October 1, 2006
thought leaders | The DC Velocity Q & A

A fortune in reversal: interview with Herb Shear

a fortune in reversal: interview with Herb Shear

Herb Shear parlayed his company's expertise in reverse logistics into a brand new niche market, transforming a small family business into a $400 million corporation along the way. Think he's resting on his laurels? Think again.

By Mitch Mac Donald

Some folks are smart. Some are lucky. Herb Shear is a lot of the first and at least a little bit of the second. The third-generation owner of Pittsburgh-based GENCO, Shear has guided the company's growth from a $300,000 regional business to a $400 million corporation whose clients include Fortune 500 companies.

When Shear joined the family business in 1970, it was a regional trucking and distribution company that operated 80,000 square feet of warehouse space. Today, GENCO is a third-party supply chain solutions specialist that operates more than 26 million square feet of warehouse space throughout the United States and Canada, employs more than 5,500 and has sold its proprietary software to customers across the U.S., Canada, Australia and the United Kingdom. Shear, who is principal owner, president and CEO, attributes that success to adherence to three simple precepts: Take care of your customers. Take care of your employees. Listen to what the market is asking for and provide it.

Shear, who holds a bachelor's degree in finance from Southern Illinois University, has also completed executive entrepreneurial and leadership programs at Stanford University, Carnegie Mellon University and Northwestern University. He is an active member of the Young Presidents' Organization, World Presidents' Organization, Council of Supply Chain Management Professionals (CSCMP), Warehousing Education and Research Council and the Reverse Logistics Executive Council. He sits on the advisory boards for the University of Nevada-Reno Logistics Management Program, Southern Illinois University College of Business Administration and Northwestern University Transportation Center. He is also a member of the Defense Business Board, a group of industry leaders who advise the U.S. Department of Defense on best industry practices.

This month, Shear will travel to San Antonio, Texas, to attend the CSCMP's annual conference, where he will receive the group's most prestigious award, the Distinguished Service Award. Before heading to the conference, Shear spoke with DC VELOCITY Editorial Director Mitch Mac Donald about how GENCO got into the reverse logistics business, the tricks to holding down parcel service costs, and a technology that could trump RFID before RFID ever gets fully adopted.

Herb Shear

Q: First, congratulations on being chosen to receive this year's CSCMP Distinguished Service Award. It's rare for someone from the vendor side of the profession to earn such a distinction, is it not?

A: Thank you, and yes, to my knowledge, the award is seldom given to someone from my side of the fence. It typically goes to academics and practitioners in the profession.

Q: Well, you've certainly done some impressive work in your three-plus decades in the profession. Have you always worked at GENCO?

A: Yes. I started in 1970, when the business was beginning to evolve into a warehouse company. The company was actually founded as a trucking company. My grandfather started with a horse and wagon in 1898.

Q: Sohe was a true teamster, driving the team of horses and hauling freight?

A: Right, he was indeed a true teamster.

Q: I had occasion to visit your facility in Pittsburgh back in the early '90s, when the concept of third-party logistics service was just starting to take hold. That's where I was introduced to the notion of reverse logistics. I know that has since become a specialty of yours. What led you to focus on that niche and how has it helped the company grow?

A: It actually started in 1988. One of our key customers, a company in the retail discount drug business, had an issue with store returns. They called us one day and said, "We have all these returns that are coming back from our stores. They're clogging up our distribution center. Do you have some space where you could store them for us while we're trying to figure out how to process them?" They couldn't find a software package that they felt could process them the way they needed them processed, so we made an arrangement with them. We jointly developed a software package that could scan these items, identify what they were and what store they came from so the store could get inventory credit, and then, where possible, charge back their suppliers for these items.

Q: So you developed the service as a direct result of a customer's coming to you with a problem and asking for help orchestrating a solution?

A: Yes. That is pretty much how it started.

Q: Let's come back to your career for a moment. Tell us a little bit about your background. Did you always plan on joining the family business?

A: In college, I focused on marketing and finance and a little bit of logistics. But afterwards, I did decide to come back into the family business, which at that time, around 1970, was a small trucking company that serviced an area within about a 50-mile radius of Pittsburgh. We also offered a little bit of warehousing. I went into the warehousing side of the business to see what it was like and to see if I could do something with it. When I started, our warehousing operations were about 80,000 square feet and we had about 15 teammates, which is what we call our employees because that's really what we all are— teammates.

