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