Council of Supply Chain Management Professionals Raw Material

Council of Supply Chain Management Professionals Raw Material Purchasing Factory Manufacturer’s DC Customer’s DC Rick D. Blasgen President & CEO CSCMP September 24, 2013 Consumer

History: Constantly Evolving 1963 Established as the National Council of Physical Distribution Management 1985 Council of Logistics Management 2004 Council of Supply Chain Management Professionals 2

CSCMP Members Are… • Individual members • Corporate members • Young Professional members • Student members • And from more than 60 countries

The most successful supply chain management leaders in the world have connections. So do we. A CSCMP membership delivers all the connections you need to succeed. • Connect with your peers. • Connect to the latest supply chain management knowledge, research, and industry developments. • Connect to the global marketplace. CSCMP: Educating and Connecting the World's Supply Chain Professionals cscmp. org

CSCMP’s Annual Global Conference isn’t just an event—it’s an end-to-end supply chain experience created just for you. One conference—hundreds of opportunities October 20 -23, 2013 • Denver, Colorado, USA • Reconnect with your customers. • Reenergize your career. • Renew your commitment to your company. • Rediscover what you love to do! Don’t miss Keynote Speaker, Felipe Calderón, former President of Mexico Expansion, Innovation, and Transformation: What It Takes to Lead Register today at cscmpconference. org.

CSCMP’s Evolving Role • Goal ü Better deliver intellectual capital and educational resources to corporate training/education and SCM personnel through greater collaboration and more formal relationships. ü Supply Chain Concierge Service

What is a Supply Chain?

SCM = Seed to Table

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

US State of Logistics Metric Logistics Costs % of GDP Trans Costs 2010 2011 2012 $1. 204 t $1. 287 t $1. 331 t 8. 3% 8. 5% $769 b $821 b $846 b $387 b $417 b $434 b % 3. 4% Flat 3. 0% Inv. Carrying 4. 1%

Since 1990… Logistics Costs have risen 102% Average annual increase = $30 b 2012 increase was $44 b Also…. As a % of GDP, Logistics expense went from 11. 4% to 8. 5%, a reduction of 25%

Global Comparison of Logistics Expenditures 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 Asia 17% GDP China 15% GDP Europe 13% GDP India 13% GDP Japan 11% GDP Mexico 14% GDP

Some Magnitudes The cost of logistics in the US was $1. 331 trillion in 2012, 8. 5% of the US GDP. It was 17. 9% in 1980. US expenditures on logistics is larger than the national GDP of all but 12 countries. Total domestic business inventories are valued at $2. 2 trillion.

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 between 1985 and 2004. In 2004, consumers spent $263 billion LESS than they would have if Wal-Mart were not around! That translates to $895 person, or $2, 329 per household.

When Supply Chains Don’t Work So Well

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!

$30 Decisions $145 Different Decisions?

The US needs a national transportation policy By 2020: • Freight volume = 25 billion tons, $30 trillion • Trucks will account for 75% • Rail volume = 888 million tons, up 44% from today • Distribution Centers are at both ends!

The US needs a national transportation policy • Demand will exceed capacity of many US ports by 200 % • Interstate highways: • Carry an average of 10, 500 trucks per day • By 2035, this figure will increase to 22, 700 trucks. • The infrastructure needs repair – Increased focus on real estate’s role!

Expected Impact of New Hours of Service Rules • Most estimates are between 2 and 10 percent productivity hit • Shortage of 30, 000 drivers right now • 100, 000 drivers that are expected to be needed as a result of the HOS rules • Bureau of Labor Statistics estimate that 116, 000 drivers will be needed by 2016

The Workforce Challenge • Logistics jobs are growing • Qualified applicants are not – Labor – Management • There are labor shortages in key areas • New regulations create new workforce requirements

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!

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.

