Ryder to Grow Business & Offer Maintenance Only Product

Case Type: add capacity, growth; operations strategy; new product.
Consulting Firm: A.T. Kearney final round job interview.
Industry Coverage: transportation.

Case Interview Question #00226: The client Ryder System, Inc. or Ryder (NYSE: R), is an American-based Fortune 500 provider of leading edge transportation, logistics and supply chain management solutions worldwide. Headquartered in suburban Miami, Florida, Ryder’s global operation has total revenue of more than $6.5 billion in 2007.

Ryder’s product offerings include: LM, which provides leasing and programmed maintenance of trucks, tractors and trailers to commercial customers; SC, which manages the movement of materials and related information from the acquisition of raw materials to the delivery of finished products to end-users; and DCC, which provides a turn-key transportation service that includes vehicles, drivers, routing and scheduling. The focus of this case is on the Leasing & Maintenance (LM) group.

The growth in the overall number of truck registrations has slowed, 2.2% CAGR (Compound Annual Growth Rate). The LM market is declining. However, the client’s revenues within the LM market have been flat. The client has asked your help to put together a growth strategy. More specifically, Ryder is looking at achieving significant growth over the next 2 years and is looking for some major improvements.

Note: This case is a classic growth strategy case which involves penetrating a new segment by offering new products. The candidate will be tested on his thoughts for achieving organic growth and on some light quantitative analysis.

Question #1: In general, what are the different ways to achieve organic growth?

Possible Answer:

• Achieving growth through current products offered to current customers (reducing prices).
• Achieving growth through new products offered to current customers (cross selling).
• Achieving growth through current products offered to new customers (Expansion).
• Achieving growth through new products offered to new customers (Penetration).

Questions #2: What are your thoughts on the current market dynamics facing the client? Taking this into account, please recommend an organic growth strategy.

Additional Information: (to be provided during the course of the interview)

1. Market and growth: 4.7M truck registrations annually (slow growth 2.2% CAGR).

2. Market and customer is segmented as follows:

• For Hire: 21% (customers who use trucks for hire).
• Private: 60% (customers who own and maintain their own trucks.
• Lease and Manufacturing: 11% (customer who buy trucks on lease with packaged maintenance program).
• Financing: 8% (customers who finance purchase of their trucks through banks and other groups).

3. Competition: Client and one other competitor U-Haul own 24% each of LM market. The remaining 50% is divided up by smaller players.

4. Product/Offering: The offerings in the LM market are highly undifferentiated. Each offering has an asset (truck, tractor, and trailer) and a maintenance program for the asset. The asset is owned by the provider and the customer pays a fixed monthly price for leasing the truck (based on the brand, age and financing term) and subscribing to the maintenance program. Subscribing to the maintenance program is no optional as the truck is not owned by the customer. The customers are requited to sign contracts for the specified term with the provider.

Possible Answer:

The candidate should be able to figure out that the client has grown primarily through acquisitions. Here’s why. The LM market is declining but the client has maintained revenues. Increasing prices is not an option since the product offering is highly undifferentiated. Enough said. The client needs to look elsewhere. This is basically a case on penetrating a new segment.

Another key point: If LM market is declining and truck registrations are increasing (albeit slowly), there must be another segment that is increasing share within the overall market. That would be the private segment.

What does the private segment need? There are big customers (grocery chains, retail outlets etc.) who are not really interested in leasing trucks and freeing up capital. They may however be interested in maintaining their trucks since that is by no means their core competency.

This means that the current LM product (asset + maintenance) no longer appeals to them. Hence we need to offer a new maintenance only product. This product will likely be lower priced since it involves only the maintenance component.

Question #3: What are some of the key challenges with introducing an additional new product (especially one that is lower priced)?

Possible Answer:

• Cannibalization: Existing customers may want this product as well.
• Service differentiation: the client may be unable to provide differentiated service based on the type of customer and may end up over serving customers.

Question #4 (ask only if time permits, otherwise skip to Question #5): How would you go about formulating what product to offer to the private customers? What process or steps would you follow?

Possible Answer:

1. Qualitative Assessment: Interview prospective customers, conduct focus groups and brainstorming sessions with subject matter experts to find out what the private customers needs are.

Formulate several hypotheses and list attributes that the new product should have (like different service levels for maintenance program in terms of priority servicing, regional or national coverage of shops that customers can take their trucks to).

2. Quantitative Analysis: Conduct a survey to measure the interest and preference for the attributes outlined in the qualitative assessment. The sample size should be representative of the truck industry across private customers and other segments and the different types of customer industries (e.g. construction, groceries, utilities etc.)

3. Capability Assessment: Can the client do this? What would it cost them? What upfront investments need to be made? Can the existing infrastructure support the new products and new customers? Can the customer service differentiate? Are there any cultural challenges?

4. Business Case: Use the findings to build a business case quantifying the revenue opportunity using estimated pricing and estimated customer volumes from the survey.

Question #5: If the client Ryder captures 1% of the private market by introducing this new product, at what rate do his overall revenues increase?

Possible Answer:

Client has 24% of 11% of 4.7M trucks. = ~2.6% of 4.7M trucks. If Ryder captures 1% of the private segment, its market share will be 3.6%. This represents an increase of 1/2.6 = 38%.