HARVARDB U S I N E S SS C H OO L 9-801-110 REV:OCTOBER 22,2002 LYNDA APPLEGATE National Logistics Management As Scott Taylor turned into the parking lot that served all three of his businesses,he glanced at the neatly painted curbs of the sidewalk across the street.He and his company,National Logistics Management(NLM),had sponsored the work as a community development project performed by local high school students a few years back.Being involved in the community had always been important to him,ever since the days when he and his father worked together to build a trucking business called TopFlite,launched at the same site in 1985.Taylor had started two additional businesses since then:Artisan,which he co-founded with a partner in 1988,and NLM,which he founded alone in 1991.In the spring of 2000,all three were consistently profitable companies built on meeting the various needs of the automotive industry,an industry that dominated his hometown of Detroit. NLM was foremost on his mind on this brisk day in Fall 1999.To date,NLM had been successful by providing a key service-a more cost effective and efficient means to expedite premium freight- to one of The Big Three automakers.1 NLM had built this service around a technology system developed by its Information Technology (IT)group to support an automated reverse-auction exchange.2 NLM filled a market niche in meeting the premium freight logistics needs of one primary customer,and generated over $7 million in annual net revenue.Taylor,as the sole shareholder and investor,had been able to define the service,create the kind of company culture he wanted to work in,and reinvest or extract profits from the business depending on his needs and ambitions for the company.The logistics landscape was changing,however,potentially threatening NLM's market niche.In addition to industry-wide consolidation and partnering of logistics companies,Internet- based intermediaries were being launched to supply many different business-to-business(B2B) services,including shipping and logistics management. 1 DaimlerChrysler,General Motors(GM),and Ford were traditionally called The Big Three because they were the three biggest automobile manufacturers in the world.Automobile manufacturers are oftentimes also called Original Equipment Manufacturers,or OEMs. 2 Reverse-auction exchange occurs when a buyer specifies through an RFP or RFQ what it is that will be purchased.Sellers then compete for a product or project through bids.For more information on e-business pricing models,see Kohler,K.. Applegate,L.Sasser,E."Overview of E-Business Pricing Models,"HBS No.801-802(Boston:Harvard Business School Publishing,2000). High Tech Fellow March Teichert Rotelli and Research Associate Kristin Kohler prepared this case under the supervision of Professor Lynda Applegate as the basis for class discussion.Cases are not intended to serve as endorsements,sources of primary data,or illustrations of effective or ineffective management.The assistance of the HBS California Research Center is gratefully acknolwedged. Copyright2000 President and Fellows of Harvard College.To order copiesor request permission to reproduce materials,call 1-800-545-7685, write Harvard Business School Publishing,Boston,MA 02163,or go to http://www.hbsp.harvard.edu.No part of this publication may be reproduced,stored in a retrieval system,used in a spreadsheet,or transmitted in any form or by any means-electronic,mechanical, photocopying,recording,or otherwise-without the permission of Harvard Business School. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
9-801-110 REV: OCTOBER 22, 2002 ________________________________________________________________________________________________________________ High Tech Fellow March Teichert Rotelli and Research Associate Kristin Kohler prepared this case under the supervision of Professor Lynda Applegate as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. The assistance of the HBS California Research Center is gratefully acknolwedged. Copyright © 2000 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. LYNDA APPLEGATE National Logistics Management As Scott Taylor turned into the parking lot that served all three of his businesses, he glanced at the neatly painted curbs of the sidewalk across the street. He and his company, National Logistics Management (NLM), had sponsored the work as a community development project performed by local high school students a few years back. Being involved in the community had always been important to him, ever since the days when he and his father worked together to build a trucking business called TopFlite, launched at the same site in 1985. Taylor had started two additional businesses since then: Artisan, which he co-founded with a partner in 1988, and NLM, which he founded alone in 1991. In the spring of 2000, all three were consistently profitable companies built on meeting the various needs of the automotive industry, an industry that dominated his hometown of Detroit. NLM was foremost on his mind on this brisk day in Fall 1999. To date, NLM had been successful by providing a key service— a more cost effective and efficient means to expedite premium freight— to one of The Big Three automakers.1 NLM had built this service around a technology system developed by its Information Technology (IT) group to support an automated reverse-auction exchange.2 NLM filled a market niche in meeting the premium freight logistics needs of one primary customer, and generated over $7 million in annual net revenue. Taylor, as the sole shareholder and investor, had been able to define the service, create the kind of company culture he wanted to work in, and reinvest or extract profits from the business depending on his needs and ambitions for the company. The logistics landscape was changing, however, potentially threatening NLM’s market niche. In addition to industry-wide consolidation and partnering of logistics companies, Internetbased intermediaries were being launched to supply many different business-to-business (B2B) services, including shipping and logistics management. 1 DaimlerChrysler, General Motors (GM), and Ford were traditionally called The Big Three because they were the three biggest automobile manufacturers in the world. Automobile manufacturers are oftentimes also called Original Equipment Manufacturers, or OEMs. 2 Reverse-auction exchange occurs when a buyer specifies through an RFP or RFQ what it is that will be purchased. Sellers then compete for a product or project through bids. For more information on e-business pricing models, see Kohler, K., Applegate, L., Sasser, E. “Overview of E-Business Pricing Models, “ HBS No. 801-802 (Boston: Harvard Business School Publishing, 2000). This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
801-110 National Logistics Management After building its success with primarily one customer,the company had begun attracting new customers and partners,but with limited resources,growth was slow.Taylor was convinced that he would need to move much more quickly if he wished to preserve the value of the companies he had built over the years through "sweat equity."Should he find a venture capitalist (VC)and try leveraging NLM's existing infrastructure to grow the firm quickly?Should he continue slow steady growth by reinvesting profits?Should he partner with a larger logistics company?Or,should he sell now?He considered the next logical step in the company's growth as he got out of his car and walked across the parking lot. Industry Overview Transportation,a critical process to most manufacturers,involved three key parties;a shipper that needed to ship a product or part (good)to a receiver in need of the good(s)using a carrier that physically transported the good(s).Despite its significance,many manufacturing companies did not consider managing these logistics processes to be a core competency.Instead,companies hired logistics specialists to coordinate activities such as transportation of parts and supplies to a manufacturer or finished goods to an assembly plant or consumer outlet.(See Exhibit 1 for an illustration of the logistics process.) Traditionally,carriers operated only within the transportation function of the logistics process. Over time,however,several large carriers(e.g.,Emery,Federal Express,and Penske)extended their service offerings to cover a broader range of logistics activities (e.g.,warehousing and inventory management).They also began to outsource these services to other companies,including other carriers.These were referred to as third-party-logistics(3PL)services. Initially,3PL services were provided by a carrier that owned its fleet of transportation vehicles (i.e.,trucks,airplanes,railroads,and ocean freighters)-called assets.Over time,however, independent 3PLs emerged that provided logistics services to shippers,receivers,and carriers without owning any of its own physical assets.This type of 3PL was called a non-asset-based 3PL to distinguish it from an asset-based 3PL that owned at least some of the transportation assets it managed.(See Exhibit 2 for the relative cost structures of asset-based and non-asset-based 3PLs.) Following the commercialization of the Internet in the mid-1990s,a third category of 3PL emerged- Internet-based players.These companies are discussed later in the case. 3PLS had a number of differentiating characteristics including size,mode of transportation offered (e.g.,truck,rail,air,and ship),type and range of services provided,and geographies covered.Some 3PLs managed the payments surrounding freight transactions;some offered short-term warehouse capacity;some even provided value-added services such as picking and packing parts for their shippers.Finally,some 3PLs specialized in specific types of freight transportation,such as expedited or standard. The goal of both traditional and Internet-based 3PLs was to decrease the cost and time needed to schedule and complete the logistics process for all parties involved in a transaction.Because of their visibility into the entire logistics process,3PLs were able to improve transportation asset efficiency, streamline the logistics process,reduce costs for all parties,and ensure on-time arrival.In the late 1990s,the Internet provided a common platform for sharing information and coordinating logistics activities among multiple independent parties,thus enabling even greater cycle time reductions, quality improvements,and cost savings.In addition,information on each logistics transaction could be captured,stored,and analyzed to enable 3PLs to provide value-added information-based products and services that could be used to differentiate traditional services or develop new revenue streams. 2 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
