[From iSource Business, August 2001] It's not a sight we will soon forget. Television news helicopters followed the yellow Ryder truck en route to Tallahassee loaded with disputed election ballots requested by Judge Sanders Sauls, just in case he might want to count them again. Americans are quick to seize symbols, and this was obvious when an anonymous donor bid more than $67,000 for the yellow truck in a charitable auction hosted by Yahoo!
Now anyone could be forgiven for thinking that the infamous Ford F350 belonged to Ryder, although the reality is that Budget Group Inc. owns the yellow trucks that Miami-based Ryder System originally made famous. Symbolically, that notorious Ryder truck may represent the election crisis of 2000, but it also represents the Internet economy, which is compelling Ryder, like so many other companies, to reinvent its business. That process included selling its consumer truck leasing unit to Budget five years ago and licensing its good name.
Ryder and other transportation and logistics companies have lately been in the process of identifying core competencies and managing change to remain competitive in a New Economy that continually redraws the roadmap a process that's been far from a leisurely, Sunday drive. By the end of the 1990s, Ryder System Inc. had sold off all but its Integrated Logistics and commercial truck leasing units, including Public Transportation Services (school busses) and Aviali (aircraft maintenance). On the heels of a buying spree launched less than 10 years earlier, the sell-off amounted to half of Ryder's revenues. Unable to figure out how Ryder planned to refuel, Wall Street groused about the company's stock price dropping by half and remaining stagnant for more than a decade. Investors were advised to hold their shares or sell them.
Then came the turnaround. Pared down to commercial truck leasing and logistics, by 1999 Ryder had transformed itself into a brick-and-click. Revenues had grown by more than $1 billion in five years, driven in large part by Integrated Logistics. A member of Standard & Poor's transportation index, it out-performed the S&P 500 and is still ranked squarely in the middle of the Fortune 500. Still, no one cared about the old fogies, which was a clear case of being at the right place at the wrong time for Ryder.
But less than two years later, things have changed drastically for the company. To be a brick-and-click nowadays is to be revered as smart and steadfast. And with $5.4 billion in revenues, a $1.5 billion market cap, 30,000 employees, 100,000 trucks, 40,000 trailers, three distribution centers (DCs) and a new e-mission, Ryder seems to be poised for greatness.
The bad news, however, is that Ryder has been hit hard by the slump in sales of used trucks due to over-production on the part of original equipment manufacturers (OEMs), which often makes buying new equipment the better deal. Worse, an over-abundance of goods has piled up throughout the economy. The U.S. Department of Commerce reported a fourth quarter inventory-to-shipment ratio of 1.36, only a smidge higher than the 50-year low of 1.31 reported last March. Failing two consecutive quarters of less than 1 percent growth in GDP is officially defined as a recession. However, at this point, Federal Reserve Chairman Alan Greenspan is sticking to calling the current downturn a major inventory correction.
Semantics aside, the state of the economy has necessitated a serious review by all the major transportation and logistics players. Besides the slowdown in the economy and accumulated inventories, heightened customer expectation demands that shippers' logistics operations be world-class. The result is a business environment that requires the use of Internet-based technology and services. In light of this shift, industry analysts strongly believe that the Internet will truly change the way in which the transportation and logistics industry does business.
Supporters of supply chain technology see the slow-down in production and a slower rate of growth in inventories as evidence that B2B Internet technologies finally kicked in, enabling manufacturers and distributors to get a handle on inventory and supply chain management problems. Others argue that there still aren't enough companies with end-to-end supply chain management and e-logistics systems in place to have made a difference. But they point out that, like Cicso or Nortel Networks, a key component of these networked systems, demand forecasting, either failed miserably or came online too late to do any good.
The ugly truth is that inventories are bulging with more than $1.2 trillion worth of materials and finished goods. Barring a miracle, reasonable projections peg recovery at 12 to 18 months while demand and supply catch up with each other. It takes perfect information to have perfect inventory balance, says Chuck Lounsbury, Ryder's senior vice president for global electronics, high-tech and telecommunications. We're a long way from it, but we're on the way to doing a better job. One of the things we use is knowledge management. We'll capture the best practices we use and adapt them to a particular industry.
As an example, Ryder is building a significant postponement program in Singapore for Hewlett-Packard. It takes a standard HP printer and configures it specifically for each of HP's markets. The same process is employed in configuring Caterpillar's forklifts and Wal-Mart's computers. According to Lounsbury, A retailer can put [items] right on the shelf. We did a program for Wal-Mart. Many of its customers were first-time computer buyers and didn't want to buy components. We did a kitting operation where we packaged everything in one box. The boxed computers are priced and ready to stock by the time they reach the stores.
While the renewed faith in Ryder has a lot to do with its restructuring, it has everything to do with its logistics strategy. As we're now learning, efficiency and recession are no longer mutually exclusive like they were throughout the 1970s and 1980s. And as we're about to learn, outsourcing non-core business functions is a long-term feature of the competitive landscape. e-Logistics, properly executed, is seen as the key to balancing demand and supply, protecting individual companies and the economy as a whole from getting stung by future downturns. (And rest assured, there will be others.)
