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Charting a Path for Transformation and Worldwide Performance

by Fred Moody

The seemingly mercurial buyout of Livingston Inc. that was initiated this spring by UPS Logistics Group and finalized this October belies what was truly a long time in the making. But given the explosion in e-business, and the resultant drive by so many companies to find ways to quickly enhance and expand seamless and frictionless processes connecting the front end, the order of a product, to its delivery - it isn’t surprising. Total collaboration among partners in logistics, a process often invisible to the consumers and clients, is resulting in more widespread collaboration among partners on an international stage.

“Here,” says Gary Lewis, since 1995 the leader of Livingston Inc., as he pulls a note from a folder on his office desk in Oakville, Ontario. “These are some notes from a conference call in August that provide an overview by UPS’s executives of the process.” In an unpretentious but spacious office, and drinking coffee from a mug sculpted by his daughter, Lewis reflects on Livingston’s success and ascendancy in the Canadian market with an unassuming manner. From UPS’s point of view, it is clear such a takeover made good sense, evidenced by the fact that an estimated six percent of the logistics market is comprised of package delivery. Expanding through UPS’s Logistics Group, based in the United States, into Canada and in other countries, sometimes through such acquisitions, affords the company the opportunity to capture more of the remaining 94 percent of the market.
During the interview at Lewis’ office for this article he demonstrates that while some experts in Canada may have been surprised at the apparent swiftness of the takeover, to Livingston’s senior management, it represented the crowning success of hard work and a vision set in motion at least five years earlier. In a culture that Lewis has helped to cultivate, which is well accustomed to transformation and change, it isn’t surprising to learn the ground-breaking announcement sent ripples instead of waves percolating through the Livingston organization.

Part of the reason for the smoothness of the transition is embedded in the cultures of the two organizations. When Dan DiMaggio, CEO of UPS Logistics Group, and Doug Anderson, the company’s Senior VP International and CFO, took their initial steps to find a corporate candidate in Canada to join forces with, it’s clear they were looking to find a company with a corporate culture similar to UPS Logistics Group’s. “Integrity, quality and customer focus, technology leader,” were at the top of UPS Logistics Group’s depiction of its corporate culture in a recent presentation. Given its mandate and vision, it would seem singling out one simpatico company in Canada would be a daunting task.

But the marriage between Livingston Inc., which is well known as one of Canada’s largest specialists in the technological world of supply chain management, and UPS Logistics Group, which is a billion dollar subsidiary of United Parcel Service Inc. that operates through its 450 distribution and strategic stocking facilities, was graced with a measure of fortuity. To begin with, the two organizations were in the market for the right suitors. Not only was their coincidental search for partners truly timely, but their core competencies and cultures fit together naturally and with aplomb.

UPS Logistics Group, based in Atlanta, Georgia, was founded in 1995 to provide clients with logistics solutions that go beyond its parent company’s traditional focus on package delivery, offering its clients supply chain management, transportation services, logistics technologies and service parts logistics with a global reach.

Lewis, who has grown Livingston with a deep-rooted focus on the customer, anticipated at least a year ago that a link with another company was required to seamlessly deliver world markets to its clients. More and more, global capability, and a focus on speed and reliability, have become essential for companies to schedule production and meet their customers’ needs. Lewis points out that technology and the Internet have heightened the power and the call by customers to virtually obviate distance and reduce time. In other words, the arrangement with a global player such as UPS Logistics Group was the next logical step in a series of consistent corporate advances Lewis had overseen since assuming the corporate reins in 1995.

“We had done some thinking and analysis to identify who, in the field of global players, would be the most successful. And we had clearly identified UPS Logistics Group in this process,” Lewis states. Concurrently, UPS Logistics Group was mobilizing to acquire key best-of-breed logistics companies in different geographic areas, including Canada. “Their timing, in looking to Canada, was at exactly the same time we were looking, and the negotiations were very coherent as a result,” Lewis recalls.

“We are pretty convinced there is a winning model here. We can be a key part in both the Canadian marketplace while setting our horizons to include vistas that are much broader and global in scope.”
– Gary Lewis, Livingston Inc.

While the takeover is a departure from the company’s Canadian identity, and its status as a privately held company, the move reflects more continuity in its development than change. After all, the phenomenal transformation of Livingston Inc. since 1995, its ascension in the Canadian market and several recent forays beyond Canada, has emerged from a culture of change that Lewis instilled within his first six months leading Livingston.