801-110 National Logistics Management 2 After building its success with primarily one customer, the company had begun attracting new customers and partners, but with limited resources, growth was slow. Taylor was convinced that he would need to move much more quickly if he wished to preserve the value of the companies he had built over the years through “sweat equity.” Should he find a venture capitalist (VC) and try leveraging NLM’s existing infrastructure to grow the firm quickly? Should he continue slow steady growth by reinvesting profits? Should he partner with a larger logistics company? Or, should he sell now? He considered the next logical step in the company’s growth as he got out of his car and walked across the parking lot. Industry Overview Transportation, a critical process to most manufacturers, involved three key parties; a shipper that needed to ship a product or part (good) to a receiver in need of the good(s) using a carrier that physically transported the good(s). Despite its significance, many manufacturing companies did not consider managing these logistics processes to be a core competency. Instead, companies hired logistics specialists to coordinate activities such as transportation of parts and supplies to a manufacturer or finished goods to an assembly plant or consumer outlet. (See Exhibit 1 for an illustration of the logistics process.) Traditionally, carriers operated only within the transportation function of the logistics process. Over time, however, several large carriers (e.g., Emery, Federal Express, and Penske) extended their service offerings to cover a broader range of logistics activities (e.g., warehousing and inventory management). They also began to outsource these services to other companies, including other carriers. These were referred to as third-party-logistics (3PL) services. Initially, 3PL services were provided by a carrier that owned its fleet of transportation vehicles (i.e., trucks, airplanes, railroads, and ocean freighters)—called assets. Over time, however, independent 3PLs emerged that provided logistics services to shippers, receivers, and carriers without owning any of its own physical assets. This type of 3PL was called a non-asset-based 3PL to distinguish it from an asset-based 3PL that owned at least some of the transportation assets it managed. (See Exhibit 2 for the relative cost structures of asset-based and non-asset-based 3PLs.) Following the commercialization of the Internet in the mid-1990s, a third category of 3PL emerged— Internet-based players. These companies are discussed later in the case. 3PLS had a number of differentiating characteristics including size, mode of transportation offered (e.g., truck, rail, air, and ship), type and range of services provided, and geographies covered. Some 3PLs managed the payments surrounding freight transactions; some offered short-term warehouse capacity; some even provided value-added services such as picking and packing parts for their shippers. Finally, some 3PLs specialized in specific types of freight transportation, such as expedited or standard. The goal of both traditional and Internet-based 3PLs was to decrease the cost and time needed to schedule and complete the logistics process for all parties involved in a transaction. Because of their visibility into the entire logistics process, 3PLs were able to improve transportation asset efficiency, streamline the logistics process, reduce costs for all parties, and ensure on-time arrival. In the late 1990s, the Internet provided a common platform for sharing information and coordinating logistics activities among multiple independent parties, thus enabling even greater cycle time reductions, quality improvements, and cost savings. In addition, information on each logistics transaction could be captured, stored, and analyzed to enable 3PLs to provide value-added information-based products and services that could be used to differentiate traditional services or develop new revenue streams. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
National Logistics Management 801-110 The introduction of cost-effective wireless networks and global positioning systems provided additional opportunities that could be exploited by 3PLs. Freight Transportation The freight transportation industry offered multiple modes of shipment,including air,water, truck or rail.In the trucking segment,participants ranged from large,public,multi-national firms such as Ryder,Penske,or Emery Freight to small owner-operated trucking firms.Trucking industry deregulation in the 1980s and early 1990s had resulted in a competitive environment in which price was a predominant factor in deciding on a carrier to transport standard product.To compete,smaller firms often developed specialty services or served niche geographical markets while larger firms expanded into multiple modes of transport and provided service across a wide range of geographies. Sources of differentiation were ultimately limited,however,since the basic requirement was similar: all shippers demanded that goods be transported safely from one point to another in a timely fashion. Price,important to all companies that required the services of a 3PL,was especially important to large,industrial,manufacturing firms,such as automakers.Intent on reducing the delivered cost to its customers,automakers such as Ford,GM,and DaimlerChrysler increasingly looked to better management of its supply chain (the series of transactions and interactions between suppliers, buyers,and intermediaries)to minimize costs while improving quality.An industrial manufacturer could give its preferred partners visibility into internal demand patterns,so that capacity could be scheduled efficiently.This visibility increased when all parties-manufacturers,3PLs,and even suppliers-could participate in electronic data interchange (EDI),directly linking databases and transaction systems.By managing the overall process,information savvy 3PLs enabled streamlined and more efficient management of the supply chain.Additionally,3PLS were motivated to pursue industrial manufacturing contracts due to the size of the contracts. The ability to schedule capacity was critical in the transportation industry.Since every "asset" (e.g.,truck,ocean freighter,airplane,railroad car)had a specific amount of space to offer over a specific period of time,the industry's main product-available capacity-was inherently perishable. The product also changed over time:a truck returning empty from a delivery,for example,had available capacity with zero variable cost,but the capacity and cost of the asset would change as soon as the truck reached the next pick-up point.Information about availability and cost of capacity was difficult to leverage,even when known to the carrier,because of the difficulty and time required to communicate with potential buyers and suppliers.The time it took to complete a transaction could easily exceed the dynamically changing nature of the asset.This was a serious issue for the industry: 6%to 10%of trucking capacity (excluding returning truckloads)was not utilized at any given moment.3 Clearly,any incremental profit that could be generated through better capacity planning would dramatically improve the value of a shipping company's assets. Competitive Environment 3PLs benefited from a number of trends in the shipping and manufacturing businesses.During the 1980s and 1990s,outsourcing became an increasingly common approach to cost reduction,and 78%of industrial suppliers and buyers outsourced all or part of their transportation operations.4 Shippers'efforts to reduce costs also led them to expand the number of modes of transport that they 3Gary Yablon,"Morning Meeting Note:Online Shipping Services,"CS First Boston,January 11,2000,P.3. 4Stacie McCullough et al,"Make/Move Logistics,"Forrester Research,July 1998,figure 2. 3 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
