Cardinal Logistics Management Introduces Cardinal Hosted Logistics in 2011

Concord, North Carolina USA Site Visit

August 18, 2011

By

Kurt Baumann

Management:

Vin McLoughlin, Chairman

Jerry Bowman, President/COO

Tom Hostetler, CEO

Carl Texter, CFO

Clay Holmes, CIO

Introduction

Like the third-party logistics industry as a whole, Cardinal Logistics Management (CLM) is bouncing back from the Great Recession with gross revenues reaching $300 million in 2010. The dedicated contract carriage (DCC) segment took a tumble from $11.0 billion in net revenues in 2008 to $9.2 billion in 2009. The segment is expected to fully recover in 2011 and surpass 2009 revenues, supported by a continuing trend in logistics outsourcing that has produced a compound average growth rate (CAGR) of 7.6% for DCC since 1995. Challenges in the transportation industry, including tightening capacity and driver shortages, exacerbated by the Federal Motor Carrier Safety Administration’s CSA (compliance, safety, accountability) will further support the trend and might tip the scales for many private fleet operators. In this respect, leading DCC providers, like Cardinal, are well-positioned for growth.

With several key customers tied to the building materials industry, recovery hasn’t come without its challenges for Cardinal. Despite declines in shipment volume in 2009, Cardinal’s service delivery never missed a beat. CLM earned Lowe’s Dedicated Carrier of the Year and Double Platinum Award for exceeding 99.8% on-time, inbound and outbound deliveries in 2009 and again in 2010. Volume is improving and Cardinal’s margins have stabilized, due in a large part to its excellent capabilities to monitor and control operations, and deliver its customer’s goods on-time. At the core of these capabilities is a fully integrated IT platform, which enables Cardinal to efficiently coordinate the movements of 1,620 trucks, 1,680 drivers, and 5,093 trailers across 140 locations, making 7,000 on-time deliveries daily.

Cardinal Logistics Management’s Nationwide Network

Primary Service Offering

  • Dedicated Fleet Services – Multi-stop service to stores, dealers and branch locations
  • Fleet Equipment – Purchase and lease assumption
  • Final Mile Delivery – To consumers and job sites with special handling services
  • Transportation Management – Internet-based load planning and execution services
  • Logistics Engineering – End-to-end transportation and inventory optimization services
  • Asset Management – Providing for flexible capacity to private fleets and long-term leased equipment
  • SaaS – Technology for routing, scheduling, scanning, electronic proof of delivery (POD) and real-time tracking

New Market Initiatives

Cardinal’s service offering continues to evolve in response to unique customer demands for innovative products and services. Two examples include the growing demand for reverse logistics and integrated transportation management technology, and Cardinal’s response. First, Green/Sustainability initiatives present the need for reverse logistics allowing for recycling, re-use and refurbishment. The efficiencies achieved by creating closed-loop transportation networks to move containers, dunnage and returned products is generating new demand for dedicated operations, especially for fleet services using specialized equipment. Cardinal’s core dedicated fleet services are a natural fit for these closed-loop supply chains. They are also providing opportunities for Cardinal to gain additional backhaul revenue.

Improving transportation IT is another area of focus for Cardinal. Information technology has become a cornerstone for leading third-party logistics providers (3PLs), not only by enabling operational excellence and visibility, but also as a critical decision point in the customer’s make/buy decision to outsource logistics.

3PLs have the advantage of spreading costs associated with building and deploying IT solutions over a large customer base, which is a key cost advantage that Cardinal has always shared with its customers and has recently begun to offer to the broader marketplace. We spent much of our time during our visit to Concord focusing on Cardinal’s IT capabilities and new SaaS offering.

Pragmatism Guiding IT Strategy

Since its inception, Cardinal took a pragmatic approach to build its IT infrastructure, avoiding the temptation to reinvent the wheel. Its approach and systems are the result of a coordinated effort between Cardinal’s IT pros (many of whom are former operators) and the operating group. CLM started with its own base systems, integrated leading applications to complement its proprietary functionality, built flexible ties to communicate with customer systems, and created innovative solutions to fill the gap between good systems and great capabilities that are valued by its customers. This approach has allowed Cardinal to avoid the need, as Vin McLoughlin explains it, to keep 300 code-slinging MIT grads locked in the basement. Consequently, it also allows CLM to provide the IT capabilities that discerning customers in the 3PL market have come to expect, but at a lower cost to serve.

Cardinal’s IT systems developed over time into an integrated platform that serves the full range of its needs including fleet management, warehouse management, courier management, order management, routing and scheduling, network optimization, freight brokerage, driver safety, load optimization, deliver confirmation, performance reporting, EDI/XML (electronic data interchange/extensible markup language) transmissions with customers, and a customer portal for track and trace.

