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

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?

Technologies

Storage Manufacturer Storage Distributor Retailer End User Supplier

A Typical Supply Chain

People Processes

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%

• f 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

$ Trillions

• 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

Millions of Dollars

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 50 100 150 200 250 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

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

• vertakes 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

• nboard 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%

• f 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

20 40 60 80 100 120 140 160 180

$ Billions

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

• n

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

• fficer

Starbucks DAVE CLARK senior vice president

• f worldwide
• perations 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

Experiences outside of 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

• f 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

• pportunities in the world.
• To prosper, to tackle these challenges, to take advantage
• f 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!