National Logistics Management 801-110 3 The introduction of cost-effective wireless networks and global positioning systems provided additional opportunities that could be exploited by 3PLs. Freight Transportation The freight transportation industry offered multiple modes of shipment, including air, water, truck or rail. In the trucking segment, participants ranged from large, public, multi-national firms such as Ryder, Penske, or Emery Freight to small owner-operated trucking firms. Trucking industry deregulation in the 1980s and early 1990s had resulted in a competitive environment in which price was a predominant factor in deciding on a carrier to transport standard product. To compete, smaller firms often developed specialty services or served niche geographical markets while larger firms expanded into multiple modes of transport and provided service across a wide range of geographies. Sources of differentiation were ultimately limited, however, since the basic requirement was similar: all shippers demanded that goods be transported safely from one point to another in a timely fashion. Price, important to all companies that required the services of a 3PL, was especially important to large, industrial, manufacturing firms, such as automakers. Intent on reducing the delivered cost to its customers, automakers such as Ford, GM, and DaimlerChrysler increasingly looked to better management of its supply chain (the series of transactions and interactions between suppliers, buyers, and intermediaries) to minimize costs while improving quality. An industrial manufacturer could give its preferred partners visibility into internal demand patterns, so that capacity could be scheduled efficiently. This visibility increased when all parties—manufacturers, 3PLs, and even suppliers—could participate in electronic data interchange (EDI), directly linking databases and transaction systems. By managing the overall process, information savvy 3PLs enabled streamlined and more efficient management of the supply chain. Additionally, 3PLS were motivated to pursue industrial manufacturing contracts due to the size of the contracts. The ability to schedule capacity was critical in the transportation industry. Since every “asset” (e.g., truck, ocean freighter, airplane, railroad car) had a specific amount of space to offer over a specific period of time, the industry’s main product— available capacity— was inherently perishable. The product also changed over time: a truck returning empty from a delivery, for example, had available capacity with zero variable cost, but the capacity and cost of the asset would change as soon as the truck reached the next pick-up point. Information about availability and cost of capacity was difficult to leverage, even when known to the carrier, because of the difficulty and time required to communicate with potential buyers and suppliers. The time it took to complete a transaction could easily exceed the dynamically changing nature of the asset. This was a serious issue for the industry: 6% to 10% of trucking capacity (excluding returning truckloads) was not utilized at any given moment.3 Clearly, any incremental profit that could be generated through better capacity planning would dramatically improve the value of a shipping company’s assets. Competitive Environment 3PLs benefited from a number of trends in the shipping and manufacturing businesses. During the 1980s and 1990s, outsourcing became an increasingly common approach to cost reduction, and 78% of industrial suppliers and buyers outsourced all or part of their transportation operations.4 Shippers’ efforts to reduce costs also led them to expand the number of modes of transport that they 3 Gary Yablon, “Morning Meeting Note: Online Shipping Services,” CS First Boston, January 11, 2000, p. 3. 4 Stacie McCullough et al, “Make/Move Logistics,” Forrester Research, July 1998, figure 2. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
801-110 National Logistics Management considered when moving their goods;for example,a shipment that would have been expedited ground freight in the past might be a candidate for air freight if that mode was available.The need to evaluate multiple transport options increased the complexity of a company's logistics management process,further emphasizing the value of 3PLs in overseeing the selection of a shipping carrier and management of the logistics.The trend toward globalization in many industries further increased the complexity of logistics management.A final trend was the continual movement towards supply- chain integration-long a focus for large manufacturers.5 Real-time information available over the Internet improved the level of integration that could be achieved,thereby raising customer expectations and elevating the visibility of the transportation function. Internet-based 3PLs By 1999,the Internet had launched a major revolution in the transportation industry.As Internet technology improved to allow automation of more complex transactions,non-asset-based 3PLs were launched that took advantage of access to real-time information and flexible and scalable Internet- based transaction,communication,and information systems.Some e-business offerings were designed to meet the needs of carriers:for example,load optimization and activity-based costing tools provided carriers with additional ways to control their costs.Others focused on meeting the needs of the shippers,oftentimes the ultimate buyers of transportation services,trying to minimize transaction and transportation costs,a significant area for potential savings.(By one estimate, between 6.3%and 9.6%of total transportation revenues were spent on processing sales transactions between shippers and carriers.)6 The financial markets had recognized the value of the newly launched non-asset-based Internet 3PLs and in 1999,they had high valuations in comparison to their asset-based counterparts.In late 1999,non-asset-based 3PLs were often valued at an estimated average of 23x earnings vs.12x for asset-based 3PLs.7 Logistics.com(www.logistics.com)was one of the early entrants into the online logistics market. Its founder,Yossi Sheffi,Ph.D.,had started Princeton Transportation Consulting Group(PTCG)in 1987 with the stated goal of applying advanced operations research methodology to the freight transportation industry.Over the next 13 years,the company had consulted for various transportation carriers,gaining insight into how to create various logistics solutions.PTCG was acquired by Sabre in 1996,and Sheffi repurchased the firm's assets to form Logistics.com in January 2000,with the help of $30 million in funding from the Internet Capital Group (ICG).Logistics.com was geared primarily to the $560 billion truckload market,which set them apart from many of the logistics companies that facilitated at-once buys for less-than-truckload(LTL)capacity.Logistics.com contemplated expanding into international markets and modes beyond shipping,a focus of Logistics.com and of PTCG prior to early 2000. Founded in August 1998,Celarix Inc (www.celarix.com)was another of the many companies offering some form of web-based logistics solution.In addition to providing shippers with transportation procurement tools,Celarix.com also offered services to shippers and carriers such as global tracking,management of freight payment,oversight of customs management and landed cost 5A manufacturers supply chain is the process whereby,raw materials,parts,and final goods move through the manufacturing process to the final consumer. 6 Gary Yablon,""Morning Meeting Note:Online Shipping Services,"CS First Boston,January 11,2000,P.3. 7Thom S.Albrecht,CFA,et al,Landstar(LSTR)Initiation of Coverage,BB&T Capital Markets,April 17,2000,P.12.The stock market decline in Spring/Summer 2000 caused market values to fall from these highs. 4 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
801-110 National Logistics Management 4 considered when moving their goods; for example, a shipment that would have been expedited ground freight in the past might be a candidate for air freight if that mode was available. The need to evaluate multiple transport options increased the complexity of a company’s logistics management process, further emphasizing the value of 3PLs in overseeing the selection of a shipping carrier and management of the logistics. The trend toward globalization in many industries further increased the complexity of logistics management. A final trend was the continual movement towards supplychain integration—long a focus for large manufacturers. 5 Real-time information available over the Internet improved the level of integration that could be achieved, thereby raising customer expectations and elevating the visibility of the transportation function. Internet-based 3PLs By 1999, the Internet had launched a major revolution in the transportation industry. As Internet technology improved to allow automation of more complex transactions, non-asset-based 3PLs were launched that took advantage of access to real-time information and flexible and scalable Internetbased transaction, communication, and information systems. Some e-business offerings were designed to meet the needs of carriers: for example, load optimization and activity-based costing tools provided carriers with additional ways to control their costs. Others focused on meeting the needs of the shippers, oftentimes the ultimate buyers of transportation services, trying to minimize transaction and transportation costs, a significant area for potential savings. (By one estimate, between 6.3% and 9.6% of total transportation revenues were spent on processing sales transactions between shippers and carriers.)6 The financial markets had recognized the value of the newly launched non-asset-based Internet 3PLs and in 1999, they had high valuations in comparison to their asset-based counterparts. In late 1999, non-asset-based 3PLs were often valued at an estimated average of 23x earnings vs. 12x for asset-based 3PLs.7 Logistics.com (www.logistics.com) was one of the early entrants into the online logistics market. Its founder, Yossi Sheffi, Ph.D., had started Princeton Transportation Consulting Group (PTCG) in 1987 with the stated goal of applying advanced operations research methodology to the freight transportation industry. Over the next 13 years, the company had consulted for various transportation carriers, gaining insight into how to create various logistics solutions. PTCG was acquired by Sabre in 1996, and Sheffi repurchased the firm’s assets to form Logistics.com in January 2000, with the help of $30 million in funding from the Internet Capital Group (ICG). Logistics.com was geared primarily to the $560 billion truckload market, which set them apart from many of the logistics companies that facilitated at-once buys for less-than-truckload (LTL) capacity. Logistics.com contemplated expanding into international markets and modes beyond shipping, a focus of Logistics.com and of PTCG prior to early 2000. Founded in August 1998, Celarix Inc (www.celarix.com) was another of the many companies offering some form of web-based logistics solution. In addition to providing shippers with transportation procurement tools, Celarix.com also offered services to shippers and carriers such as global tracking, management of freight payment, oversight of customs management and landed cost 5 A manufacturers supply chain is the process whereby, raw materials, parts, and final goods move through the manufacturing process to the final consumer. 6 Gary Yablon, ““Morning Meeting Note: Online Shipping Services,” CS First Boston, January 11, 2000, p. 3. 7 Thom S. Albrecht, CFA, et al, Landstar (LSTR) Initiation of Coverage, BB&T Capital Markets, April 17, 2000, p. 12. The stock market decline in Spring/Summer 2000 caused market values to fall from these highs. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
