2009 logistics cost and service presentation
TRANSCRIPT
LOGISTICS COST AND SERVICE20092009
Introduction
The Establish, Inc./Herbert W. Davis and Company Logistics Cost and Service Database was established in 1975 to:
Define appropriate performance measures for logistics functions.
Provide worksheets to record functional costs by facility and in total.
S mmari e the data recei ed from participating companies and aggregate itSummarize the data received from participating companies and aggregate it into a useful database for benchmarking.
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Today – 2009North American Status
Database of Logistics Cost and Service maintained and opened to all shippers to participate since 1975.
Participation is achieved by completing a one-page questionnaire on our website.
Participant is sent a customized benchmark comparing cost and service performance to four peer groups:performance to four peer groups:
– Product category
– Product value
– Company size – sales revenuep y
– Company size – shipped weight
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Timeline
2005Revised definitions
2007
2001
1999Davis Insights added
2003 Revised formatExtended options
1992 Made Database form available on line
R t t d D t b f l b li ti f l i ti1987
Chemical Manufacturers of America Database
1999 New European Database
Restructured Database for globalization of logistics
European Database expanded, 10 countries1985
First European Database, FrancePrivate benchmarking system for GE’s 72 divisions
1983
First private Database for FIEI
Private benchmarking system for GE s 72 divisions
1982
1974
GMA - Grocery Manufacturers of America DatabasePMA - Pharmaceutical Manufacturers of America DatabaseDTPA - Drug and Toilet Preparations Association Database
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First private Database for FIEISet up DatabaseCompleted first Workbook
Key Findings – 2009
What is happening in terms of logistics costs?
The Economy
Overall, most companies felt a reduction in demand leaving most supply chains with excess capacity and excess costs.with excess capacity and excess costs.
Transportation
Continually shifting to smaller and smaller order sizes, increases the need for smaller, less-cost-effective shipments.
Warehousing
Many companies have outsourced their warehousing operations to minimize the risk of large swings in demand, however, many companies are either at the minimum contract level or are not reaching the same volume incentives.g
Inventory
Increased pressure due to longer supply chains and the inability to shut down the “pipe-line” in a timely manner.
Administration and Oversight
A number of highly compensated supply chain executives have been “let-go” from their positions as downward pressure on demand has forced companies to tighten their belts and run their existing supply chain, rather than focus on
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strategies for improvement.
Trend group average:
Cost as a percent of sales is up 9.4%.
Cost per hundredweight is up 10.7%.
Sales are up 1.0%.
Total costs in dollars are up 10.1%.p
Weight shipped is down 0.5%.
Product value is up 1.3%.
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Interpretation for the Typical Company
If you had the following characteristics….
2008 2009
Annual Sales – millions $2,000 $2,020
Weight Shipped – million lbs. 500 498
Product Value $4.00 $4.05
Logistics Costs in $ – millions $200 $220Logistics Costs in $ millions $200 $220
Logistics Costs as a % of Sales 10.0% 10.9%
Logistics Costs per CWT $40.00 $44.00
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Several Database Trends are Evident
Logistics costs have increased considerably from 2008 to 2009. There have been large increases in almost every element of the supply chain, except in the Administration and Oversight, where many companies realized a reductionthe Administration and Oversight, where many companies realized a reduction in costs by reducing staff.
Overall, the past year has not been a good one for logistics costs and service, with demand down for most of the year; although, it has been picking up in the past few monthspast few months.
Customer service levels remain flat, as most companies have focused on cost reductions rather than service improvements.
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Recent Industries
Consumer Electronics
High-Value Industrial Durable
Computers
High-Value Consumer Packaged Goods
Grocery
Produce and Fresh Foods
Peripherals
Telecommunications
Industrial Replacement Parts
Meat and Fish Products
Frozen Food
Beverages
Chemicals
Industrial Supplies
Consumer Replacement Parts
Consumer Household Products
Health and Beauty Aids
High-Value Pharmaceuticals
Small Appliances
Large Appliances
Publishers
Low-Value Pharmaceuticals
Industrial and Consumer Wholesalers/Distributors
Apparel RetailersTires
Consumer Packaged Goods
Building Supplies/Hardware Products
C G
Apparel Retailers
Drug Chains
Mass Merchandisers
Low-Value Industrial Durable
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Low-Value Consumer Packaged Goods Low Value Industrial Durable
Logistics Cost – Percent of Sales by Industry Classification
Building Supplies
Grocery
g
Healthcare
Industrial Equipment
High Tech
Healthcare
Pharmaceuticals
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Not to scale
Logistics Cost – Percent of Sales by Industry Classification
Building Supplies
Grocery
Healthcare
IndustrialEquipment
Database Average
High Tech
Healthcare
Pharmaceuticals
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Not to scale
The Hierarchy of Supply Chain Cost Factors
Corporate PoliciesCorporate PoliciesCorporate Policies
S l Ch i P li iSupply Chain Policies
Logistics Policies
Supply Chain Policies
Logistics Policies
Logistics Procedures
Logistics PracticesLogistics Practices
Transportation Choices
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Average Company—2009 Database
% of Sales $/CWTCost In
% of Sales $/CWT
Transportation 4.12% $40.00
Warehousing 1.73 14.73
O d E t /C t S i 0 54 6 01Order Entry/Customer Service 0.54 6.01
Administration 0.26 2.07
Inventory Carrying 1.83 18.08
T t l L i ti C t 8 48% $80 89Total Logistics Costs 8.48% $80.89
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Cost Breakdown Percent of Sales
Customer Service/
6% 22%
3%AdministrationWarehousing
Customer Service/Order Entry Inventory Carrying
20% 3%
49%Transportation
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Product ValueCost declines with higher value
11.6112
Cost as a% of Sales
9.57
8.068
10
6.35
6
8
2
4
0<$1.50 $1.50 - $5 $5 - $15 >$15
Product Value in $/Pound
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Product Value in $/Pound
Company SizeSmall companies pay more
11 44
Cost as a% of Sales
11.44
8.097.35 7 23
10
12
7.23
6
8
2
4
0<$200 $200 - $500 $500 - $1,250 >$1,250
Annual Sales ($ MM)
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Logistics Cost—Percent of Sales
789
10
34567
0123
1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
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Logistics Cost—Percent of Sales
8.0Last Five Years
7.5
7.0
6.5
6.02005 2006 2007 2008 2009
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Logistics Cost Change
2009 2008
% of Sales $/CWT
2009 versus 2008
Transportation + 9.3% + 10.4%
Warehousing + 2.5 + 3.7
Order Entry/Customer Service + 4.4 + 5.4
Administration - 16.7 + 15.5
Inventory + 10.9 + 12.5
Total + 9.4% + 10.7%
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Why are Overall Costs Rising?