The numbers alone show that logistics is big business. Recent estimates suggest that a whopping $921 billion was spent on logistics, or 9.9 percent of GDP. At the same time, most analysts are saying these costs will not come down because organizations are increasingly identifying the logistics and transportation process as being strategic.
The Proper Provider
So, if a transportation and logistics company (or any type of company for that matter) knows it must properly execute its logistics strategy, what does it begin to consider? This decision is often complicated by the continually shifting value proposition of many of the players. AMR Research identifies six Internet-based technology and service providers in this area: Third-Party Logistics providers (3PLs), Fulfillment Service providers (FSP), Lead Logistics providers (LLP), Logistics Software suppliers, Logistics Exchanges (LX), and Logistics Visibility providers.
Before a company wades through the quagmire, itshould ask if it truly wants to outsource the entire logistics function, or merely improve the way it manages its own internal logistics operations. Ryder, which is generally considered a traditional organization, not only e-enabled itself in the logistics arena, but also leveraged its technology and core competency as a truck leasing company. This allowed it to become a service provider with its Integrated Logistics service, which, in turn, classifies it as a Lead Logistics provider. Yes, an array of e-logistics providers exist, but it's no excuse to not choose wisely.
No matter what provider you choose, the Web-enabled supply chain is going to cost businesses and industries a lot of money to implement over the next decade, with no guarantee that the investment will go straight to the bottom line for each and every company. The pressure to identify competitive advantage will intensify, as a result. However, consolidation is one way in which companies bolster their competitive advantages or acquire new ones. A clue that this may be a big year for buy-outs among logistics providers was the purchase in January of Rollins Truck Leasing by Penske Truck Leasing Co. LP, a unit of GE Capital Corp. The combination of the two companies nudges Ryder out of position as the country's largest full-service commercial truck leasing company. More important, Ryder and the rest of the industry are now pitted against the world's biggest company.
Getting the Right Product to the Right Place
Despite the buy-outs, Ryder has made giant leaps in bolstering its competitive advantage to focus on its e-business strategy, Ryder's asset-light coordination of integrated logistics services means shipping customers' goods on other carriers' trucks. Sandy Orr, vice president of Ryder's E-Commerce Solutions group, explains that the company has been motivated by three primary objectives: getting in the game, leveraging its strengths and capitalizing on new opportunities. We couldn't wait to build infrastructure, so we were doing initiatives simultaneously. At the end of 1999, the objective was to pull together what had become a decentralized effort and start generating a return on the company's investment of its time, energy and money.
Under the umbrella offering of Ryder Integrated Logistics, first out of the gate was eChannel Solutions, launched in July 2000, an initiative that Orr describes as an incubator of logistics technology solutions for B2B and B2C customers. The primary technology behind the customer solutions is AmTrix, a messaging system developed by Viewlocity. Distribution centers in Maryland, Texas and California hold inventory from which Ryder will pick, pack and ship. Once an online order is received at the DC, attended and unattended deliveries to consumers are routed through a network of neighborhood facilities. Value-added fulfillment services offered to retailers include gift-wrapping and card insertion. In addition, Ryder will process returns, including pick-up, inspections, return to inventory (or suppliers') and disposal. Orr says Ryder Integrated Logistics also provides quality assurance, paying attention to details such as measuring the distance between the buttons on shirts.
eChannel Solutions created a myriad of offerings.
- RyderShip.com an online purchasing exchange that helps companies simplify procurement processes and source shipping services. Carriers are better able to manage freight capacity, and billing is consolidated on a single invoice.
- RyderTrac.com shippers can track their shipments online in real-time, anywhere along the supply chain.
- RyderFlow.com customers access information about their products, inventories, orders and receipts directly from the warehouses.
By giving companies the ability to view the status of their orders and shipments in real-time they can focus on the time to receipt, not the order-to-ship cycle. Lounsbury uses the airline industry as an example: I fly a lot. Airlines focus on on-time departures, but customers want on-time arrivals. At Ryder I say, Don't look to see if your company is competing with another company. It's your supply chain competing with another supply chain.'
Half-empty Trucks and the Last Mile
Ryder Integrated Logistics is still the largest 3PL in the country, investing heavily in the information technology (IT) infrastructure and solutions that support eChannel Solutions and other Web initiatives. In 1998 Ryder System outsourced $1.5 billion worth of IT consulting and management business to Accenture and IBM Global Services, a 10-year engagement intended to bring the company's services online and manage them while it concentrates on running its core business units.
