Ryder's Movin' On

Ryder System is putting IT at the center of its plans to change how companies manage logistics

InformationWeek Staff, Contributor

June 21, 2001

17 Min Read

ArvinMeritor Inc. faced a logistics problem as sticky as they come. Following the merger last July of $3.1 billion Arvin Industries Inc. and $4.5 billion Meritor Automotive Inc., the global auto supplier was trying to control more than a half-million inbound and outbound shipments per year using information systems that couldn't share data. Its approach to transportation management all too often amounted to teams of people using paper, fax, and phone to communicate.

Mike Silvio, director of logistics for ArvinMeritor's Commercial Vehicle Systems division, was the lucky man in charge of figuring out what to do. "The question was whether I wanted a materials follow-up person calling 20 carriers to find out why my shipments were going to be late," he says. There had to be a better way--and Ryder System Inc., the company perhaps best known for the yellow rental truck business it sold to Budget Group Inc. in 1998, promised to provide it.

Ryder's largest business has long been providing logistics and fleet-management services to companies such as Meritor. But it's only now that the 68-year-old Miami company is ready to use its technology prowess to secure far-reaching contracts as the lead logistics provider to multinational companies. Last month, ArvinMeritor and Ryder signed a multiyear, multimillion-dollar agreement under which Ryder manages inbound, outbound, and third-party shipments for all ArvinMeritor locations in North America and Europe. Ryder employees don't drive trucks or move packages for ArvinMeritor; they manage information--procurement support, carrier relationships and performance, freight billing, auditing, and payment--and negotiate rates for ground, rail, air, and ocean transportation.

The company that pioneered just-in-time logistics in the United States in the late '80s and early '90s, then threw up its hands at the cost and complexities of its IT operation, is reinvesting big-time in technology to better serve clients such as ArvinMeritor. Ryder and its rivals in the logistics business have discovered where their clients--multinational companies with multiple suppliers and customers scattered across global supply chains--need help most, and they're all racing to develop the IT infrastructure to provide it. "Those companies have found that it's easy to do a good job of planning the supply chain, but the problem is execution," says Gregory Swienton, Ryder's CEO and president. "That's where we step in." Decades of experience in the business paired with sophisticated logistics technology make Ryder very good at getting parts to a factory or distributor just when they're needed.

Ryder grew from its roots managing fleets and warehouses, tackling logistics for just-in-time inventory systems in 1987 with Toyota Motor USA and in 1990 with General Motors Corp.'s Saturn Corp. division. It relied on homegrown software to optimize the pickup and delivery routes for these companies, but building software for every customer soon turned into a costly mess, prompting Ryder to outsource almost all its application development and software selection.

Photo of Gregory Swienton by Tom Salyer

Planning a supply chain is easy, says Ryder CEO and president Swienton. The problem is executing the plans, which is where his company steps in to help.
Swienton, a logistics veteran whose background ranges from railroads to overnight delivery, now is championing a new business model in which Ryder is building a plug-and-play logistics and supply-chain technology platform that will work for a wide variety of customers. It's catching on. In recent months, Ryder has signed multiyear, multimillion-dollar contracts with several companies, including aerospace manufacturer Northrop Grumman, networking vendor Cisco Systems, fast-food restaurant chain Wendy's, and retailer Pier One Imports. But the company can't afford to stumble: Rivals, including FedEx, Penske Logistics, Schneider National, and UPS e-Logistics, are also scrambling to deliver cutting-edge technology with a similar plug-and-play philosophy.The third-party logistics market is about $50 billion to $55 billion this year and growing at 15% to 20% annually. The value of the software and services that drive the industry is expected to grow from $560 million last year to $2.1 billion in 2005, says AMR Research.Getting to the point where technology drives Ryder's business hasn't been easy. It involved restructuring a relationship it entered into in 1997 with Andersen Consulting, now called Accenture, and IBM, in which IBM Global Services operated Ryder's information systems and Andersen selected software and other technology for the company. That setup made for painfully slow decisions on new technology, and Ryder executives worried they'd fall behind competitors such as Penske and UPS that were investing heavily in IT. "Everybody was so involved in the legalese of the alliance that nothing could get done," executive VP of global markets and E-commerce Gene Tyndall says.When Swienton joined Ryder two years ago, he created Project Fresh Start to remake the alliance. Early this year, Ryder cemented a new alliance designed to put its own managers clearly in charge of choosing the technology it needs to build its logistics and transportation services businesses. Accenture now focuses on integration projects and other IT services, supports Ryder-built legacy systems, and helps Ryder plan future technology directions. IBM operates Ryder's systems and customer call centers, and works directly with Ryder on projects such as an SAP deployment that's in the works.

