ATC Logistics & Electronics Finds Growth in a Challenging 3PL Market

Fort Worth, Texas USA

July 20, 2009

By

Evan Armstrong

Key Personnel:

Antony Francis – President

Art Smuck – VP & General Manager, OEM/Other

Randy Engel – VP & General Manager, Wireless and DSL Operations

Dan Gardner – VP Business Development

Ray Estep – VP Finance

Jim Dickson – Sr. Director of Support Services

Kevin Giles – VP Human Resources

Marc Sherman – VP Information Technology

Sara Hull, Marketing

Overview

Founded in 1996, ATC Logistics & Electronics (ATCLE) is a growing third-party logistics provider (3PL) specializing in forward logistics, reverse logistics, asset recovery, test and repair, kitting and packaging, and value-added warehousing and distribution services for high-velocity, high-tech devices, equipment and components customers. ATCLE’s industry focus includes companies in wireless telecommunications, broadband communications and networking, consumer electronics, and medical, industrial and automotive electronics. ATCLE’s operating network has seven distribution centers (DCs) with over one million square feet, employing over 2,600 associates. Annually, it processes over 53 million pieces in outbound order fulfillment, 12 million returns and exchanges, and is testing and repairing over five million electronic devices. In 2008, ATCLE generated revenues of $353 million (having grown 470% since 1998) and is on target to finish 2009 with revenues in excess of $370 million.

Fueling its growth, ATCLE has expanded from its founding customer, AT&T Wireless, to 21 long-term contractual customers including: AT&T Mobility and AT&T DSL, LG Electronics, Sony Ericsson, GM, TomTom, and TiVo.

ATCLE has always had to perform to high quality standards to meet the needs of its demanding high-tech customer base. Its three Fort Worth, Texas DCs are all ISO 9001 certified and in 2009 ATCLE is exceeding all of its contractual service level agreement (SLA) performance measures for all customers. Over the last few years, ATCLE has taken its internal training program one step further by implementing a Lean Six Sigma operational model. As an example, by having its engineering team work closely with internal department managers, ATCLE was able to reduce direct labor by 15% in 2008 and plans for a 10% improvement in 2009.

To provide synergies and purchasing leverage for its growing high-tech customer base, ATCLE has also expanded its parts procurement, import trade compliance, and materials management operations. The materials management operation has a staff of 22 professionals who are committed to reducing customers’ materials costs by creating low profile packaging solutions, providing local sourcing, utilizing ocean vessels versus air freight, and purchasing economical lot quantities. In 2008, ATCLE worked with one customer to reduce its materials costs by approximately 10%.

ATCLE provides customers with a suite of information technology applications that can be rapidly configured and deployed individually, or as fully integrated solutions to meet customers’ critical business requirements. These include the Oracle 11i E-Business Suite and RedPrairie Warehouse Management System (WMS) complete with Web Visibility.

We recently had a chance to review ATCLE’s three Fort Worth, TX DCs located in the Alliance Gateway foreign trade zone and they are detailed below.

Operations Review, South Distribution Center

ATCLE’s Fort Worth South Distribution Center totals 406,000 square feet and houses the AT&T Mobility direct fulfillment and forward bulk operation; AT&T DSL direct fulfillment and returns triage and inspection operations; and TomTom pack-out forward and returns processing operations. TomTom repairs are handled in ATCLE’s new Matamoros, Mexico facility which opened in September 2008.

AT&T Mobility

The AT&T Mobility operation runs 24/7. Almost 2,000 stock-keeping units (SKUs) are kept on hand including mobile phones, components, collateral and accessories. Approximately 70,000 orders are filled per day for business-to-consumer (B2C) direct fulfillment and mobile phone exchanges, including both insurance replacement orders and business-to-business (B2B) orders.

There are five main pick modules in the South DC: one is for direct B2C order fulfillment, another handles direct B2B order fulfillment, two others are dedicated to fulfillment of B2C mobile phone exchange orders, and one module is used on an as-needed basis for operational flexibility.

Items are picked to carton and then moved via an automated conveyor to a pack out line where dunnage is automatically placed in the carton and taped. RedPrairie provides the WMS backbone for the operation and its web interface is used to provide visibility. Radio frequency (RF) devices are used to capture item information and to direct all warehouse tasks.

In addition to the pick modules, a bulk storage area is used to pick large multiple line item orders destined for retail locations.

AT&T DSL

ATCLE began handling the AT&T DSL direct outbound fulfillment and reverse logistics business in March 2008. The company warehouses modems, gateways, power supplies, accessories, and collateral for AT&T DSL customers and DSL installers. The operation runs in two shifts from two main pick modules, five days a week. Approximately 200,000 outbound orders consisting of 2.6 million items are picked, packed, and shipped each month. An additional 300,000 returned items are received monthly and processed. The returned devices are also screened and tested as part of the reverse logistics process.

