1 Transportation Strategy SCMN 4780 Introduction Transportation Strategy – Introduction –

1Transportation Strategy

SCMN 4780Introduction

Transportation Strategy Transportation Strategy – Introduction – – Introduction –



PROFILE:o 36 years corporate experienceo 5 years college instructiono Employers

IBM DuPontMonsantoITT

o IndustriesNASA Contractor / DefenseTextiles Chemicals PharmaceuticalsAutomotiveElectronics

POSITIONS:o Manufacturing Engineero Packaging Engineero Industrial Engineer (Mfg Ops) o Production Plannero MRP-II Project Managero Distribution Manager o Division Manger, Supply Chaino Director, Transportation Procurement o Director, Corporate Transport & Distributiono Director, Corporate Purchasing & Logistics o Managing Director, Supply Chain Services

Company (3PL) o Supply Chain Management Lecturer

PERSONAL: Married, 3 children, 3 grandchildren; lifetime member of Auburn Alumni Association; Ruling Elder in Presbyterian Church in America (PCA)

Instructor: Gary J. PageInstructor: Gary J. Page

GJP world view: “Triple C”, a Christian, conservative, capitalist



SCMN 4780 Course Syllabus SCMN 4780 Course Syllabus



Classroom Format / StructureClassroom Format / Structure

• Instructor’s perspective → U. S. corporation in global economy→ Capitalistic economic model basis

• Student reading assignments • Apply concepts to case studies • Individual / team based assignments • Student / classroom interaction • Instructor applications / experiences



Boardroom

Instructor’s Purpose & Objective Instructor’s Purpose & Objective

Classroom



Academic World → individual recognition → make the right decision → project approach with

due dates / deadlines→ suggest / propose → primarily subjective→ efficient communication → personal growth

CoB Classroom-to-Boardroom Transition CoB Classroom-to-Boardroom Transition

Business World team reward don’t make the wrong decisionprocess mindset with progress milestones assert / recommend (SME) primarily objective effective communication professional / career growth



OUTPUT Goods

Services

… to make profit by minimizing the impact of constraints in operating system that prevent it from increased profitability

Enterprise Objectives Enterprise Objectives

… to achieve competitively superior performance from the transformation (operational) process

What is the definition of PRODUCTIVITY?

INPUT Machines

Labor Materials

Transformation Process

CAPITAL



Who Owns “Big Oil”? Who Owns “Big Oil”?

29%

27%

23%

14%

5% 2%

Mutual Funds Pension Funds

Individual Investors IRAs

Institutional Investors Corporate Management

A mutual fund is a professionally managed collective investment that pools money from many investors to buy stocks, bonds, short-term money markets instruments, and other securities.

Individual retirement arrangement (IRA) is the blanket term for a form of retirement plan that provides tax advantages for retirement savings in the U. S.

Contrast this model with the Occupy Wall Street movement model



In a capitalistic / free-trade economic system, the overriding (priority) duty of a company (business management) is to:

a. provide jobs for qualified people b. maximize compensation to senior managementc. continuously increase business revenue (grow sales)d. achieve a superior return-on-investment for its owners

The constitutional duty of government (federal, state, local) is to: a. partner with business to improve business performance b. regulate business practices to eliminate risk to citizens c. incentivize companies for complying with government actions d. ensure an open marketplace for innovation and equal opportunity

US Rules of Business (Capitalism) US Rules of Business (Capitalism)



Productivity ImprovementProductivity ImprovementRegarding Job Growth in the United States

“I don't think it's a matter of me being unable to convince them (US companies) to hire more people. They're making decisions based on what they think will be good for their companies.

(However) … there are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM; you don't go to a bank teller. Or you go to the airport, and you're using a kiosk instead of checking in at the gate. So all these things have created changes in the economy, and what we have to do now is identify where the jobs for the future are going to be; how do we make sure that there's a match between what people are getting trained for and the jobs that exist; how do we make sure that capital is flowing into those places with the greatest opportunity.”

