THE NEW MATH - supplychainoutlook.comsupplychainoutlook.com/images/uploads/Nov_2_430_Zweier.pdf · Design Integrated Demand & Supply Planning Sourcing & Supplier Management Packaging

THE NEW MATHUNDERSTANDING YOUR

TRUE COST OF DOING BUSINESS

Confidential | © 2015 Chainalytics LLC

WHO IS CHAINALYTICS?

2

11YEARS

GREAT SUPPLYCHAIN PARTNERSupplyChainBrain

18TOP 25

supply chainsof Gartner’s

8 RETAILTOP 10

7 FOOD & BEVERAGETOP 10

6 CPGTOP 10

91 of the

FORTUNE 500

TOP SUPPLY CHAIN SCHOOL

67%

WITH DEGREE FROMconsultants

of

*25BILLION

$

FMIC

FREIGHT SPENDCAPTURED IN

25%

CAGRsince 2009

COOLVENDORin supply chain services

Gartner201310PROS

Supply & Demand Chain Executive

TO KNOW

AMSTERDAMATLANTABANGALOREMILANMINNEAPOLISHELSINKISINGAPORESTOCKHOLMSYDNEY 9offices

GLOBAL


StrategicAlignment

PerformanceImprovement

Transformation

Descriptive & Diagnostic Analytics

Predictive & Prescriptive Analytics

IntelligenceNetworks

DecisionSupport

Technology

FACT-BASEDTRANSFORMATION

3


OURCOMPETENCIES

4

Supply Chain Design

IntegratedDemand & Supply

Planning

Sourcing& Supplier

Management

Packaging Optimization

Supply Chain Operations

Transportation ServiceSupply Chain

Applying fact-based transformation approaches using top supply chain talent.


In supply chain speak, this translates to:

� Profitable

� Individual products and bundles

� “Need it now” delivery (i.e., 0-4 hours)

� Buy multiples, keep one

� Regional sourcing

� Low cost

� Innovative and reusable packaging

� Crowd sourcing returns

� Global sourcing and accountability

� Sustainability

NEW & EMERGING CHALLENGES TO OMNICHANNEL

5

NewCompetitors

Educated Consumers

Connected, Mobile Society

Demand for Individuality


The complexity of these new challenges has put an enormous amount of pressure and emphasis on creating an effective, efficient, robust, global, and flexible supply chain to support the ominichannel

Global footprint

Adaptable sourcing and restocking

Efficient network capitalizing on low cost lanes

Optimal packaging, routing and reuse

Regional and local order processing

Integrated inventory visibility and accountability

Regional fulfillment and distribution capabilities

Multi-use, multi-channel facilities

Merged cross-docks

Global integrated providers

Multi-origin destinations

Delivery, last mile competencies

Integrated returns processing and streamlined redistribution

CREATING DYNAMIC, ADAPTABLE NETWORKS

6


IMPORTANCE OF A SUPPLY CHAIN DESIGN

7

Source: Gartner / AMR Research

Decisions

20%

Value

Operational

Tactical

Strategic

80%

Supply Chain Design and

Optimization

Advanced Planning and Scheduling

Execution

MRP/ERP

Solutions

The majority of a supply chain’s lifecycle costs are locked-in at the start.

� “Up front” decisions include:

� Inventory Levels

� Inventory Locations

� Assembly network

� Distribution network

� Raw material and packaging suppliers

� Desired raw material, WIP, and FG availability & costs

� In-house vs. contract manufacturers

� Logistics suppliers


MAIN SUPPLY CHAIN COSTS

8

� Total network costs are a balanced between the following primary costs:

Number of Warehouses

Co

sts

($

)TOTAL COSTS

Network Cost DriversINBOUND TRANSPORTATION COSTS

INVENTORY COSTS

WAREHOUSING COSTS

DELIVERY TRANSPORTATION COSTS


WHAT DRIVES THE DESIGN OF A SUPPLY CHAIN?

9

41% 42%

24%

12%

62%

34%

19% 21%

72%

50%

65%

23%

54%5%

4%

5%5% 5%

2%

6%

29%19%

9%8% 3%

9%2%

5%

14% 14% 12%16%

4% 4%

Inbound Transport Outbound Transport DC Fixed2 Inventory Costs 2 DC Variable

60%63%

72%74% 77%

85%88%

Perc

ent of Tota

l Dis

trib

ution C

osts

High Tech

Regional Retailer

Consumer Fulfillment

Lighting Manufacturer

CPG Manufacturer

National Retailer

Food & Beverage


HOW SUPPLY CHAIN COSTS CHANGESTARTING POINT: PALLET BASED DISTRIBUTION EXAMPLE

10

Transport Customer

Warehousing: Fixed

Warehousing: Variable

Inventory Carrying

Transport:Interfacility

MOVING TO CASE OR EACH PICK: COST BREAKDOWN CHANGES

Transport Customer

Warehousing: Fixed

Warehousing: Variable

Inventory Carrying

Transport:Interfacility

OVERALL COSTS INCREASE


STANDARD DISTRIBUTION GOALS

11

� Send large shipments of stuff by encouraging larger orders through pricing discounts

� Send it as close as possible to the customer

ALL to get longer shipments with more stuff on them because it is most efficient


PER UNIT COSTS: FUNCTION OF DISTANCE & WEIGHT

12

Shipment Size

Sh

ipm

en

t D

ista

nce

Average shipment size

Average shipment distance

Light Below Average Above Average Heavy

12.5

16.00

%

$

3.8

38.00

%

$

4.0

55.00

%

$

3.9

100.00

%

$

5.2

12.00

%

$

3.1

28.00

%

$

2.9

38.00

%

$

3.8

72.00

%

$

8.1

11.00

%

$

4.9

26.00

%

$

4.7

35.00

%

$

5.6

68.00

%

$

12.6

10.00

%

$

7.9

24.00

%

$

8.4

31.00

%

$

8.6

65.00

%

$

Percent of shipments% Cost per

unit to ship$


NEWER DISTRIBUTION PARADIGMS

13

� eCommerce

� Omnichannel

� Manufacturers being asked to drop-ship to customers

� Anything leading to smaller, more frequent orders

MORE COSTS

What does it lead to?