TomTom

TomTom began working with ATCLE in 2007 for outbound domestic and Canadian order fulfillment. ATCLE is now providing forward and reverse logistics services including: kitting, clamshell and box packaging, pick/pack, inbound repair, parts materials management, returns processing, triage, and test and repair.

The 130,000 square foot operation is very flexible; staffing can range from 30 to 245 people depending on the time of the year. Using four pack-out lines, approximately 4.6 million navigation units were picked, kitted and packaged, then packed-out and shipped in 2008. In November 2008, a record 50,000 units were packed-out in one day.

As part of the pick/kitting/packaging/pack/ship operation, ATCLE is performing an automated quality assurance inspection on 100% of the units prior to shipping to ensure all components are included in the final package and the unit functions to specifications.

Operations Review, North Distribution Center

The North Fort Worth DC has 375,000 square feet and houses the AT&T Mobility returns and repair operations along with the direct fulfillment operations of another wireless operator, and TiVo’s forward, returns, and test and repair operations.

AT&T Mobility Returns Processing, Triage; Test & Repair and Repackaging

Approximately one million individual mobile phone and accessory returns are processed each month by ATCLE via three receiving lines in this two-shift five-day a week operation.

Using the customized return labels customers use when returning product via USPS mail centers, the parcels are picked up and consolidated into Gaylord containers for truckload delivery into ATCLE’s North DC.

Returned items are received and the product serial number is scanned to cross-reference the return material authorization number (RMA). Next, the product is screened and assigned the appropriate return type coding.

If required, mobile phone testing and repair is handled by multiple lines, or cells, of personnel by product type and model. Approximately 4.2 million phones were processed by ATCLE’s test and repair staff in 2008. Work includes basic reconditioning such as software “reflashing” (reprogramming) and replacement of cosmetic parts. All refurbished phones are assigned their appropriate SKU designation post processing and are packaged for re-distribution.

To provide AT&T Mobility a greater return on investment, returned phones are reconditioned and sold as refurbished or are liquidated via an auction process if they cannot be refurbished.

Operations Review, Gateway Distribution Center

To manage business growth, ATCLE expanded its footprint in 2006 by leasing the 188,000 square foot Fort Worth “Gateway” multi-client distribution center. This facility houses operations for LG Electronics, Pantech, and Sony Ericsson, among others.

LG Electronics

The LG Electronics accessory packaging operations have expanded significantly since our last visit to the Gateway DC in 2008. Services provided by ATCLE are packaging, specialty packaging, clamshell packaging, product labeling and relabeling, battery testing and reclamation, and inventory management.

Inbound materials from China and Korea are warehoused alongside five packaging lines. With more than 100 SKUs under management, products include mobile phone chargers, Bluetooth devices, and batteries. In total, the operation occupies 29,000 square feet of the DC.

The five packaging lines and warehousing operations are staffed by approximately 20 to 60 associates and fluctuate with changes in demand and volume requirements. Christmas and quarter-ends have the highest volumes. In 2008, over six million items were packaged and shipped to wireless carriers, original equipment manufacturers (OEMs), and retailers.

Pantech

Pantech began working with ATCLE in 2007. Its operation requires approximately 10,000 square feet of space. ATCLE performs outbound order fulfillment services for mobile phones and repair/service parts.

Approximately 11,000 SKUs are maintained in inventory. In the first quarter of 2009, ATCLE processed orders for approximately 1.8 million service parts and over 50,000 phones. The phones are shipped to ATCLE’s wireless carrier operations in Fort Worth and remote DC operations in Memphis.

Sony Ericsson

In approximately 12,000 square feet of the DC, ATCLE is running a vendor managed inventory (VMI) program for Sony Ericsson. Products are released to the ATCLE South DC as they are needed to fill wireless carriers’ orders.

The Gateway DC also houses a 44,000 square foot operation for another OEM consisting of three distinct services: 1. Mobile phone handset reflashing, 2. Mobile phone accessories kitting and packaging, and 3. Direct fulfillment of accessory orders. ATCLE estimates that it will reprogram approximately one million handsets and fulfill over 150,000 accessory orders this year. Accessory orders are filled for all of the Americas except Brazil.

Summary

ATC Logistics & Electronics has developed into a domestic leader in high-tech 3PL services and has developed the knowledge, expertise, IT capabilities, and service levels necessary to build a customer roster that includes: AT&T, GM, LG, Pantech, and TomTom. With a focus on complex reverse logistics services, process reengineering, and high volume order fulfillment, ATCLE has been able to grow by servicing customers who demand “six-sigma” standards. The operational processes it has developed and its expanding service offerings are continuing to fuel its rapid growth.