A&A Transplace Site Visit 3-2012Armstrong & Associates

Transplace Continues its Double-Digit Growth
Lowell, Arkansas USA Site Visit
March 27, 2012
By
Evan Armstrong

Key Personnel:
Tom Sanderson – Chief Executive Officer
George Abernathy – President
Steve Crowther – Executive Vice President & Chief Financial Officer
Vincent Biddlecombe – Executive Vice President & Chief Technology Officer
Adrianne Court – Chief Human Resources Officer
Troy Ryley – Managing Director, Transportation & Distribution (Mexico)
Sheila Hewitt – Vice President, International

Transplace Ramps Up Growth
2011 was a very busy year for Frisco, Texas based Transplace. It completed a strategic acquisition and joined forces with an intermodal marketing company on top of having solid double-digit year-over-year organic growth. Transplace managed over $5 billion in transportation in 2011 and generated approximate gross revenues of $1.2 billion. The company increased its net revenue to nearly $100 million with 650 associates in seven operating centers.

Transplace is a non-asset based transportation management third-party logistics provider (3PL) with lead logistics provider (LLP) and SaaS (software-as-a-service) TMS capabilities. Its service portfolio has expanded significantly over the past few years and includes:

Network transportation management
Supply chain consulting
Hosted/software-as-a-service transportation management system (TMS) technology
Freight brokerage (refrigerated, truckload, less-than-truckload and intermodal)
International transportation management services

Key strategic accounts include: Anna’s Linens, Del Monte Foods, Glatfelter, Office Depot, RockTenn, and Sunny Delight Beverages Co. Recent customer additions include: ARCOP, National DCP (Dunkin’ Donuts), Philips, Elementis and Reichhold. From its founding more than a decade ago, it has rapidly developed into one of the leading North American transportation network managers.

Transplace acquired SCO Logistics in April 2011. Buying SCO Logistics added the chemicals vertical to Transplace’s portfolio, and it also gave Transplace an operations center in the Northeast. Within six months, Transplace made another strategic move and announced it was joining forces with intermodal marketing company Celtic International, creating a stand-alone operating division. In tandem, both strategic additions increased Transplace’s overall operational capabilities, vertical industries served, freight under management, and revenues.

Founded in 1999, SCO Logistics began operations in Philadelphia as a spin-off of tank carrier Matlack Systems. In 2005, Red Barn Investments made an investment in SCO allowing the company to begin managing transportation networks for chemicals vertical industry customers. Within five years it had grown its freight under management to approximately $500 million on behalf of 17 customers, and generated gross revenues of just under $60 million with a staff of 43 associates. SCO’s transportation management business is divided between the following modes: 35% liquid bulk truckload; 30% dry-van truckload; 30% LTL (less-than-truckload); and 5% flatbed truckload. Key customer accounts include Reichhold Chemical and Baker Hughes.

Continued Focus on Lean Six Sigma Management Practices
Leading 3PLs are adapting Lean Six Sigma process improvement management practices and methodologies. But only a handful of these 3PLs have implemented and internalized a true Lean management corporate culture. Since 2005, Transplace has adopted and instilled a Lean Six Sigma culture and has seen meaningful and direct benefits. In order to continue advancing the Lean culture during the past seven years, Transplace has developed a full Lean management training program. To date, Transplace has produced 55 green belts and nine certified black belts.

The green belts continue to work in their respective functional areas while they engage on Lean Six Sigma projects in other disciplines. Black belts solely focus on Lean Six Sigma projects and work across intra-company functions and also in conjunction with customers spearheading significant process improvements. Transplace currently has almost 20 Lean Six Sigma process improvement projects underway including:

Enhancing the dock scheduling functionality to its transportation management system
Improving loss and damage claims processing
Improving LTL shipment automation and billing processes

In the past year, Transplace personnel have completed over 25 Lean Six Sigma process improvement projects. Since inception of the program, projects led by Transplace employees or in conjunction with customers through a joint project approach, Transplace has achieved Type I and II cost savings in excess of $12.6 million. These are quantified in the graph below.

Lean Six Sigma Savings

Ongoing Proprietary Transportation Management System (TMS) Development
The backbone for Transplace’s transportation management operations comes from its software-as-a-service TMS platform. The TMS has a comprehensive functionality set for daily transportation planning and execution. Transplace uses a progressive systems upgrade approach and releases a new version of the TMS approximately every four weeks. It has an IT staff of 87 including 20 in applications and seven in business intelligence (reporting & analytics) development.

The core TMS components have been in place since Transplace’s founding, but during the past three years Transplace has added significant functionality. TMS additions include:

Handling international (Mexico) shipments
Managing transactional freight brokerage operations
Optimizing parcel shipments
Enhancing its carrier portal
Processing non-managed carrier freight invoices through audit and payment

Transplace has also been focusing a significant amount of internal resources on developing advanced business intelligence and analytical reporting functionality for its internal operations and customers.

