National Logistics Management 801-110 To counter these factors,NLM incentivized employees to stay by fostering a supportive environment and providing financial bonuses.The company provided lunch for all of its employees every day and periodically added festive touches,such as cake or balloons.Logistics coordinators received end-of-year bonuses in the $500 to $1,000 range,and the "employee of the month"and "employee of the year"were awarded additional bonuses.One year when the company had done particularly well,Taylor bought every employee a leather varsity jacket.The company held an annual on-site carnival during the period that coincided with the automaker's annual model changeover. (See Exhibit 7 for a picture of NLM's headquarters.) In the late 1990s,APC hired Debbie Keier as the company's first full-time human resources manager to begin formalizing the hiring process at NLM,Artisan,and TopFlite.Before her tenure, many logistics coordinators were temporary workers who wanted permanent positions.Keier implemented a standardized application and screening process,ensuring that prospective employees were qualified to work in a demanding call-center environment and thoroughly understood the nature of the logistics coordinator job.Open positions were posted internally as well as advertised externally,giving employees an opportunity for professional advancement within the company. Keier also sponsored a number of efforts to foster teamwork,reward good attendance,and maintain morale.These efforts included professional training,a bi-weekly"wellness program"conducted by an on-staff nurse,and attendance bonuses.These and other efforts helped to reduce turnover to 50%, which was still high,but more in line with industry averages. With one exception,the management team at NLM and APC had worked with or been close personal acquaintances of Taylor since 1992 or earlier,and their relationships with him were a strong factor in their job satisfaction."There's a lot of loyalty to Scott,"Williams Frank observed."Without him there,this would just be a job."The members of the management group were not overly concerned with titles,and Taylor did not generally use them:"I think I'm called 'hardware'in the org chart,"Gauthier laughed.Their collegial relationships with one another and with Taylor were supplemented by financial incentives that included salary in the range of $50,000 to $80,000 as well as a bonus component.Bonuses were determined annually by Taylor,based in part on metrics as well as on his own qualitative assessment of their performance. Options for Growth In summer 1999,Taylor began to wonder if NLM would be able to compete aggressively in the increasingly networked industry.The company's core business had not yet reached its full potential, with other shipping modes unexplored and other customers within the automotive supply network untapped.To realize this potential,NLM could continue to grow organically,contracting with other large manufacturing companies to provide similar services.A second possibility was to partner or merge with a large logistics provider that served similar customers and wanted to augment shipping services in the specialty niche of premium freight management.A third option was to enter the Internet marketplace more aggressively,making whatever changes were necessary to gain private equity backing and become a full-featured Internet B2B player. Organic Growth The business that Taylor had originally built at NLM was streamlined to handle the needs of one very large automotive customer capably and cost-effectively.By 1999,it had captured $7.3 million in 11 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 11 To counter these factors, NLM incentivized employees to stay by fostering a supportive environment and providing financial bonuses. The company provided lunch for all of its employees every day and periodically added festive touches, such as cake or balloons. Logistics coordinators received end-of-year bonuses in the $500 to $1,000 range, and the “employee of the month” and “employee of the year” were awarded additional bonuses. One year when the company had done particularly well, Taylor bought every employee a leather varsity jacket. The company held an annual on-site carnival during the period that coincided with the automaker’s annual model changeover. (See Exhibit 7 for a picture of NLM’s headquarters.) In the late 1990s, APC hired Debbie Keier as the company’s first full-time human resources manager to begin formalizing the hiring process at NLM, Artisan, and TopFlite. Before her tenure, many logistics coordinators were temporary workers who wanted permanent positions. Keier implemented a standardized application and screening process, ensuring that prospective employees were qualified to work in a demanding call-center environment and thoroughly understood the nature of the logistics coordinator job. Open positions were posted internally as well as advertised externally, giving employees an opportunity for professional advancement within the company. Keier also sponsored a number of efforts to foster teamwork, reward good attendance, and maintain morale. These efforts included professional training, a bi-weekly “wellness program” conducted by an on-staff nurse, and attendance bonuses. These and other efforts helped to reduce turnover to 50%, which was still high, but more in line with industry averages. With one exception, the management team at NLM and APC had worked with or been close personal acquaintances of Taylor since 1992 or earlier, and their relationships with him were a strong factor in their job satisfaction. “There’s a lot of loyalty to Scott,” Williams Frank observed. “Without him there, this would just be a job.” The members of the management group were not overly concerned with titles, and Taylor did not generally use them: “I think I’m called ‘hardware’ in the org chart,” Gauthier laughed. Their collegial relationships with one another and with Taylor were supplemented by financial incentives that included salary in the range of $50,000 to $80,000 as well as a bonus component. Bonuses were determined annually by Taylor, based in part on metrics as well as on his own qualitative assessment of their performance. Options for Growth In summer 1999, Taylor began to wonder if NLM would be able to compete aggressively in the increasingly networked industry. The company’s core business had not yet reached its full potential, with other shipping modes unexplored and other customers within the automotive supply network untapped. To realize this potential, NLM could continue to grow organically, contracting with other large manufacturing companies to provide similar services. A second possibility was to partner or merge with a large logistics provider that served similar customers and wanted to augment shipping services in the specialty niche of premium freight management. A third option was to enter the Internet marketplace more aggressively, making whatever changes were necessary to gain private equity backing and become a full-featured Internet B2B player. Organic Growth The business that Taylor had originally built at NLM was streamlined to handle the needs of one very large automotive customer capably and cost-effectively. By 1999, it had captured $7.3 million in 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 revenue of the $825 million spent each year by automakers and suppliers on premium