In 1995, he changed the company’s direction, focusing on the its core competencies and salting the company’s senior ranks with people who had a similar vision. Management questioned virtually every facet of the company’s operations, excepting one: “There was a basic customer service responsiveness in the core of the operations that was clearly worth building on.”

Lewis realized early in his tenure at Livingston Inc. that such an extensive transformation would be spearheaded by his people at the most senior level, and percolate throughout the company’s ranks. In tandem with widespread initiatives, Lewis intensified the company’s efforts by introducing new incentive programs, stock options and an array of other devices to make this company think like a group of entrepreneurs, or owner operators. “That was a big part of the transformation process,” he reflects.

In the process of reform, the company exited several non-strategic businesses to focus on its three chosen market sectors, reducing its corporate revenues by approximately 40 percent, Lewis recalls. Today, the company’s workforce is back to its former levels, an estimated 900 employees, and its revenue growth is consistently in the 20-30% range.

This contrasts sharply with its flat growth in the first half of the decade. “We were basically in the public warehousing business, with legacy technology and no distinct client sector focus” Lewis states, “and we needed to reengineer our processes,” euphemistically referring to the need to stop paving cow paths. In other words, at the heart of the transition was an immediate need to recognize and break away from outdated practices and even fundamental assumptions about underlying operations. It also involved raising and resolving what may have then been characterized as heretical questions, in order to organize around outcomes instead of tasks.

Lewis had a clear reputation as a man who knew how to chart a road map and who had found the key somewhere along the way about how to go from one point to another. At the most fundamental level, mastery in moving a company out of a crisis into an enviable position evidences business acumen that employees, as well as investment bankers, are fond of. But Lewis demurely suggests his management style is simply straightforward, and consists of “a very clear view as to where we need to go, as well as a clarity and understanding about the means to reaches those goals - with very strong measurement systems along the way to chart the progress we’re making.”

In 1995 Livingston Inc. began to focus exclusively on three primary market sectors: health care, high tech/telecommunications and consumer products. They were carefully identified as key logistics targets where customers were seeking advanced technology-capable third party providers. They were also sophisticated enough to know revamped supply chains could give them a significant competitive edge in the marketplace.

“UPS Logistics Group recognized our distinct focus and leading market capability in these three sectors, as well as our reliance on advanced technology capabilities. Our emerging strength and position in service-parts capability was also vital,” Lewis notes, adding this is a leading aspect of UPS Logistics Groups’ worldwide focus. In addition, Livingston Inc.’s strength in the health care sector is expected to contribute to a global UPS Logistics Group thrust.

Setting objectives, clear communication, the participation and involvement of managers in reform and facilitation are all crucial, Lewis states. “But the involvement of all employees is most critical, particularly in a transformation. So you are all pushing and pulling in one direction. And part of this process is constant encouragement of push back from the organization...if you are going too fast or too slow in an area,we hear about it quickly. You make a lot fewer mistakes this way. A turnaround involves a high trust environment,” he adds.

He also alludes to technology and the company’s savvy in its technology capabilities as vital, not only in turning the company around, but also in making Livingston Inc. attractive to UPS Logistics Group.

“Over the course of that transformation we put in place a number of innovative capabilities including, for example, a track and trace system that has now been operating in Dell’s direct-to-consumer model for approximately three years,” Lewis says.

“This has been a building block for several of our client relationships.” Livingston has historically managed the complete Dell Canada supply chain as products moved from its U.S.-based manufacturing centres to cross-dock centres in Pickering, Ontario and Calgary, Alberta, before moving these products directly to consumers across Canada. Today, Lewis notes, there is an evolution to direct-to-courier hub movements, due to larger volumes. So greater volumes of products are migrating from cross-dock systems to courier hubs, with product requiring custom configuration or special handling at the final point of destination also managed through Livingston’s specialized capabilities.

A personal style that calls for a likeness in vision and a single-mindedness in reaching corporate objectives and accountability on all levels, are keys that Lewis, a native of Bailieboro, a small town outside of Peterborough, Ontario, honed early in his career, following his graduation from Kingston, Ontario-based Queens University. Lewis then earned his MBA from Chicago’s Northwestern University, before beginning his career at Montreal-based Canron, a diversified manufacturer of capital goods.

