Palmer Rolls IT to the Top

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Kay Palmer’s IT department is made up of about 330 pragmatic pirates.

Not pirates in the negative sense of the word, and not in the sense that it has come to mean in a world of digital documents and diabolical downloads.

Instead, the information technology pros at J.B. Hunt Transport Services Inc. in Lowell are an embodiment of the pirate spirit — swashbuckling pioneers back- and forward-slashing their way through transportation-specific software apps to increase the company’s performance ratios.

And increasing performance means helping increase the bottom line. Other executives at J.B. Hunt are tight-lipped, but at least some of the company’s record earnings — $207.3 million in 2005 — are officially attributed to increased efficiencies, and some of those are traceable directly back to Palmer’s IT team.

Palmer, executive vice president and chief information officer at J.B. Hunt, is unassuming and modest about a bevy of IT industry awards stacked near her assistant’s desk, awaiting a new home. She doesn’t have time to look for a place to hang the awards or even time to gloat, if that were her style, which it isn’t.

“Right now we’re working on more big projects than we have ever had going at the same time,” Palmer said.

There are 10 major initiatives under way in the company’s IT department, and her fellow J.B. Hunters want them as quickly as possible. Speed to market — to the company’s various departments — is the single biggest challenge she faces right now, she said.

And J.B. Hunt’s department heads have good reason to want their individual projects complete.

A recent project called People Admin Client Engine (PACE) that Palmer’s department implemented in the third quarter of 2004 is expected to generate a three-year return of $30 million for J.B. Hunt’s balance sheet and a reported seven-year return of $87 million.

The company spent $6.3 million over four years on the project, which had one false start (about a $2 million investment and a year or so in time) and caused the department to scrap the concept before starting over with more defined parameters.

What does it do?

PACE unifies billing, payroll and management reporting of J.B. Hunt’s Dedicated Contract Services segment (one of the company’s three major business components, which also includes over-the-road trucking and an intermodal segment that couples railways with trucking).

“That [DCS] business initially grew really, really fast. And when the business grows really fast, it tends to not have a lot of discipline,” Palmer said. “We had 200 different accounts that really had different ways they were billing people and different ways they were paying drivers.”

The DCS segment operates custom fleet services and was responsible for about 27 percent of the company’s 2005 revenue.

PACE now manages about 85 percent of J.B. Hunt’s DCS accounts, with the rest slowly coming online. It’s speeded up billing cycles and made the system more accurate, not to mention less labor intensive.

“As we brought each account on, [DCS] improved 300 basis points in operating ratio,” she said.

With numbers like that and in an industry facing high fuel costs, driver shortages and tight regulations, its no wonder Palmer is busy as ever.

Enhanced Performance

J.B. Hunt posted net earnings of $207.3 million at the end of 2005, up 41.7 percent from $146.3 million a year before, and up 530 percent from 2001’s $32.9 million.

Overall, the company’s net earnings are up 838 percent for the last decade. Before that, in 1995, J.B. Hunt posted a $2.1 million loss.

Thom Albrecht, a certified financial analyst and managing director at Little Rock-based Stephens Inc., covers J.B. Hunt and 18 other transportation firms from his office in Richmond, Va. He said the company’s recovery really started in 1996 with the return of Wayne Garrison, now chairman, and with a focus to fix the company’s assets. Asset fixing included implementing the industry’s largest-ever driver pay hike, and switching to more universal trucks and trailers, Albrecht said.

Part two of the company’s turnaround began in 2001, he said, with a big shift in pricing strategy — pricing more aggressively — and identifying unprofitable freight and focusing on leadership in its three business segments.

“This was many years in the making,” Albrecht said, so he’s confident that the company is in it for the long haul. He has an “overweight” rating on J.B. Hunt, which is typically a recommendation for investors to increase their investment and a target price of $30 per share.

Stephens was the private investment bank that helped J.B. Hunt with its 1983 initial public offering.

In its last three annual reports, J.B. Hunt said it has “taken significant steps to re-establish a primary focus on the profitability of our three business segments.” Statements in J.B. Hunt’s quarterly earnings releases say the company is focusing on operating efficiencies in each segment as well.

Palmer said J.B. Hunt has always been innovative, but that in the past three to four years it has begun to stick to a strategy, which includes pricing its services more appropriately and really honing in on its core competencies and best practices.

