council of supply chain management professionals · wal-mart's supply chain management success...
TRANSCRIPT
Council of Supply Chain
Management Professionals May 20, 2014
Raw Material
Purchasing
Factory Manufacturer’s DC Customer’s DC Consumer
Rick D. Blasgen
President & CEO
CSCMP
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
The Dreaded Quiz!!
Pop Quiz
1. What is the perfect order and how is it used?
2. In a supply chain, what factors affect the cash-to-cash cycle?
3. What are the key departments/functions that play a role in
S&OP?
4. Why is Amazon pushing for “same day delivery” and what
are the key management issues associated with it?
5. What was the impetus for the development of the discipline
of Supply Chain Management?
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
Logistics Costs $1.204 t $1.287 t $1.331 t 3.4%
% of GDP 8.3% 8.5% 8.5% Flat
Trans Costs $769 b $821 b $846 b 3.0%
Inv. Carrying $387 b $417 b $434 b 4.1%
Metric 2010 2011 2012 %
US State of Logistics
Logistics Costs have risen 102%
Average annual increase = $30b
2012 increase was $44b
Since 1990…
As a % of GDP, Logistics expense went from
11.4% to 8.5%, 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.
8.5% GDP
Logistics Costs in Latin America and Selected
Developed Countries as a Percentage of GDP
Source: Gonzalez et al. 2008, 10
LPI Ranking and Scores, 2014
Source: The Logistics Performance Index and Its Indicators, 2014, x
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
When Supply Chains Don’t Work So 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
The World Has Changed
Shrinking global marketplace
Information and visibility driven
Supply Chain of a Laptop
Retail
DC
Retail
store
Here is what we have to consider just to make a bicycle
Distribution
Center Distribution
Center
Outsourced
DC
Truck and/or
Rail
Macro-Economic Drivers of Change
Housing Savings Energy
Population
shifts
Transfer
Payments Wages & Credit
Dependency
Ratio
Societal Drivers of Change Life
Expectancy Multiculturalism Birth Rates Urbanization
Media Belief Systems Health & Wellness
Technology Drivers of Change
Speed & Access Digital Influence Price
Transparency
Evolving POS Big Data Full Basket National Ship
New Screens
Retail Industry Drivers of Change
Positioning Segmentation Saturation Concentration
Channel Shifts Digital for Store Store for Store
By the end of 2014, there
will be 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
is projected to
overtake desktop
internet usage by
2014.
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.
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
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
Top Trends and Challenges • Need to update infrastructure
• Risk Management & Sustainability
• Focus on workforce and automation – traditional 8
hour workday still make sense?
• Energy - Natural Gas reaches a tipping point
• Rise of Amazon
• 30% Revenue increases, approaching $60B
• Added 18 New Distribution Centers
If you've ever ordered anything
from Amazon, you will be
interested in this…
• There are 80 warehouses located near key
shipping hubs around the world.
–Some over 1.2 million square feet (111,484
square meters)
–With over 65,000
people
• “Chaotic storage”
Amazon’s Giant Warehouses
Organic shelving system without
permanent areas or sections.
• Organized confusion – not like what you would
find at a retail store.
– No area just for books,
televisions, etc.
– Product characteristics
are irrelevant.
• Unique barcodes
Chaotic Storage
• Every shelf space has a barcode
• Every product requiring storage is assigned a
matching barcode
• Sophisticated database
– Tracks and monitors
every product
– Keeps a tally on shelf
space
Unique Barcodes
• Flexibility – Free space can be refilled immediately
• Simplicity – New employees don’t need to learn where
types of products are located
• Optimization –
database provides
employees an
optimized route to
complete fulfillment
of millions of orders.
Key Advantages
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
Skechers consolidated its distribution operations which was
spread out among six warehouses in Ontario, into a new 1.82-
million-square-foot $250 million facility in Moreno Valley.
It's big enough to hold 40 football fields!
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 Risk Management is critical – think about recent
events, middle eastern uprisings, Suez Canal, Japan, Thailand,
Sandy, etc.
3PL’s – Significant growth
What does this all mean?
U.S. Third Party Logistics Market
Source: Armstrong and Associates
76,9
89,4
103,7 113,6
119,0 127,0
107,1
127,3 133,8
141,8
0
20
40
60
80
100
120
140
160
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
$ B
illi
on
s
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
Strategically Resilient
Firms
Swink, Morgan (2012)
Top Supply Chain Companies
• Identified from various rankings and studies (AMR/Gardner, MSU study, Supply Chain Digest)
• From 2004 – 2007, on average these firms had:
– 58% higher ROA
– 31% higher ROS
– 41% higher ROE
– 4X stock returns
– 45% greater market value
Are They “Strategically Resilient”? • Like others, the top companies suffered lowered sales growth, disruptions, and
other problems
• However, most top companies held or even improved their leads in the 2008 – 2010 timeframe.
