Council of Supply Chain Management Professionals

(1)

Council of Supply Chain

Management Professionals

September 15, 2015

Raw Material

Purchasing

Factory Manufacturer’s DC Customer’s DC Consumer

Rick D. Blasgen

President & CEO

CSCMP

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What is a Supply Chain?

(3)

T ec hn ol ogi es

Storage Manufacturer Storage Distributor Retailer End User Supplier

A Typical Supply Chain

Pe opl e Pr oc esse s Product

Sourcing Storage Manufacture Storage Distributor Retailer

Customer Order Receipt

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Functional Orientation • Purchasing • Operations • Marketing • Package Engineering • Transportation • Inventory Mgt. • Warehousing • Manufacturing • Suppliers • Customers • etc.

Logistics

Supply Chain

Management-

We became

Global!

1950 1960 1970 1980 1990 2000 Beyond Focus More Attention From Senior Management More Attention From Senior Management

Evolutionary Perspective

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Logistics Costs $1.356 t $1. 406 t $1.449 t 3.0%

% of GDP 8.4% 8.4% 8.3% 1.2%

Trans Costs $847 b $885 b $917 b 3.6%

Inv. Carrying $457 b $466 b $476 b 2.1%

Metric

2012

2013

2014

%

US State of Logistics

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US Business Logistics Costs

1.20 1.34 1.42 1.36 1.12 1.23 1.31 1.36 1.41 1.45 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $ T rillio n s

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

2014 was the best year for the supply chain industry

since the Great Recession.



GDP has grown faster than 3.5% in four of the last five

quarters.



The last time the US experienced a sustained period of

economic growth higher than 3% per quarter was from

2003 through 2005, when GDP grew faster than 4% in

five out of ten quarters.



The US economy is on fairly solid ground –

unemployment in falling, real net income and household

net worth are inching up, inflation is low to moderate,

and gas prices

were

tumbling.



This is good news for carriers.

(8)

Industrial Production Was Strong in 2014

Source: Federal Reserve Bank of St. Louis

96 98 100 102 104 106 108 2013 2014 2015 Industrial Production Index 2007=100

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Inventories Growth Slowed in 2014

Source: US Department of Commerce, Census Bureau 350 400 450 500 550 600 650 700 750 800 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 M illio n s o f D o lla rs Private Inventories

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Interest Rates Still Well Below One Percent

Source: Board of Governors of the Federal Reserve System 0.0 1.0 2.0 3.0 4.0 5.0 6.0 P er cen t 0.05 0.07 0.09 0.11 0.13 2013 2014 2015 P er cen t Interest Rates 2013 - 2015

(11)

The Inventory to Sales Ratio Rising Rapidly

Source: US Department of Commerce, Census Bureau

1.20 1.25 1.30 1.35 1.40 1.45 1.50

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Recap of Inventory Carrying Costs



Inventory carrying costs were up 2.1% in 2014.



The interest component dropped 4.8% as rates stayed at .07% for the first half of the year and then gradually built to .11% in December.



Total business inventory levels rose 2.1% in 2014.



Taxes, obsolescence, depreciation, and insurance increased 1.2% in 2014 because of the growth in inventories.

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Retail E-Commerce Sales

Source: Statista, http://www.statista.com/statistics/273424/retail-e-commerce-sales-in-the-united-states $237 $211 $186 $162 $142 $130 $130 $123 $102 $82 $67 $53 $42 0 50 100 150 200 250 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

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Order from Anywhere

Fulfill from Anywhere

Customer Call Center

Tablet/Mobile

Web Site Brick and Mortar Stores Catalogs Flash Sales Pop-Up Stores Outlet Locations Retail DC(s) eCommerce DC(s)

Brick and Mortar Stores

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There are more mobile devices on Earth than

people.

65%of U.S. shoppers research products and services on a PC and

make a purchase in-store

Mobile internet usage overtakes desktop internet usage. 40% of shoppers consult 3or more channels before purchase, compared to 10%in 2002.

Talk about uber-connected: 75%of Americans bring their phones to the bathroom.

71% of mobile browsers expect web pages to load almost as quickly or faster

as web pages on their desktop computers.

Nearly 40%of U.S. mobile phone owners will become mobile phone shoppers by

2017.

74%of consumers will wait 5 seconds for a web

page to load on their mobile device before abandoning the site.

Retailers’ apps take up the most of consumers’ time at

27%, followed by online marketplace at 20%, purchase assistant at 17%,

price comparison at 14%, and daily deals at 13%.

46% of consumers are unlikely to return to a mobile site if it didn’t work

property during their last visit.

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

Transportation costs are measured in the model using

carrier freight revenues.



Transportation shipment and tonnage volume has not yet

regained it pre-recession levels.