The average company in our trend group has incurred a cost increase in almost every cost category except administration and oversight.
S h d ti i d d l i i lSome sharp reductions in demand are leaving many companies supply chains with excess capacity.
Order sizes are continually decreasing with stricter delivery restrictions, increasing the need to use less cost-effective transportation modes.
The increases in warehousing costs are related to demand variability and excess capacity.
The increases in inventory are due to the lack of response time in some longer supply chains (product is often already in transit when demand drops).g pp y (p y p )
There have been other reductions in the oversight and management functions as staff levels were drastically reduced.
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Annual Functional Cost Change(Percent of Sales)
50
25Warehousing
-25
0Transportation
Inventory
Warehousing
-50
-7579 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09
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Cost Breakdown Transportation Costs
Vehicle
25%
20%12%
Fuel
VehicleOperating
20082008
18%
43%
OperatingVehicleLabor
18%17%
2009
41%
24%Fuel
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41%Labor
Customer Service Levels
Definition
– The prompt and complete delivery of goods ordered
Measurements
Prompt = 7 8 days total order cycle timePrompt = 7.8 days total order cycle time
CompleteOrders 91%Lines 94%U it 95%Units 95%
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Average Performance Reported
Total Cycle Time (Days) 8 7 8 7 8 8 8 9 9 8
00 01 02 03 04 05 06 07 08 09
FULL DATABASE
Total Cycle Time (Days) 8 7 8 7 8 8 8 9 9 8
Product Availability (% Orders) 86 87 88 85 91 88 84 83 90 91
(% Li ) 92 92 95 91 94 92 89 93 92 94(% Lines) 92 92 95 91 94 92 89 93 92 94
(% Cases) 92 90 93 93 91 94 90 94 94 95
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Davis Insights
1. Strongest forces driving decisions in logistics.
2. Most pressing issue in managing a logistics organization.
3. Most pressing issue in operating logistics functions.
4. Most difficult customer service requirement.
5. Most recent changes in logistics network.
6. Most recent change in systems that support logistics.
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Strongest Forces Driving Decisions in Logistics
80
% of Responses
60
70 2008 20072006 2009
40
50
20
30
0
10
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Most Pressing Issue in Managing Logistics
Costs.
Changing service requirementsChanging service requirements.
Outsourced logistics providers.
Reliability and quality of inbound productsReliability and quality of inbound products.
Inventory availability and velocity.
Global sourcingGlobal sourcing.
Reductions in lead time for inbound products.
Uncertainty over market demand or other forces (fuel).Uncertainty over market demand or other forces (fuel).
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Most Pressing Issue in Operating Logistics Functions
Controlling and reducing costs.
Managing complexity and variability.
Continuous network optimization and transition.
Customer delivery requirements.
Managing temporary staff.
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Most Difficult Customer Service Requirement
Mass customization while reducing costs.g
Labeling and packaging requirements.
Extended payment terms and charge backs.y g
Delivery requirements (carriers, appointments, etc.).
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Most Recent Changes in Your Logistics Network
50
% of Responses
40
2008 20072006 2009
20
30
10
20
0
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Most Recent Change in Systems that Support Logistics
% of Responses
502008 2007
40
2008 20072006 2009
20
30
10
20
0
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In Summary
The average company in 2009 has logistics costs of 8.47% of sales.
Year-over-year costs rose sharply in 2009 from 2008.
Most companies are focusing on:
– Reducing their cost levels while maintaining enough flexibility to react when demand improves.
– Rationalizing the number of locations in their network.
– Making improvements within their ERP or WMS systems.
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How to Participate
Fill out a short one-page input sheet on-line.
No charge for initial comparison.
Confidentiality of your data is assured.
Participants receive custom benchmarks:
Percent of annual sales– Percent of annual sales
– Cost per hundredweight
– Five cost categories: transportation, warehousing, customer service/order entry, inventory carrying, and administration
– Averages and quartiles are provided
– Benchmarks based on product value, weight and revenue
– Customer service performance
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