National Logistics Management 801-110 assessments.A multimodal operation,Celarix offered access to over a dozen ocean freight carriers and had over 100 pre-qualified shippers enlisted as well.By early 2000,Celarix had raised over $60 million from investors including blue-chip venture capital firms. Transplace.com(www.transplace.com)had somewhat different origins.Launched July 1,2000,the company was created through a merger of the transportation logistics operations of the six largest publicly held carriers,including J.B.Hunt Transport Services Inc.,Covenant Transport Inc.,M.S. Carriers Inc.,Swift Transportation Co.,Xpress Enterprises Inc.,and Werner Enterprises Inc.The company envisioned becoming the"Supermarket for Transportation Solutions,"with a wide variety of modalities,an international presence,and a range of other services designed to make the web site a "one stop shop"for transportation needs.The company believed it could cut costs and improve service by increasing freight density across its carrier base.It also saw an opportunity to serve carriers by leveraging the group's purchasing power for items such as fuel,equipment,maintenance and repair parts,insurance,etc.No newcomer to the logistics business,Transplace.com was comprised of established logistics businesses with total aggregate revenues of $650 million.Each founding company invested $5 million in cash for an initial total funding of $30 million. The National Transportation Exchange NTE (www.nte.net),founded in June 1994,was another well-capitalized player in the Internet 3PL landscape.NTE created an online market for unused carrier capacity in which carriers listed their available capacity and buyers tendered their shipments along with price,carrier,and service requirements.Once the carrier had selected a shipment,NTE confirmed transaction details and handled financial settlement.NTE had over 575 members in June 2000,and had raised over $60 million in funding from backers including Hummer Winblad Venture Partners,AT&T Ventures,CrossPoint Venture Partners,Bessemer Venture Partners,divine interVentures,Inc.,Weiss Peck Greer,Dell Computer Corporation,and FedEx. Descartes Systems Group (NASDAQ:DSGX,TSE:DSG;www.descartes.com)did not directly provide 3PL services,but its DeliveryNet suite of logistics network infrastructure products(both PC software and web-based)provided 3PLs with various shipping and logistics management services. These services included business and home delivery,collaborative capacity planning,Internet-based load tendering,carrier availability notifications,and routing solutions and optimizing software for distribution centers.In May 2000,Descartes announced an alliance with Ariba,a leading provider of supply chain management software,giving Ariba users direct access to the Descartes Global Logistics Network.Descartes generated $43 million in revenue in 1999 through a combination of subscription and transaction fees,and had a market capitalization of $1.7 billion in July 2000.8(See Exhibit 3 for information on a sample of NLM competitors.) By 2000,the 3PL industry had grown to $50 billion.The public market recognized the value of 3PLs,with 3PL stocks returning 324%between 1993 and 1999.In comparison,firms that did not provide value-added logistics management services had a 52%for those that carried full truckloads and a-22%return for those that carrier less-than-truckload. NLM In 1985,early in his career,Taylor had co-founded and run a small family-owned trucking carrier, called TopFlite,that served the transportation needs of the auto industry.In 1989,leveraging the 8Media General Financial Services data on http://www.Descartes.com/investors/fundamentals.html,July 14,2000. 9Anthony P.Gallo,et al,"The Web Meets the Road,"Deutsche Bank Alex.Brown,December 20,1999,P.5. 5 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
National Logistics Management 801-110 5 assessments. A multimodal operation, Celarix offered access to over a dozen ocean freight carriers and had over 100 pre-qualified shippers enlisted as well. By early 2000, Celarix had raised over $60 million from investors including blue-chip venture capital firms. Transplace.com (www.transplace.com) had somewhat different origins. Launched July 1, 2000, the company was created through a merger of the transportation logistics operations of the six largest publicly held carriers, including J.B. Hunt Transport Services Inc., Covenant Transport Inc., M.S. Carriers Inc., Swift Transportation Co., Xpress Enterprises Inc., and Werner Enterprises Inc. The company envisioned becoming the “Supermarket for Transportation Solutions,” with a wide variety of modalities, an international presence, and a range of other services designed to make the web site a “one stop shop” for transportation needs. The company believed it could cut costs and improve service by increasing freight density across its carrier base. It also saw an opportunity to serve carriers by leveraging the group’s purchasing power for items such as fuel, equipment, maintenance and repair parts, insurance, etc. No newcomer to the logistics business, Transplace.com was comprised of established logistics businesses with total aggregate revenues of $650 million. Each founding company invested $5 million in cash for an initial total funding of $30 million. The National Transportation Exchange NTE (www.nte.net), founded in June 1994, was another well-capitalized player in the Internet 3PL landscape. NTE created an online market for unused carrier capacity in which carriers listed their available capacity and buyers tendered their shipments along with price, carrier, and service requirements. Once the carrier had selected a shipment, NTE confirmed transaction details and handled financial settlement. NTE had over 575 members in June 2000, and had raised over $60 million in funding from backers including Hummer Winblad Venture Partners, AT&T Ventures, CrossPoint Venture Partners, Bessemer Venture Partners, divine interVentures, Inc., Weiss Peck & Greer, Dell Computer Corporation, and FedEx. Descartes Systems Group (NASDAQ: DSGX, TSE: DSG; www.descartes.com) did not directly provide 3PL services, but its DeliveryNet suite of logistics network infrastructure products (both PC software and web-based) provided 3PLs with various shipping and logistics management services. These services included business and home delivery, collaborative capacity planning, Internet-based load tendering, carrier availability notifications, and routing solutions and optimizing software for distribution centers. In May 2000, Descartes announced an alliance with Ariba, a leading provider of supply chain management software, giving Ariba users direct access to the Descartes Global Logistics Network. Descartes generated $43 million in revenue in 1999 through a combination of subscription and transaction fees, and had a market capitalization of $1.7 billion in July 2000.8 (See Exhibit 3 for information on a sample of NLM competitors.) By 2000, the 3PL industry had grown to $50 billion. The public market recognized the value of 3PLs, with 3PL stocks returning 324% between 1993 and 1999. In comparison, firms that did not provide value-added logistics management services had a 52% for those that carried full truckloads and a –22% return for those that carrier less-than-truckload.9 NLM In 1985, early in his career, Taylor had co-founded and run a small family-owned trucking carrier, called TopFlite, that served the transportation needs of the auto industry. In 1989, leveraging the 8 Media General Financial Services data on http://www.Descartes.com/investors/fundamentals.html, July 14, 2000. 9 Anthony P. Gallo, et al, “The Web Meets the Road,” Deutsche Bank Alex. Brown, December 20, 1999, p. 5. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