Under RIL's umbrella are the company's Web-based transportation and distribution management services. This is the fastest-growing part of the business, to the tune of nearly $2 billion globally. Orr says, One of the things that our clients look to us to do is bring them emerging technology in a cost-effective manner. For example, i2 Technologies, a powerhouse supply chain solutions provider, is the matrix in FreightMatrix, an online marketplace for transportation services in which Ryder is an anchor tenant. But most small- to medium-size companies don't have the resources to implement i2's platform and instead hire in-house IT expertise to develop and manage complex, proprietary systems or shoulder the financial burden when something doesn't work.
Lounsbury believes there's more to it than avoiding technology's cost and complexity. Companies need to move to variable costs. [For example], flex the size of warehouses and fleets in order to balance warehouse utilization. When it was cheaper and more expeditious, keeping business functions in-house made sense. But the outsource service provider's marginal cost of extending a Web-enabled process to each additional new user is so low that it's becoming more cost-effective and just as quick to farm out what isn't core to the business. The result is less capital tied up in fixed assets and more to spend on things that make money.
A Real-time, Back-end View
Bells must ring in Heaven when Ryder's target customers ship anything, because their industries are struggling with the worst of the inventory backlog electronics, high-tech, telecommunications, automotive, aerospace and consumer packaged goods. The big picture solution is complex, but tackling the inefficiencies in the transportation and distribution of these goods is the right place to start. According to Lounsbury the typical truck is 60 to 70 percent full. Ryder can improve cube utilization by matching loads with proprietary customers. It's not new in terms of concept. There are brokers, and truckers can post [information] on bulletin boards at truck stops. The difference today is that everything is in real-time.
That is, if the technology that provides this real-time view actually works. It's worth looking into the backgrounds of a service provider's technology partners. They should be reliable, financially stable and in business for the long haul, to the extent it's possible to know such things. Nonetheless, a little research will reveal what people are saying about them. Ryder has cherry-picked some of the best. In addition to IBM Global Services, Accenture, i2 Technologies (FreightMatrix) and Viewlocity (AmTrix), Ryder is also working with From2 Global Solutions (international logistics technology), Qualcomm (wireless and OmniTRACS onboard computers), Provia (DC management), P3 Systems (pFreight), Descartes Global Logistics Network (fulfillment) and LogicTools (decision support).
These tech providers have helped Ryder develop its own back-end systems or, in other words, the services that form the backbone of the following logistics offerings:
- pFreight provides drivers, small-fleet owners and private fleets with a range of services: load matching, filing of all tax and regulatory reports required by government agencies, standardized contract administration, carrier ratings, universal track and trace, on-line paperwork, electronic billing/payment and elimination of administrative duties. The Web site is standardized to accommodate any size carrier.
- FreightMatrix an online marketplace for logistics providers, including carriers, freight forwarders and customs brokers. Participants benefit from Ryder's volume purchasing of contract transportation and gain access to additional business through i2's TradeMatrix marketplace network.
- ECredit.com automates and speeds credit and application approval and collections management for commercial leasing and programmed maintenance application pricing through Ryder's Global Financing Network.
- RyderFleetProducts.com provides online access to the country's largest supplier of truck parts, with 150 product lines and 15,000 catalog items from more than 100 suppliers.
Despite some inefficiencies with the transportation and distribution portion, commercial truck leasing and maintenance, the other half of Ryder's business, is far from being neglected. Trucks still transport 85 percent of all goods shipped within the United States, but the technology is getting better. For instance, Ryder's Fast Track Maintenance program uses in-cab technology to capture vehicle-maintenance data, diagnose problems and make repairs. It can also come up with some fairly creative, low-tech solutions for customers with unique problems. According to the company's Web site, Golden Eagle Distributors of Tucson, Ariz., found it a hassle to return their trucks to Ryder every night just for refueling and routine maintenance. Ryder's solution was to install gas pumps and fueling stations at the beer distributor's headquarters, sending its service staff to Golden Eagle instead. Now, the only reason trucks go back to Ryder is for major repairs.
Keep On Truckin'
As evidenced by Ryder's e-business efforts, no brick-and-mortar company can currently plug in a one-stop solution and then post a sign that says, We're e-enabled. Every major organization converting itself to a brick-and-click must spend enormous amounts of time just to find the right partners. AMR Research offers additional advice when making the transformation to automated processes in this industry, or any industry for that matter. First, AMR Research suggests that, even in an economic downturn, companies must continue to invest in e-logistics technology and services. Next, companies should not blame market confusion in the transportation and logistics space for lack of action. And finally, if an e-logistics provider's value proposition is not immediately clear, move on to another provider.
By its very nature, the transportation and logistics industry is about movement. It's about collaborative management between numerous entities. Businesses used to think that if companies were using electronic data interchange (EDI), facsimiles, telephones and basic e-mail, then communication techniques were state-of-the-art. But we live in a real-time world, and customer expectations are much higher. AMR Research and others predict that the Internet in this industry will have radical and exciting consequences for business across the board. In the meantime, the traditional road warriors are engaged in the transformation, and they've already discovered the benefits to the bottom line.
See the sidebar "Transforming Advice: Brick to Click" for more information.