council of supply chain management professionals
TRANSCRIPT
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
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!