801-110 National Logistics Management capabilities and relationships developed at TopFlite,he co-founded a 3PL named Artisan to handle specialty product shipments and logistics for Ford,General Motors(GM)and Chrysler(now Daimler Chrysler).As such,he was familiar with the trucking,3PL,and auto industry operations. While working with one of The Big Three automobile manufacturers,Taylor identified an opportunity to improve its handling of premium freight-shipments that needed expediting to reach a destination on time.10 While the automaker had not found close scrutiny of premium freight to be a cost-effective use of its managers'time,Taylor believed that he could build a business that would make such oversight cost-effective. The Premium Freight Opportunity Like many other large manufacturing companies,the automaker had contracted with its suppliers to deliver parts and supplies that would be needed at a specific place at a specific time.When shipments were delivered too early,the automaker was forced to assume inventory-carrying costs and to forgo use of the space for a higher-valued,revenue-generating activity.When parts were delivered too late,the manufacturing process could be either delayed or stopped completely until that shipment arrived.These delays could cost from $20,000 to $50,000 per minute.As a high-volume producer of automobiles,the automaker often defined its parameters of "early"and "late"(or protect time")within a 15-minute time window. For standard supply shipments,large automobile manufacturers scheduled carriers in advance. Because of the volume shipped,the Big Three automakers could negotiate extremely favorable contracts with logistics and transportation carriers-regardless of whether the supplier or the automaker was actually "paying the bill."Large,asset-based 3PLs,such as a Penske,typically handled much of this standard work,scheduling truckload deliveries to plants and establishing"milk runs"in which a driver would make a predefined set of stops on a regular basis,picking up a series of LTL shipments that suppliers knew the automaker would need. Most of the time(on average 90%)this standard process worked smoothly.For the remaining 10% the process did not work as planned.A supplier would be late in finishing the parts for shipment,an assembly line would break,or any one of a number of other unplanned events would occur.In these cases,the shipment would become "premium"freight,in need of expediting to reach the destination on time. Since premium freight was a comparatively small component of transportation costs,either the parts supplier or a plant manager often decided which carrier to use.Typically,a manager would place a telephone call to the carrier of their choice,whether that was due to a long-standing professional relationship,close geographic proximity,or simply the ease of reaching the carrier. Premium freight was also not subjected to contractual routing procedures and policies,which provided even greater discretion to local managers.In some cases this ad hoc approach would yield the lowest-cost,highest-quality carrier for a particular shipment,but this was often a coincidence. Typically automakers made hundreds of premium freight shipments per day,a substantial percentage of which were less than 18,000 pounds.This type of shipment fit well with NLM's existing capabilities and Taylor was convinced that he could create a profitable business with the one automaker and then expand the business as he built scale. 10 The name of the automaker has been kept confidential at the request of NLM. 6 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
801-110 National Logistics Management 6 capabilities and relationships developed at TopFlite, he co-founded a 3PL named Artisan to handle specialty product shipments and logistics for Ford, General Motors (GM) and Chrysler (now Daimler Chrysler). As such, he was familiar with the trucking, 3PL, and auto industry operations. While working with one of The Big Three automobile manufacturers, Taylor identified an opportunity to improve its handling of premium freight—shipments that needed expediting to reach a destination on time.10 While the automaker had not found close scrutiny of premium freight to be a cost-effective use of its managers’ time, Taylor believed that he could build a business that would make such oversight cost-effective. The Premium Freight Opportunity Like many other large manufacturing companies, the automaker had contracted with its suppliers to deliver parts and supplies that would be needed at a specific place at a specific time. When shipments were delivered too early, the automaker was forced to assume inventory-carrying costs and to forgo use of the space for a higher-valued, revenue-generating activity. When parts were delivered too late, the manufacturing process could be either delayed or stopped completely until that shipment arrived. These delays could cost from $20,000 to $50,000 per minute. As a high-volume producer of automobiles, the automaker often defined its parameters of “early” and “late” (or “protect time”) within a 15-minute time window. For standard supply shipments, large automobile manufacturers scheduled carriers in advance. Because of the volume shipped, the Big Three automakers could negotiate extremely favorable contracts with logistics and transportation carriers—regardless of whether the supplier or the automaker was actually “paying the bill.” Large, asset-based 3PLs, such as a Penske, typically handled much of this standard work, scheduling truckload deliveries to plants and establishing “milk runs” in which a driver would make a predefined set of stops on a regular basis, picking up a series of LTL shipments that suppliers knew the automaker would need. Most of the time (on average 90%) this standard process worked smoothly. For the remaining 10% the process did not work as planned. A supplier would be late in finishing the parts for shipment, an assembly line would break, or any one of a number of other unplanned events would occur. In these cases, the shipment would become “premium” freight, in need of expediting to reach the destination on time. Since premium freight was a comparatively small component of transportation costs, either the parts supplier or a plant manager often decided which carrier to use. Typically, a manager would place a telephone call to the carrier of their choice, whether that was due to a long-standing professional relationship, close geographic proximity, or simply the ease of reaching the carrier. Premium freight was also not subjected to contractual routing procedures and policies, which provided even greater discretion to local managers. In some cases this ad hoc approach would yield the lowest-cost, highest- quality carrier for a particular shipment, but this was often a coincidence. Typically automakers made hundreds of premium freight shipments per day, a substantial percentage of which were less than 18,000 pounds. This type of shipment fit well with NLM’s existing capabilities and Taylor was convinced that he could create a profitable business with the one automaker and then expand the business as he built scale. 10 The name of the automaker has been kept confidential at the request of NLM. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
National Logistics Management 801-110 Launching NLM In 1991,with the support of a forward-thinking procurement manager at the customer site,Taylor launched NLM(www.nlmi.com).NLM designed a process in which premium freight shipments could be put up for bid to the automaker's contracted base of carriers.Carriers were required to respond quickly (NLM set a 30-minute window).NLM awarded the shipment to the best-qualified bidder based on a combination of price and supplier quality.11 Once a contract was awarded,NLM would track the shipment's status throughout delivery,keeping both the shipper and receiver informed.NLM provided real-time reports to management on each shipment and periodic summary reports.(See Exhibit 4 for an overview of NLM's approach to premium freight management.) During the first year of operation,the company supported four of the automaker's plants and worked with 300 of its suppliers to expedite 12,000 shipments.Initially,there was some skepticism about the value of closely managing premium freight.To prove the potential for cost savings,Taylor provided his premium freight services for free,using profits from his other businesses to subsidize NLM.In year two,the automaker added three more plants and began to pay NLM transaction fees for each premium freight assignment it managed.By 1996,NLM was working with 1,000 suppliers, moving over 100,000 shipments to plants across the United States.The value had been so clearly demonstrated that the automaker put the premium logistics management contract up for national bid,and NLM won the contract.By the end of 1999,NLM managed the automaker's premium logistics operations throughout North America,handling all U.S./Canada as well as some U.S./Mexico shipments.While the automaker was free to cancel its contract with 30-days notice,as was the case with most of its suppliers,Taylor worked diligently to maintain the good relationship and low cost structure that had allowed him to start the business in the first place.In 1999,NLM established a working relationship with one of the largest suppliers to the automotive industry.In August 2000,after a year of discussions,NLM landed an additional contract with a major,"tier 1," auto industry supplier. In its early years,NLM had a number of hurdles to overcome-in addition to the automaker's initial skepticism.Many plant managers were unhappy with the disruption to their traditional way of doing business,and some resisted NLM's involvement,continuing to call their preferred carriers or even changing data in its systems after a load was shipped to subvert NLM's appearance of accuracy. NLM responded to the latter issue by collecting data on each transaction directly from the automaker's system at the point that an order was placed.This enabled NLM to ensure data integrity throughout the process.Additionally,the carriers,which had benefited from the previous premium freight process were also dissatisfied.To manage this problem NLM collected an extensive set of quality data on each supplier transaction,which was eventually used to create a quality score for each carrier.The quality score was used along with the cost of the bid to determine which carrier won each shipment contract.There were also carriers who supported NLM,finding that the opportunity to bid on premium loads allowed them to better manage their capacity and generate incremental revenue.By early 2000,NLM had built a loyal business community,delivering value to each member. Building the Expedited Management System At the heart of NLM's operations was its Expedited Management System(EMS),designed and developed by its in-house IT group.(See Exhibit 5 for an overview of the role of EMS.)Initially the process was conducting using telephones and processing paper-based transactions.Doug Shelfoon, 11 As discussed later,NLM tracked carrier performance on each shipment it carried and designed a sophisticated quality rating system for each carrier. 7 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
