All Students are required to upload their individual responses to each of the attached discussion questions for the 2 cases titled "Supply Chain Management at Wal-Mart" and "Wheels Group: Evolution of a Third-Party Logistics Service Provider"
CASE: THE WHEELS GROUP: EVOLUTON OF A THIRD PARTY LOGISTICS PROVIDER Discussion Questions 1. What are some of the logistics activities that a manufacturer could outsource? 2. Why would a manufacturer decide to outsource its logistics function? What are some of the advantages associates with outsourcing the logistics function to a third-party provider? 3. What are some of the drawbacks associated with outsourcing the logistics function to a third- or fourth-party provider? 4. What do you speculate are some of the emerging trends that are influencing the structure of the third-party logistics (3PL) industry? 5. How does the Wheels Group add value for its customers? 6. What are the Wheels Group’s core competencies and what has made the business successful to date? 7. Should the Wheels Group pursue a non-asset-based growth strategy or an asset-based strategy? Why or why not? 8. What are the advantages and disadvantages associates with pursuing each alternative? Microsoft Word - 9B04D004.doc S w 904D04 THE WHEELS GROUP: EVOLUTION OF A THIRD-PARTY LOGISTICS SERVICE PROVIDER Michael Sartor prepared this case under the supervision of Professor P. Fraser Johnson solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. This material is not covered under authorization from CanCopy or any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail
[email protected]. Copyright © 2004, Ivey Management Services Version: 2004-03-09 Peter Jamieson, president of Wheels Group, leaned back in his chair as he reflected with Doug Tozer, the founder and major shareholder of the company, upon the success of the Mississauga, Ontario-based company during the past 15 years. It was Wednesday, August 6, 2003, and Jamieson and Tozer were considering alternatives with respect to pursuing their goal of doubling the third-party logistics (3PL) provider’s revenues over the next five years. In an attempt to identify potential opportunities and risks, Jamieson and Tozer had been working with the heads of the subsidiary companies. While the results of this planning exercise yielded a number of attractive opportunities for the company to pursue, after much debate, it seemed that the safest course of action was to focus the company’s efforts upon growing its flagship subsidiary, Wheels International, and its non-asset-based business model. However, a potentially lucrative proposal presented by Jim Davidson, president of Wheels Dedicated, to expand the subsidiary’s asset-based 3PL business continued to intrigue Jamieson and Tozer. Davidson’s proposal represented a significant shift away from the current business strategy of focusing on non-asset-based logistics services, and Jamieson and Tozer felt the company could not pursue expansion at both subsidiaries simultaneously. Consequently, they felt the time had come to firm up the company’s business strategy. For the exclusive use of C. Maldonado, 2022. This document is authorized for use only by Carlos Maldonado in HBR Cases for SCM 6216 Summer 2022 (Logistics Strategy) Online taught by Andrew Yap, Florida International University from May 2022 to Jun 2022. Page 2 9B04D004 THE THIRD-PARTY LOGISTICS INDUSTRY While Canada’s transportation industry was characterized by a high degree of government regulation during the early to mid-1900s, the end of the Second World War marked the beginning of a half-century transition to a deregulated industry in Canada. Progressive deregulation of the rail, air, trucking and ports sectors of the industry resulted in increased competition, lower market-based prices and an expanded range of transportation alternatives. One significant trend that emerged in North America following the deregulation of the United States and Canadian trucking industries in the 1980s was the evolution of the third-party logistics (3PL) industry. Initially, 3PLs were primarily engaged in supplying manufacturers with a limited range of transportation and warehouse storage services. However, with the advent of supply-side manufacturing strategies in North America and the increasing complexity of supply chains in the late 1980s, 3PLs began to capitalize on the opportunity to provide manufacturers with outsourced logistics solutions. In a 2002 annual survey of 66 of the largest (Fortune 500) manufacturing companies in the United States, 65 per cent of the companies reported using third- party logistics services, an increase from 38 per cent when the same survey was first conducted in 1991.1 Exhibit 1 illustrates the growth in gross revenues generated by firms in the U. S. 3PL market during between 1996 and 2002. The industries that have embraced 3PL services include the automotive, chemical, consumer products, electronics, computer, medical supplies and devices, retail and telecommunications industries. Exhibit 2 provides an estimate of the proportion of projected logistics budgets that will be outsourced by North American manufacturers during the period 2005 to 2007, and Exhibit 3, lists the activities most frequently outsourced to 3PLs. Although the 3PL industry had experienced dramatic growth since deregulation, the participants in the industry were highly fragmented and characterized by differing capabilities. Exhibit 4 lists the top 15 3PL companies in terms of their 2002 net revenues, along with an estimate of their current number of employees and a brief description of their service offerings. Participants in the 3PL industry were estimated to enjoy net margins of approximately five per cent on average. 