When Iarrived, the warehousing operation was called General Commodities Warehouse and Distributing Co.— or GENCO, for short. That's the part of the family business that has survived and prospered. Anyway, in the mid 1970s I started to expand the business outside of Pittsburgh into central Pennsylvania. I would say that for the next decade or so, we basically just grew the business primarily in the Pittsburgh and central Pennsylvania areas. But that changed in 1988, when we launched the reverse logistics project. We quickly realized that other retailers might have the same issues, so it gave us an opportunity to market that product well beyond our previous geographic scope. I think the first major retailer that bought it was Target. When they bought it, we revised the whole software package to work for a mass merchandiser. Once Target bought it, just about every other major retailer wanted the process. Sears wanted it. Kmart wanted it. Wal-Mart took an interest in it. We started opening up return centers all over the country in the 1990s.

Q: So, your reverse logistics service and software sparked some substantive growth in a rather short period?

A: Exactly. Toward the end of the 1990s, probably around 1998, we realized that we really hadn't kept up with our traditional business, which was running warehouses and distribution centers. Through our reverse logistics business, we had been developing a lot of good relationships with large retailers and large manufacturers and we had the opportunity to go in and sell them other services, but we had fallen behind in our technology, so we acquired a software company and then acquired a warehouse company that gave us a fairly significant capability to operate distribution centers.

Q: You acquired them for their software?

A: We acquired a company with a WMS offering and then we acquired a company called Cumberland Logistics that was an operating company. What that did was give us a reasonable amount of technology and a reasonable amount of distribution center space.

Q: Is GENCO a true national player today?

A: Yes. Today we have about 90 facilities in the United States and Canada. I would say about 26 million square feet. We offer nine different business solutions, so our business has become substantially more complex than it was 30 years ago. Our largest offering is management of distribution centers. I think we are probably the second largest operator in North America, behind Exel, or at least we're among the top three or four. Everybody measures differently.

Q: Sure, but nonetheless quite an accomplishment.

A: We also offer freight management. We acquired a company in Green Bay, Wis. We have what I think is a significant freight management component. At the end of this year, we will be managing more than $500 million worth of freight activity.

Q: Impressive.

A: We also dosomething I call parcel services. It is essentially parcel management and parcel negotiation. Most companies don't pay a lot of attention to their parcel spend. There are significant savings to be had if you really analyze it and manage it properly and negotiate with the parcel carriers properly.

Q: Do you find that a lot of folks are "overbuying"—that is, using next-day air service when they really only need, say, third-day ground service?

A:We do see that in some cases. So part of our service is doing the analysis and determining where they could use ground service instead of air. But there are also a lot of other little things we find that can save our customers money, and they do add up. For instance, everybody uses these automated manifesting systems. About 1 percent of the labels that get printed out of these systems don't get used for various reasons, but the parcel carriers still charge you for that package even though they know they didn't pick it up and deliver it. If you don't go back and claim it, they don't reimburse you.

There are about 15 different things we help them with as part of the parcel program, but the biggest thing is in the negotiation.When you negotiate with a parcel carrier, you won't get the best possible deal unless you have all of your transaction data in hand and you know what your tradeoffs are. The carriers come to the table knowing exactly what the tradeoffs are, so if you don't have that information as well, they sometimes have an advantage.

Q: So essentially you help your customers go into negotiations armed with better information about their own operations?

A: We take all the data and put it into a data warehouse, where we can analyze it and then look at various tradeoffs so that you can get a better idea of the implications of charging something extra here or reducing something there. It helps our customers better understand what all the variables are and what they will ultimately mean in terms of costs.

Q: Let's shift to some of the macro issues in the logistics profession. First, what is your definition of supply chain management?

A: That's an interesting question because ultimately, everybody has a different definition. My definition might be somewhat broader than the standard definition in that I see it as a full loop. I view it as going from one end to the other end and back again.

Q: OK. Cradle to grave and back to cradle?