National Logistics Management 801-110 7 Launching NLM In 1991, with the support of a forward-thinking procurement manager at the customer site, Taylor launched NLM (www.nlmi.com). NLM designed a process in which premium freight shipments could be put up for bid to the automaker’s contracted base of carriers. Carriers were required to respond quickly (NLM set a 30-minute window). NLM awarded the shipment to the best-qualified bidder based on a combination of price and supplier quality.11 Once a contract was awarded, NLM would track the shipment’s status throughout delivery, keeping both the shipper and receiver informed. NLM provided real-time reports to management on each shipment and periodic summary reports. (See Exhibit 4 for an overview of NLM’s approach to premium freight management.) During the first year of operation, the company supported four of the automaker’s plants and worked with 300 of its suppliers to expedite 12,000 shipments. Initially, there was some skepticism about the value of closely managing premium freight. To prove the potential for cost savings, Taylor provided his premium freight services for free, using profits from his other businesses to subsidize NLM. In year two, the automaker added three more plants and began to pay NLM transaction fees for each premium freight assignment it managed. By 1996, NLM was working with 1,000 suppliers, moving over 100,000 shipments to plants across the United States. The value had been so clearly demonstrated that the automaker put the premium logistics management contract up for national bid, and NLM won the contract. By the end of 1999, NLM managed the automaker’s premium logistics operations throughout North America, handling all U.S./Canada as well as some U.S./Mexico shipments. While the automaker was free to cancel its contract with 30-days notice, as was the case with most of its suppliers, Taylor worked diligently to maintain the good relationship and low cost structure that had allowed him to start the business in the first place. In 1999, NLM established a working relationship with one of the largest suppliers to the automotive industry. In August 2000, after a year of discussions, NLM landed an additional contract with a major,” tier 1,” auto industry supplier. In its early years, NLM had a number of hurdles to overcome—in addition to the automaker’s initial skepticism. Many plant managers were unhappy with the disruption to their traditional way of doing business, and some resisted NLM’s involvement, continuing to call their preferred carriers or even changing data in its systems after a load was shipped to subvert NLM’s appearance of accuracy. NLM responded to the latter issue by collecting data on each transaction directly from the automaker’s system at the point that an order was placed. This enabled NLM to ensure data integrity throughout the process. Additionally, the carriers, which had benefited from the previous premium freight process were also dissatisfied. To manage this problem NLM collected an extensive set of quality data on each supplier transaction, which was eventually used to create a quality score for each carrier. The quality score was used along with the cost of the bid to determine which carrier won each shipment contract. There were also carriers who supported NLM, finding that the opportunity to bid on premium loads allowed them to better manage their capacity and generate incremental revenue. By early 2000, NLM had built a loyal business community, delivering value to each member. Building the Expedited Management System At the heart of NLM’s operations was its Expedited Management System (EMS), designed and developed by its in-house IT group. (See Exhibit 5 for an overview of the role of EMS.) Initially the process was conducting using telephones and processing paper–based transactions. Doug Shelfoon, 11 As discussed later, NLM tracked carrier performance on each shipment it carried and designed a sophisticated quality rating system for each carrier. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
801-110 National Logistics Management the director of IT explained,"We had this process in place before we had the technology available. Initially the technical systems were fairly simple and ran over dial-up telephone lines.But,we have improved them over the years and now they are very sophisticated."Shelfoon and IS Manager Mike Gauthier built the beta version of EMS in two weeks,and based on user feedback,improved the software and issued over 700 major and minor upgrades over the following several years."There was no viable database technology available when we started,the Web did not exist,and there were a host of issues with synchronizing internal and external data,"Shelfoon noted. The implementation of EMS quickly cut down on shipper,receiver,and carrier complaints that had resulted from the confusion of manually processing 500 orders per day.It also had the effect of moving responsibility for data collection and integrity from NLM to the data sources:for example, carriers could enter bids and later track status themselves rather than dictating these to NLM over the phone.NLM's initial customer offered staunch support as the system was rolled out,inviting carriers to their training center to learn to use it and requiring that all suppliers and plants use EMS. The system included three key components:(1)client software resident on personal computers (PCs)used by logistics coordinators within NLM;(2)server software resident on high-end PCs located at NLM;and(3)a suite of three web-based applications designed for shippers,carriers,and customer manufacturing plants.EMS enabled shippers,carriers,plant employees,and NLM logistics coordinators to connect to the Internet and complete all activities needed to define premium shipment needs,register availability,award a contract,schedule and track a shipment,reconcile payment,and produce management reports.Data on each transaction was stored in a Microsoft SQL databasel2 where it was used to produce monthly management reports for the automaker and all members of the NLM business community For carriers,EMS provided a view of available loads,tools to bid for those loads,and tools to update the status of the load as it reached each of seven different stages from pick-up to acceptance of delivery.Effective use of these tools-necessary to enable others to check on status-was one of the factors used to develop carrier quality ratings. For shippers,EMS offered tools to automatically enter new shipments and to view real-time delivery status.If a supplier did not wish to enter or view carrier status online,they were able to call the NLM logistics center and speak to a coordinator 24 hours per day,7 days per week. Receivers at the plants also had an EMS interface,offering them detailed information on each shipment such as supplier,part numbers,estimated time of delivery,status,etc.Given the urgent nature of the shipments that NLM handled,updated status information was particularly important to the receivers. The staff of NLM worked cooperatively with EMS.Each stage of a shipment's progress had its own set of required interactions,and each NLM team focused on particular types of shipments with a particular status.For example,when a shipment destined for a body assembly plant was initiated,the first team to touch it would be specialists on body assembly shipments.A team member would confirm shipment information such as the type of part(production or non-production),compliance with the customer's terms,and type of vehicle required.This team member would analyze the information to select the most appropriate mode of transport and to ensure that the transit time available was sufficient to get it to the destination by the time it was needed-but not before.Once 12 SQL,or Structured Query Language,is an industry-standard language for creating,updating and,querying relational database management systems.The Microsoft SQL Server is a relational database management system that is part of Microsoft's family of servers designed for client/server use.The SQL server has Internet integration,data replication,and data warehousing features. 8 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
