Council of Supply Chain Management Professionals January 14, 2016 - PowerPoint PPT Presentation

Council of Supply Chain Management Professionals January 14, 2016 Raw Material Purchasing Manufacturer’s DC Customer’s DC Consumer Factory Rick D. Blasgen President & CEO CSCMP

What is a Supply Chain?

A Typical Supply Chain Customer Product Storage Manufacture Storage Distributor Retailer Order Sourcing Receipt Supplier Storage Manufacturer Storage Distributor Retailer End User People Technologies Processes

US State of Logistics Metric 2012 2013 2014 % 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% Transportation = 63% of total logistics spend!

US Business Logistics Costs 1.31 1.36 1.41 1.45 1.42 1.36 1.34 1.23 1.20 1.12 $ Trillions 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Economy and Freight Logistics Had A Banner Year in 2014  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.

Industrial Production Was Strong in 2014 Industrial Production Index 2007=100 108 106 104 102 100 98 96 2013 2014 2015 Source: Federal Reserve Bank of St. Louis

Inventories Growth Slowed in 2014 Private Inventories 800 750 700 650 Millions of Dollars 600 550 500 450 400 350 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 Retail trade Wholesale trade Manufacturing Source: US Department of Commerce, Census Bureau

The Inventory to Sales Ratio Rising Rapidly 1.50 1.45 1.40 1.35 1.30 1.25 1.20 Source: US Department of Commerce, Census Bureau

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

Brick and Mortar Web Site Stores Tablet/Mobile Catalogs Order from Anywhere Call Center Flash Sales Customer Fulfill from Anywhere Retail DC(s) Kiosk eCommerce DC(s) Pop-Up Stores Brick and Mortar Outlet Locations Stores

Retailers’ apps take up the Talk about uber- There are more mobile most of consumers’ time at connected: 75% of devices on Earth than 27% , followed by online Americans bring their people. Nearly 40% of U.S. mobile marketplace at 20% , Mobile internet usage phones to the bathroom. phone owners will become overtakes desktop purchase assistant at 17% , mobile phone shoppers by internet usage. price comparison at 14% , 2017. and daily deals at 13% . 65% of U.S. shoppers 71% of mobile browsers research products and expect web pages to load 74% of consumers will 40% of shoppers services on a PC and almost as quickly or faster 46% of consumers are wait 5 seconds for a web consult 3 or more make a purchase in- as web pages on their unlikely to return to a page to load on their store channels before desktop computers. mobile site if it didn’t work mobile device before purchase, compared to property during their last abandoning the site. 10% in 2002 . 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 2 nd and 3 rd 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.

US Container Shipments Recover in 2014 Percent Port 2014 TEUs 2013 TEUs 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 3,427,561 3,456,161 -0.8% Alliance* 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 Source: Individual port reports

Panama Canal Expansion plans include dredging and new locks

Impact of Panama Canal expansion • 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*

Since 1990… Logistics Costs have risen 120% Average annual increase = $32b 2014 increase was $43b Also…. As a % of GDP, Logistics expense went from 11.0% to 8.3%, a reduction of 25%

Global Comparison of Logistics Expenditures U.S. Economy Higher Output--GDP 8.3% GDP Better use of resources Multi-use Infrastructure Businesses Asia 17% GDP Market Access China 18% GDP Market Integration Cost Efficiency Europe 13% GDP Consumers India 13% GDP More Goods and Services Japan 11% GDP Wider Availability Lower Prices/Income Mexico 14% GDP

Evolutionary Perspective More Attention More Attention From Senior From Senior Focus Management Management Supply Chain Functional Orientation Management- • Purchasing We became • Operations • Marketing Global! • Package Engineering • Transportation • Inventory Mgt. • Warehousing • Manufacturing Logistics • Suppliers • Customers • etc. 1950 1960 1970 1980 1990 2000 Beyond

When Supply Chains Work Well 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.

SCM Has Strategic Profit Impact 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.

Top management is interested in what we do! But we must communicate more effectively.

Transparency!

What keeps the CEO up at night? Shareholder Value Revenue Cash Flow Profitability Market Share

Decisions $30 Different $145 Decisions?

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 • Rolls Royce • Yamaha • Honda • Michelin • Lenovo • Wham-O • Airbus • Bayer Chemical • Toshiba • Caterpillar • Toyota • GE • Flextronics • NCR • 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