A: Exactly. Cradle to grave and then back to cradle—but not necessarily the same cradle. With reverse logistics, a product may not return to its point of origin. Instead, it may be sent to a new, secondary market, perhaps a flea market or an outlet store. My view is that there is a primary supply chain, which starts with the sourcing of the goods and ends with the end buyer. Then there is a reverse supply chain that takes product that didn't get used or was returned in the primary supply chain and puts it into a new marketplace.

Q: GENCO has clearly done a good job of exploiting the technologies that have emerged in the past decade or two. What do you see as the next big thing? Is it RFID? Or is there another breakthrough on the horizon?

A: I think there are a couple of breakthroughs. One is in the systems area. Everybody talks about it, but I don't think anybody really has true end-to-end supply chain visibility yet. I think it is critical that we improve our the ability to get all of the entities involved in moving goods to feed their data into a common database to provide visibility to everybody along the supply chain who needs it. I think that capability is now under development, but it's still not there. I think that's something that is going to be important in the future, especially with supply chains becoming more global.

Q:People today seem much more comfortable sharing data with their supply chain partners than they were, say, 10 years ago.Why is that?

A: I would say that is true, but I still think there is a lot of work to do. Getting steamship lines to feed data to trucking companies, for example, can be problematic. Everybody is feeding data regarding the status of shipments— and it is usually accurate data—but then everybody feeds it in different formats.What we need to do is get everybody to feed it into a place where it can be put into some sort of common format so that everybody who needs to can look at it.

Q: You mentioned you thought that there were a couple of breakthrough technologies on the horizon. One is obviously visibility technology. What's the other?

A: RFID is certainly an important enabling technology. However, it occurred to me recently that there might be some newer emerging technologies out there that could trump RFID before RFID ever gets fully adopted. Then just yesterday, I got an e-mail announcing that Hewlett-Packard had just come out with a new non-RFID-based data chip that's about the size of a grain of rice, has a built-in antenna and will hold four megabits of memory. They estimated that the initial production cost of this thing would be about a buck.

There is a lot of new stuff emerging today, from robotics in the warehousing area to active RFID tags used for tracking, that could change the way we do things.We have been testing a robotics technology for order picking where everything in your warehouse is stored on a totally random basis. People don't move to the product. Product moves to the people. It is done in a very flexible way without anything nailed down to the floor. You can just pick up a storage unit and move it any time you want.

A lot of interesting stuff is happening. I think we are going to see a lot of new technologies emerge in the next four or five years.

Q: If you were talking to a young professional aspiring to a career in logistics, what skills would you advise him or her to develop?

A:Generally, I think they need to have good people skills. You still have to work with a lot of people. You also need a knowledge of systems. You don't have to be a programmer, but understanding how systems work and how they can affect the supply chain is very important— particularly the ability to look at a process and determine where you may be able to eliminate steps to make the process more efficient.

Q: You seem to be describing not just a set of skills, but also a predisposition to be very flexible and embrace change.

A: Exactly. If you can't embrace change, I don't think you would have very good career prospects in the supply chain area.

Q: What do you see as the single biggest barrier to the profession's attempts to improve efficiency?

A: I think it would be resistance to change. I think there are a lot of good concepts out there and a lot of improvements can be made. We even see it in our business, but it is hard sometimes to get customers to embrace the change, to buy into the change. I think that is the biggest barrier.

Q: Any closing thoughts?

A: I would say in the 32 years that I've been doing this, it has never been boring, and I suspect it never will be. There is always something new going on. The pace of change has accelerated, especially in the past 15 years. There is new stuff going on all the time. It is very exciting. I think people who work in the supply chain area are more valued today than ever and that their value will be increasingly recognized as time marches forward.

About the Author

Mitch Mac Donald
Group Editorial Director
Mitch Mac Donald has more than 30 years of experience in both the newspaper and magazine businesses. He has covered the logistics and supply chain fields since 1988. Twice named one of the Top 10 Business Journalists in the U.S., he has served in a multitude of editorial and publishing roles. The leading force behind the launch of Supply Chain Management Review, he was that brand's founding publisher and editorial director from 1997 to 2000. Additionally, he has served as news editor, chief editor, publisher and editorial director of Logistics Management, as well as publisher of Modern Materials Handling. Mitch is also the president and CEO of Agile Business Media, LLC, the parent company of DC VELOCITY and CSCMP's Supply Chain Quarterly.

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