After 10 years in operations, sales and marketing assignments, he entered Canron’s industrial distribution business in the early 1980s. In 1987 he joined the Barnes Group Inc., based in Bristol, Connecticut, to run its Canadian industrial distribution business that focused primarily on the maintenance, repair and operating supplies (MRO) sector, and then advanced to develop the company’s highly systems-oriented distribution business in the United Kingdom, France and German markets, which involved a stint overseas. Later he returned to the United States to oversee the worldwide distribution business of Barnes Group Inc.

The depth of his experience on an international level has helped give him a global perspective often required for today’s logistics solutions. With candor, Lewis points to Livingston’s world class clients as one of the greatest ongoing factors contributing to continual development and improvements in Livingston’s logistics technology and overall business practices.

“You must have an entrepreneurial approach largely because you are dealing with world class clients, many of whom are marketshare leaders in their fields. To keep ahead of them, and bring innovation to logistics solutions, involves a healthy commitment, capability and a constant development spirit.” In other words, what many have likened to a restraining force has been turned on its head, and defined as a driving factor for change.

In fact, he notes, knowing particular markets is one of the key competencies Livingston possesses. “We can evolve with emerging trends in the market and there is no way this can be achieved without in-depth knowledge of those markets.” He also points out it was questionable for many in the third party logistics industry several years ago to believe “we can be good logisticians, no matter what the sector. This has not been our belief, which has served us well for today’s growth and prospects in the future.”

The second core competency of pride for Livingston is its advanced technology platform. This competency is important for UPS Logistics Group, a company that has consistently built its progress on technologically-advanced solutions.

UPS Logistics Group has applied its technological strengths in the transportation services sector, for example, offering this as part of a logistics solution or as a stand-alone capability. Early this year, with a goal of reducing Ford’s delivery times by 40 percent, it began to implement a contract with Ford Motor Company to reengineer and manage the company’s North American finished vehicle delivery network, enabling it to track each vehicle, up to 18,000 daily, moving from some 21 manufacturing plants to the designated dealers. So far, the project, which is to be fully implemented next year, is ahead of schedule.

Recently, the company announced a $150-million five-year contract with National Semiconductor, affording that company a global logistics solution that reaches from Singapore around the globe, and involving up to $4 billion in semiconductors (pieces) and their delivery to some 3,800 customers within 48 hours of their placing an order, no matter what their location worldwide.

From UPS’s vista, the acquisition has meant UPS can also leverage its core competencies and offer more solutions to its customers. In an August 25 conference call to investors, which was subsequently Webcast, UPS’s Kurt Kuehn, summarized the benefits in his comments about non-package business: “In essence, they bring together the flow of information and funds to complement the core business’s flow of goods.”

To capitalize on this market, UPS’s worldwide focus has been on technology to provide a seamless solution to its customers in all markets, and between suppliers on the one hand, and customers on the other. With the UPS Logistics Group thrust, it is also developing “repeatable business models” for vertical markets that can be applied in other areas of its business; its e-logistics effort, and the creation of an integrated solution scalable for small and medium sized businesses is a key example. Third, the company is expanding its Web-based technology. It is also focused on integrated services and extending its growth and geographic reach through acquisitions.

UPS has identified three key areas for growth: its domestic U.S. core business, international business and investment in the development of non-package business. UPS Logistics Group expects revenue growth of more than 30 percent for both 2000 and 2001.

In summary, Lewis has helped to turn a company that was once imperiled by its lack of focus and effectiveness into one unequivocally driven by excellence. It’s evidenced today not only by UPS Logistics Group’s takeover, but also by its impeccable list of clients and its more than $10 billion in annual shipments in the health care, high tech and consumer products sectors. Dell Canada, Ericsson, Clearnet in the high tech sector; Johnson and Johnson, Novartis, Allergan in health care; Gillette Canada, Clorox to name a few, all signal the same things, as Lewis summarily notes: “We are pretty convinced there is a winning model here. So we can be a key part in both the Canadian marketplace, while setting our horizons, and with accounts such as these - vistas to a much broader global scope.”

The terms of the agreement between privately-owned Livingstone Inc, which includes its sister company, Livingston Healthcare Services Inc., of Newark, Delaware, and UPS Logistics have not been disclosed.