Start your own career at SSJ Logistics
Geodis to Acquire IBM’s Internal Logistics Operations
PARIS—Earlier this month, Geodis, a subsidiary of SNCF, a French public rail operator, and a global third-party logistics (3PL) services provider, took a major step towards expanding its service footprint by acquiring IBM’s
internal global logistics operations.
This transaction is a multi-year outsourcing, cash deal with financial terms not disclosed, according to a Geodis statement.
Acquiring the logistics arm of IBM will allow Geodis to leverage IBM’s logistics wherewithal and operational expertise in more than 50 countries, as it will be the lead logistics provider for IBM and manage roughly $1.0 billion Euros (approximately $1.3 billion U.S.) of various IBM’s logistics cost supporting asset recovery services, service parts logistics and flow management of all global hardware and software products.
The relationship between Geodis and IBM dates back ten years to 1998 in Europe, being the IBM’s first partner for outsourced logistics operations in Europe that laid down the ground work for a strong partnership, said Jean-Louis Demeulenaere, Geodis Deputy CEO, in an exclusive interview with LM. Geodis currently manages IBM’s global spare parts network and reverse logistics operations.
And prior to this announcement, Geodis already has revenues of more than $140 million Euro per year through IBM in Europe.
“This was a unique opportunity for us,” said Demeulenaere. “We have such a customer intimacy with IBM that we had been involved in the discussions with IBM regarding its strategic vision [for its logistics operations]…and we were not surprised when IBM launched its tender in January 2008 to outsource its logistics operations.”
Most of the major global logistics players—including DHL, UPS, Schenker AG, among others—were invited to participate for the tender offer.
The rationale behind this deal was based on Geodis’s main competencies—small shipment delivery (groupage), truckload, logistics and freight forwarding —explained Demeulenaere, which it has leveraged over the years to provide end-to-end solutions for its global accounts.
“For us, it was an opportunity to acquire this [IBM’s] end-to-end logistics flow management platform,” he said. “We know the company and its people and processes along with the quality of the different IBM logistics contracts we are already managing. It was a unique opportunity for Geodis to acquire this platform…as well as a good opportunity to show our capabilities to different customers and prospects.”
The shift to a 4PL
When this deal is completed, as expected, during the first quarter of 2009, Geodis will functionally serve as a lead logistics provider—or 4PL—to IBM. He explained that some of Geodis’s competitors are currently trying to bring this end-to-end approach to the market, but Geodis is the only one with this type of global contract actually in place. And another benefit for Geodis he said is that it provides the company with complete international coverage that it did not previously have which will be geared towards IBM business model.
With the IBM global logistics business model over the last ten years having relied on outsourcing all logistics services, including domestic distribution and warehousing, among others, the IT giant has managed hundreds of logistics sub-contractors globally, with all processes managed and monitored through its global logistics operations, which Geodis is acquiring.
“We are acquiring people that are experts at what they do, processes, and a portfolio of different logistics contracts in key areas of the market,” said Demeulenaere. “We will continue to manage this portfolio of different partners for IBM and all of their accounts.”
When the deal is complete, roughly 1,200 IBM employees in 59 countries will join Geodis along with 1,000 contractors, with 40-45 percent in the Americas, 30-35 percent in Asia, and 20-25 percent in Europe
An action plan
When asked how Geodis will parlay this contract into benefits for its existing customers, Demeulenaere said Geodis will spend the next six-to-nine months on integration efforts between Geodis and IBM, at which point it will begin offering similar end-to-end services to other global customers and prospects in more than 120 countries by early 2010. Through various service capabilities and networks for finished goods and reverse logistics it has by working with IBM, Demeulenaere said Geodis will be able to leverage different customer volumes and augment processes over time to get better customer buy-in conditions to provide savings for IBM and its other customers.
Biggest challenges
In order to make sure this partnership is successful, Demeulenaere said the operational integration of the IBM and Geodis platforms, needs to go smoothly. He said that this should go well based on the companies’ collaboration record and the trust IBM has placed with them to monitor and manage its supply chain.
Analyst insight
The ramifications of this deal are likely to be a boon to Geodis, as the company increases its global reach and capabilities, according to Evan Armstrong, president of Armstrong and Associates, a supply chain consultancy.
“This is a significant move for Geodis,” said Armstrong. “While it is buying IBM’s internal logistics provider operations, it is more importantly securing IBM’s business which will help Geodis as it continues to expand its global footprint. Becoming IBM’s global lead logistics provider will increase Geodis annual revenues to over $10 billion and make it a top five global 3PL. It will also provide Geodis with greater expertise and concentration in the high-tech industry vertical which is one of the most profitable. For IBM this is also a good move since it will be able to transition its internal operations to a 3PL keenly focused on meeting its service requirements.”
Armstrong added that this deal may signal the beginning of a trend of shippers looking to divest logistics costs and save capital when times are tough, while focusing on their core competencies.
And Demeulenaere said that if things go well with this transaction, Geodis would consider doing a deal like this in the road. But he noted a deal like this takes time to consummate and requires a high level of buy-in and trust between partners.
