Microsoft PowerPoint - Supply-Chain-Update_Jack-Ampuja

Scottsdale AZ Scottsdale AZ -- June 26, 2007June 26, 2007

Supply Chain Update Supply Chain Update AFFI Logistics CommitteeAFFI Logistics Committee

Jack Jack AmpujaAmpujaSupply Chain Optimizers LLCSupply Chain Optimizers LLC

Center for Supply Chain ExcellenceCenter for Supply Chain Excellence@Niagara University@Niagara University

Services OfferedServices Offered

►►Packaging OptimizationPackaging Optimization►►Transportation OptimizationTransportation Optimization►►International OptimizationInternational Optimization►►Network OptimizationNetwork Optimization►►Supply Chain ConsultingSupply Chain Consulting

-- strategy & operational analysisstrategy & operational analysis►►Financial Tools: Financial Tools: Opt^UPOpt^UP & Equity Partners& Equity Partners

Consulting Project ExamplesConsulting Project Examples

►►Refrigerated dog food strategy for USRefrigerated dog food strategy for US►►Frozen warehouse service expansion Frozen warehouse service expansion ►►National supply chain analysisNational supply chain analysis►►Transportation cost trend analysis for Transportation cost trend analysis for

major ice cream manufacturermajor ice cream manufacturer►►Transportation cost reduction for Transportation cost reduction for

national candy companynational candy company►►Private fleet justificationPrivate fleet justification►►Inventory assessment for hospital groupInventory assessment for hospital group►►3PL evolution to 4PL3PL evolution to 4PL

Logistics Costs RisingLogistics Costs Rising

►►To 9.9% of GDP from 9.5% in To 9.9% of GDP from 9.5% in ’’0606Up $130 Billion [10.3% Up $130 Billion [10.3% vsvs 15.2% in 15.2% in ’’06]06]33rdrd consecutive year of increaseconsecutive year of increase

►►Transportation costs up 9.4% [+14.1% LY]Transportation costs up 9.4% [+14.1% LY]Fuel increases tend to help carriersFuel increases tend to help carriersTL driver turnover improving but still 100%+TL driver turnover improving but still 100%+Insurance & liability hurting many carriersInsurance & liability hurting many carriers

►►Transport increases are reducing bottom Transport increases are reducing bottom lines of many shippers = major issuelines of many shippers = major issue

Transportation PerspectiveTransportation Perspective

►►Assessment of US national picture Assessment of US national picture ►►Survey conducted in August Survey conducted in August ’’0606►►Included 174 companiesIncluded 174 companies

-- both distributors & manufacturersboth distributors & manufacturers►►Performed by Aberdeen Group which is Performed by Aberdeen Group which is

nationally recognized for accurate supply nationally recognized for accurate supply chain assessmentschain assessments

Major FindingsMajor Findings

►►83% cite increasing awareness of cost & 83% cite increasing awareness of cost & service impact of transportation on overall service impact of transportation on overall supply chain performancesupply chain performance

►►Most companies are seeking to improve on Most companies are seeking to improve on three dimensions: process, technology, three dimensions: process, technology, organization structureorganization structure

►►91% are concerned that current Transport 91% are concerned that current Transport Technology will not meet future needsTechnology will not meet future needs

Findings ContFindings Cont……

►►75% have asked for transportation process 75% have asked for transportation process improvements in past 6 months improvements in past 6 months

►►Almost twoAlmost two--thirds have recommended thirds have recommended improving transportation mgmt technology improving transportation mgmt technology

►►Majority have made suggestions to reMajority have made suggestions to re--organize transportation dept to increase organize transportation dept to increase centralized planning & break down barriers centralized planning & break down barriers between intbetween int’’l, domestic common carrier & l, domestic common carrier & private fleet operations private fleet operations

Findings ContFindings Cont……

►►Improvement focus: process Improvement focus: process -- 77% 77% technology enhancement technology enhancement –– 63%63%

organization change organization change –– 58%58%►►4X firms are planning to adopt commercial 4X firms are planning to adopt commercial

TMS versus building system inTMS versus building system in--house house ►►70% have had freight cost increases in past 70% have had freight cost increases in past

two years: 15% in TL, 12% in LTL & two years: 15% in TL, 12% in LTL & International, 15% in International Air International, 15% in International Air

More Capacity ComingMore Capacity Coming

►►Class 8 tractor sales climbingClass 8 tractor sales climbing►►Units sold in US:Units sold in US:

2001:2001: 134K134K2002:2002: 171K171K2003:2003: 204K204K2005:2005: 316K316K2006:2006: 350K350K

►►Issue is driver availabilityIssue is driver availability…….not equipment.not equipment

3PL Issues3PL Issues

►►How to maintain profit margin in face of How to maintain profit margin in face of continuous pressure to cut costscontinuous pressure to cut costs

►►NeverNever--ending investment in technology to ending investment in technology to support customer service expectationssupport customer service expectations-- is it possible to expand service offering & buy is it possible to expand service offering & buy technology while cutting costs??technology while cutting costs??

►► All users want low cost & best service All users want low cost & best service without a long term commitmentwithout a long term commitment

Market ImpactsMarket Impacts

►►Globalization of 3PL marketGlobalization of 3PL marketInternational is where the action is for allInternational is where the action is for all

►►Continuing growth & power of global 3PLsContinuing growth & power of global 3PLsCan they handle complex, multiCan they handle complex, multi--product types, product types, multimulti--modes in diverse geography?modes in diverse geography?

►►Emergence of 4PLs > Emergence of 4PLs > LLPsLLPs►►What is opportunity & cost of RFID?What is opportunity & cost of RFID?

Most are in slow implementation modeMost are in slow implementation mode

3PL User Issues3PL User Issues

►►Unreliable service Unreliable service Promise more than they can deliverPromise more than they can deliver

►►Significant gaps in technologySignificant gaps in technologyCanCan’’t get the visibility I need or expected t get the visibility I need or expected

►► Many rate hikes & operational surprisesMany rate hikes & operational surprisesCanCan’’t they control any of these instead of just t they control any of these instead of just passing them along in full to the user?passing them along in full to the user?

►►Not enough management depthNot enough management depthLocal management has difficulty living up to Local management has difficulty living up to executive commitments executive commitments

…….major variations between locations.major variations between locations

Great 3PL AttributesGreat 3PL Attributes

►►Ability to act as seamless extension of the Ability to act as seamless extension of the customer's company customer's company

►►Flexibility and proactive problem solvingFlexibility and proactive problem solving►►Delivering on commitmentsDelivering on commitments►►Effective communication Effective communication ►►Closer understanding of clientCloser understanding of client’’s full supply s full supply

chain as a means to proactively suggest chain as a means to proactively suggest new strategiesnew strategies…….after everything else .after everything else serviceservice is still #1 is still #1

Supply Chain ObservationsSupply Chain Observations

►►Relentless expectation for continuous cost Relentless expectation for continuous cost reductionreduction

Especially public companiesEspecially public companiesShort term & right nowShort term & right now

►►UnderstaffedUnderstaffed……no hope of adding peopleno hope of adding people►►Inundated by software solutionsInundated by software solutions►►Unprepared for global expansionUnprepared for global expansion

►► Dan Gilmore Dan Gilmore –– Supply Chain DigestSupply Chain Digest

SustainabilitySustainability

►►Not a fadNot a fad……major program for many firmsmajor program for many firms►►Leadership commitment is vital 1Leadership commitment is vital 1stst stepstep►►Most retailers not as active as WalMost retailers not as active as Wal--MartMart►►In UK 13 retailers + 6 processors will:In UK 13 retailers + 6 processors will:

Stop packaging waste growth in Stop packaging waste growth in ’’0808Reduce packaging volume by 2010Reduce packaging volume by 2010

►►Goal: develop solution across entire supply Goal: develop solution across entire supply chainchain

WalWal*Mart Initiative*Mart Initiative

►►Announced last fall by CEO Lee ScottAnnounced last fall by CEO Lee Scott►►Efficiency & environmental benefitEfficiency & environmental benefit►►Suppliers must reduce packaging by 5%Suppliers must reduce packaging by 5%

-- private label scorecard started in Novprivate label scorecard started in Nov-- 60,000 other suppliers started in Feb60,000 other suppliers started in Feb

►►Projected savings in 2008: Projected savings in 2008: $3.5 B to Wal$3.5 B to Wal--Mart & $6.5 B to suppliersMart & $6.5 B to suppliers

