Schneider National Inc.

The Case of Schneider National Inc. (Extract from The Transforming Power of Complementary Assests, Sloan Management Review article, Summer 2006)

With the 1980 enactment by Congress of the Motor Carrier Act, everything changed in the trucking business. Trucking companies were given much greater leeway in what services they could offer, where they could operate and how they could set prices. It became much easier for any trucking company to operate in any state; anyone with the money to buy a truck could become a competitor. Between 1980 and 1995, the number of trucking companies tripled. The resulting competition was brutal -- the decade of the 1980s saw 12,000 trucking companies go bankrupt.

The trucking business also felt a huge impact from the trends of the 1980s and 1990s toward lean production and just-in-time manufacturing techniques. Global pressure from low-cost producer nations drove manufacturers to improve operations. As a result, customers became extremely intolerant of poor service and began to insist on reliable, on-time deliveries. New companies like Federal Express Corp. conditioned people to expect deliveries overnight, while, as we have seen, companies like Wal-Mart showed the benefits of a well-run distribution system.

Lean manufacturing meant that companies needed fast, reliable deliveries of smaller loads. That's an expensive headache for carriers -- it meant delivering fewer pieces for the same fixed shipping cost (it costs almost as much to operate an empty truck as a full one). In this changed environment, trucking companies with a low cost-per-mile have an edge, as do those with a good on-time delivery rate. Another important competitive advantage goes to trucking companies that can figure out how to minimize the practice of having trucks return empty from delivery jobs. Such "deadhead" trips can as much as double the cost of a delivery. Manufacturers grudgingly pay the costs of deadhead trips and less-than-truckload service but constantly look for ways to trim such costs.

The company we examine -- Schneider National Inc. -- illustrates the power of investing in complementary organizational and process changes to wring the greatest productivity gains from IT in meeting this challenge and in so doing transform the nature of the transportation-related services it could deliver. Schneider is the second largest full truckload transportation company in the United States, with 20,000 employees and 2005 revenues of more than $3 billion. Based in Green Bay, Wisconsin, Schneider has always been a private, family-owned operation. Founder Al Schneider started grooming his son Don from age 16 to one day run the company; in 1973, Don Schneider rose to CEO. Soon after taking the helm of the company, he was visited by Irwin Jacobs, CEO of a new company, Qualcomm Inc., that had just developed a robust geographical positioning system called OmniTRACS. Jacobs offered this system to Schneider for a free trial period. Don Schneider sensed an opportunity: He could use OmniTRACS as a base on which to build information systems that would yield quicker deliveries at lower cost -- in part by reducing the number of deadhead trips.

In 1974, Schneider began to hire a few IT professionals and to create systems and processes around the Qualcomm GPS technology to improve the firm's performance. Schneider took a strategic approach to these complementary investments in the sense that he looked at what technology the company would acquire over the long term and how to align its use with the company's mission. This approach remains a Schneider hallmark. As Chief Information and Logistics Officer Christopher Lofgren explained, "We won't go after an IT project unless there is a business leader within Schneider who will take it, fund it, and be accountable for the business outcome." By 2004, Schneider employed 425 IT personnel.

Schneider saw technology investment as a means to an end: achieving the operational performance demanded by its customers. As Don Schneider tells it, "When we first put a satellite in, I was telling one of our major customers, an automotive company, how good this communication would be. They said 'I don't care if you use carrier pigeons to talk to your drivers. All I care about is that your price does not go up and that you deliver on time, any way that you know how.'"

Satellite Trucking One pivotal technology that Schneider introduced was satellite communications. The company installed satellite communications and tracking systems in every truck at a cost of some $3,500 per vehicle. Beyond this initial investment, Schneider National spends an additional $7 million to $10 million per year (about 0.5 cents per mile) on satellite transmission fees.

The key point here is that it was not the technology acquisition alone that improved performance but rather the changed operational processes and the way that the technology became an integral part of the way the company operated. Although other trucking companies could (and would) copy the technology, they could not so easily copy Schneider's unique blend of complementary assets -- strategy, work processes and embedded know-how. For example, Schneider, in implementing its positioning-system data in trucks, recognized the value of the information on precise truck location and timing to meeting both drivers' family needs and those of the customer for efficient service -- data that Schneider embedded in its decision support systems.

Before acquiring this satellite communications system, Schneider barely knew where its trucks were. Drivers would report where they were when they called in. But such reports were sporadic and depended on the driver's ability to determine and report location and the company's ability to understand the report and translate it into a map location. With the new system, every communication between truck and center is automatically tagged with the truck's true location, accurate to within less than 100 meters. Even in the absence of messages between the center and the truck, the system polls every truck every two hours to check their locations. Because these digital messages are formatted into a set of standard templates, they are easily compiled into detailed logs that enable Schneider to stay on top of every shipment and analyze the true travel time of deliveries.

With routine two-way communications, Schneider can confidently schedule drivers for pickups and deliveries. Tracking information helps the company reliably predict when a driver will be available for the next load and therefore to schedule another pickup in the immediate area. The result is less time spent parked and fewer empty miles