1 Lieb, Robert and Hickey, Michael. The Use of Third Party Logistics Services by Large American Manufacturers, The 2002 Survey, 2002. For the exclusive use of C. Maldonado, 2022. This document is authorized for use only by Carlos Maldonado in HBR Cases for SCM 6216 Summer 2022 (Logistics Strategy) Online taught by Andrew Yap, Florida International University from May 2022 to Jun 2022. Page 3 9B04D004 THE WHEELS GROUP OF COMPANIES Founded by Doug Tozer, Wheels Group commenced operations as a non-asset- based provider of highway and intermodal rail transportation services in 1988. By 2002, five subsidiary companies were operating under the Wheels Group banner: Wheels International, Wheels Dedicated, AIM Integrated, Wheels Pacific and Wheels Logistics. Head office supplied the operating companies with shared support services such as administrative, financial (A/P and A/R), human resources, IT and quality initiatives, allowing the subsidiaries to focus on revenue growth and cost control. Exhibit 5 provides an overview of the Wheels Group’s corporate organization. Wheels Group had annual revenues of approximately $100 million in 2002. Management believed that the company’s success was driven by four key success factors: value-added customer focus, its non-to-light-asset strategy, deployment of a leading Web-based supply chain information system and continued enhancement of a people-centered culture. Exhibit 6 contains the Wheels Group’s mission statement and general strategy statement. AIM Integrated, Wheels Pacific and Wheels Logistics AIM Integrated provided pickup and delivery trucking services (container drayage) for asset-based carriers engaged in rail and ocean transportation services whose customers needed their containers delivered beyond the marine ports or the end of the rail lines. In 2002, AIM was generating approximately five per cent of the Wheels Group’s revenues. Wheels Pacific was a non-asset-based entity that focused on West Coast container transportation and management with services including container transloading, freight consolidation, cross-docking, brokerage services and warehousing for containers being shipped from the Pacific Rim into North America. Wheels Pacific targeted ocean carriers and major importers who were seeking a transportation solution to facilitate the movement of their products from coastal ports to inland destinations. Wheels Pacific represented approximately five per cent of Wheels Group’s revenues. Wheels Logistics, which was started as a division of Wheels International, was being integrated into the parent company’s operations during 2003 in an effort to enhance the suite of shared support services offered by the parent company to the subsidiaries. In particular, Wheels Logistics would provide supply chain analytical services to each of Wheels Group’s subsidiaries. It assisted Wheels subsidiaries with customer route and load optimization studies for prospective customers, as well as logistics reporting, outsourced project implementation and management for existing customers. For the exclusive use of C. Maldonado, 2022. This document is authorized for use only by Carlos Maldonado in HBR Cases for SCM 6216 Summer 2022 (Logistics Strategy) Online taught by Andrew Yap, Florida International University from May 2022 to Jun 2022. Page 4 9B04D004 Wheels International Wheels International provided multi-mode (air, rail, ocean, highway) logistics services. In its promotional materials, the company proclaimed: “Whether you have 10 cartons, a full truckload or a plant full of equipment to be moved to a new facility. Wheels International will efficiently and effectively move your freight.”2 Revenues at Wheels International had grown from approximately $25 million in 1997 to approximately $70 million in 2002. Because of the importance of Wheels International to the overall company, Jamieson and Tozer personally oversaw day- to-day operations. Wheels International’s non-asset-based business model involved providing customers with logistics solutions that employed the use of third-party transportation assets. For instance, Wheels International negotiated service agreements with customers and then subcontracted services with suppliers, such as trucking firms. While the company had traditionally focused on truckload and less- than-truckload services for irregular route logistics needs, it had