GM buys out Vector SCM, brings logistics back in-house

By John D. Schulz, Contributing Editor -- Logistics Management, 8/1/2006

SAN MATEO, Calif.—Back in late June, Con-way Inc. received word from General Motors that the struggling auto giant was interested in buying out Con-way’s stake in Vector SCM, the logistics joint venture the shipper and carrier had formed several years ago. The “amicable deal,” which is expected to close by the end of this year, ended a six-year experiment in fourth-party logistics (4PL) collaboration. According to some estimates, the company is valued at between $50 million and $100 million.

Vector SCM was an ambitious undertaking when it was formed in 2000 by America’s largest automaker and Con-way’s Menlo Worldwide contract-logistics subsidiary. At that time, Vector assumed responsibility for managing some 180 million pounds of materials from GM’s 12,000 suppliers around the world every day. The company acted as a 4PL, also referred to as a “lead logistics provider,” managing some supply chain activities itself and overseeing the efforts of other third-party logistics contractors.

According to GM spokesman Tom Hill, the motivation behind the decision to bring logistics management back in-house was not dissatisfaction with Vector SCM’s service. Rather, it was the need to respond to the changing fortunes of the American auto manufacturing industry. “There was nothing wrong with Vector SCM,” said Hill. “What it means is we’re bringing all logistics operations back in-house … to support our overall turnaround activities for North America.”

Over the past several years, GM and rival Ford Motor Company have suffered declining market shares. They’re also facing the challenge of restructuring their operations and their cost structures, prompted by the need to cover growing pension and health-care obligations.

In the meantime, several of GM’s key suppliers—most notably Delphi and Tower Automotive—have declared bankruptcy, which in turn has put pressure on the automotive giant to tighten internal controls as well as controls over its suppliers.

But even with those setbacks, Vector SCM was profitable. According to Con-way’s annual report, the joint venture reported $20.3 million in operating income last year, a figure derived from the savings it achieved by producing efficiencies for GM.

GM remains confident that there still is some financial momentum for Vector SCM. The logistics company recently rolled out its European Vehicle Visibility program. That initiative will provide outbound logistics visibility and exceptions management for finished vehicles that will be delivered to GM dealers throughout Europe. Vector SCM also recently won a new contract with electronics giant Diebold to provide process design, consulting, and project management for a supply chain re-engineering initiative. GM says it will continue to be a customer of both Con-way and Menlo outside of the business that Vector SCM handled.

“From our perspective, it proves to us that the 4PL model works,” commented Con-way spokesman Gary Frantz. “It has clearly been successful for both parties.”

Con-way officials said that the company would continue to pursue 4PL opportunities through its Menlo Worldwide unit.