freight.14 NLM had become profitable in 1998,continued to show profitability in 1999,and had accumulated essentially no debt.The addition of the automotive supplier customer in 1999 was NLM's first opportunity to test the scalability of its model as well as to expand the flexibility of EMS by incorporating new services and operating capabilities.NLM had agreed to provide a dedicated staff to the automotive supplier,and had begun hiring logistics coordinators in anticipation of that contract. The Internet offered the opportunity to scale the premium freight business without having to invest large sums of money or spend a lengthy time building new systems.International companies with plants in the United States,other automotive manufacturers,and the large components and parts suppliers to each of these companies were heavy users of premium freight services.NLM's initial value to organizations needing to move large amounts of goods had consisted in moving time- critical transactions from relationship-based to information and business-rule based,a type of transition that would likely prove valuable in many parts of the automotive industry.Building upon the relationship-based nature of the industry made this prospect a time-intensive one for Taylor,but developing business this way was something that he had historically done well. Proactive Partnerships Another alternative was to partner with or sell the business to a large 3PL such as Penske,Emery, Ryder,C.H.Robinson or Menlo Logistics.NLM already had a working relationship with Penske,the company that supplied most of its automotive customer's standard ground shipment needs.Taylor considered whether to explore a closer partnership with Penske or with another auto company's transportation provider,in which NLM would manage premium freight on behalf of the larger 3PL across multiple companies or even multiple industries.To date,the large 3PLs had not seen NLM as a competitor partly because the premium category comprised such a small segment of the freight market and partly due to NLM's small size (refer back to Exhibit 3).Taylor believed that the businesses could be viewed as complements rather than competitors. New Playing Fields Another option,more common for 3PLs of NLM's size,would be to seek out smaller shippers to serve.The dollar value of each company's premium freight transactions would be lower, necessitating multiple relationships to sustain NLM's business,but the diverse customer base would also lessen the impact of any one company's defection.Among these smaller players,65%of shippers used contract logistics providers and 40%employed more than one 3PL vendor,implying a possible opportunity for specialized services.15 Aggregating small shippers could be a valuable service to them as well:NLM could leverage its carrier relationships to negotiate rates on behalf of groups of shippers which had a fraction of the automaker's market power.NLM's expertise would also benefit shippers who lacked the resources to compare multiple modes,track shipments,or determine service levels. Being a small,but growing 3PL in the traditional arena would be an increasingly difficult market role.Armstrong Associates,a consulting firm tracking the logistics outsourcing industry,divided the industry into three tiers:large multi-national companies with several hundred million dollars in 14 Anonymous,"Saving a Billion Dollars a Year,"Traffic World,Journal of Commerce,September 14,1998,p.55. 15 James Aaron Cooke,"Third Party Logistics Grows Up,"Logistics Management Distribution Report,November 1998. 12 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 12 revenue of the $825 million spent each year by automakers and suppliers on premium freight. 14 NLM had become profitable in 1998, continued to show profitability in 1999, and had accumulated essentially no debt. The addition of the automotive supplier customer in 1999 was NLM’s first opportunity to test the scalability of its model as well as to expand the flexibility of EMS by incorporating new services and operating capabilities. NLM had agreed to provide a dedicated staff to the automotive supplier, and had begun hiring logistics coordinators in anticipation of that contract. The Internet offered the opportunity to scale the premium freight business without having to invest large sums of money or spend a lengthy time building new systems. International companies with plants in the United States, other automotive manufacturers, and the large components and parts suppliers to each of these companies were heavy users of premium freight services. NLM’s initial value to organizations needing to move large amounts of goods had consisted in moving timecritical transactions from relationship-based to information and business-rule based, a type of transition that would likely prove valuable in many parts of the automotive industry. Building upon the relationship-based nature of the industry made this prospect a time-intensive one for Taylor, but developing business this way was something that he had historically done well. Proactive Partnerships Another alternative was to partner with or sell the business to a large 3PL such as Penske, Emery, Ryder, C.H. Robinson or Menlo Logistics. NLM already had a working relationship with Penske, the company that supplied most of its automotive customer’s standard ground shipment needs. Taylor considered whether to explore a closer partnership with Penske or with another auto company’s transportation provider, in which NLM would manage premium freight on behalf of the larger 3PL across multiple companies or even multiple industries. To date, the large 3PLs had not seen NLM as a competitor partly because the premium category comprised such a small segment of the freight market and partly due to NLM’s small size (refer back to Exhibit 3). Taylor believed that the businesses could be viewed as complements rather than competitors. New Playing Fields Another option, more common for 3PLs of NLM’s size, would be to seek out smaller shippers to serve. The dollar value of each company’s premium freight transactions would be lower, necessitating multiple relationships to sustain NLM’s business, but the diverse customer base would also lessen the impact of any one company’s defection. Among these smaller players, 65% of shippers used contract logistics providers and 40% employed more than one 3PL vendor, implying a possible opportunity for specialized services.15 Aggregating small shippers could be a valuable service to them as well: NLM could leverage its carrier relationships to negotiate rates on behalf of groups of shippers which had a fraction of the automaker’s market power. NLM’s expertise would also benefit shippers who lacked the resources to compare multiple modes, track shipments, or determine service levels. Being a small, but growing 3PL in the traditional arena would be an increasingly difficult market role. Armstrong & Associates, a consulting firm tracking the logistics outsourcing industry, divided the industry into three tiers: large multi-national companies with several hundred million dollars in 14 Anonymous, “Saving a Billion Dollars a Year,” Traffic World, Journal of Commerce, September 14, 1998, p. 55. 15 James Aaron Cooke, “Third Party Logistics Grows Up,” Logistics Management & Distribution Report, November 1998. This document is authorized for use only in Logistics Managment by Chung-Li Tseng from July 2011 to January 2012