Steve Jordan interviews Don Fisher who helps corporate clients negotiate and monitor contracts for household goods moving services.
While attending the FIDI conference in San Diego in March, I spotted what I thought would be an interesting business session. Jesse van Sas, FIDI General Manager, was to chair a panel discussion with three moving companies and Don Fisher from Fisher & Son Consulting in New York. It promised to be interesting, so I went along (click here to see the story from the May issue of The Mover).
Don’s company works with the HR and procurement departments of large corporations to help them negotiate contracts for household goods moving, then audits the invoices from the suppliers to make sure they comply with what’s been agreed. In doing so, Don aims to save the companies money and ensure that they get the services they need. Don had asked to attend the FIDI conference specifically to explain the differences between his model and that used by the RMCs that he said were charging high fees and driving prices down in the industry. During the meeting I detected some frustration, perhaps even anger, directed towards Don, particularly by Jesse’s rather direct questioning. I resolved to find out more.
It emerged that the anger was real. Talking to movers and RMCs after the meeting it appeared that Don’s model for negotiating contracts was almost universally disliked and misunderstood. Some people had, apparently, boycotted the meeting in protest at Don being given a stage. One company even told me that the industry would boycott my magazine if I wrote anything that gave Don’s company further publicity.
I was intrigued. Why hadn’t the good people of the global moving industry taken the opportunity in San Diego to take Don Fisher to task if his modus operandi was causing them such pain? In my experience, movers are not known for their shyness. What was it that had struck them virtually dumb when given the opportunity to comment?
I asked Don for an interview. We caught up over a somewhat crackly telephone line a couple of weeks later. I started by asking him why he thought the FIDI audience had been so subdued. “They had the opportunity to say whether they like me or hate me,” he said. “I’m a big boy. There are a bunch of movers that do know me and do understand that I can take constructive criticism because I don’t think my system is perfect, no system is perfect. If they don’t know me, maybe they are fearful that if they say something derogatory I wouldn’t deal with them.”
The model
It’s not necessarily Don that people don’t like, it’s the model he uses. The model groups services together and requires suppliers to provide rates that are inclusive of almost everything (single pricing). That would be fine if the suppliers were given all the information they needed on which to base their figures, but the model requires some assumptions to be made. Don had said in San Diego that suppliers should “know their costs” but I put to him that this was difficult when they didn’t know what the job entailed. “Not really,” he said, “If I tell you that 90% of the business is Ireland, London, Frankfurt and Switzerland it doesn’t take too much for them to look and see what it’s going to be. You have to do some investigating. Typically now we are giving the top 10 traffic lanes and average weights.” This is undoubtedly helpful, but it does require the mover to guess at the composition of the shipments and hope that it will average out over the length of the contract.
But Don doesn’t think that’s really the problem. “That’s not where carriers are getting pissed at me,” he said. “It’s because of the elevators, long carries and shuttles.” The model does not allow for extra charges for any of these. “It’s also the way we group things so that we are not city specific we are country specific. Procurement wants global contracts. You can’t have global contracts for every city.”
I asked whether there should be more flexibility, some middle ground so that less of the risk fell on the supplier. “There will never be middle ground on the shuttles, long carry and elevators,” he said. “There will be middle ground on things that do make sense, for example maybe the UK should be pulled out as a separate schedule because of Brexit. Looking at the way we zone things, if there are better ways of aligning countries where their core structures are more common, great, I’m for that. I did it the way I thought it made sense, but I am more than happy to talk to people about how we can improve on it.”
Some companies felt that by losing control of the routing they would not receive reciprocation from destination agents. However, Don said that reciprocation was inherent within the contract so there was no reason for companies to miss out.
Don said that his goal was to provide what procurement wants. “They want a global contract, that’s not easy to do. Ours is the only way we know how to do it. That’s why movers have to know their costs as best they can.” He added that in the moving industry there is always someone who will come in with a low price and try to work out how to make money after the fact. “They are the guys who don’t do well in my model because we are going to be audit correcting them to hell, they are going to be screaming bloody murder: they didn’t do the right thing by themselves, they didn’t do the right thing by their client.”
