Switching into high gear

Switching into high gear How a transmission company became a leader in electronics logistics.

By Chris Dupin

      A decade ago, if you wanted to drive from the headquarters of ATC Technology Corp. in Downers Grove, Ill., to Fort Worth, Texas, where logistics subsidiary ATC Logistics & Electronics (ATCL&E) is located, you might have relied on handwritten notes and a map. These days, you might use a GPS navigation unit, like those made by ATCL&E customer Tom Tom.
      A transformation nearly as dramatic as from map to satellite navigation has occurred at ATC itself.
      The company was founded in 1994 as Aftermarket Technology Corp. through the merger of several remanufacturers of drive trains used in aftermarket repair of passenger cars and light trucks.
      A small division doing electronic repairs for GM and Delphi began repairing cell phones for AT&T in 1996. The company began doing forward and reverse logistics for the telephone giant, then after several years won work from other consumer electronics companies, including original equipment manufacturers.
      Logistics climbed from 27.8 percent of ATC's sales in 2004 to 66.6 percent in 2008, and to 70 percent in the first half of 2009. In 2008, logistics accounted for $353.4 million of the company's $530.5 million in revenue.
      And while AT&T still accounted for 64 percent of ATC's logistics revenue in 2008, its 15 customers today also include well-known firms such as LG, Pantech, Tom Tom, Nokia, T-Mobile, TiVo and Sony Ericsson.
      ATCL&E's offerings include forward logistics, reverse logistics, test and repair of electronics products, kitting and packaging, and asset recovery.
      The company has found a niche doing logistics for consumer electronics products. It processed 53 million 'serialized' pieces (items with serial numbers) in 2008 as part of its forward logistics operation as well as 12 million returns and exchanges, testing and repair of 5 million items, and kitting and packaging of 10 million pieces.
      'There is enormous breadth in the logistics space for consumer electronics,' said Antony Francis, president of ATCL&E, and he sees lots of room for growth in the sector.

Antony Francis president, ATC Logistics & Electronics
'There is enormous breath in the logistics space for consumer electronics.'

      Francis came to the company from Federal Express where he worked in both finance and then as head of logistics for Europe, Middle East and Africa.
      ATCL&E is an asset-light company, and does not own its own trucking fleet. Instead it relies on a range of motor carriers and express firms, including FedEx and UPS, for transportation.
      'Because of our end-to-end services, we are pretty unique,' he said, but the company competes with firms such as New Breed of High Point, N.C.; Bright Star Logistics of Miami; and Brightpoint Inc. of Indianapolis.
      Francis said one of the company's big challenges is finding the next big thing in consumer electronics. 'We found it with Tom Tom, and we now have to go out and find the next thing that is going to be a real success in the marketplace.'
      With electronic products, 'there is always a forward side, a reverse side service ' test and repair ' and additional services that we have gotten into recently,' including packaging and recycling used electronic parts, he said.
      By importing products manufactured overseas in bulk and then packaging them in North America, Francis said retailers can lower transport costs, and better market their products.
      For example, Tom Tom, the GPS navigation systems manufacturer, used to fit about 200 items on a pallet. By importing them in trays, and then packaging them in North America, the company is now able to ship 800 to 900 items per pallet.
      By packaging products in North America, Francis said ATCL&E's clients not only eliminate the expense of shipping bulky packaging across the ocean, they also can match packaging to demand ' adding new art, switching from boxes to clamshell packaging if that's what a retailer wants, for example. This allows companies to react faster to what their competition may be doing. Even a simple change like a sticker can have a dramatic impact on sales, he added.
      It also gives companies the opportunity to update products with the latest software by having ATCL&E 'reflash' memories.
      By doing the work at its facilities in Fort Worth, ATCL&E can make the changes and have items in the stores in a week. If the work was done in China, it might take six weeks to reach the stores, Francis said.
      In September 2008, ATCL&E opened a new maquiladora facility in Matamoros, Mexico, used for testing and repairs. It also has a partner that it works with in Toronto. But most of the company's operations are centered in Fort Worth.
      Francis explained that speed is a key to ATCL&E's services: 'A handset that is not with a customer is not generating revenue.'
      If a customer's cell phone or Blackberry malfunctions, for example, the carrier's call center will first try to help fix it over the phone. But if unsuccessful and it's under warranty, ATCL&E will ship a new unit the next day, then typically give 30 days to ship the old unit back.
      If the phone is out of warranty, a customer will ship the phone back to ATCL&E, which again will send a new or refurbished unit with his information transferred onto it. Again, turnaround is one day, Francis said, so the customer can begin using it and generating revenue again for the carrier. Francis also said the quick turnaround allows the carrier to keep a minimum inventory of refurbished product.
      ATCL&E doesn't do 'board-level' repairs, where it is soldering new components on circuit boards, but its technicians do test and swap components. The company has its own engineers who work with manufacturers to develop jigs to perform such tests quickly.
      Francis said no fault is found on a surprising number of units that are returned. For example, with set-top boxes, some people 'have a problem plugging things into the back of these machines and sometimes out of frustration, they pack it up and send it back. This, despite a very good set of instructions.'
      Equipment then is rebuffed, polished and sometimes an entire outside of the product is replaced before it is resold.
      'Asset recovery' is also a growing area. Francis said in some cases the entire unit is shipped back to the manufacturer, in other cases, customers have ATCL&E break units like cell phones into subcomponents ' plastic, metals, boards, screens and accessories ' which are then forwarded to recycling specialists.
      'That's a whole area that is evolving a lot at the moment, and that is something we are looking at with closer eyes,' he said. 'Today we give this to other people to do for us, and typically we don't manage that, they are managed by our customers. Is that a service we should be offering over time? We are in an entrepreneurial business so we keep looking at opportunities. We have to broaden our verticals, deepen our features of service, and expand geographically. Those are all things we may do in the future.'
      The company is also looking at setting up a foreign trade zone operation. This would allow the company to kit, package and distribute products made in China bound for retailers in South America without the product ever entering U.S. Customs. And companies importing product into the United States would be able to defer duty until it actually enters the country.
      The company may, at some point, open regional facilities if there is customer demand, Francis said. Having East and West Coast facilities might allow some customers to replace more expensive express services with less expensive trucking, he added.
      To date, all of ATCL&E's growth has been organic. The company would consider overseas facilities or mergers, though it is not 'on the radar screen,' he said.
      'The whole logistics market is around $29.4 billion, so there is tremendous opportunity there,' he said.
      While ATCL&E's business has been built around doing logistics for what he says are high-value, serialized products that move in high volumes ' the company has a line that can process 50,000 items a day ' he said the company might look to expand into areas that move in smaller quantities, such as medical devices or pharmaceuticals.
      'Our IT systems are the crux of our whole operation. They allow us to batch control so it would be easy to migrate to some of these areas,' Francis said.