The annual report states: “We continually focus on replacing less-profitable freight with higher-margin freight and lanes. Selective pricing actions and ensuring that we properly charge for all services provided have also been areas of major focus. We have also worked to ingrain safety into our corporate culture, which has reduced our accident and injury costs during the past several years.”

And driver safety is at least one thing the IT group is concerned with.

Innovative Initiatives

Palmer talked about four of the company’s 10 major projects: the Mobile Command Center project a trucking repair optimization system, the Demand Management project, and something called the “Perfect Invoice.” All of the projects have some focus on squeezing the empty air out of the company.

For the over-the-road trucking segment, the IT department is focused on a project called the Mobile Command Center, which may eventually outfit J.B. Hunt’s tractors with in-dash computer screens that supply a graphical interface with maps that will alert drivers in real time if they’ve gone off their intended route.

Palmer said the company is researching ways to have the information from the screens spoken to the driver, because “you don’t want them reading and driving.”

J.B. Hunt drivers currently have onboard computers, but the technology is all text-based (a black screen with green type like 1980s-era word processors) and operates off satellites feeds, which don’t give drivers real-time alerts and causes them to have to pull over to read information. The systems will tie into an automated logging system.

The IT department is working on supplying the truckers with more information faster. So instead of just satellite communications, which can be expensive, the trucks may be able to receive transmissions at the best available of three modes: Wi-Fi Internet connections, cellular and satellite. Ideally, the onboard computers will be able to deliver entertainment and even training videos while the rig is stationary, Palmer said.

Another part of the Mobile Command project is for the Dedicated Contract Services Segment. Palmer’s team is working on a handheld device that will supply maps, but also a scanning mode that will track barcodes and RFID devices.

The company has already spent about $5 million on hardware units for this initiative, and she expects the project will be about 80 percent complete by the end of the year.

And trucks break down. Palmer’s team is looking at ways to increase the efficiency of repairing those trucks and keeping them rolling through a logistics-type system that will help dispatchers determine the optimal place (based on price, turnaround time and location) to send a trucker for repairs.

The best place isn’t always a J.B. Hunt hub, she said, because a trucker may show up and have to wait twice as long as they might at another shop.

A third initiative under way is called the Demand Management project. Palmer said it has the potential to show the highest returns.

“A lot of the reason why the company has become more successful in the past year — more profitable — has been related to our yield management philosophy,” she said.

Simply put, the company’s intermodal and trucking capacity has a desirability index weighted toward the most profitable freight, so freight is assigned accordingly.

“Our next part of that is to go to forecasting and making our desirability index smarter,” she said.

The project will help J.B. Hunt get better about dealing with seasonal surges.

The fourth major project under IT scrutiny is called the Perfect Invoice, which will help drivers, dispatchers and billing personnel collect more data about each shipment as each event happens, so that billing becomes more automated and less labor intensive. It will also help ensure that the company charges for things like detaining drivers to make up for the time that the driver isn’t moving other freight, Palmer said.

Keep on Truckin’

J.B. Hunt has been named in Computerworld magazine’s “Top 100 Places to Work in IT” for the last five consecutive years. Palmer was named one of the magazine’s “Premier 100 Leaders in IT” in March, and out of those she was selected as one of 12 Best in Class.

The reason?

“Her leadership has transformed that IT department,” said Bill Hardgrave, associate professor and executive of the Information Technology Research Institute at the University of Arkansas.

Palmer frequently speaks to student groups and has helped form curriculum for the ITRI. She’s been a board member for seven years, Hardgrave said.

Palmer’s employment strategy is to hire entry-level and local, and to promote senior staff. She has also made an effort to lighten things up.

“You can have hard, long workweeks at times with these projects because they’re so important, so you need the flip side also,” she said.

Not long after she took over as the company’s CIO in 1999, Palmer mandated a half-day of fun activities once a year for the IT department. Those half days are now themed. The mainframe monitoring room of the company sports a leftover pirate flag that was used a few years ago. For 2006, the team has a circus theme.

“There’re a lot of good things about the company culture. But there are some things that we had to kind of deviate on to make our department more appealing to technology workers,” she said.

As a result, Palmer said the IT company has only about a 7 percent turnover rate.

Also, she advocates that her people concentrate on development of new initiatives and less on software upgrades. Many of the menial tasks are outsourced to teams in the Philippines. Outsourcing will help with the department’s challenge of “speed-to-market.”

But Palmer puts the emphasis back on J.B. Hunt as a whole.

“The company is a good company to work for,” she said.

• For a look at JB Hunt’s earnings, click here.