In the past it was often possible for suppliers to put in great headline rates for services, then make up the profit on ancillary charges, such as the provision of elevators or costs for long carries. The Don Fisher model eliminates that opportunity. “In the old days, you could all rig it,” said Don, “especially if you were friendly. They would take it in turns, one going in high, one going in low. Those were the ways the old industry used to work.”
Price vs value
Don insists that he doesn’t choose suppliers or negotiate contracts: that’s down to the clients’ procurement and HR departments. He does, however, provide the mechanism for them and offers his experience to help them get the best deal. That mechanism also provides the opportunity for movers to get face-to-face with clients and sell their services if they score well at the RFP stage. “I am ‘pro mover’,” said Don. “I want companies to have the opportunity of explaining how good they are to my clients. In our model, we narrow down who we want based on what I call the ‘warm and fuzzies’,” he said, explaining that this meant the feeling a client gets about working with a supplier. “Whether a client likes a company, its people and its ways of working is very heavily weighted in our model.” Don also uses Standards, such as FAIM and ISO, to help quantify what he believes to be qualified providers.
But there can be little doubt that price is a primary factor in the decision. The Don Fisher model uses a matrix in which suppliers are required to quote for every element of the contract. Don said that when all the bids are in he will select the lowest figure in each field, combine them and use this as a base offer. I asked how he could expect any company to be able to make money operating in that way especially as, when the client wants a contract priced ‘aggressively’, they knock a further 10% off each figure. “When we do that we give them a counter column,” he said. “It’s a negotiation process. Procurement is saying, here is our offer either accept it or counter.” He said that he was against going 10% below. “I don’t like it when procurement does that. It just drags out the whole process. If someone quotes a low rate that to me should be the starting point. I think that that’s aggressive enough.” I asked whether he ever felt suppliers were pushed too hard. “Absolutely,” he said, “but remember I work for [procurement] as well as HR. In my model you have to be honest to yourself and honest to the client. You have to be prepared to say ‘I can’t do it for this, I need more’. They already like you now you’ve got to convince them why they should choose you. I’m fine with that, go ahead. But don’t cave in.”
Does he ever tell a supplier that he isn’t charging enough for a service to be sustainable? “I’m not going to do that. That’s not my role.” Don added that suppliers tell him they expect to make somewhere between 15% and 25% gross margin. “That’s fine but when you see prices all over the place you scratch your head.” I suggested that was because they don’t understand what it is they are quoting for because they don’t have all the information. “If they don’t know what they are quoting on they need to ask a question at the RFP,” he said.
There is another element. The cost of completing the RFP, attending the client meetings and completing the subsequent RFQ can be prohibitive for some companies. This will undoubtedly keep some companies out of the process and some of those who do take part might be inclined to accept lower rates than they would wish simply to recover some of the costs of acquisition and keep their staff and vehicles employed. “I’m sure that some do,” said Don, “or to get revenue up so they can sell their business.” I asked if it worried Don that if he pushed too hard he would end up only with the companies that are desperate for the business? “Then they will pay severe penalties in an SLA; they will start to lose volume; or they will get thrown out. And that has happened,” he said.
Don explained that providers do not all operate on the same contract. “So we are looking at who is doing a better job. In theory you would expect that the person having the higher rates to be doing a better job. At times we have seen that not to be true. If anything, now we are awarding more business at the lower price because they are delivering the same quality scores. They are not saying they don’t want any more business, they are taking it and are happy to take it.”
Free storage
I had heard two allegations from movers about Don’s company before doing the interview, which I wanted to clear up. Firstly, was it true that he required suppliers to give free storage every January? “For permanent storage the only thing we say is when you bill the first quarter we want to get two months instead of three,” he said. “It’s a little give-back to my client.” I asked why should suppliers work for free, most people don’t do things for nothing? “We have already paid for warehouse handling, we’ve paid for the packing and wrapping of it, it’s just sitting in storage collecting rent for three or five years, if you amortise that one month over the period of the contract it’s really nothing but, to a client, when you are looking for easy savings to demonstrate to management, that’s a big saving. Instead of twisting the mover’s arms for two dollars off a hundredweight it’s an easier ‘give back’ to justify savings to a corporate review board.” Quite why it’s necessary to have a ‘give back’ I didn’t understand, especially as they had secured the contract at rock-bottom rates anyway. “They are doing it at a price that procurement thought was reasonable,” said Don. “They have accepted it knowing that there is one free month on any long-term storage.”