400%
58%
31% 41%
9%
98%
57%
100%
52%
-10%
10%
30%
50%
70%
90%
110%
Sales Growth ROA ROS ROE Stock Returns
Outperformance
of Top Firms vs.
Benchmark 2004-2007
2008-2010
The 40-member Advisory Committee on Supply Chain Competitiveness was
formed to provide the Secretary of Commerce with detailed advice on the
elements of a comprehensive national freight infrastructure and freight policy to
support U.S. supply chain and export competitiveness. The Committee’s work is
intended to further the Administration’s export, economic, and job growth goals.
Per the charter, the Committee advises the Secretary on the necessary elements
of a comprehensive, holistic national freight infrastructure, and a national freight
policy designed to support U.S. export growth, foster national economic
competitiveness, and improve U.S. supply chain competitiveness in the domestic
and global economy.
So, what do we do? Examine the infrastructure
• Number of Distribution Centers
• Location
• Configuration – Speed, Flexibility
Move fixed costs to variable - ZOG
Collaborate – it’s not an option
Invest – people, technology, process – or be left
behind!
Emerging (Emerged?)
Supply Chain Trend
Collaboration
Emerging (Emerged?)
Supply Chain Trend
Collaboration – “To cooperate with
an enemy that has invaded your
country”
Relationships are critical
The essence of SCM is collaboration – it is not
an option.
involves all key participants
working toward common goals.
Absent collaboration, the supply chain will
be nothing more than a collection of firms, each
following their own pathways.
The process begins with a forecast. While we
recognize that forecast error exists, we also
understand that we must react to sudden and
unexpected surges in demand.
Forecasting . . .
A Real Example
Product Focus
Reduce Manufacturing Cost
Customer Focus
Customer wants less product
more frequently
Plant Pkg.
Materials
Customers Market
DCs
Raw Materials
Long Efficient Production Runs
Optimize Inventory Investment
The
Great Divide
Effective Supply Chain Management can
contribute to achieving profit contribution
objectives:
Need Results To Generate
$20.30 $5.00 $1.00
in in in Sales Profit Cash Flow Contribution
Supply Chain Management
$1.00 Inventory Reduction
Results
in a $1.00 Increase to Cash Flow
Increase in Finished Goods Inventory Turns of 1 Results in:
Ongoing
Storage Cost
Savings
$600K
One Time
Handling
Savings
$1,000K
One Time
Transportation
Savings
$350K
Finished Goods
Inventory Investment
$10MM reduction in working capital requirements
$10MM improvement in cash flow
$1MM cost of capital savings (assuming 10% rate of interest)
A 5% improvement in forecast accuracy will result in a 1 day
reduction in finished goods inventory investment = $10MM
$10MM
Each 0.1%
Improvement
= $1.4MM Profit
Average Case
Selling Price
$20.00
Case Fill
98.7%
Profit
Contribution
$5.00
Case Fill Impact
Sales & Profit Impact
While at the same time Casefill was 98.8%
Unit A 351.6 6.5 .67
B 389.4 11.5 .63
C 39.2 1.9 .12
D 169.4 6.2 1.75
E 513.6 5.1 1.32
Total 1463.2 31.2 4.49
Operating Cases (k) Sales ($m) Profit ($m)
Division Canceled Lost Lost
Customers Are Operating with Less Inventory Than in the Past
Yesterday Today
Yesterday Today
Item Qty
1 100
2 200
3 100
Item Qty
1 100
2 200
3 100
Item Qty
1 25
2 10
3 50
4 40
5 20
6 30
Item Qty
1 25
2 10
3 50
4 40
5 20
6 30
Order Profiles Have Significantly Changed
Many of our manufacturing facilities, however, operate with high speed equipment that was intended for long runs, few changeovers.
We must focus our supply chain to respond to customers ordering more items in smaller quantities with less lead time.
We can no longer support the excess inventory and inefficiency of the past.
Silos must be broken down, still!
Buy
Sell
Make
Move
• Purchase Price
Variance
• Vendor
Responsiveness
• Length of Contracts
Cost / CS
Cases per Hour
Overtime
Headcount
Trans Cost % Sales
Case Fill
On Time Delivery
Inventory Turns
Execute Market
Plan
Sales Cost % Sales
Sales Growth
Internal Alignment
Buy
Sell
Make
Move
L I N K
5% Reduction = $75m!