WHAT CAN YOU DO?

14

Understand the tradeoffs and how your costs changed under different supply chain scenarios

Understand your cost to serve is #1


WHAT CAN YOU DO?

15

Multiple Manufacturers Consolidate Warehousing

Multiple ManufacturersShip to Same Retailer

Collaborate

Confidential | © 2015 Chainalytics LLC 16

WHAT CAN YOU DO?Understand

IndustryMonitor Markets

Alternate Solutions

Work together


FREIGHT MARKET INTELLIGENCE CONSORTIUM

17

OUR MISSIONElevate the impact of transportation with market-focused competencies

AccelerateMinimize

time-to-insight withground-breaking tools

and technology

TransformMaximize utility of

information impacting material gains

� Launched TL model� 7 members� USA only� 700MM in annual freight data

OUR HISTORYA decade of growth

2004

� Multiple modes for shippers and 3PLs� 140+ members � Global in scope� Over $25B in annual freight data

2015

MARKET-BASED INSIGHTS

All-I

n C

PM

CommunicateProvide information

to inform organization and partners of

market dynamics

NetworkMaximize benefit

of consortium-based interactions and

knowledge


NORTH AMERICAN TRUCKLOAD (TL) MARKET

18

Annual TL Freight Market

$300BTransport TopicsTop 10 Carriers

$13B

“Large”$200MM Shipper

ChainalyticsTL Consortium

$19B

North American TL Market is huge and efficient. No buyer or seller can “set” the market.


-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2010 2011 2012 2013 2014 E2015 E2016 E2017

% C

ha

ng

e in

GD

PWHAT IS THE INDICATOR OF LOAD DEMAND?

19

� There is no perfect correlation to rates, but GDP growth is close

� More important is the rate of change in GDP growth

Rates tend to stay with inflation

Source: World Bank (http://data.worldbank.org) and IMF (https://www.imf.org/external/data.htm)

Rates tend to rise greater than inflation

Rates tend to fall relative to inflation


FUEL PRICE VOLATILITY

2

2.2

2.4

2.6

2.8

3

3.2

3.4

3.6

3.8

4

4.2

4.4

4.6

4.8

On

Hig

hw

ay P

rice o

f #2 D

iesel

($/g

allo

n)

� Net Impacts:� Huge decrease in FSC paid – most likely offset� Reduction in strategic advantage of fuel efficiency

20


CAPACITY AND TRUCK DRIVERS

21

“Practically every truck manufacturer and nearly all employers complain of the great difficulty of securing drivers who are competent and who will work handling

freight aside from those who drive . . .

Traffic World, Dec. 12, 19162011 CSCMP State of Logistics Report

horses.”


DRY VANMARKET PERCENT TREND BY SHIPPER SIZE

22

14 Companies 29 Companies 35 Companies

Mark

et P

erc

ent In

dex

All spend categories exhibit an upward trend pattern in rates; rate increase over the two years varies between 9% to 9.4%

Confidential | © 2015 Chainalytics LLC 23

RED

Indicates greater pricing pressure in market due to increased spot market

rates for truckload capacity

GREEN

Indicates weakening pricing pressure in market due to lower spot market

rates for truckload capacity

BU

Y-S

IDE

LE

VE

RA

GE

SE

LL-S

IDE

LE

VE

RA

GE

FREIGHT DEMAND INDEX: DRY VAN


RATE FORECASTS FROM OUR MEMBERS – 2015Q4

24


CRYSTAL BALL PREDICTION

25

� Capacity has been right-sized over last few years

� Taking spillover TL freight and benefitting from omni-channel, but a bit of a pullback recently

� Rates likely up ~3% this year

� Lots of new vessels still being delivered. Capacity is outstripping demand putting downward pressure on rates

� Fedex and UPS both just announced their annual ~5% increases

� They even raised fuel surcharges….as fuel is dropping

� Those with multi-year contracts have some protections, but the trend is almost always up in an industry with little competition

LESS-THAN-TRUCKLOAD

PARCEL

OCEAN


TRUCKLOAD

CRYSTAL BALL PREDICTION

26

� Based on multiple years of freight data, truckload markets go up roughly 2-3% each year.

� 2016 looks to be more of the same ~3%

� When electronic on-board recorder mandates kick in, expect some more capacity to leave the system and put pressure on prices

� Driver shortage and demographic issues not likely to go away…at least until autonomous trucks come into play

� Current equilibrium is prone to shocks from weather (Winter 2014), regulatory changes, global economics

THANK YOU

Kevin M. ZweierVice President, Transportation Practice

[email protected]

+1(484).604.1634

Documents

THE NEW MATH - supplychainoutlook.comsupplychainoutlook.com/images/uploads/Nov_2_430_Zweier.pdf · Design Integrated Demand & Supply Planning Sourcing & Supplier Management Packaging