One my first insurance clients after graduating from the Wharton School of Business was an ice manufacturer in Tampa who was in acquisition mode. He asked me to write a report on the workers compensation losses and the truck insurance claims to help consolidate into one location after he purchased a larger facility in Clearwater, Florida. I worked with a loss control expert to assess how to combine and reduce the injuries on the ice-bagging line, loading the trucks, delivering the ice to the customers. For a few weeks, in the morning I rode with the drivers selling and delivering ice, and each afternoon I bagged ice then loaded trucks. This gave me context to analyze the operations.
One of the drivers asked if I sold insurance to the ice company. Could I help him come up with a sales commission formula to appeal to the owners and give him an incentive? If he helped me understand the ice business I promised I would help him.
We reviewed the customer list. He identified 24-hour grocers and convenient stores. He pointed out which had free freezers from the ice company and which customers owned their ice merchandisers. He shared with me that the company bagged ten pounds of ice in each eight-pound bag, explaining that due to equipment and processes the ice melted a lot between bagging and delivery. And the volume of returned bags with ice clumps in ripped bags, rejected by the stores, was even worse. Creating data out of these observations brought life to how the various claims occurred. In short order, we re-engineered the ice bagging line, truck lifts were installed, sacks containing five 8-pound bags were instituted, pallets and fork lifts were brought in. Not only did soft tissue back claims, repetitive movement injuries drop over 90%, but water consumption plunged 15% and electricity costs dropped 8%.
Then we came up with a revenue enhancer.
The drivers went on incentive. Each delivered a flyer announcing a dime per 8-pound of ice bag price increase to every 24-hour location. They verbally offered a nickel discount if the stores took nighttime delivery and another nickel off if it was paid at delivery. Instead of nine to 15 deliveries during daylight hours, the route men could reach over 30 locations nightly. This increased freight volume, boosted fleet capacity, netted a price increase, and cut accounts receivable. For each night route, we reduced the need to purchase two trucks. Data collected, interpreted and analyzed through the risk management lens brought a sustainable increase in profits quickly. The CFO immediately planned a capital raise capital via sales-leaseback for hundreds of new merchandisers. He sought to double the revenue. And, the drivers happily went to 100% commission.