Convergence of Services: Opportunity or Threat?
In the last 5 years, we've witnessed a major new development in logistics: the convergence of supply chain services. Exel bought Power Packaging in a bid to combine contract warehousing with contract packaging. Jacobson bought Wilpak to achieve a similar blend. UTi embarked on NextLeap, a bold five-year plan to integrate freight forwarding, warehousing, and transportation management under one roof.
The big question today: is convergence a winning strategy?
On the one hand, Jacobson's acquisition of Wilpak fueled the company's rise as a multi-service solutions provider. By expanding contract packaging into a core service offering, Jacobson was able to boost its margins, growth rate, differentiation, and value proposition within the consumer packaged goods (CPG) segment. When Jacobson sold to Oak Hill the following year, the company received an attractive valuation that was based in part on initiatives such as the Wilpak deal.
On the other hand, UTi is in trouble. In the last year, the company's stock price has fallen by nearly 50%, from a high of 30.43 in March 2007 to a low of 15.66 in March 2008. What explains this drop-off? Is the NextLeap strategy in question? Or is it more a function of the insourcing of projects from major clients such as Wal-Mart?
In my view, convergence is here to stay. As customers look to reduce the number of logistics suppliers they use, they will inevitably reward smart supply chain partners that can meet that need. In addition, companies like Genco, NFI, Ozburn-Hessey, and others have proven the value they can deliver to their clients by expanding their suite of services. The key is to pursue targeted expansion in easy-to-integrate services that meet a specific customer segment's requirements. Firms that achieve this objective should continue to be winners.
The big question today: is convergence a winning strategy?
On the one hand, Jacobson's acquisition of Wilpak fueled the company's rise as a multi-service solutions provider. By expanding contract packaging into a core service offering, Jacobson was able to boost its margins, growth rate, differentiation, and value proposition within the consumer packaged goods (CPG) segment. When Jacobson sold to Oak Hill the following year, the company received an attractive valuation that was based in part on initiatives such as the Wilpak deal.
On the other hand, UTi is in trouble. In the last year, the company's stock price has fallen by nearly 50%, from a high of 30.43 in March 2007 to a low of 15.66 in March 2008. What explains this drop-off? Is the NextLeap strategy in question? Or is it more a function of the insourcing of projects from major clients such as Wal-Mart?
In my view, convergence is here to stay. As customers look to reduce the number of logistics suppliers they use, they will inevitably reward smart supply chain partners that can meet that need. In addition, companies like Genco, NFI, Ozburn-Hessey, and others have proven the value they can deliver to their clients by expanding their suite of services. The key is to pursue targeted expansion in easy-to-integrate services that meet a specific customer segment's requirements. Firms that achieve this objective should continue to be winners.
Intriguing points!
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