801-110 National Logistics Management 8 the director of IT explained, “We had this process in place before we had the technology available. Initially the technical systems were fairly simple and ran over dial-up telephone lines. But, we have improved them over the years and now they are very sophisticated.” Shelfoon and IS Manager Mike Gauthier built the beta version of EMS in two weeks, and based on user feedback, improved the software and issued over 700 major and minor upgrades over the following several years. “There was no viable database technology available when we started, the Web did not exist, and there were a host of issues with synchronizing internal and external data,” Shelfoon noted. The implementation of EMS quickly cut down on shipper, receiver, and carrier complaints that had resulted from the confusion of manually processing 500 orders per day. It also had the effect of moving responsibility for data collection and integrity from NLM to the data sources: for example, carriers could enter bids and later track status themselves rather than dictating these to NLM over the phone. NLM’s initial customer offered staunch support as the system was rolled out, inviting carriers to their training center to learn to use it and requiring that all suppliers and plants use EMS. The system included three key components: (1) client software resident on personal computers (PCs) used by logistics coordinators within NLM; (2) server software resident on high-end PCs located at NLM; and (3) a suite of three web-based applications designed for shippers, carriers, and customer manufacturing plants. EMS enabled shippers, carriers, plant employees, and NLM logistics coordinators to connect to the Internet and complete all activities needed to define premium shipment needs, register availability, award a contract, schedule and track a shipment, reconcile payment, and produce management reports. Data on each transaction was stored in a Microsoft SQL database12 where it was used to produce monthly management reports for the automaker and all members of the NLM business community. For carriers, EMS provided a view of available loads, tools to bid for those loads, and tools to update the status of the load as it reached each of seven different stages from pick-up to acceptance of delivery. Effective use of these tools—necessary to enable others to check on status—was one of the factors used to develop carrier quality ratings. For shippers, EMS offered tools to automatically enter new shipments and to view real-time delivery status. If a supplier did not wish to enter or view carrier status online, they were able to call the NLM logistics center and speak to a coordinator 24 hours per day, 7 days per week. Receivers at the plants also had an EMS interface, offering them detailed information on each shipment such as supplier, part numbers, estimated time of delivery, status, etc. Given the urgent nature of the shipments that NLM handled, updated status information was particularly important to the receivers. The staff of NLM worked cooperatively with EMS. Each stage of a shipment’s progress had its own set of required interactions, and each NLM team focused on particular types of shipments with a particular status. For example, when a shipment destined for a body assembly plant was initiated, the first team to touch it would be specialists on body assembly shipments. A team member would confirm shipment information such as the type of part (production or non-production), compliance with the customer’s terms, and type of vehicle required. This team member would analyze the information to select the most appropriate mode of transport and to ensure that the transit time available was sufficient to get it to the destination by the time it was needed—but not before. Once 12 SQL, or Structured Query Language, is an industry-standard language for creating, updating and, querying relational database management systems. The Microsoft SQL Server is a relational database management system that is part of Microsoft’s family of servers designed for client/server use. The SQL server has Internet integration, data replication, and data warehousing features. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
National Logistics Management 801-110 the shipment had been confirmed,it was put out for bid to the customer's contracted base of premium freight carriers.Carriers had a 30-minute window to respond,which was extended if no bids were initially received.Once the closed bids were received,EMS would prioritize the bids according to parameters the customer had established,factoring in quality rating,contracted cost, equal opportunity participation requirements,and availability.An NLM team member would make the actual award,typically to the top-rated bidder but on occasion to another bidder.In the latter case,the team member would document the rationale for not awarding a contract using information from EMS.For example,awards might be redirected if the carrier had been having service problems, the receiving plant had directed the award to someone else,the carrier had noted that there would be additional charges not reflected in the bid,etc. Once the bid had been awarded,EMS provided information on the status of a shipment throughout its delivery lifecycle.Carriers and receivers were tasked with entering tracking data into the system;most complied to preserve their performance ratings and to provide better service. Suppliers were responsible for creating an Advanced Shipping Notice(ASN)within an hour of the shipment,which would alert the recipient to its scheduled arrival.A module of EMS updated the ASN with delivery tracking milestones as the shipment made its way to the customer.Suppliers, however,did not always create their ASN in a timely fashion,and even when they did,there could be data entry errors,such as transposed numbers.When they occurred,these errors made it impossible for EMS to automatically match the ASN to the shipment and then NLM employees were required to complete the step manually.To date,NLM had not designed an effective supplier compliance system and had targeted this area for future enhancement.When ASN were correct and complete,EMS could process 65 transactions per minute. NLM continued to evolve EMS over time,taking advantage of XML13 and other web-based technologies to provide the most robust and flexible application possible.In addition,NLM had begun experimenting with emerging Internet technologies,such as the potential for incorporating a Global Positioning System to track carrier location and wireless devices to allow customers to access updates on the road.Carriers used the system extensively,some going so far as to build their own custom applications to monitor EMS and to alert the carrier when attractive loads were available for bid. NLM Benefits While there were no initial benchmarks to indicate how widespread the cost inefficiencies in premium freight had been,it was clear that NLM had added value to the automaker's business over the years.Analyzing the difference between the estimated cost of using the automaker's preferred carriers and the cost of using carriers sourced through NLM revealed that plants saved between 25% and 35%.Selecting the best mode of transport(ground,water,or air)generated up to 53%of the savings,an additional 34%of the savings came from selecting carriers with low-cost bids,and another 13%came from consolidating LTL shipments into more efficient bundles. NLM's deep understanding of the automaker's premium freight activities allowed them to suggest a wide range of other improvements.For example,suggesting an innovative approach to consolidating freight bound for a Mexican plant resulted in over $165,000 of savings for the automaker.Based upon a review of the types of transportation modes requested by various plants in comparison with actual needs,NLM suggested a change in transport mode preference that had the potential to save the automaker another $309,000. 13 XML,or Extensible Markup Language,is a language that allows for a automation of transactions and interchange of documents on the World Wide Web. 9 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
National Logistics Management 801-110 9 the shipment had been confirmed, it was put out for bid to the customer’s contracted base of premium freight carriers. Carriers had a 30-minute window to respond, which was extended if no bids were initially received. Once the closed bids were received, EMS would prioritize the bids according to parameters the customer had established, factoring in quality rating, contracted cost, equal opportunity participation requirements, and availability. An NLM team member would make the actual award, typically to the top-rated bidder but on occasion to another bidder. In the latter case, the team member would document the rationale for not awarding a contract using information from EMS. For example, awards might be redirected if the carrier had been having service problems, the receiving plant had directed the award to someone else, the carrier had noted that there would be additional charges not reflected in the bid, etc. Once the bid had been awarded, EMS provided information on the status of a shipment throughout its delivery lifecycle. Carriers and receivers were tasked with entering tracking data into the system; most complied to preserve their performance ratings and to provide better service. Suppliers were responsible for creating an Advanced Shipping Notice (ASN) within an hour of the shipment, which would alert the recipient to its scheduled arrival. A module of EMS updated the ASN with delivery tracking milestones as the shipment made its way to the customer. Suppliers, however, did not always create their ASN in a timely fashion, and even when they did, there could be data entry errors, such as transposed numbers. When they occurred, these errors made it impossible for EMS to automatically match the ASN to the shipment and then NLM employees were required to complete the step manually. To date, NLM had not designed an effective supplier compliance system and had targeted this area for future enhancement. When ASN were correct and complete, EMS could process 65 transactions per minute. NLM continued to evolve EMS over time, taking advantage of XML13 and other web-based technologies to provide the most robust and flexible application possible. In addition, NLM had begun experimenting with emerging Internet technologies, such as the potential for incorporating