Photo of C.J.
After underinvesting in IT for three to five years, Ryder is stepping up efforts to give team leaders the tools they need, CFO Nelson says.
Now Ryder execs hold the reins as a customer to be supported, not a problem to be managed. The change is obvious. When Ryder CIO Dana Fuller left the company in April, Accenture's new alliance manager, Eduardo Vital, was trusted to take over until Robert Sanchez was appointed as CIO this month. "When Ed stepped into that role, he stepped in as a Ryder advocate. That's how far we've come in the past 18 months," says Ryder CFO C.J. "Corky" Nelson. "I don't think we could have done that two or three years ago."Another result of the reconstructed alliance has been regular communication between Ryder and IBM execs--which led to IBM introducing Ryder to supply-chain vendor i2 Technologies Inc., now Ryder's largest technology partner. I2 worked with Ryder to build a logistics and supply-chain platform designed to work for a wide variety of customers without requiring custom software. When Ryder pitches potential customers, it takes along fleet-management, logistics, and supply-chain services built around its own proprietary software and i2's transportation-manager, transportation-optimizer, and transportation-bid collaboration products, as well as other key products. Ryder and i2 also are co-developing software to match freight that needs to be moved with available capacity.ArvinMeritor is convinced of the benefits of using Ryder. Director of logistics Silvio likes the fact that the final responsibility for managing logistics rests with Ryder. "During the Fourth of July weekend, when a truck breakdown could stop our line from running the next day, I don't want to think about it. Ryder solves that problem," says Silvio, who notes that ArvinMeritor is on track to save 10% of transportation costs this year from Ryder's logistics management and realize additional savings from inventory reduction. ArvinMeritor may expand the relationship to include a Ryder offering that manages supply-chain events in real time, in which case Ryder would be scheduling shipments to ArvinMeritor plants from its suppliers. End result: Ryder would manage every aspect of ArvinMeritor's supply chain except for the actual procurement operation.The first thing a visitor to Ryder's headquarters notices is a delicate design balance between Miami tropical and European classical. Fine art from the 15th, 16th, and 17th centuries, on loan from local museums, fills the lobby, while the company's open-air central courtyard is a lush tropical garden where Japanese koi swim in a pool surrounded by 30-foot palm trees and other plants. Ryder is maintaining a similar balancing act as it puts IT at the forefront of its operations. It's a complex effort that involves hiring the right mix of personnel, properly funding IT initiatives, and managing growth while continuing to execute in its old-line warehouse and fleet-management businesses.