President Barack Obama on the Today Show (June 14, 2011)



Today’s Worldwide Economy Today’s Worldwide Economy

Capitalism

Socialism

Fascism

Communism

In the 21st century

global economy, US

companies with

strategic growth goals

choose to do business

with enterprises from

all economic systems



Current Business Climate Current Business Climate “Today in America there are nearly twice as many people working in the government (22.5 million) than in all of manufacturing (11.5 million). It gets worse. More Americans work for the government than work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined. We have moved from a nation of makers to a nation of takers.”

Stephen Moore, Wall Street Journal, March 11, 2011



Supply Chain Described Supply Chain Described

supply chain is likened to a river upstream or downstream

EXTRACTION

CONSUMPTION



Trading Era prior to 1750 local craftsman, local sales and supply, bartering goods /

services

1st Industrial Revolution 1750 – 1880 steam engine, textile factory,transportation,

telecommunication

2nd Industrial Revolution 1880 – 1980 electricity, mass production,automobile industry /

assembly, World Wars I & II, computer biz

aps, regulatory environment

Consumer Age 1980 – today quality revolution with customer focus, globalization,

product customization, JIT, dot.com

U. S. Business Supply Chain History U. S. Business Supply Chain History



2121stst Century Supply Chain Characterized Century Supply Chain Characterized

retail

distribution

assembly

conversion

extraction

consumption

the consumer “pulls” material from its origin (the earth), produces, packages and ships products (material) to consumer utilizing an order fulfillment process

manufacture



2121stst Century Supply Chain Characterized Century Supply Chain Characterized

information flow

material / product flow

retail distribution assembly conversionextraction consumptionmanufacture

Linkages – transport between nodes

Nodes - value added to product



Supply Chain Business Relationships Supply Chain Business Relationships

STRATEGIC PARTNERSHIP

JOINT VENTURE

VERTICAL INTEGRATION

TRANSACTIONAL RELATIONSHIP



Transportation (Linkage) Industry Profile Transportation (Linkage) Industry Profile

MODES • Motor Freight (TL) • Motor Freight (LTL) • Motor Freight (bulk) • Rail• Air Freight• Ocean (tanker)• Ocean (container)• Inland Water• Letter / Package• Pipeline• Intermodal

PARTICIPANTS • Shippers• Carriers • 3rd Party Logistics

RELATIONSHIPS • Common• Contract• Private



Income Statement

Balance Sheet

Distribution Expense

Return on Capital (ROC)

Material Cost

Conversion Cost

Marketing & Admin Cost

Allocations & Taxes

Cost of Sales (COS)

Sales

Net Income

Sales Revenue

Earnings as % of Sales

Turnover

Net Recv, Payables

Net Fixed Assets

Working Capital

Capital Employed

SalesInventory

Investment

minus

divided by

plus

divided by

plus

plus

plus

plus

plus

multiplied by

The “Language” of Business The “Language” of Business



Business

Legal Engineering OperationsSupply Chain

FinanceInformationTechnology

Marketing & Sales

Sourcing(Purchasing)

P2POperations

TransportCustomerService

Operations Planning

WarehouseTerminals

Enterprise: Functional Alignment Enterprise: Functional Alignment



Corporation

Division A

Division B

Division C

Business Unit A-1

Business Unit A-2

Business UnitB-1

Business UnitB-2

Business Unit C-1

Business Unit C-2

Plants &Factories

Plants & Factories

Plants & Factories

Plants & Factories

Plants & Factories

Plants & Factories

Organization: Business Alignment Organization: Business Alignment



Company

Business Unit A Business Unit B Business Unit CCentralized Functions

Finance

Human Resources

Supply Chain

Environmental, Safety & Health

S/C Management ChallengeS/C Management Challenge

Business Competitive Strategy

Functional

Strategy

Point of Conflict



Transportation Strategic ObjectivesTransportation Strategic Objectives



Profitability (Margin) Analysis Profitability (Margin) Analysis

BASE CASE

Sales 1,000,000

Expenses:Overhead 200,000Variable

650,000

NIBT 150,000

Margin % 15.0%

10% SALES INCREASE

Sales 1,100,000


715,000

NIBT 185,000

Margin % 16.8%

10% COST DECREASE

Sales 1,000,000


585,000

NIBT 215,000

Margin % 21.5%

Companies obsessively strive to improve its financial profitability. Management routinely turns its attention to cost containment as a means to improve performance. WHY?