a Global Positioning System to track carrier location and wireless devices to allow customers to access updates on the road. Carriers used the system extensively, some going so far as to build their own custom applications to monitor EMS and to alert the carrier when attractive loads were available for bid. NLM Benefits While there were no initial benchmarks to indicate how widespread the cost inefficiencies in premium freight had been, it was clear that NLM had added value to the automaker’s business over the years. Analyzing the difference between the estimated cost of using the automaker’s preferred carriers and the cost of using carriers sourced through NLM revealed that plants saved between 25% and 35%. Selecting the best mode of transport (ground, water, or air) generated up to 53% of the savings, an additional 34% of the savings came from selecting carriers with low-cost bids, and another 13% came from consolidating LTL shipments into more efficient bundles. NLM’s deep understanding of the automaker’s premium freight activities allowed them to suggest a wide range of other improvements. For example, suggesting an innovative approach to consolidating freight bound for a Mexican plant resulted in over $165,000 of savings for the automaker. Based upon a review of the types of transportation modes requested by various plants in comparison with actual needs, NLM suggested a change in transport mode preference that had the potential to save the automaker another $309,000. 13 XML, or Extensible Markup Language, is a language that allows for automation of transactions and interchange of documents on the World Wide Web. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
801-110 National Logistics Management NLM had implemented qualitative improvements as well.In addition to saving money,the automaker was able to set parameters that tailored its contract awards to its customer's business priorities.These included factors such as on-time delivery record,equal-opportunity ownership, responsiveness to the automaker's needs,and other elements that were automatically incorporated into every bid prioritization.By monitoring,and in some areas enforcing,contract compliance,NLM also captured valuable data on carriers as well as on shipping patterns that became available for use by the automaker in renegotiating contracts Finally,NLM provided supplemental services to meet the automaker's additional needs,such as a Carrier Excellence Program designed to track success in correcting and preventing delivery problems; a"kitting"program in which NLM supervised the bundling of parts for shipment in predefined "kits";and a returnable-container program in which NLM helped 130 of the suppliers it worked with get their reusable containers back within 12 to 24 hours of shipment."We've always been proactive," an NLM employee observed."Our attentiveness to the needs of [the automaker],its suppliers,and carriers led us to launch new products and services whenever we saw a better way of doing things. Building the Organization By 1999,NLM employed 65 people in its Detroit,Michigan office.The logistics operation was the largest part of the business,with 36 logistics coordinators and supervisors working in shifts 24 hours per day,7 days a week to facilitate transactions through EMS.Given the automaker's interest in contract compliance and cost savings,there was also an audit quality team,consisting of 7 people. Another 2 people were involved in carrier relations,helping to cement the positive working relationship that had developed between NLM and the carriers it worked with. Given the ownership ties between NLM,Artisan,and TopFlite,there were also shared services and executive oversight.APC,a management services company,was created as a separate company to provide these services.APC employed one person in marketing and business development,who worked closely with Taylor on building business for NLM and Artisan.An IS/IT team of two people who maintained and enhanced EMS and two people who were responsible for telecommunications, networks,security,and other technology-related issues across all three of the companies.The controller and four accounting staff managed financial activities for NLM,Artisan and TopFlite.(See Exhibit 6 for an overview of the NLM,Artisan,TopFlite,and APC organizations.) Logistics coordinators had the most difficult job at NLM.Freight expediting was only necessary when something went wrong,and the people who dealt with NLM were often under pressure from angry customers as well as from internal management to fix the problem.The logistics coordinators at NLM frequently felt the brunt of their customers'stress.When external situations such as inclement weather or labor strikes made on-time delivery difficult or impossible,the job required an especially calm approach."It takes a special kind of person to handle this job,"said Kristin Williams Frank,former management team member at NLM who had stayed with the company as a consultant. "There's no time for negotiating,so the job requires a lot of apologizing for things you don't have any control over."The hourly wage of $10 to $16 was up to 40%less than employees might receive working for a large asset-based 3PL.Additionally,while the prospects for advancement at a large asset-based 3PL were greater,NLM's logistics coordinators were often not initially qualified to work for one of those companies.(Larger 3PLs typically hired college graduates,often with logistics degrees.)However,once the logistics coordinators improved their credentials through gaining experience with NLM,some left to work in logistics roles at larger companies. 10 This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
801-110 National Logistics Management 10 NLM had implemented qualitative improvements as well. In addition to saving money, the automaker was able to set parameters that tailored its contract awards to its customer’s business priorities. These included factors such as on-time delivery record, equal-opportunity ownership, responsiveness to the automaker’s needs, and other elements that were automatically incorporated into every bid prioritization. By monitoring, and in some areas enforcing, contract compliance, NLM also captured valuable data on carriers as well as on shipping patterns that became available for use by the automaker in renegotiating contracts. Finally, NLM provided supplemental services to meet the automaker’s additional needs, such as a Carrier Excellence Program designed to track success in correcting and preventing delivery problems; a “kitting” program in which NLM supervised the bundling of parts for shipment in predefined “kits”; and a returnable-container program in which NLM helped 130 of the suppliers it worked with get their reusable containers back within 12 to 24 hours of shipment. “We’ve always been proactive,” an NLM employee observed. “Our attentiveness to the needs of [the automaker], its suppliers, and carriers led us to launch new products and services whenever we saw a better way of doing things.” Building the Organization By 1999, NLM employed 65 people in its Detroit, Michigan office. The logistics operation was the largest part of the business, with 36 logistics coordinators and supervisors working in shifts 24 hours per day, 7 days a week to facilitate transactions through EMS. Given the automaker’s interest in contract compliance and cost savings, there was also an audit quality team, consisting of 7 people. Another 2 people were involved in carrier relations, helping to cement the positive working relationship that had developed between NLM and the carriers it worked with. Given the ownership ties between NLM, Artisan, and TopFlite, there were also shared services and executive oversight. APC, a management services company, was created as a separate company to provide these services. APC employed one person in marketing and business development, who worked closely with Taylor on building business for NLM and Artisan. An IS/IT team of two people who maintained and enhanced EMS and two people who were responsible for telecommunications, networks, security, and other technology-related issues across all three of the companies. The controller and four accounting staff managed financial activities for NLM, Artisan and TopFlite. (See Exhibit 6 for an overview of the NLM, Artisan, TopFlite, and APC organizations.) Logistics coordinators had the most difficult job at NLM. Freight expediting was only necessary when something went wrong, and the people who dealt with NLM were often under pressure from angry customers as well as from internal management to fix the problem. The logistics coordinators at NLM frequently felt the brunt of their customers’ stress. When external situations such as inclement weather or labor strikes made on-time delivery difficult or impossible, the job required an especially calm approach. “It takes a special kind of person to handle this job,” said Kristin Williams Frank, former management team member at NLM who had stayed with the company as a consultant. “There’s no time for negotiating, so the job requires a lot of apologizing for things you don’t have any control over.” The hourly wage of $10 to $16 was up to 40% less than employees might receive working for a large asset-based 3PL. Additionally, while the prospects for advancement at a large asset-based 3PL were greater, NLM’s logistics coordinators were often not initially qualified to work for one of those companies. (Larger 3PLs typically hired college graduates, often with logistics degrees.) However, once the logistics coordinators improved their credentials through gaining experience with NLM, some left to work in logistics roles at larger companies. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012