One of its key innovations is comprised in Cardinal’s driver handheld solution, Dynamic WorkflowTM, which enables barcode scanning, electronic signature capture, exception code logging, status updates, GPS (global positioning system) service and cell phone service at the point of delivery. Delivery instructions are provided to the driver in real-time; the driver can record critical delivery information on the device for correct handling and proof of delivery. The handheld can be hosted on any Windows Mobile device. Ease of use functionality is similar to new “smartphones”.

Dynamic WorkflowTM Advantage

We took a test drive on the Dynamic WorkflowTM device. Starting out, each driver has a unique username and password. Drivers can be assigned to multiple loads at the same time. The driver will choose the load from the drop-down menu and then start the route. The screen scrolls up and down by using your finger or stylus to press on the screen in the direction you wish to scroll. Drivers can tap on a stop to receive additional information without having to arrive at the stop.

When the driver arrives at a stop, specific icons will appear on the screen (based on this particular stop’s attributes) to inform the driver of what actions need to be completed at this stop. In terms of saving the driver time and getting the delivery tasks right, Dynamic WorkflowTM allows the driver to use the same handheld and receive a specific set of instructions and delivery exceptions to be completed for each unique customer (carton scanning, temperature readings, signature, etc.). This software saves the driver time, training, and insures 100% data integrity.

Barcodes can be scanned using a list of predefined barcode ID’s, or the driver can complete a blind scan. This customer requires a signature after all items have been scanned or an item level delivery exception is noted.

Drivers can display the items the customer is signing for.  If no signature is required, the driver can click the check box and continue.  Once all of the stop requirements are met, the driver can depart the stop.  All information is stored in memory if the unit is not within the cell phone coverage area. Once cell phone coverage is established, all data is transmitted wirelessly.

Customers will have access to the Customer Portal. Customers can search by reference number or display routes to show delivery exception and customer POD information.

Customers will also have access to the GPS breadcrumb map and custom made reports.

Fulfilling an IT Need for Hazen Transport

In Q1 of 2010, Office Depot made a dramatic change in approach, announcing that its 3PL partners would have to implement their own IT systems to support delivery by Q1 of 2011. Hazen Transport, a Michigan-based 3PL specializing in home delivery, is one of Office Depot’s strategic partners with 23 locations stretching from Michigan to Florida. Hazen was dependent upon Office Depot’s systems at the time and needed to find a technology solution quickly. Rick Palmer, president of Hazen Transport, was searching for options to meet OD’s requirements and maintain a major customer, and contacted Cardinal. It was a different deal to simply provide its systems and not its DCC service, and a unique opportunity for Cardinal. By year end, Hazen was up and running with more than 250 units that complied with OD’s requirements for truck and delivery scanning, real-time delivery exception reporting and electronic POD.

The implementation was a huge success for Hazen and Cardinal. According to Rick Palmer, president of Hazen Transport, “Cardinal not only provided a solution that allowed Hazen to exceed the needs of its customers, they did it on time, the implementation was flawless, and it has greatly increased my potential customer base.” Rick has plans to increase the implementation to 400 units this year and leverage Cardinal’s technology to build its book of business.

Emergence Cardinal Hosted Logistics and the SaaS Product Launch

By necessity, Cardinal has become adept at assessing customers’ operational requirements and converting them to systems requirements to develop customized solutions, and rolling them out with speed and efficiency. As opportunities arose, like Hazen, to provide its systems to other 3PLs on a Systems as a Service (SaaS) basis, Cardinal’s management realized that its IT platform and implementation skills represented a marketable service. In April, with licensing agreements in place with purchased application vendors, CLM announced the creation of Cardinal Hosted Logistics. CHL will focus on small- to medium-sized carriers and private fleets as a primary market segment, as these operators value integrated technology with minimal capital investment.

Cardinal Hosted Logistics’ SaaS is available on a menu basis. CHL offers companies the option to utilize the entire suite of components or to customize a technology solution for the supply chain with cost advantages. The most significant cost that customers can avoid is Cardinal’s investment in development, having spent years modifying standard industry software and designing its own integrated solutions to meet the varying needs of its operations and customers. The second advantage is the customer’s ability to implement a single technology solution that combines multiple packaged systems and hardware with standardized interfaces to host systems. The third benefit is Cardinal’s simplified pricing structure which is based on a per truck unit basis and invoiced monthly. There is a one-time start-up cost that involves electronic integration and handheld equipment setup. As Vin stated, “it really doesn’t matter if we’re setting up 40 units or 400 units; our setup effort isn’t driven by volume.” Another advantage is represented by the SaaS model in general. Small- to medium-sized 3PLs, and even large companies, can implement state-of-market technology without the upfront costs associated with purchasing, customizing, hosting and maintaining systems and hardware.

Cardinal anticipates that its SaaS solution will draw the attention of fleet operators and add revenue through software licensing and services, as well as the core dedicated business.

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