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ATC Logistics
ATC Logistics is a provider of value added
supply chain management, warehouse and distribution services, as well as
reverse logistics and disposition services. Our operations consist of
a warehouse, distribution and turnkey order fulfillment and information
services business, an automotive electronic parts remanufacturing and
distribution business and a material recovery parts processing, or reverse
logistics business.
ATC Logistics' business consists of three
operating units: Logistics Services, a provider of value added warehouse and
distribution services, turnkey order fulfillment and information services
for AT&T Wireless Services; Material Recovery, a provider of reverse
logistics and disposition services and management services for failed
components, commonly referred to as cores, primarily for Ford and, to a
lesser extent, General Motors and Mazda; and Autocraft Electronics, an
automotive electronic remanufacturing and distribution business. Services
within our Logistics business are designed to meet the specialized needs of
our customers.
Our logistics process is determined in close consultation with our
customers. For instance, for AT&T Wireless, our supply chain management
services include warehousing, picking, packing, shipping and delivery of
wireless handsets, including wireless data devices, and accessories. Our
integrated logistics services include inventory management, private
labeling, kitting and customized packaging, the management and distribution
of time sensitive marketing materials and product warranty and returns
processing.
Logistics Industry
Logistics can generally be defined as the management and transportation of
materials and inventory throughout the supply chain as well as the provision
of value added services such as assembly, packaging, programming and
testing. The logistics industry has evolved over the last 20 years due to
dramatic improvements in technology and increased demand in customer service
requirements. As companies’ logistics decisions involve greater emphasis on
cost efficiency and increased focus on core competencies, companies are
increasingly reevaluating their in-house logistics functions. Many companies
have decided to outsource the management of all or part of their supply
chain as a means to reduce costs, increase asset and labor flexibility and
improve customer service. As a result, third–party logistics providers have
become extensively involved in the full range of customer supply chain
functions. The operational efficiencies of a third–party provider enable
companies to reduce investments in facilities, information technology,
inventory and personnel. Third–party services include order fulfillment,
product labeling and packaging, inventory and warehouse management, product
return and repair, reverse logistics and the physical movement of goods.
Growth in our logistics business with AT&T Wireless is primarily dependent
on cellular telephone handset demand and AT&T Wireless’ share of new
cellular telephone sales volume. Our Logistics business benefits from
upgrades in cellular telephone technology through increased replacement
demand for more advanced handsets, from any increases in the number of AT&T
Wireless subscribers and from any expansion of our service offering with
AT&T Wireless. Because we do not take actual ownership of our cellular
telephone inventory, we do not face the risk of inventory obsolescence.
Other growth drivers within our Logistics business include our ability to
leverage our expertise in logistics in other industries. For the year ended
December 31, 2002, revenue from our Logistics business was $114.2 million,
or 27% of our total revenue, of which AT&T Wireless accounted for 67%
ATC Logistics Customers
AT&T Wireless Services. ATC Logistics provides value added warehouse and
distribution services, turnkey order fulfillment and information services
for AT&T Wireless. As part of our product offering, we provide bulk and
direct fulfillment of cellular telephones and accessories to AT&T Wireless
subscribers and partners and point-of-sale and other marketing materials to
AT&T Wireless partners. We deliver products both to AT&T Wireless retail
locations and directly to individuals who order a cellular phone. Our
arrangement with AT&T Wireless originally focused primarily on cellular
telephones and we then expanded our relationship to include accessories and
promotional items. We also provide accessory packaging services and
inventory tracking and management and process all warranty-service
exchanges. We do not take title to any telephones or accessories and do not
reflect any of these items as inventory.
Automotive Electronic Components. The automotive electronic components
operating unit remanufactures and distributes radios and instrument and
display clusters for General Motors, Delphi and Visteon, and remanufactures
and distributes various cellular products (e.g., navigation systems)
primarily for Visteon and General Motors.
Material Recovery. We provide returned material reclamation and disposition
services to assist automobile OEMs with the management of their dealer parts
inventory, thereby reducing the OEMs’ parts costs and assisting them in
being more environmentally responsible. Under this program, various points
in the OEM supply chain send their excess and obsolete parts inventory to
our facility in Oklahoma City. We then sort the parts and redistribute the
useful parts on behalf of the OEM to other dealers to fill back orders or to
the OEM’s product distribution centers for restocking. Parts that are no
longer useful are scrapped and recycled. The parts remain the property of
the OEM, and we receive a fee for our redistribution services.
We developed this program primarily with Ford as a way to substantially
improve the rate of recycling of automotive parts. As a result of the
material recovery program, the number of Ford parts that are sent to
landfills has been significantly reduced. We recently expanded the scope of
this business by providing similar services, currently on a more limited
scale, to General Motors and Mazda. We believe that the opportunity to
provide material recovery services for other OEMs will arise in the future
as OEMs recognize the benefits of this program.
As part of our material recovery program, we have developed an
Internet-enabled interactive system that allows an OEM to track the
availability, condition and value of core, and to produce dealer credits and
facilitate logistics. Our system also allows an OEM and its dealers and
vendors to track product on a real time basis and provides system-wide
inventory management, cross–docking and product redistribution capabilities.
ATC
Logistics primarily competes in a fragmented market as a niche participant
offering a specialized value–added service requiring severe service level
requirements. Based on our performance levels, we believe we are well
positioned to compete in this market. However, some of our competitors in
this segment are larger and have greater financial and other resources.
Increasing Sales to Existing Customers
We intend to increase penetration of our existing Logistics business
customer base by broadening our offering of Logistics products and services
and by marketing our core competencies as solutions to our customers’ needs.
In 2000, AT&T Wireless awarded us additional programs covering the packaging
and distribution of cellular telephone accessories and the distribution of
point-of-sale and other marketing materials. Also, in September 2001, Ford
awarded us additional logistics business related to the control and
management of Ford core inventory supporting Ford’s remanufactured products
for automobiles and light trucks in North America.
Introducing New Products and Programs
We intend to leverage our core competencies in logistics and electronics
remanufacturing by working with our existing and new customers to identify
products and services where we can add value in satisfaction of our
customers’ needs. General Motors has awarded us a pilot national material
recovery program.
Establishing New Customer Relationships
We plan to leverage our existing relationships with automobile OEMs into new
logistics customer relationships. We believe that our logistics services
business should be attractive to new customers who recognize that
outsourcing this function will enable them to both focus on their core
competencies and have an efficient product distribution system. We also
believe that the cost savings and environmental benefits provided by our
material recovery business will be attractive to other OEMs. In June 2001,
Mazda North America Operations awarded us a logistics pilot program contract
under which we harvest and consolidate used or excess product and then ship
it to Mazda authorized dealers. In 2002, we were awarded new automotive
telematics business with Motorola.
Pursuing Future Acquisitions
An important element of our growth strategy is the acquisition and
integration of complementary businesses in order to broaden product
offerings, capture market share and improve profitability. We have made
various acquisitions in the past and, to the extent suitable acquisition
candidates, acquisition terms and financing are available, we intend to make
acquisitions in the future.
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