WalWal*Mart Examples*Mart Examples

►►Liquid detergent supplier was asked to Liquid detergent supplier was asked to reduce bottle by concentrating productreduce bottle by concentrating product-- supplier was reluctant so Walsupplier was reluctant so Wal--Mart Mart offered merchandising supportoffered merchandising support-- All Small & Mighty year 1 sales: $35M All Small & Mighty year 1 sales: $35M

►►Improving 200 toy products eliminated Improving 200 toy products eliminated 727 ocean containers/year from Asia727 ocean containers/year from Asia-- $3M in annual freight reduction$3M in annual freight reduction

Retailer SupportRetailer Support

►►Many major retailers endorse packaging Many major retailers endorse packaging optimization to their private label suppliersoptimization to their private label suppliers-- benefit flows through supply chain to both benefit flows through supply chain to both supplier and retailersupplier and retailer-- opportunity to make private label more opportunity to make private label more profitable for both partnersprofitable for both partners-- supports retailer effort to expand private supports retailer effort to expand private label business label business

New Product ApplicationNew Product Application

►►Marketing had choice of four presentation Marketing had choice of four presentation alternatives for sample kitalternatives for sample kit

►►PrePre--commitment packaging optimization commitment packaging optimization identified the following:identified the following:-- two middle alternatives had same costtwo middle alternatives had same cost-- high/low had $.75/unit differencehigh/low had $.75/unit difference

►►With 1.5 million units shipping, cost swing With 1.5 million units shipping, cost swing was $1+ million was $1+ million

Warehouse ExampleWarehouse Example

►►Employed packaging optimization on Employed packaging optimization on potential new accountpotential new account

►►Worked up rate quote on existing profile Worked up rate quote on existing profile ““ but if you can optimize your packaging but if you can optimize your packaging

we can lower your rates by 15%we can lower your rates by 15%””►►Beat out 10 competitors to win all eastern Beat out 10 competitors to win all eastern

Canadian business for billion $ account Canadian business for billion $ account ►►Account:Account: ““you were the only 3PL that you were the only 3PL that

showed us how to drive down costsshowed us how to drive down costs””

Trucking ExampleTrucking Example

►►Averitt had lost customer due to priceAveritt had lost customer due to price►►Used packaging optimization to reduce Used packaging optimization to reduce

customer logistics costscustomer logistics costs►►Asked customer if they could have lost Asked customer if they could have lost

business back by reducing total costsbusiness back by reducing total costsTransportation rates stayed the sameTransportation rates stayed the same

►►Customer agreed to give business back to Customer agreed to give business back to Averitt for reduction in total costAveritt for reduction in total cost

Transportation ExampleTransportation Example

►►Major recycler of used auto parts with 80 US Major recycler of used auto parts with 80 US locationslocations

►►Headlight assemblies = class 250Headlight assemblies = class 250►►Minor changes in sizing of shipping cases + Minor changes in sizing of shipping cases +

loading practices reduced class to 125loading practices reduced class to 125►►This class reduction will result in 50% This class reduction will result in 50%

reduction in freight costreduction in freight cost

Leverage PointLeverage Point

►►Packaging is typically seen as a marketing Packaging is typically seen as a marketing or engineering processor engineering process-- packaging impact on supply chain <10%packaging impact on supply chain <10%-- warehousing impact ~25%warehousing impact ~25%-- freight impact ~60%freight impact ~60%

►►Yet typical client has focused on driving Yet typical client has focused on driving down packaging while logistics increasesdown packaging while logistics increases

……saving nickels by spending quarters saving nickels by spending quarters

ResultsResults

Average Packaging Optimization Average Packaging Optimization SavingsSavings = = 10% of costs10% of costs

Examples of food processor results:Examples of food processor results:-- frozen fruit 12% of costsfrozen fruit 12% of costs-- frozen vegetables 15% of costsfrozen vegetables 15% of costs-- dry noodles 11% of costsdry noodles 11% of costs-- ice cream 18% of costsice cream 18% of costs-- frozen & chilled chicken 16% of costsfrozen & chilled chicken 16% of costs-- salad dressings/oils 8% of costssalad dressings/oils 8% of costs

Last ThoughtLast Thought

►►Optimists are usually wrongOptimists are usually wrong►►Pessimists are usually rightPessimists are usually right►►But all meaningful worthwhile change has But all meaningful worthwhile change has

come about through the effort of optimists.come about through the effort of optimists.-- Thomas Goldman, authorThomas Goldman, author

►►Internal optimist needed to drive changeInternal optimist needed to drive change