Menlo Worldwide Site Visit
San Mateo, California USA
July 20, 2006
Robert Bianco, President
Gary Kowalski, Chief Operating Officer
Bob Basset, V.P. Sales & Marketing
Joseph Tillman, V.P. Finance
Steve Hill, Marketing Manager
Joseph Dagnese, V.P. Consumer & Industrial Group
John Beckett, V.P. Global Operations
Has Menlo lost its edge? While its profit margins have steadily improved, there have been a series of major news stories that have made the marketplace wonder about Menlo’s viability as a major 3PL. We went to our recent meeting with top management wondering if Menlo was a rudderless ship adrift and falling behind its fast-moving competitors.
There have been big changes at Menlo. First there were the chronic problems with its red ink air freight forwarding operation, Emery. Emery was finally unloaded to UPS. Then there was the slow process of choosing a new CEO at Menlo’s parent company, Con-way, Inc. By the time the new boss was chosen, a cadre of key executives had left the company. What looked like a third strike was the news that GM wanted to take Vector, the joint 4PL venture with Con-way, back in house.
The big stories made us wonder what Menlo’s role would be in the new North American limited Con-Way. Could there be a Menlo Global without Emery? And who was this new guy, Bob Bianco, the new CEO? Would the loss of Vector reduce Menlo as an automotive 3PL?
Admittedly, I was skeptical after having been confronted with all of this news when I met with the new Menlo executive team. The simple answer to my questions turned out to be that the company is more focused, profitable and better run than the old Menlo.
Major Changes at Menlo
Over the last two years, Menlo has been quietly re-making itself. The recent big news stories misrepresent where the company is today.
Major changes have been made in Menlo’s business model. Menlo has embraced a lean logistics approach which has increased margins while revenues have grown. Last year turnover (gross revenue) reached $1.34 billion. Net revenue was $367 million. EBIT was $47 million (12.8%). Revenues are up 12% and operating income has improved by 16% this year.
A second major change has been the migration away from single-client, contract logistics warehouse operations. Sixty percent of Menlo’s customers are now in multi-client facilities. These operations are primarily at campuses with 3-5 buildings and flexible space for growth. The multi-client locations allow for allocating work forces in two-hour increments to meet client needs.
This flexibility is particularly evident at the Menlo Fremont, CA. campus. This operation benefits from quarterly and year-end peak variations among high-tech clients, allowing for particularly effective employee participation. Under the lean philosophy, team leaders own processes and designated areas within warehouses. All employees including hourly people get bonuses. Managers are incented for a significant portion of total compensation at all the Menlo campuses. Kaizen Events and continuous process improvement are now standard operating procedure. Other campuses employing Menlo’s new lean philosophy include Atlanta, Chicago, Memphis, Nashville, Eersel (Netherlands), Shanghai and Mexico City.
Complimenting Menlo’s improvement in warehousing is its expanded transportation management capability. Menlo’s centralized TM operation is in Aurora, IL. It employs 150 people. These transportation coordinators each handle 50 loads a day on average. A quarter of the employees are cross trained and multi-client capable. Menlo uses its own LMS software, G-Log and other software to support the Aurora operations.
Global Transportation Management is replacing Emery’s international freight forwarding ability. Menlo simply manages global air freight and ocean freight shipments for its clients using major global forwarders to handle shipments. The approach is a standard 3PL cooperate/compete as necessary service, common in automotive logistics.
Menlo does have significant operations in Europe and Asia. The overseas headquarters are in Amsterdam, Netherlands and Singapore. (These operations are described in site visit reports in Menlo’s profile in Who’s Who In Logistics.)
Menlo’s overseas operations resulted largely from following its customer’s activities. The expansion has been particularly successful because of Menlo’s emphasis on the high-tech, automotive and consumer goods verticals.
For many of its customers, Menlo is a lead logistics provider and supply chain manager. It usually manages inbound transportation, warehousing, including inventory management and other value-adds, and distribution to customers. For Phoenix Brands, its role has expanded to include order planning, designing the product flow network and establishing 6 distribution centers. For a major sporting goods manufacturer, Menlo manages all the transportation events, warehousing, distribution and assembly of golf clubs. All logistics costs for this unique operation are charged on a “cost per club” basis.
The Fremont Campus
The Fremont Campus consists of four buildings with 280,000 square feet and the option to expand into 80,000 more. These facilities are filed with Silicon Valley, high-tech customers.
One major OEM supported by Menlo at the Fremont campus manufactures sophisticated and expensive machinery used by the major semi-conductor manufacturers to produce semi-conductors from silicon wafers. For this OEM, Menlo handles raw materials, manages inventory, does just-in-time delivery to the assembly line, performs complex kitting, and ships the final product. In addition, Menlo provides transportation management including international forwarding control. Menlo provides similar services for other clients at the Fremont campus.
The Fremont campus has 135 full-time hourly warehousemen and 24 salaried staff. 95 temporary employees are utilized. Teamwork and morale is very good and productivity is high.
As pointed out above, team leaders “own” processes and warehouse locations. Pay levels are better than those for most warehousing operations and employees receive yearly bonuses around Christmas. All full-time employees have the same medical benefits. In addition to English, 16 other native languages are spoken in the warehouse. Potluck dinners tend to be diverse and tasty.
Employees are heavily cross-trained. They are regularly moved to meet the most current customer requirements. Work quality and performance updates are posted throughout the warehouses.
A special feature of one warehouse is a large, Menlo operated clean room for working with semi conductors. TAPA security is tight within the campus and it is TS 16949 compliant.
Rock Magnan (Menlo Director of Operations), and his staff are currently experimenting with RFID, an inventory tracking model and personal devise assistants (PDAs). The PDAs are scanners, cameras and Blackberries for warehousemen. LCAS, a logistics control assistance system, is used for tracking quality issues and doing root cause analysis. This system is a key tool for organizing Kaizen Events. Using these tools, Magnan and his staff memorialize improvements which are reported to customers.
(For more on Menlo’s warehousing operations, see “Menlo Gets Lean” in Menlo’s profile in Who’s Who in Logistics – North America. The article is a good description of the Great Lakes Lean Logistics Center.)
Menlo Redux – The New Team
The new team at Menlo is clear about what it wants to accomplish. There is an emphasis on polishing vertical competencies and controlled global expansion. The new Menlo is more focused and less inclined to choose opportunities that don’t match up. The improving financial results reflect the change.
Bob Bianco, the new CEO, is 42 years old. He has 20 years in the business. Bianco has a good grasp of third-party operations and the financial aspects of the business. He’s a relatively low key team leader.
Gary Kowalski, COO, has over a dozen years with Con-way. Gary spent several years with GM in manufacturing operations, where he developed an appreciation for, and commitment to the Lean philosophy. Gary then served as President of Vector, building that business, before taking over as COO of Menlo Worldwide.
Other critically important line vice presidents are John Beckett, V.P. Global operations, Joe Dagnese, V.P. Consumer & Industrial Group, Greg Lehmkuhl, V.P. Automotive Group, Lonny Warner, V.P. High Tech Group, and Todd Johnson, V.P. International. Beckett knows the individual operations, tracks their results and is consistently involved in driving positive change through ongoing Kaizen events. Dagnese is strong on transportation management operations. He runs a tight ship for his vertical, and is leading Menlo’s search for new verticals.
In summary, Bianco and his team have largely remade Menlo. This 3PL is better than it was 2-3 years ago. You can forget the negative press – Menlo is ready to play. The ship has a new crew and the captain can do the job.
Sources: A&A Primary Research, https://www.xpo.com/