Photo of Gene Tyndall by Tom Salyer

Despite the temptations of a high-growth business, Ryder mustn't take on too much, says executive VP of global markets and E-commerce Tyndall.
The company now employs 33,000 people, 5,000 more than before it restructured its technology alliance. Nearly all of the employees added last year were drivers, warehouse workers, logistics and transportation experts, and other customer-facing employees. And at a time when many companies are scaling back IT initiatives, Ryder has beefed up its IT budget to $100 million, up about 15% from last year, including IT contractors and consultants. The supply-chain operation that Tyndall heads has its own $500,000 budget."For three to five years, we feel we underinvested in IT, and in the past 18 months we've stepped that up significantly to give team leaders the tools they need," CFO Nelson says. Gone are some of the luxuries, such as the corporate jet and sponsorship of the Doral Ryder Open PGA Golf Tournament. "The discretionary dollars we spend are best spent on technology and people who know how to use it to make our operation more effective," Swienton says.The economic downturn, which has taken a heavy toll on Ryder's automotive, high-tech, electronics, and consumer-goods customers, hasn't bypassed Ryder. All in all, the company is on sound footing--revenue increased to $5.3 billion in 2000, up from $5 billion in 1999, and last week it paid a dividend to shareholders for the 99th consecutive quarter. But revenue for its first quarter ending March 31 was down 2% from $1.3 billion in the year-ago period. First-quarter earnings per share, before restructuring and other charges, was 18 cents--above expectations but still below its year-earlier earnings of 33 cents per share.As Ryder makes its big play in the fast-growing logistics-management arena, it can't lose sight of the customers in the warehouse-and fleet-management businesses that generate most of its revenue. "It's been an awesome technological challenge for them to figure out how to move from being an old execution company to becoming an E-business execution company. They have a lot of the pieces right," says Bobby Cameron, principal analyst and research director for Forrester Research. Last week, Ryder added another piece by acquiring the employees and customers of Internet logistics provider Sameday.com Inc.'s warehousing operations in Memphis, Tenn., and Newark, N.J. The move gets Ryder closer to its goal of providing 48-hour freight shipment by truck to nearly all of the United States.Ryder has to make sure its warehouse and fleet-management employees feel a part of the process as the company chooses new supply-chain and logistics technology, which will tie into the systems they're working on. Department managers who will be affected by changes to supply-chain and logistics technology are expected to provide feedback from the start on how the software should work. Ryder isn't neglecting technology for those groups either: SAP is developing a vehicle-maintenance module for Ryder, with IBM's help, to replace IBM mainframe and other legacy systems.Ryder will also have to resist taking on more than it can handle. "There's always tension in a high-growth business to take on anything you can get and then figure out how to do it," Tyndall says. That's what took Ryder off-track when it made its early forays into the logistics market a decade ago and ultimately resulted in its calling in Andersen and IBM to relieve it of the burden of running its IT operation and insulate it from the cost and risks of software development.As lean inventory systems became more a part of the business landscape, Ryder spent tens of millions of dollars to build customized logistics software for customers. Some were advanced for their time, such as the system called JIT, built in the early '90s to manage the just-in-time supply-chain and logistics operation for Saturn. But Ryder became too deeply entrenched in software development by mid-decade as the logistics business boomed, says Jerry Anderson, Ryder's IT managing director and chief architect. Making matters worse, Ryder's separate operating companies and divisions didn't collaborate on development issues, such as whether software they developed might have applications for other customers. "Costs were out of control," Anderson says.Ryder can't afford to go through that again, and Swienton knows it. He sold off the public transportation unit and combined Ryder's logistics and transportation services businesses under one corporate structure. The contract-logistics operation is growing at 15% a year, with Ryder now managing $2.2 billion in contracts. But Swienton is consciously slowing Ryder's growth rate and targeting what he believes will be the most-profitable contracts in automotive, durable-goods manufacturing, high tech, and electronics. "We don't want to be in the same position as a lot of other contract-logistics operations where there's big growth and little return," he says.A logistics-software strategy that doesn't require Ryder to customize offerings for each customer is vital to making Ryder's plan profitable. It's counting on i2 and other technology partners to help it explore order-management and call-center services to compete with newcomers in the market, such as United Parcel Service Inc. subsidiary UPS e-Logistics. UPS is determined to challenge Ryder by offering many of the same services, including warehouse management and logistics, customer call-center operations, and order-management technology that lets businesses compare stock against orders to determine delivery dates. In one way, UPS and Ryder are focused on the same idea--that customers want a packaged solution to their logistics problems. "We're selling a prebuilt solution that leverages our experience," says Tim Zach, marketing director for UPS e-Logistics.Lucent Technologies Inc. will test whether Ryder's direction is on target. Lucent is one of the first companies to deploy Ryder's new logistics services, which uses Optum Inc.'s TradeStream supply-chain event-management software.The network equipment maker is working with Ryder and a few suppliers as part of a major initiative to improve visibility into its supply chain. Jim Schoessling, Lucent's senior manager for supply-chain networks, says it's already resulted in some unexpected benefits. For example, Lucent uses TradeStream to provide suppliers with real-time information on demand and the required delivery date. Suppliers using TradeStream are finding that they can integrate this demand information with their production-management systems to determine when they should begin producing components so that they can deliver an order on time, without having to build inventory in advance and warehouse it until Lucent orders it.Ryder leads the logistics effort by using TradeStream to make sure each supplier will be able to ship on schedule. If a supplier can't do so, or if there's an unexpected snag in a shipment, it's Ryder's job to redeploy material from other orders or to find a different source so the material won't be late. Complete orders are compiled at a Ryder facility for shipment to a Lucent plant or to a Lucent customer.Lucent is in a life-or-death struggle to drive costs out of its supply chain. On June 12, Standard & Poor's cut the company's debt rating to junk status, concerned about Lucent's ability to improve profit in the economic downturn that's battered telecommunications companies. Lucent posted a $3.7 billion loss in its second quarter. It's cutting 16,000 employees and wants to take $2 billion annually out of operating costs.Schoessling says Lucent should realize significant savings when the software is deployed to nearly 100 key suppliers by year's end. Optum gives Lucent the visibility into the supply chain that it wants and suppliers the visibility they want, Schoessling says. "And Ryder gets the information it needs to ensure we receive materials when we need them."Ryder has had disappointments. The company hoped to get the lead logistics business for General Motors, but late last year, the automaker chose to create its own logistics-management company in-house. Yet Ryder has also added clients such as Delphi Automotive Systems Corp., GM's now-independent parts subsidiary in Troy, Mich. Ryder has provided logistics management for some Delphi divisions for years, including shipments between Mexico and the United States. Now it's running Delphi's worldwide corporate logistics, using analytical, routing, and scheduling tools that adapt parts deliveries to a new production model in which Delphi wants just-in-time inventory management, without the higher cost of making more deliveries.