–

In the second half of 2014 the missing element of the recovery – consumers ─ began to get back in the game. Recovery from every recession since the Great Depression has been led by the consumer sector.

–

Consumer confidence rose substantially during 2014, and with it spending. Spending on other than necessities

continues to increase, which has spurred production and imports.



Expenditures for freight are higher than pre-recession

levels.

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Truck Industry Recap



Carrier revenues increased 3.0% in 2014, but tonnage was up

3.5%, meaning rates were very close to flat again.



Truck utilization rates remain high and were close to 100% at

times during the 2

nd

and 3

rd

quarters.



Driver shortage remains the top issue for carriers.



In the 4

th

quarter of 2014, on an annualized basis, turnover

rates at large truckload fleets were 96% and 95% for smaller

truckload carriers; less-than-truckload (LTL) fleets turnover

was 10% in the final quarter of 2014.



Class 8 truck registrations were the

highest in eight years.



Companies with fleets of 30 vehicles or

less have been hardest hit by required

onboard hours of service monitoring and

390 declared bankruptcy in the first

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Railroad Industry Recap



Freight revenue increased 6.5% in 2014.



Revenue per ton-mile rose .01% to 4.054¢ per mile.



Carloads originated were up 4.8% and tons originated

grew 4.7%.



Intermodal volume increased 5.2%.



Ton-miles rose 6.4% and topped 1.8 trillion.



Average price of diesel

fuel was down 5.7% in

2014, dropping fuel as a

percent of operating

expenses 1.3% to 21.2%

of expenses.

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Source: Individual port reports

US Container Shipments Recover in 2014

Port 2014 TEUs 2013 TEUs Percent Change Los Angeles 8,340,065 7,868,582 6.0% Long Beach 6,820,806 6,730,573 1.3% New York 5,772,303 5,467,347 5.6% Seaport Alliance* 3,427,561 3,456,161 -0.8% Savannah 3,346,024 3,034,014 10.3% Oakland 2,394,069 2,346,528 2.0% Norfolk 2,393,038 2,223,532 7.6% Houston 1,958,251 1,952,122 0.3% Charleston 1,791,978 1,601,367 11.9%

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US Third Party Logistics Market

Source: Armstrong & Associates, Inc.

103.7 113.6 119.0 127.0 107.1 127.3 133.8 141.8 146.4 157.2 166.1 0 20 40 60 80 100 120 140 160 180 $ B illio n s 3PL Gross Revenues

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US 3PL Market Segments



The overall 3PL market rose 7.4% in 2014 and is forecasted to grow 5.7% in 2015.



Domestic transportation management and dedicated contract carriage grew 20.5 and 10.4% respectively in response to

tightening carrier capacity and economic uncertainty.

Domestic Transportation Management $8.5 B  20.5%

International Transportation Management $18.4 B  2.2%

Dedicated Contract Carriage (DCC)

$13.1 B  10.4%

Value-Added Warehousing and Distribution (VAWD) $28.4 B  2.5%

US 3PL Market Segments 2014 Net Revenue

Source: Armstrong & Associates, Inc.

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Looking Ahead



The US economy will continue to strengthen and grow; the

global economy will continue to lag.



Growth in freight volume.



What is the greatest threat to freight logistics? Capacity,

capacity, capacity!



Trucking capacity shortage will not be fixed in the short

run.

–

Bottom line: expect to pay much higher rates with uncertain capacity availability.

–

Possible solutions?

–

Contract for the capacity needed, with more attention to capacity guarantees than rates

–

Shippers must be willing to work with carriers to optimize equipment utilization

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Emerging (Emerged?)

Supply Chain Trend

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Emerging (Emerged?)

Supply Chain Trend

Collaboration

– “To cooperate with

an enemy that has invaded your

country”

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Relationships are critical

The essence of SCM is collaboration – it is not

an option.



involves all key participants



working toward common goals

.

Absent collaboration, the supply chain will

be nothing more than a collection of firms, each

following their own pathways.

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Looking Ahead (Continued)



Rail and intermodal capacity shortage will also not be fixed

in the short run.

–

Capacity and service issues will be present throughout the year; rates will likely increase to cover the additional costs.

–

Recommendation: contract for the capacity needed; use 3PLs for additional capacity.



Ocean freight will continue to be in an overcapacity

situation.

–

Ocean carrier rates will continue to climb while reliability, caused either by the carrier or port problems, should also rise.

–

Adequate and properly positioned equipment, such as chassis and containers, will slowly improve.

–

Drayage carriers are threatened by the inefficiencies and congestion at the ports because their number of turns is being reduced.

–

Some may consider alternatives or the use of multiple ports and alternative product sourcing.

