CASE: THE WHEELS GROUP: EVOLUTON OF A THIRD PARTY LOGISTICS
XXXXXXXXXXPROVIDER
Discussion Questions
1. What are some of the logistics activities that a manufacturer could
outsource?
2. Why would a manufacturer decide to outsource its logistics
function? What are some of the advantages associates with
outsourcing the logistics function to a third-party provider?
3. What are some of the drawbacks associated with outsourcing the
logistics function to a third- or fourth-party provider?
4. What do you speculate are some of the emerging trends that are
influencing the structure of the third-party logistics (3PL) industry?
5. How does the Wheels Group add value for its customers?
6. What are the Wheels Group’s core competencies and what has
made the business successful to date?
7. Should the Wheels Group pursue a non-asset-based growth strategy
or an asset-based strategy? Why or why not?
8. What are the advantages and disadvantages associates with
pursuing each alternative?
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904D04
THE WHEELS GROUP: EVOLUTION OF A THIRD-PARTY
LOGISTICS SERVICE PROVIDER
Michael Sartor prepared this case under the supervision of Professor P. Fraser Johnson solely to provide
material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a
managerial situation. The authors may have disguised certain names and other identifying information to
protect confidentiality.
Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written
permission. This material is not covered under authorization from CanCopy or any reproduction rights
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Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London,
Ontario, Canada, N6A 3K7; phone XXXXXXXXXX; fax XXXXXXXXXX; e-mail XXXXXXXXXX.
Copyright © 2004, Ivey Management Services Version: XXXXXXXXXX
Peter Jamieson, president of Wheels Group, leaned back in his chair as he reflected
with Doug Tozer, the founder and major shareholder of the company, upon the
success of the Mississauga, Ontario-based company during the past 15 years. It
was Wednesday, August 6, 2003, and Jamieson and Tozer were considering
alternatives with respect to pursuing their goal of doubling the third-party logistics
(3PL) provider’s revenues over the next five years.
In an attempt to identify potential opportunities and risks, Jamieson and Tozer had
een working with the heads of the subsidiary companies. While the results of this
planning exercise yielded a number of attractive opportunities for the company to
pursue, after much debate, it seemed that the safest course of action was to focus
the company’s efforts upon growing its flagship subsidiary, Wheels International,
and its non-asset-based business model. However, a potentially lucrative proposal
presented by Jim Davidson, president of Wheels Dedicated, to expand the
subsidiary’s asset-based 3PL business continued to intrigue Jamieson and Tozer.
Davidson’s proposal represented a significant shift away from the cu
ent business
strategy of focusing on non-asset-based logistics services, and Jamieson and Tozer
felt the company could not pursue expansion at both subsidiaries simultaneously.
Consequently, they felt the time had come to firm up the company’s business
strategy.
For the exclusive use of C. Maldonado, 2022.
This document is authorized for use only by Carlos Maldonado in HBR Cases for SCM 6216 Summer 2022 (Logistics Strategy) Online taught by Andrew Yap, Florida International University
from May 2022 to Jun 2022.
Page 2 9B04D004
THE THIRD-PARTY LOGISTICS INDUSTRY
While Canada’s transportation industry was characterized by a high degree of
government regulation during the early to mid-1900s, the end of the Second World
War marked the beginning of a half-century transition to a deregulated industry in
Canada. Progressive deregulation of the rail, air, trucking and ports sectors of the
industry resulted in increased competition, lower market-based prices and an
expanded range of transportation alternatives. One significant trend that emerged
in North America following the deregulation of the United States and Canadian
trucking industries in the 1980s was the evolution of the third-party logistics (3PL)
industry.
Initially, 3PLs were primarily engaged in supplying manufacturers with a limited
ange of transportation and warehouse storage services. However, with the advent
of supply-side manufacturing strategies in North America and the increasing
complexity of supply chains in the late 1980s, 3PLs began to capitalize on the
opportunity to provide manufacturers with outsourced logistics solutions.
In a 2002 annual survey of 66 of the largest (Fortune 500) manufacturing
companies in the United States, 65 per cent of the companies reported using third-
party logistics services, an increase from 38 per cent when the same survey was
first conducted in XXXXXXXXXXExhibit 1 illustrates the growth in gross revenues
generated by firms in the U. S. 3PL market during between 1996 and 2002.
