Council of Supply Chain Management Professionals

Council of Supply Chain Management Professionals

Raw Material Purchasing

Factory Manufacturer’s DC Customer’s DC Consumer

Rick D. Blasgen President & CEO

CSCMP

January 14, 2016

What is a Supply Chain?

Tech

nologies

Storage Manufacturer Storage Distributor Retailer End User Supplier

A Typical Supply Chain Pe

ople

Proc

ess

es

Product Sourcing Manufacture Storage Storage Distributor Retailer

Customer Order Receipt

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

Transportation = 63% of total logistics spend!

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

$ Tr

illio

ns

2014 was the best year for the supply chain industry since the Great Recession.

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 are tumbling.

This is good news for carriers.

Economy and Freight Logistics Had A Banner Year in 2014

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

Mill

ions

of D

olla

rs

Private Inventories

Retail trade Wholesale trade Manufacturing

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. The cost of warehousing was up 4.4% in 2014.

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

2014201320122011201020092008200720062005200420032002

Sales in Billion Dollars

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

Kiosk

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 3 or 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.

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 2nd and 3rd quarters. Driver shortage remains the top issue for carriers.

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 quarter of 2014 alone.

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%*Ports of Seattle and Tacoma

Panama Canal Expansion plans include dredging and new locks

• 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*

Impact of Panama Canal expansion

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%

Also….

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.

8.3% GDP

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

Logistics

Supply Chain

Management-

We became

Global!

1950 1970 1980 1990 2000 1960 Beyond

Focus

More Attention From Senior Management

More Attention From Senior Management

Evolutionary Perspective

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.

When Supply Chains Work Well

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.

SCM Has Strategic Profit Impact

Top management is interested in what we do!

But we must communicate more effectively.

Transparency!

Revenue

Cash Flow

Profitability

Market Share

What keeps the CEO up at night?

Shareholder Value

Decisions

Different Decisions?

$30

$145

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?

• Increasing “nearshoring” manufacturing

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 • Siemens

Top Trends and Challenges

• Need to update infrastructure • Risk Management & Sustainability • Focus on workforce and automation –

traditional 8 hour workday still make sense? • Rise of Amazon & others? • 3D Printing

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 that contribute to supply chain value

• CEO / CFO’s - discovered the power of Supply

Chain Management. • Wall Street

– Watching industry dynamics – Logistics industry represents almost 10% of the

economy • Supply Chain Management is critical – no longer

a “cost to be managed”. It’s a driving force in modern business!

• 3PL’s – Significant growth

What does this all mean?

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$

Bill

ions

3PL Gross Revenues

Why is Risk Management important?

Asia is 4X more likely to be affected be 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

Challenge as a Way of Life

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!

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

37

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 Workforce Development

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 higher rates with

uncertain capacity availability. We have to collaborate!

Emerging (Emerged?) Supply Chain Trend

Collaboration

Emerging (Emerged?) Supply Chain Trend

Collaboration – “To cooperate with an enemy that has invaded your country”

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 Cnference September 27-30 San Diego, California USA

Highlights

Starbucks

“Social Enterprise” – Successful performance means exceeding expectations of customers, partners (employees) and the community.

“Culture trumps strategy” – The best strategy will fail in execution if the culture isn’t positioned to support it.

“At Starbucks, Supply Chain is a foundational aspect of business success…Don’t look at HR and Supply Chain as the last thing; look at them as the first thing.”

People – it’s about the people!

Highlights Amazon

Need to be innovative AND entrepreneurial – it’s the culture that drives and supports this combination.

Six page “working back” document for new ideas – Begin with an internal press release as if the innovation was being announced and work back to the customer requirements.

Amazon Now one hour delivery service – 111 days from idea to live in Manhattan, NY

Distribution space 25,000 SKU’s Setting up delivery process WMS, web and mobile apps, etc. 13 more cities were set up in one year

Amazon Flex – Freelance drivers who receive delivery work through a mobile

app – Uber for delivery.

Balancing service and cost; make the service work and figure out the cost later.

Risk tolerance – Fail often but fail fast!

What skills will be required for success?

Art or Science?

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 Level

Fulfillment Supply Chain Management

Expe

rienc

es o

utsi

de o

f ISC

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 collaborative relationships

History: Constantly Evolving

1963

1985

2004

Established as the National Council of Physical Distribution Management Council of Logistics Management Council of Supply Chain Management Professionals

50

EDUCATION

RESEARCH

CONNECTIONS

NETWORKING

CAREER RESOURCES

CSCMP – What We Deliver

ADVANCE YOUR CAREER WITH CSCMP’S SCPRO™ CERTIFICATION

Three level certification includes:

Level One – Cornerstones of Supply Chain Management

Level Two – Analysis and Application of Supply Chain Challenges

Level Three – Initiation of Supply Chain Transformation

CSCMP Education

Supply Chain Concierge Service

Join the Community at cscmp.org

CSCMP’s Evolving Role

• Goal

Connect, Educate and Develop the world’s Supply Chain Professionals!

Procurement Marketing

Manufacturing

Information Tech

Suppliers Customers

SCM Pro

SCM Conducts a Symphony We matter!

Sales

Peter Drucker

“If people are committed to maintaining yesterday, they are not available to create tomorrow”

Sometimes, we

have to learn to

forget

Innovation! Be Creative in your Response to

Supply Chain Problems

Transportation remains the crucial link ! Rail/Intermodal and Trucking are vital, and will

continue to be so. More than ever before, “shippers” are working

together. We have to become more productive.

Let’s all do that and maximize the

infrastructure use! We can fight it out on the shelf!

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 of the opportunities, we need to work closely together!

We have witnessed a rapid pace of change in Logistics/SCM operations in 50 years.

Our greatest challenges lie ahead as we deal with security, constraints, harnessing technology and learning how to effectively collaborate and share risks and rewards.

You think you’re having a bad day!

Our Challenge……..

It will not be easy, but . . .

It can happen.

Thank you!