NATIONAL LOGISTIC MANAGEMENT CASE ANALYSIS BY GROUP-IV

NATIONAL LOGISTIC MANAGEMENT

Introduction

The case relates to the decision dilemma faced by Scott Taylor, founder and CEO of NLM. In the process, the evolution of the transport industry from a mere goods carrier to Supply Chain Solution Provider and the journey of NLM, keeping pace with changing dynamics has been discussed.

NLM

Scott had been in trucking business since 1985 with founding of Topflite as a family trucking business. They diversified into specialty freight with the establishment of Artisan in 1988 for oversized goods and National Logistics Management in 1991 based on concept of third party non asset based management of premium freight transportation.

Industry Overview

The freight transportation industry has three basic components: Shipper that needed to ship a good, Receiver that need the good and carrier that is used to physically transport the good. There were firms of different sizes operating in the industry, from integrated multinational firms to local owner operated trucking firms e.g. Topflite.

Industry Challenges

Basic requirements of shippers being similar, the sources for differentiation were limited, as the requirements of the shippers were safety, efficiency, cost effectiveness and timely delivery. The key performance driver was the ability to schedule capacity, however the critical area of concern was to deal with the trucks returning empty after delivery upto the next pick up point. Even when the information about the availability and cost of capacity was known to the carriers, it was difficult to leverage this information due to difficulty and time required to communicate with potential buyers and suppliers. In the year 2000 it was estimated that the cost of matching supply and demand accounted for 6.3 % to 9.6% of total transportation cost. It was during this period that many large carriers were offering services to cover a broader range of activities including supply chain coordination, warehousing and inventory management which were termed as Third Party logistics (3PL). 3PL service providers were able to improve transportation asset efficiency, streamline the logistics processes, reduce cost for all parties and ensure timely delivery. Internet provided a common platform for sharing information and coordinating logistics among multiple parties. This ensured reduction in cycle time and improved quality.

Premium Freight: A Window of Opportunity

The careers working for Auto industries had a tight time schedule; if they delivered too early, the auto makers were forced to assume inventory carrying cost and forgo use of space for higher valued revenue generating activity. If they delivered too late, the manufacturing process could be delayed or stopped completely, costing up to $20,000-50,000 per minute. Large automakers often defined tha window as that of 15 minutes early or late.

The Standard supply shipment had typical Milk Runs, in which a driver would make a pre defined set of stops on a regular basis, picking up a series of let then truck load (LTL) shipments that suppliers knew the automakers would need. In practice 90 % of the time the system worked smoothly. However, for remaining 10% the supplier would be late due to various reasons. In these cases the shipment of the crucial items was called Premium Freight and was not subject to contractual routing procedure and policies. This was seen by Taylor as a window of opportunity, since automakers typically made 100s of premium shipments per day. Since the freight size was small , Scott Taylor realized that it was well within the capacity of NLM.

NLM Strategy

The heart of NLM operation is its Expedited Management System (EMS) that use Internet provided a common platform for sharing information and coordinating logistic activities among multiple independent parties. EMS enable shippers, carriers, receivers and NLM logistic coordinator to connect to the internet and complete all the activities needed to define premium shipment needs, register availability, award a contract, schedule and track a shipment, reconcile payment and produce management report.

For carriers, EMS provided a view of available loads, tools to bid for those loads, and tool to update the status of a load as it reached each of seven different stages from pickup 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 rating.

For shippers, EMS offered tools to automatically enter new shipments and to view real time delivery status.

Receivers at the plant also had an EMS interface, offering them detailed information on each shipment, such as supplier, part numbers, estimated time of delivery and status. Given the urgent nature of the shipments that NLM handled, updated status information was particularly important to the receivers.

NLM is not a party to any transaction which causes freight to be shipped. Their role is to function as an intermediary to get their customer better pricing and services than they would get on their own.

NLM Dilemma

Keeping in view increasing customers base of NLM and their increasing requirements, the company needs to grow to keep itself afloat. The Equity or Venture Capitalists routes were not favored by Taylor as he did not want to dilute the ownership

and the identity of the company. The offer to buy the company was made to Taylor, which was found to be fair initially. However, at later stage, the offer was amended based on slow First Quarter results of 2005. Taylor was not comfortable with this new offer. He had the dilemma of keeping the companys identity intact yet grow to cater for increasing demands of the trade or lose the market and perish under increasing competition. He had to decide to carry on with sweat equity, bootstrap budgeting and work his way up or take Venture Capital and Private Equity route.

Options Available with Taylor

Taylor had following options available with him:-

(a) Raise necessary capital from Market through Equity route. (b) Raise money from Venture Capitalists. (c) Raise money through long term loans. (d) Get a good bargain for Artisan and/or Topflite tom raise money and keep NLM intact. (e) Sell NLM after getting a good deal.

Recommended Options

Given the fact that Taylor requires money to grow to meet customer and industry requirements, he should raise money from mix of debt and equity.