to make decisions based on the real-time data being generated by the system.

Drivers no longer pick and choose their customer stops and the route sequence. They no longer prepare hand-written invoices and daily trip reports. Nor can they arbitrarily cut pricing deals.

When they arrive in the morning, the routing software already has generated each driver’s delivery assignments and propane costs and sent them to the hand-held computers in the bobtail. Changes require approval of the delivery manager, who can also add out-of-gas stops during the day.

The system offers the ability to view on screen the location of all delivery vehicles at any given time. It also can calculate the best way to re-route in response to an urgent customer request or incident.

“Our managers must be more versed in technology and have the aptitude to analyze and make decisions from the multitude of data that is now available,” Walsh says. “Our customer service specialists are now more focused on serving customers and less on data entry. And our drivers now have clear expectations outlined in their handheld computers each day.”

Wambold says institutionalizing procedures that have always been left to the front lines was a cultural challenge he most underestimated.

“The consultants told us that one-third of the staff would be excited and jump on, one-third would want to do it but would need a push, and one-third would not go along. That proved to be pretty close,” he says.

Data, Data, Data

Officials say the data warehouse generated in the new system is so extensive that a major challenge has been figuring out exactly which way they want to cut the information to evaluate results.

As drivers fill each customer’s bar-coded tank, details of the transaction are captured on the hand-held device and communicated back to the service center in real time. The system not only records the delivery and any service or sales transaction, it immediately crunches data on time, volume and miles, in order to measure performance and productivity.

“The real challenge is figuring out what metrics to use to drive the right results. There is just so much data,” Ferrell says of the analysis generated by the system.

“It’s been enlightening,” Wambold adds. “I was surprised to see the percentage of customers that were profitable versus unprofitable. We now have much better visibility into customer profitability.”

The system also feeds customer storage tank information back to those responsible for making supply decisions, providing actual numbers for forecasting and automatic scheduling of future deliveries.

“The system’s use of real-time data has pulled our retail and supply sides together so we know where our supply drops are really needed,” Wambold adds.

Company officials believe the new model will greatly help integrate acquired companies. In areas already serviced by Ferrellgas, the system can readily add newly acquired customers to existing delivery routes. In areas new to Ferrellgas, the acquired operation, the new technology should produce new efficiencies that can generate the same cost savings realized elsewhere in the company.

“You really can’t see the future very well,” Ferrell concedes. “Everyone goes at it thinking they have the right approach. We’re plowing new ground here, but I’m convinced this is the right model.”

Renaissance vendors

Ferrellgas initially identified about 25 delivery logistics systems as prospective vendors to replace the company’s 15-year-old system. The list was then pared to five through research, interviews and a review of written proposals.

“Quite simply, we were looking for a system that would help us build efficient routes in our primarily rural residential and agricultural geographies as well as in for our cylinder exchange business in our urban markets,” Walsh says.

The core customer relationship management system integrates order management, billing, accounts receivable and customer database.

The final five candidates – Descartes, UPS Logistics, Appian Logistics, CAPS Logistics, and Mobile Data Solutions, Inc. (MDSI) – were given a typical delivery business case using an actual Ferrellgas district customer list, number of trucks and actual routes. The companies were given two weeks to build solutions to improve efficiencies using their systems. Descartes won the final contract.

Other vendors used for the project were:

• PeopleSoft/Oracle is the core system, the Customer Relationship Management system (CRM), along with order management, billing, accounts receivable, traditional financial systems and the customer database.
• Descartes is the delivery logistics system
• Intermec is the hand-held equipment using a custom software written by Agentek.
• Wireless Matrix provides the truck satellite domes.
• Office desktop computers are Dell.
• PeopleSoft and Oracle database applications reside on Sun computers.

Investment community cautiously optimistic about changes

Even though the investment community had heard the promise of Project Renaissance for several years, projections of its first-year impact to the bottom line caught some by surprise.

“Thirty million dollars was a jaw-dropper, to be honest with you,” says Sneur Z. Gershuni, a financial analyst who covers Ferrellgas Partners for UBS Securities in New York.

“They have posted some lofty goals, but I don’t think the investors or the analysts will give them full credit until they have actually done it because there has been some skepticism about it,” Gershuni says.

Company officials last fall boldly predicted to shareholders that fiscal 2006 would be the year Ferrellgas redefines the way business is done in the propane industry. Analysts like the cost-cutting strategies featured in Renais-sance, and they are cautiously optimistic about the propane retail giant’s performance pending final winter heating season filings.

Still, Wall Street had not yet seen much return for the millions of dollars the publicly held company was pouring into its new business model.

“Large companies are supposed to get some economies of scale. And frankly, without being able to centralize some tasks, its hard to realize those types of synergies,” Gershuni explains. “When we first upgraded Ferrellgas about a year and a half ago, we thought the Renaissance system – if it did work – would be one of the ways they would be able to realize those synergies and strip out some of their costs.”

Gershuni says the operational changes so far seem to be working. In a year of soaring propane prices, higher margins, mild winter temperatures and customer conservation efforts, however, its tough to measure how much of the company’s successes are due to cost management efforts.

“Ferrellgas certainly performed very well considering that there were a lot of head winds. If you look at performance, it’s been yielding well above any of the other names out there,” Gershuni says.

“I think it is safe to say that Renaissance certainly had a hand in that. That’s the way we look at it.”

He concurs with the company’s view that its new model will help reduce labor costs, reduce vehicle and fuel expenses and generate improved efficiencies in routing their trucks.

“But the other side is it also gives the management team that much more information to better run their business and make better decisions, which we agree with. That’s something that shows up in accounts receivable terms, accounts payable terms and in the cash management side of business. And that will help determine margins,” he says.

In the propane industry, even the multi-state companies historically operate more like small entrepreneurs than large businesses. Those differences can scare investors from supporting technology-driven changes in an industry that is slow to let go of business traditions.

For Ferrellgas, the key is finding the right balance between cutting overhead costs and maintaining the local presence that propane customers demand.

“People in the propane industry really do like to see that you have a storefront near them. They call on Jane or Joe and they expect them to keep answering the phone. They expect somebody who is just as cold as they are to understand why they need their propane right away,” Gershuni says.

“But it is expensive to have so many storefronts and people. So, for technology to enhance productivity while at the same time not negatively impacting revenue is something that this industry has not gone through before, so you do create some skepticism.”

Beyond the performance this past winter heating season, analysts say investors are counting on Ferrellgas to show the impact of its recent merger with Blue Rhino – especially on summer load.

“If they run another winter heating season well and they can demonstrate that they are getting their costs down and are starting to realize the synergies of what a larger propane company should be able to realize, I think investors in general will start coming back to the partnership and be more interested in the name,” Gershuni says.

“I also think some of the other players are watching and waiting to see what happens. If it becomes wildy successful, you can be sure that others will follow.”

Story by Editor-in-chief Patrick Hyland and Houston-based propane industry consultant Randy Doyle.