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Looking Ahead (Continued)



Other issues that could affect freight logistics:

–

Change in global economy up or down

–

Increased modal regulation

–

Continued diversion to Canadian ports for

West Coast imports

–

Changes in product sourcing – especially

locating manufacturing in the US, Canada

and Mexico

–

Rate structure for the new Panama Canal

–

Drastic change in fuel prices, up or down

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Logistics Costs have risen 120%

Average annual increase = $32b

2014 increase was $43b

Since 1990…

As a % of GDP, Logistics expense went from

11.0% to 8.3%, a reduction of 25%

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Global Comparison of Logistics

Expenditures

Asia 17% GDP

China 18% GDP

Europe 13% GDP

India 13% GDP

Japan 11% GDP

Mexico 14% GDP

Economy

Higher Output--GDP Better use of resources Multi-use Infrastructure

Businesses

Market Access Market Integration Cost Efficiency

Consumers

More Goods and Services Wider Availability

Lower Prices/Income

U.S.

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So what is Supply Chain

Strategy?

Supply Chain Strategy is figuring out the best way

that participants and processes should work

together to meet an organization’s goals and

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A study by Georgia Tech showed that a company’s stock price drops 8% when the company experiences a glitch in its supply chain.

A study at Miami University of Ohio showed that when a company adopts a new supply chain innovation the company’s stock price increases.

A study by Bain & Company showed that companies employing

sophisticated supply chain methods enjoyed 12 times greater profit

than companies with unsophisticated methods.

Wall Street: New found respect for SCM. In one SCM MBA

program in the US, 21/32 grads received job offers from Investment Banking firms because of the importance of SCM to their clients.

(32)

Wal-Mart's supply chain management success is

improving productivity in the United States:

The effects of the company's supply chain

innovations on the retail industry led to a 3.1

percent decline in overall consumer prices

.

Consumers spent $263 billion LESS than

they would have if Wal-Mart were not

around! That translates to $895 per

person, or $2,329 per household.

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Revenue

Cash Flow

Profitability

Market Share

What keeps the CEO up at night?

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Decisions

Different

Decisions?

$30

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Top Trends and Challenges

•

Globalization. Growing complexity and

pressure of dealing with global

partners, suppliers and competition.

Culture and geopolitical issues.

•

Multi Channel Madness!

•

Macy’s, FedEx, UPS, Wal-Mart, etc.

•

Big Data – How big is too big? How do

we scale?

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Manufacturing “Finding a home in the USA”

•

Apple

•

Yamaha

•

Michelin

•

Wham-O

•

Bayer Chemical

•

Caterpillar

•

GE

•

NCR

•

Rolls Royce

•

Honda

•

Lenovo

•

Airbus

•

Toshiba

•

Toyota

•

Flextronics

•

Siemins

(38)

Top Trends and Challenges

•

Need to update infrastructure

•

Risk Management & Sustainability

•

Focus on workforce and automation –

traditional 8 hour workday still make sense?

•

Energy - Natural Gas reaches a tipping point?

(39)

If you've ever ordered anything

from Amazon, you will be

(40)

Skechers

consolidated its distribution operations which was

spread out among six warehouses in Ontario, into a new

1.82-million-square-foot $250 million facility in Moreno Valley.

(41)

Real Estate and Supply Chain

• The two are inextricably linked

• Real estate is critically important to the

success of a company’s supply chain

• “Buildings” should be viewed as assets

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• Expanded canal = greater economies of scale – 50%+ the number of TEU’s per ship – Fuel savings of 35% per container • Completion in 2016 (100+ year anniversary)

• Driving interest in U.S. east/gulf coast port locations – Closer proximity to U.S. population centers – Availability of less expensive real estate

– Aggressive business and economic incentives – Non-union, lower cost labor

• Port diversification strategies more prevalent

• U.S. ports competing to accommodate “post-Panamax”

ships

– Post-Panamax vessels = 16% of worlds

container fleet today

– Expected to grow to 62% by 2030 and

dominate in future*

(44)

The 45-member Advisory Committee on Supply Chain Competitiveness was formed to provide the Secretary of Commerce with detailed advice

Subcommittees

Trade and Competitiveness

Freight Policy and Movement

Information Technology and Data

Finance and Infrastructure

Regulatory

(45)

Why is Risk Management important?



Asia is 4X more likely to be affected by

natural disasters than Africa, 25X more likely

than Europe or North America



7major cities classified as extreme risk are all

in Asia



Floods have become 3X more frequent in the

past 30 years



152 Million people in Asia are vulnerable to

natural disasters every year!