Photo of Debra Fletcher by Bridget Barrett

Ryder is helping Delphi Automotive Systems optimize its operations to take spikes and slowdowns out of the production process, says Fletcher, Delphi's global logistics director.
Delphi's goal is to optimize plant operations to take spikes and slowdowns out of the production process, move toward a leaner inventory model, and drive costs out of the supply chain, says Debra Fletcher, Delphi's director of global logistics. Ryder delivers materials to Delphi plants daily rather than once or twice weekly, so the plants need less inventory, but the right parts still get to the right places on time.Traditionally, such a just-in-time inventory model increases transportation costs because it means more trucks on the road carrying smaller loads. But Ryder helped Delphi develop a plan to cut transportation costs by having its trucks run routes more frequently but stop at more suppliers and transport a wider variety of materials to make up full truckloads. And instead of delivering to one Delphi plant, they deliver to several in close proximity. Delphi now provides information to its suppliers and to Ryder on what will be built and when, which is helping suppliers do a better job of shipping what Delphi needs.At the Vandalia, Ohio, plant where Ryder's logistics services were first implemented, Delphi saw a decrease in the amount of plant space required to store parts and materials, and reduced the number of supply trucks needed by 20% to 30% in the first six months. Fletcher says the logistics model has another big benefit in a time when automakers are talking about customers ordering custom cars with a promise-to-deliver date. "With our new engineering, production, and logistics strategy, we're ready, willing, and able to support order-to-deliver when carmakers want it," she says.Forrester analyst Cameron points to Cisco Systems as proof of how important real-time logistics and supply chains can be. Ryder is working with Cisco on a new system designed to help it minimize inventory by connecting its logistics and warehouse operations to manufacturing and the rest of the supply chain. That work, which was proceeding on schedule, wasn't completed when the soured economy stalled demand for Cisco's products and left it with an inventory glut. For its third quarter ending April 28, Cisco reported that net income fell 77% from a year ago to $230 million, a slide the company blamed in part on $2.2 billion in excess inventory. Cisco declined to comment, but Cameron says the Ryder system Cisco is implementing is designed to help it avert inventory problems like this. "It's becoming clear now how important Ryder's work with Cisco is to the company," he says.Ryder may be landing big customers such as Cisco, but it can't coast. The company has been a partner to Saturn ever since the GM subsidiary launched its Spring Hill, Tenn., plant 11 years ago. Although Ryder is the lead logistics provider, a 328,000-square-foot storage warehouse is managed by archrival Penske Logistics, a subsidiary of Penske Truck Leasing Co. "Having a couple of competitors working with us to streamline the process is a good position for us to be in," says Tim Connearney, material director for production control and logistics at Saturn. Connearney says the logistics companies should face the same daily cost pressure that carmakers do. "We challenge all of our partners, whether they're logistics providers or suppliers, because the small-car market is so competitive," he says.That Penske has a presence at Saturn may help Ryder keep its focus sharply on using IT to help the carmaker cut costs and get parts to the factory on time. In the increasingly competitive logistics business, Ryder will no doubt find itself going down a similar road many more times in the years ahead. Photo of Nelson by Tom Salyer
Photo of Tyndall by Tom Salyer
Photo of Fletcher by Bridget Barrett
Photo of Swienton by Tom Salyer

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