The second accusation was that Don’s company has rejected invoices because they contained a spelling error. Don was incredulous at the suggestion. “We have never done that, never!,” he said. “We might not be happy about it but we don’t reject an invoice because of it and it doesn’t count as an audit correction. There is no incentive for us to hold up billing but when they are sloppy it delays everything because we have to clean it up. The quicker I can do an audit the better off I am and so is the carrier.” Don also pointed out that he does not receive compensation for money saved. “We have no vested interested in auditing down invoices for the sake of taking money away from movers. We are looking out for our clients’ best interests, by making sure the movers abide by the contracts they agreed to, while at the same time being fair to the movers.”
Big contracts
Don had said in San Diego that he liked to give out big contracts. I asked whether he has a principle by which the size of the contract awarded is limited by the supplier’s turnover? He said that’s part of the RFP process with the assessment being made by the clients’ own finance departments. “I don’t make those decisions, I am not an accountant,” he said, but added, “if a smaller company or a new start has good financing I am not against them getting a big client. Yes, it might take all their staff to do this, but it gives them a great platform by which to build the business.” Asked if he was worried about a company becoming too dependent on one contract, Don said he wasn’t. “It gives my client more leverage over them,” he said.
RMCs
“RMCs don’t have a place in the industry,” said Don. “I don’t work with any RMCs. They are the ones who, in my opinion, have killed this industry by procuring at very low cost. They make a ton of money on the household goods, they typically make as much as the mover.” In addition to negotiating low rates for moving services, RMCs also charge fees to moving companies which eat into profits. That said, some do maintain that they sometimes do the household goods at cost as their main revenue comes from other areas of their business.
Don acknowledges that RMCs play a vital role in allowing corporations to reduce HR headcount. “I think they are good at the DSP, home finding, school search, and property management. I think [regarding HHG] the only thing they should do is to initiate a move and authorise exceptions to a move.”
Sorting out problems
I asked Don what he does when a company is not preforming. Does he offer any advice or training to help them improve in the future? “I call them in, initiate a penalty and ask them to come back with a root cause analysis and a correction,” he said. He said that these are substantial companies with internal quality control standards and processes in place. “For the most part they correct the situation and move on. In 13 years we have only thrown out one vendor.” Does he get involved in training or trying to avoid the problem in the first place? “No, that’s not my job,” he said adding that he didn’t see any merit in any pre-audit activity.
The future
I asked Don how the need for his services would develop in the future. RMCs are increasingly providing their own auditing services and advancing technology provides greater process visibility. He said that he saw there would be a greater need in some parts of the world, giving recent US tax and immigration law changes and Brexit as examples of how a changing environment creates more uncertainty and complexity for his clients. He doesn’t believe that procurement will ever understand the household goods market.
But the market changes in many ways. Blockchain might, in the future, provide such close control of processes that anomalies in contracts become impossible; and there is the rise of the lump sum market which, if that continues, will put the power firmly back in the hands of the assignee, not the corporation. I don’t suspect assignees will be spending their own cash on auditing services. Or maybe they will!
In the old days pricing wasn’t as tough and there was, undoubtedly, some abuse of the system. Today it seems the pendulum has swung, taking away some of the initiative from movers and putting it in the hands of procurement (aided by auditors or not) and RMCs. That might, one day, change again. Until it does it seems to me that movers are limited in their options if they want the big contracts, while they still exist. They either become a supplier to the RMCs or they go direct to the clients and accept the rules imposed. At least they then get more of a chance at selling face-to-face. Either way they know the rules and there’s no point in crying foul after the event if there’s no wriggle room. There was never going to be any.
There is one other option of course. Simply say no. If rates are non-compensatory, movers should not accept them. It’s a market. In the end a deal has to be good for all concerned otherwise it won’t last long. But as Don Fisher says, in the moving business there is always someone who will go lower. Will it be you?
Editor’s note:
I know that this is an emotive subject amongst movers worldwide. If you have a comment to make about this article, or have an opinion you would like to express on the subject, please write to me at editor@themover.co.uk. I will consider all comments for publication in a future issue.
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