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POLITICAL CHANGE UNIONIZATION SHIFTING WAGES INFRASTRUCTURE CHALLENGES EARTHQUAKES TYPHOONS WILDFIRES PROTESTS YOUNG, MOBILE ORGANIZATION LABOR STRIKES

(47)

Strategically Resilient

Firms

(48)

Top Supply Chain Companies

• Identified from various rankings and studies

(AMR/Gartner, MSU study, Supply Chain Digest)

• From 2004 – 2007, on average these firms had:

– 58% higher ROA

– 31% higher ROS

– 41% higher ROE

– 4X stock returns

(49)

Are They “Strategically Resilient”?

• Like others, the top companies suffered lowered sales growth, disruptions, and other problems

• However, most top companies held or even improved their leads in the 2008 – 2010 timeframe. 400% 58% 31% 41% 9% 98% 57% 100% 52% -10% 10% 30% 50% 70% 90% 110%

Sales Growth ROA ROS ROE Stock Returns

Outperformance of Top Firms vs.

Benchmark

2004-2007 2008-2010

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So, what do we do?

Examine the infrastructure

•

Number of Distribution Centers

•

Location

•

Configuration – Speed, Flexibility

Move fixed costs to variable - ZOG

Invest – people, technology, process – or be left

behind!

(51)

Top management is interested

in what we do!

But we must communicate

more effectively.

(52)

(53)

Sales minus Cost of Goods Sold Gross Margin Variable Expenses Fixed Expenses Total Expenses

Net

Profit

Customer service level

Inventory plus Accounts Receivable plus Fixed Assets

Total

Assets

divided by

Return

on

Assets

Just enough for desired service level

Fast order cycle time Right product, no damage Effective use of logistics assets/outsourcing Optimal network

Financial Dimensions of SCM

Logistics efficiency; Procurement savvy Logistics efficiency Optimal network minus

Using Logistics assets effectively and efficiently

plus

(54)

Supply Chain as a Revenue

Generator!

The money we save can be reinvested



Advertising



Research to innovate



Promotion



Better base pricing



Higher Customer Margins

(55)

What skills will be required for

success?

(56)

What are the skill development needs of

companies today?

• Leadership

• Collaboration

• Communication

• Teamwork

• Multi-cultural perspective

• Relationship management

• Creativity & Innovation

• Forecasting and planning

• Project management

• Problem solving

• Modeling

• Data analytics

• Technology

(57)

Traditional Supply Chain

Functional Career Path

Demand/Supply

Planning Global Logistics Manufacturing Procurement Executive Level Senior Level Advisory Level Staff Level Entry Level Fulfillment

(58)

Corporate Executive Level

Leading Edge SCM

Career Path

Demand/Supply Planning Global Logistics Manufacturing Procurement SCM Consulting Level SCM Sr. Level SCM Advisory Level ISC Staff Level ISC Entry Level

Fulfillment Supply Chain

Management Ex perie nce s outs ide of ISC

(59)

The Future of Supply Chain

Professionals

Inventory

Management

Transportation

Warehousing

Materials

Planning

Production Planning

& Manufacturing

Customer

Service

Procurement

Proficient competencies Technical Managerial Leadership

Must have excellent interpersonal skills

Ability to sustain

(60)

What wild and crazy things are going to

happen in supply chain management?

3-D printing

Emergence of new low-cost production

Countries – Panama Canal implication?

Big data

Social Media

Drones!

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Procurement

Marketing

Manufacturing

Information Tech

Suppliers

Customers

SCM Pro

SCM Conducts a Symphony

We matter!

Sales

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EDUCATION RESEARCH CONNECTIONS NETWORKING CAREER RESOURCES

CSCMP – What We Deliver

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

Supply Chain Concierge Service



Join the Community!

CSCMP’s Evolving Role

•

Goal



Connect, Educate and Develop the

world’s Supply Chain Professionals!

(64)

Learn from Two of the World’s Most Influential Leaders in the Supply Chain Business Today

HOWARD SCHULTZ chairman, president, and chief executive officer

Starbucks

DAVE CLARK

senior vice president of worldwide operations and customer service Amazon CSCMP’s 2015 Annual Conference September 27-30

(65)

Summary



This discipline is a corporate necessity, yet can be a

growth vehicle – a revenue generating engine.



We improve the financial position of companies and

economies.



Our stature and credibility is increasing.



Supply chain professionals need to develop cross

functional skills and a global mindset to maximize

opportunities in the world.



To prosper, to tackle these challenges, to take advantage

(66)

Innovation!

Be Creative in your Response to

Supply Chain Problems

(67)

Peter Drucker

“If people are committed to

maintaining yesterday, they are

not available to create tomorrow”

(68)

(69)

Sometimes, we

have to learn to

(70)

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Our Challenge……..

It will not be easy, but . . .

(72)

Thank you!

Rick Blasgen

+1 630.645.3458