Council of Supply Chain
Management Professionals
September 15, 2015
Raw MaterialPurchasing
Factory Manufacturer’s DC Customer’s DC Consumer
Rick D. Blasgen
President & CEO
CSCMP
What is a Supply Chain?
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
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 ManagementEvolutionary Perspective
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
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
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.
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
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
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
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
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.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
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
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.
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 necessitiescontinues to increase, which has spurred production and imports.
Expenditures for freight are higher than pre-recession
levels.
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
ndand 3
rdquarters.
Driver shortage remains the top issue for carriers.
In the 4
thquarter 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
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.
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%
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
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 totightening 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.
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 utilizationEmerging (Emerged?)
Supply Chain Trend
Emerging (Emerged?)
Supply Chain Trend
Collaboration
– “To cooperate with
an enemy that has invaded your
country”
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.
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.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
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%
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 InfrastructureBusinesses
Market Access Market Integration Cost EfficiencyConsumers
More Goods and Services Wider Availability
Lower Prices/Income
U.S.
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
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.
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.
Revenue
Cash Flow
Profitability
Market Share
What keeps the CEO up at night?
Decisions
Different
Decisions?
$30
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?
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
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?
If you've ever ordered anything
from Amazon, you will be
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.
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
• 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*
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
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!
POLITICAL CHANGE UNIONIZATION SHIFTING WAGES INFRASTRUCTURE CHALLENGES EARTHQUAKES TYPHOONS WILDFIRES PROTESTS YOUNG, MOBILE ORGANIZATION LABOR STRIKES
Strategically Resilient
Firms
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
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
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!
Top management is interested
in what we do!
But we must communicate
more effectively.
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 byReturn
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 minusUsing Logistics assets effectively and efficiently
plus
Supply Chain as a Revenue
Generator!
The money we save can be reinvested
Advertising
Research to innovate
Promotion
Better base pricing
Higher Customer Margins
What skills will be required for
success?
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
Traditional Supply Chain
Functional Career Path
Demand/Supply
Planning Global Logistics Manufacturing Procurement Executive Level Senior Level Advisory Level Staff Level Entry Level Fulfillment
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 LevelFulfillment Supply Chain
Management Ex perie nce s outs ide of ISC
The Future of Supply Chain
Professionals
Inventory
Management
Transportation
Warehousing
Materials
Planning
Production Planning
& Manufacturing
Customer
Service
Procurement
Proficient competencies Technical Managerial LeadershipMust have excellent interpersonal skills
Ability to sustain
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!
Procurement
Marketing
Manufacturing
Information Tech
Suppliers
Customers
SCM Pro
SCM Conducts a Symphony
We matter!
Sales
EDUCATION RESEARCH CONNECTIONS NETWORKING CAREER RESOURCES
CSCMP – What We Deliver
Supply Chain Concierge Service
Join the Community!
CSCMP’s Evolving Role
•
Goal
Connect, Educate and Develop the
world’s Supply Chain Professionals!
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
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
Innovation!
Be Creative in your Response to
Supply Chain Problems
Peter Drucker
“If people are committed to
maintaining yesterday, they are
not available to create tomorrow”
Sometimes, we
have to learn to
Our Challenge……..
It will not be easy, but . . .
Thank you!
Rick Blasgen
+1 630.645.3458