Transplace’s TMS possesses solid online business intelligence analysis and reporting capabilities, creating a notable competitive differentiator. Its standard business intelligence reports/dashboards include:

On-time deliveries using multiple metrics, charts of late deliveries by reason, and details of the most challenging transportation lanes
Executive summaries of volume and cost information by transportation mode
Cost maps showing transportation costs between points on a map which allow for “drill downs” to more detailed cost component information
Carrier scorecards that track on-time service, shipment tender acceptance, and check-call reporting percentages

Transplace markets its TMS separately from its transportation management services. IT analyst Gartner has rated Transplace’s TMS very high in its “ability to execute;” and Transplace has gained recent TMS customer wins over market mainstay’s Oracle and JDA. Currently Transplace has 15 SaaS customers, including five-year customer Pep Boys, generating more than $250 million in gross revenue per year. Recent TMS customer additions include: Advanced H2O, Diamond Foods, Feeding America and a large national retail chain will further increase the gross revenue figure in 2012.

Transplace Mexico Continues to Gain Traction
Transplace is targeting Mexico as a strategic region for growth. At the end of 2007, Transplace founded its Mexican operations by establishing two entities: Transplace Mexico, LLC and Transplace de Mexico S. de R.L. de C.V. To lead its new operations, Transplace hired industry veterans Troy Ryley and Jose Minarro who were both ex-managers for Expeditors International in Mexico.

Today, Transplace Mexico has grown its staff to 40 people headquartered in Monterrey, Mexico and Laredo, TX and is organized into four operating divisions. Jose Minarro oversees customs brokerage operations, Ben Enriquez manages transportation, Troy Ryley manages Ocean and Air Transportation and Mauricio Rubio is charged with managing a growing intra-Mexico warehousing and distribution operation. The Mexican operation has grown fast and now has more than 100 customers generating annual gross revenue of more than $45 million.

Transplace Mexico’s warehousing and distribution operations include a new 106,000 square foot facility in Laredo, TX; 40,000 square feet in Monterrey, MX and 25,000 square feet in Mexico City, MX. A warehouse in Guadalajara will also soon be added covering the major Mexican distribution points. Warehousing customers include: Intertape Polymer Group, AFL, Fenco/Motor Car Parts of America, Port-A-Cool, and Wausau Coated Products.

Transplace Mexico’s key service offering includes cross-border and intra-Mexico over-the-road transportation management, U.S. and Mexico customs brokerage, border processing, warehousing and distribution, secure products transportation management, ocean and air freight management, technology solutions (TMS), and consulting. Modes handled in its land transportation management operations include: dry van, flatbed, refrigerated/protective service, and intermodal.

In 2011, the Mexican entity became a licensed U.S. Customs Broker. It currently manages more than 3,000 shipments per month across the U.S. – Mexico border. By obtaining this license, the company is now a single source provider of seamless shipment visibility to its cross-border customers.

Transplace Mexico’s largest transportation management operation is in Guadalajara and it has sales offices in El Paso, Mexico City, Nuevo Laredo, Monterrey, and Puebla. Its internal and contracted agent network is detailed in the figure below.

Transplace’s Mexico Operations and Sales Locations

Transplace Mexico is working with approximately 80 Mexican carriers to provide capacity for intra-Mexico shipments. Its shipment volumes have been growing steadily and Transplace Mexico is currently managing over 1,000 intra-Mexico shipments and approximately 2,400 border crossings per month. In addition, it is filing approximately 2,050 customs house brokerage entries per month and has seen significant growth in its ocean and air freight forwarding business. Transplace Mexico is on target to manage over 7,100 import TEUs (20’ foot container equivalents) primarily from Asia in 2012.

For systems, Transplace Mexico utilizes Transplace’s TMS with the recently developed Mexico market capabilities, ICON’s web-native warehouse management system, and CargoWise for international (import and export) transportation management.

Over half of Transplace Mexico’s growth has been derived from existing Transplace U.S. customers, but an increasing amount of Mexico based accounts are being developed. Its customers now include a mix of U.S. and Mexico based companies including: AutoZone, Chapa, Emmsa, Eximex, Jeyes, Glatfelter, Microsoft, NxStage Medical, Pace Industries, Penafiel, Sunny Delight, The Home Depot, and Walmart.

Transplace Freight Solutions
In addition to its Mexican operations, Transplace has been strategically expanding its transactional freight brokerage operations over the last five years as a way to improve profit margins and develop additional carrier capacity options for large network transportation management customers. Its Transplace Freight Solutions operations provide customers with multimodal freight brokerage capacity services. Transplace Freight Solutions generates annual gross revenues of $350 million and it is managing approximately 5,000 shipments per month with a staff of 146. Its Stuttgart, AR and California offices employ 81 and primarily focus on refrigerated/frozen and dry-van truckload transportation; the Lowell, AR and Frisco, TX operations employ 65 and concentrate on providing customers with carrier capacity for dry-van truckload, flatbed, specialized, intermodal, and LTL shipments.

Summary
Transplace has significantly expanded its service offering and enterprise capabilities. Its acquisition of SCO Logistics and strategic partnering with Celtic International provides it with enhanced capabilities in chemicals logistics and intermodal transportation management. Its Mexican and International services are providing Transplace with key operations in higher growth markets. Transplace has invested heavily in its Lean Six Sigma management methodology and it is helping to drive Transplace’s growth and increased customer loyalty. With an increasingly focused business strategy, we anticipate that Transplace will to continue to expand upon its market position as a leading transportation management services-centric 3PL by adding capabilities organically and making strategic acquisitions to further enhance its solutions offering.

Sources: A&A Primary Research, http://www.transplace.com/