The industries that have em
aced 3PL services include the automotive, chemical,
consumer products, electronics, computer, medical supplies and devices, retail and
telecommunications industries. Exhibit 2 provides an estimate of the proportion of
projected logistics budgets that will be outsourced by North American
manufacturers during the period 2005 to 2007, and Exhibit 3, lists the activities
most frequently outsourced to 3PLs.
Although the 3PL industry had experienced dramatic growth since deregulation,
the participants in the industry were highly fragmented and characterized by
differing capabilities. Exhibit 4 lists the top 15 3PL companies in terms of their
2002 net revenues, along with an estimate of their cu
ent number of employees
and a
ief description of their service offerings. Participants in the 3PL industry
were estimated to enjoy net margins of approximately five per cent on average.
1 Lieb, Robert and Hickey, Michael. The Use of Third Party Logistics Services by Large American
Manufacturers, The 2002 Survey, 2002.
For the exclusive use of C. Maldonado, 2022.
This document is authorized for use only by Carlos Maldonado in HBR Cases for SCM 6216 Summer 2022 (Logistics Strategy) Online taught by Andrew Yap, Florida International University
from May 2022 to Jun 2022.
Page 3 9B04D004
THE WHEELS GROUP OF COMPANIES
Founded by Doug Tozer, Wheels Group commenced operations as a non-asset-
ased provider of highway and intermodal rail transportation services in 1988. By
2002, five subsidiary companies were operating under the Wheels Group banner:
Wheels International, Wheels Dedicated, AIM Integrated, Wheels Pacific and
Wheels Logistics. Head office supplied the operating companies with shared
support services such as administrative, financial (A/P and A/R), human resources,
IT and quality initiatives, allowing the subsidiaries to focus on revenue growth and
cost control. Exhibit 5 provides an overview of the Wheels Group’s corporate
organization.
Wheels Group had annual revenues of approximately $100 million in 2002.
Management believed that the company’s success was driven by four key success
factors: value-added customer focus, its non-to-light-asset strategy, deployment of
a leading Web-based supply chain information system and continued enhancement
of a people-centered culture. Exhibit 6 contains the Wheels Group’s mission
statement and general strategy statement.
AIM Integrated, Wheels Pacific and Wheels Logistics
AIM Integrated provided pickup and delivery trucking services (container
drayage) for asset-based ca
iers engaged in rail and ocean transportation services
whose customers needed their containers delivered beyond the marine ports or the
end of the rail lines. In 2002, AIM was generating approximately five per cent of
the Wheels Group’s revenues.
Wheels Pacific was a non-asset-based entity that focused on West Coast container
transportation and management with services including container transloading,
freight consolidation, cross-docking,
okerage services and warehousing for
containers being shipped from the Pacific Rim into North America. Wheels Pacific
targeted ocean ca
iers and major importers who were seeking a transportation
solution to facilitate the movement of their products from coastal ports to inland
destinations. Wheels Pacific represented approximately five per cent of Wheels
Group’s revenues.
Wheels Logistics, which was started as a division of Wheels International, was
eing integrated into the parent company’s operations during 2003 in an effort to
enhance the suite of shared support services offered by the parent company to the
subsidiaries. In particular, Wheels Logistics would provide supply chain analytical
services to each of Wheels Group’s subsidiaries. It assisted Wheels subsidiaries
with customer route and load optimization studies for prospective customers, as
well as logistics reporting, outsourced project implementation and management for
existing customers.
For the exclusive use of C. Maldonado, 2022.
This document is authorized for use only by Carlos Maldonado in HBR Cases for SCM 6216 Summer 2022 (Logistics Strategy) Online taught by Andrew Yap, Florida International University
from May 2022 to Jun 2022.
Page 4 9B04D004
Wheels International
Wheels International provided multi-mode (air, rail, ocean, highway) logistics
services. In its promotional materials, the company proclaimed: “Whether you
have 10 cartons, a full truckload or a plant full of equipment to be moved to a new
facility. Wheels International will efficiently and effectively move your freight.”2
Revenues at Wheels International had grown from approximately $25 million in
1997 to approximately $70 million in 2002. Because of the importance of Wheels
International to the overall company, Jamieson and Tozer personally oversaw day-
to-day operations.
Wheels International’s non-asset-based business model involved providing
customers with logistics solutions that employed the use of third-party
transportation assets. For instance, Wheels International negotiated service
agreements with customers and then subcontracted services with suppliers, such as
trucking firms. While the company had traditionally focused on truckload and less-
than-truckload services for i
egular route logistics needs, it had