Profitability (Margin) Analysis Profitability (Margin) Analysis

BASE CASE

Sales 1,000,000


650,000

NIBT 150,000

Margin % 15.0%

10% SALES INCREASE

Sales 1,100,000


715,000

NIBT 185,000

Margin % 16.8%

~3% COST DECREASE

Sales 1,000,000


632,000

NIBT 168,000

Margin % 16.8%Which tactical initiative carries a higher risk?

Companies obsessively strive to improve its financial profitability. Management routinely turns its attention to cost containment as a means to improve performance. WHY?



ATTRIBUTE 20th CENTURY

Organization Pyramid Focus (Priorities) Internal

Management Style Structured

Structure Self-SufficiencyResources Physical AssetsOperations Vertically IntegratedProducts Mass ProductionReach Domestic

Financial Reporting QuarterlyInventory On-Hand MonthsStrategy Top-DownLeadership DogmaticWorker Expectations SecurityMotivation To CompeteImprovement IncrementalQuality Affordable Best

Source of Strength Stability

The 21The 21stst Century Business Model Century Business Model

21st CENTURY

→ Matrix→ External → Flexible → Interdependencies→ Information → Virtual Integration→ Mass Customization→ Global→ Real-Time→ Hours→ Bottom-Up→ Inspirational → Career Growth → To Excel → Revolutionary → No Compromise

→ Ability to Change



20101 Wal-Mart

2 Exxon Mobil

3 Chevron

4 General Electric

5 Bank of America

6 Conoco Phillips

7 AT&T

8 Ford Motor

9 JP Morgan Chase

10 Hewlett-Packard

11 Berkshire Hathaway

12 CitiGroup

13 Verizon Communication

14 McKesson

15 General Motors

16 American International

17 Cardinal Health

18 CVS Caremark

19 Wells Fargo

20 IBM

21 United Health Group

22 Proctor & Gamble

23 Kroger

24 AmeriSource Bergen

25 Costco Wholesale

19851 Exxon Mobil

2 General Motors

3 Mobil

4 Ford Motor

5 Texaco

6 IBM

7 DuPont

8 AT&T

9 General Electric

10 Amoco

11 Chevron Texaco

12 Atlantic Richfield

13 Shell Oil

14 Chrysler

15 Marathon Oil

16 United Technologies

17 Conoco Phillips

18 Occidental Petroleum

19 Tenneco Automotive

20 Sunoco

21 ITT

22 Proctor & Gamble

23 Nabisco

24 British Petroleum

25 Dow Chemical

19601 General Motors

2 Exxon Mobil

3 Ford Motor

4 General Electric

5 US Steel

6 Mobil

7 Gulf Oil

8 Texaco

9 Chrysler

10 Esmark

11 AT&T

12 DuPont

13 Bethlehem Steel

14 Amoco

15 CBS

16 Armor

17 General Dynamics

18 Shell Oil

19 Boeing

20 Kraft Foods

21 Goodyear Tire

22 Chevron Texaco

23 Union Carbide

24 RCA

25 Proctor & Gamble

Fortune Magazine’s ranking of the top 25 US companies ranked by annual

sales



January 4, 2012 (Bloomberg) -- Eastman Kodak, the imaging company that lost 88% of its market value last year, fell again after a report that the company is preparing for a bankruptcy filing should its effort to sell patents fail. Bloomberg News previously reported in September that Kodak was weighing options including a bankruptcy filing, according to people with knowledge of the matter. Its revenue has tumbled because of slowing demand for traditional film and competition in digital cameras and printers from Canon Inc. and Hewlett- Packard. Kodak's cash and equivalents fell to $862 million at the end of its third quarter from $1.4 billion a year earlier.