What does this all mean? 1. CEO / CFO’s - discovered the power of Supply Chain Management. 1. Wall Street 1. Watching industry dynamics 2. Logistics industry represents almost 10% of the economy 2. Supply Chain Risk Management is critical – think about recent events, middle eastern uprisings, Suez Canal, Japan, Thailand, Sandy, etc. 3. 3 PL’s – Significant growth

U. S. Third Party Logistics Market 160 141. 8 140 120 113. 6 $ Billions 103. 7 100 80 127. 3 127. 0 133. 8 119. 0 107. 1 89. 4 76. 9 60 40 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Armstrong and Associates 31

Supply Chain Trends and Challenges 1. Globalization. Growing complexity and pressure of dealing with global partners, suppliers and competition. Culture and geopolitical issues 2. Renewed focus on minimizing NA border delays and inefficiencies 3. Panama Canal expansion - May provide more economies of scale and port diversification options to major US population centers 4. Regulation: CSA 2010, 2011, 2012, 2013…. forever? 5. “Progressive” Shippers and Carriers are strengthening their relationships

Supply Chain Trends and Challenges § Consumer Attitudes and Demographics. • Aging population. • Growing demand for environmentally sustainable and socially responsible products by younger consumers. • How to meet needs and maintain loyalty of the consumer? § Information Technology will continue to revolutionize the discipline. § Big Data! How big’s too big? How do we scale?

Top 5 Trends • Rise of Amazon • 30% Revenue increases, approaching $60 B • Added 18 New Distribution Centers • Technology merger mania • Increasing hope for US Manufacturing • Caterpillar chooses Georgia • Apple and Lenovo announce they will start building PC’s in the US • GE CEO Immelt says they will not chase low labor rates around the globe • Natural Gas reaches a tipping point • Multi Channel Madness! • Macy’s, Fed. Ex, UPS, Wal-Mart, etc.

By the end of 2013, there will be more mobile devices on Earth than people. Mobile internet usage is projected to overtake desktop internet usage by 2014. 65% of U. S. shoppers research products and services on a PC and make a purchase in-store 40% of shoppers consult 3 or more channels before purchase, compared to 10% in 2002. Retailers’ apps take up Talk about uberthe most of consumers’ connected: 75% of time at 27%, followed Americans bring their Nearly 40% of U. S. by online marketplace phones to the mobile phone owners at 20%, purchase bathroom. will become mobile assistant at 17%, price phone shoppers by comparison at 14%, 2017. and daily deals at 13%. 71% of mobile browsers expect web pages to load almost as quickly or faster as web pages on their desktop computers. 74% of consumers will wait 5 seconds for 46% of consumers a web page to load on are unlikely to return to a mobile site if it their mobile device didn’t work property before abandoning during their last visit. the site.

U. S. , e-commerce sales U. S. , total retail sales vs. e-commerce sales (in billions) annual percentage change Retail sales, annual change E-commerce sales, annual chang Source: U. S. Department of Commerce: Census Bureau

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

To Succeed in Today’s Multi Channel Marketplace, You Will Need to… • Ensure separate P & L's do not drive separate supply chains • Allow common inventory piles and agile DC's to serve multiple channels • Best of big, best of small – Scale where it makes sense, customization when necessary

So, what do we do? • Examine the infrastructure – Distribution has become more complex • Number/location of DCs to optimize costs • Designed for complexity & flexibility to meet increasing customer demands • New requirements for order from anywhere, fulfill from anywhere

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.

Supply Chain as a Revenue Generator Distribution Operations can be a Revenue Generator • Design to optimize efficiency & cost saving • Use supply chain for competitive advantage • Increase customer service • Enable same day fulfillment & delivery • Reinvest savings into building your brand

Summary • Distribution is becoming more complex and strategic • If done right, and distribution operations can be a driver to gain competitive advantage • Don’t be afraid to market that value! • All initiatives need to start from a strong business case

Summary 1. This discipline is a corporate necessity, yet can be a growth vehicle – a revenue generating engine. 2. We improve the financial position of companies and economies. 3. Our stature and credibility is increasing. 4. Supply chain professionals need to develop cross functional skills and a global mindset to maximize opportunities in the Multi Channel world. 5. To prosper, to tackle these challenges, to take advantage of the opportunities, we need to work closely together!

“If people are committed to maintaining yesterday, they are not available to create tomorrow” Peter Drucker

Sometimes, we have to learn to forget

Innovation! Be Creative in your Response to Supply Chain Problems

Thank you! Rick Blasgen 630 -645 -3458 rblasgen@cscmp. org