Listening to Scott Malet, chief strategy officer for XPO Logistics, speak in San Diego at the Council of Supply Chain Management Professionals’ conference it dawned on me how U.S. Customs and Border Protection has something in common with the cutting-edge logistics services provider.
Government doesn’t have a reputation for being agile and innovative. When it comes to change, bureaucracy is like a battleship: difficult to turn. But CBP is doing a good job changing that perception with its Trade Transformation initiative aimed at overhauling decades-old processes to match the speed of modern business, so companies have an incentive to engage in more cross-border trade.
One area in which CBP has really made strides is its new enterprise cargo processing system, the Automated Commercial Environment. Until 2011, ACE was stuck in the mud like so many other giant, government-IT projects: bloated, over budget, behind schedule and with little useful functionality to show for years of work.
After a big reform effort, ACE is now a model for how to design and build a big IT system. Key to getting ACE on track was a new software development strategy that emphasizes the release of frequent, bite-size pieces of functionality, instead of holding related pieces of software until everything is complete and can be bundled into a single release. The flexible approach gives users faster access to needed tools and provides constant feedback to programmers, so they can make necessary changes before the architecture is finalized.
The methodology is interactive, with development teams of users and programmers working together in two-week sprints that involve testing the software’s function, feel and ability to connect with other systems, and producing software every few months.
Now compare that approach to that of XPO Logistics, a four-year-old company that has stormed to the top of the 3PL market with the help of 17 acquisitions. XPO’s secret sauce is its technology, without which it likely wouldn’t be able to successfully absorb all the new companies. The jury is still out, but so far it seems like Chief Executive Officer Brad Jacobs and his team know what they’re doing.
The company spends about $225 million a year on information technology. Building an IT platform was a top priority for Jacobs when he and several investors acquired Express-1 in 2011. Back then, the company had about $11 million in operating profit and decided to take on $65 million in annual IT cost, knowing it would pay dividends in the end. Its Freight Optimizer and Rail Optimizer now enable it to quickly and accurately quote rates by lane and optimally match customer loads with available motor carriers and trains.
XPO is relatively unique in the 3PL space in that it doesn’t wait 18 months, like many companies, to rollout software updates and then train everyone. Its advantage isn’t in functionality—something everyone has—but rather the speed in which it can get new data into the system.
“We have a big feedback loop going” that listens to needs from customers and internal users and then does software releases in the cloud once a month, with “hot fixes” every two weeks or less, Malet said.
That means when XPO acquires a truck brokerage company, for example, it can transfer all the new operational data to its system and have new users tapping its larger capacity base within 30 days.
For XPO, the name of the game was to get the platform quickly rolled out in the cloud rather than waiting to make the perfect mousetrap. The innovation doesn’t stop, however, because the techies are constantly adding bells and whistles to make the system better.
At XPO and CBP, technology development is an iterative process.
The peripatetic Mr. Jacobs
XPO Logistics founder and CEO Brad Jacobs is a force of nature. He’s an astute businessman on a mission to take a small $171 million expedited truck brokerage and transform it into a $23 billion global logistics behemoth by 2019. In addition to being a detailed number cruncher, he is also charming and charismatic—two qualities that often don’t go hand in hand.
Like most CEOs, he’s the face of the company. What’s amazing is how much time he spends in public marketing the brand. He’s a super busy executive, constantly looking for the next deal (17 acquisitions in four years) and operating a large organization. (Of course, it helps to have your own private jet.)
How many CEOs, for example, do you see manning the booth at a trade show like CSCMP? Jacobs told me he wants to help sell XPO’s services to shippers and needs to stay close to customers, “so the strategic decisions we are making at the management level are in tune with what the customers want.”
He also conducted a 75-minute town hall meeting during CSCMP, recently attended logistics conferences in Detroit and Memphis, and participated in an American Shipper podcast.
I’m guessing Jacobs doesn’t have much use for sleep.