December 30, 2011 (USA Today) - Sears Holdings continued to struggle Friday in a week that the company will long remember for its announcement of plans to close up to 120 underperforming Sears and Kmart stores. The company's CEO pledged to investors and employees that the plan is to make necessary changes to get the company back on track. It operates about 4,000 Sears and Kmart stores in the U.S. and Canada and has a workforce of 312,000. Annual revenues are $43 billion. "We can do better than this, we will do better than this.“ In addition to the store closings, Sears Holdings has said it will reduce fixed costs, improve inventory management and launch more targeted pricing and promotions. "Change is never easy, but is necessary," said the CEO. "Our industry is going through profound changes and we need to evolve our business and execute with speed and excellence.“ The retail landscape has been tough for Sears Holdings acquired Kmart while Wal-Mart Stores and Target have become stronger competitors. In the last two years alone, Sears Holdings has closed, or announced the pending closure, of 181 stores.

Unsuccessfully Managing ChangeUnsuccessfully Managing Change



Successfully Managing ChangeSuccessfully Managing ChangeJanuary 6, 2012 (eWEEK) -- On January 29, 2002, IBM announced that Samuel J. Palmisano would become the company's 8th CEO of IBM. Palmisano replaced Louis V. Gerstner, who would retain his position as chairman of IBM through the end of 2002. Gerstner came to IBM in 1993 and helped turn the company around after a few years of losses by focusing on Big Blue's strengths, such as services, and tapping into the Internet during the e-commerce craze. But if Gerstner's tenure was a turnaround phase, Palmisano's was one of value creation.

"Without the work that Gerstner did, Palmisano could not have been successful," analyst Judith Hurwitz told eWEEK. "But with a stable and profitable IBM, Palmisano was able to focus on the future. I think his greatest contribution was to change the focus away from simply creating new tools and products to putting these products in context with business goals and objectives, first with on-demand computing and then with Smarter Planet. He made IBM look visionary and valuable to the customer." Palmisano made several key strategic moves that have paid off handsomely for IBM. He signed off on the deals to buy Pricewaterhouse Coopers Consulting and to sell off IBM's PC business to Lenovo and its hard disk drive business to Hitachi. Basically, he got IBM further out of low-margin commodity businesses and into high-margin activities. Palmisano also realized the value of research and increased upped IBM's R&D budget by 20%, to $6 billion a year. That strategy continues to pay off as IBM has led the world with the most U.S. patents granted for the last 18 years. Palmisano's tenure was also good for the company's shareholders and bottom line. Under Palmisano, IBM's earnings quadrupled. At the same time, he has driven more than $8 billion in annual costs out of the business with his quietly kept internal business transformation plan. On October 25, 2011, IBM announced that Virginia M Rometty would succeed Palmisano as CEO effective January 1, 2012. Palmisano will remain chairman of the board.



2121stst Century Business Impacts Century Business Impacts • 9/11 attack with radically new security requirements• Enron debacle; Sarbanes-Oxley regulations on US industry • Integrated supply chain with collaborative relationships • Adversarial collaborative company relationships• Corporate matrix organization• e-Business technology advances • Emerging growth of Chinese economy• Lean / Six-sigma performance requirements



World-Class Supply Chain Performance World-Class Supply Chain Performance

2011 Top 25 Supply Chain Performers

• Rankings

• Key findings

• Themes

• Recommendations

• Operational Excellence



Implementing a Culture of ChangeImplementing a Culture of Change

Prioritized Initiatives (Strategic / Tactical)

Proven Leadership

Vision / Mission

Documents

1 Transportation Strategy SCMN 4780 Introduction Transportation Strategy – Introduction –