$1.5B
Return on
Assets
Asset Turnover
Sales
Sales
Total Assets
Current Assets
Fixed Assets
Inventory
Accounts Receivable
Other Current Assets
Total Expenses
Net Profit
Net Profit Margin
Gross Margin Cost of Goods
Sold
Variable Expenses
Sales
Fixed Expenses
X
÷
÷
Minus
Plus
Minus
Plus
Plus
Plus
Supply Chain Impact
Customer service level
Logistics efficiency procurement savvy
Logistics efficiency
Using Logistics assets effectively and efficiently
Just enough for desired service level
Fast order cycle time
Effective use of logistics assets/outsourcing
DuPont Strategic Profit Model
Financial Dimensions of SCM
Supply Chain as a Revenue
Generator! The money we save can be reinvested
Advertising
Research to innovate
Promotion
Better base pricing
Higher Customer Margins
Grow Brands!
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
Exp
eri
en
ce
s o
uts
ide o
f IS
C
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
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!
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
73
EDUCATION
RESEARCH
CONNECTIONS
NETWORKING
CAREER RESOURCES
CSCMP – What We Deliver
BE A MORE EFFICIENT ORGANIZATION WHEN YOU RECEIVE THE
MOST RELEVANT AND GLOBALLY MODERN SUPPLY CHAIN
EDUCATION
EDUCATION
SCPro™ Certification – A learning path for real world supply chain
education. Three level certification includes:
1. Level One – Cornerstones of Supply Chain Management
2. Level Two – Analysis and Application of Supply Chain Challenges
3. Level Three – Initiation of Supply Chain Transformation
BE MORE VALUABLE TO YOUR CUSTOMERS WHEN YOU
CONNECT WITH THOUSANDS OF TOP GLOBAL SUPPLY CHAIN
PROFESSIONALS
CONNECTIONS
Membership – 9,000 supply chain professionals in 50-plus countries
1. Individual Membership
o CSCMP/AME joint membership
o In-Transition
o Military
o Student
o Young Professional (YP)
2. Corporate Membership
o Easy – choose from three standard packages, or customize a package
o Flexible – transferable, company-owned memberships
o Personal - a Strategic Account Manager and Innovator (SAMI) will answer your questions and
address all of your CSCMP needs
CSCMP Roundtables – Connecting Globally
ITALY UNITED STATES
CANADA
MEXICO
COSTA RICA
PERU BRAZIL
ARGENTINA SOUTH AFRICA
DUBAI
U.A.E.
EGYPT
TURKEY SPAIN
FRANCE IRELAND
UNITED KINGDOM NORWAY
SWEDEN
DENMARK GERMANY
BENELUX
INDIA
SINGAPORE
THAILAND
HONG KONG
TAIWAN
JAPAN CHINA
AUSTRALIA
NEW ZEALAND
PANAMA
UGANDA
Don’t miss General Session Speaker
Guy Kawasaki
Special Advisor to the Motorola Business Unit of Google
Former Chief Evangelist of Apple
The Art of Innovation
Change
Start With a Cage and Five
Monkeys…….Add a Banana
on a String….And Before
You Know It, One of the
Monkeys Will Start to Climb
the Stairs to Get the Banana!
As soon as he touches
the stairs, spray all of
the other monkeys
with cold water
After a while, another
monkey makes an attempt
with the same result…all the
other monkeys are sprayed
with cold water
Pretty soon, when another
monkey attempts to climb the
stairs, the other monkeys will try
to prevent it!
Now, put away the
water, remove one
monkey from the
cage and replace it
with a new one…as
soon as he sees the
banana he starts to
climb the stairs
..but to his surprise and horror, all of the other
monkeys attack him
Remove another
monkey and as soon
as he attempts to
reach the banana, he
too is attacked, with
the previous
newcomer taking part
with enthusiasm!
Every time a new monkey is
added, he is attacked. Most of
the monkeys that are beating
him have no idea why they
cannot climb the stairs or why
they are beating the new
monkey on the block…..
After replacing all of the
original monkeys, none were
ever sprayed with cold
water….but none ever
approached the stairs to try
for the banana…….
Why not?
Because……
That’s the way
it’s always been
done around here!
Peter Drucker
“If people are committed to
maintaining yesterday, they are
not available to create tomorrow”
Sometimes, we
have to learn to
forget
Procurement Marketing
Manufacturing
Information Tech
Suppliers Customers
SCM Pro
SCM Conducts a Symphony
We matter!
Sales
Innovation!
Be Creative in your Response to
Supply Chain Problems
You think you’re having a bad day!
Our Challenge……..
It will not be easy, but . . .
It can happen.
