Supply chain logistics current landscape & trends - prof beier - sco 3048 - nov 8 - 2012

1

Supply Chain Logistics Key Trends That Will Impact Your Career

SCO 3048 - Transportation and Logistics Management Professor Beier

November 8, 2012

Richard Murphy Jr. President & CEO

www.murphywarehouse.com

&

Adjunct Professor of Landscape Architecture

College of Design, U of MN

and

Past Chair

Council of Supply Chain Management Professionals (CSCMP)

Center For Transportation Studies (CTS), U of MN

American Society of Landscape Architects – MN Chapter

Perspective

Presentation Flow

• Supply Chain Logistics Industry

Intro to 3PLs and Murphy

Why do we care about supply chain?

Business Strategy Implications

• 7 Key Trends

Fuel Pricing

Truck & Rail Capacity

Domestic Networks

Global Sourcing + Near Sourcing

Security

Facility Design

Green / Sustainability

• The Next Supply Chain Frontier

• Parting Wisdom…

2

Why Care About: Supply Chain Logistics…??? Transportation…???

Why Care About: Supply Chain Logistics / Transportation

Touches Everything We Do

8.5% of Economy! $1,282 Trillion in Dollars

3


% of Economy

8.3% Logistics $4.01 per person in U.S.

vs.

17.3% Healthcare $7.89 per person in U.S.


Strategic Advantage - Supply Chain Execution P&G’s success relies on this and so do many others

Yes, the great ads, packaging, shelf designs, marketing, sales, etc. help….

But if the product isn’t on the shelf when you want to buy - it doesn’t matter anymore

Perspective

4


Strategic Advantage - Supply Chain Execution Apple iPod Global Supply Chain – leading edge tech would be wasted if time to market was too long!!!

Steve Jobs said the supply chain was the key to Apple’s success…!!!

Apple has been the #1 Supply Chain in the world for 6 straight years..!!

Perspective


UPS’s new branding campaign has pulled back the curtain and introduced the consuming public to the importance of supply chain logistics in their lives and the economy

Perspective

5

Where Do I Come From 3PL Industry (3rd Party Logistics Services)

9.08% of Total U.S. Logistics Industry Fastest Growing Segment of Logistics Industry

Where Do I Come From In the Beginning…1904 4th Generation Family Business “Feeding the horse-power was key”

6

3PL – “3rd Party Logistics Services Provider”

Companies Served: Fortune 100 to Small Entrepreneurs Domestic and Global

Industries Served: Retail / Catalogue / Consumer Medical / Health Care Grocery / Food Processing Beverage Plastics Recreational / Camping Industrial Forest Products (Paper/Packaging) International

Perspective

Who is Murphy Supply Chain Logistics Services / 3PL

We are a Service Company Warehousing, distribution, transportation, value-

added, fulfillment, international, etc.

We handle products throughout their life-cycle

From raw materials to in-process goods to finished products to returns for numerous industry segments.

Square Feet Operated: 2,800,000 ; Employees: 185

ISO 9001 & 14000 / OSHA SHARP / Organic Food Certified LEED “Gold” Certified / Energy Star Certified Facilities US Customs – CES, CFS, GO; FTZ (Foreign Trade Zone)

SKU’s Controlled: 29,000+ ; Orders / Month: 30,000+ Truck Loads Handled / Year: 120,450

Rail Cars Handled / Year: 9,000 (equivalent to 31,500 TL’s)

How do firms use Murphy And Other 3PLs

13 Examples

1. Big Box / Mass Merchant / Retail

2. Global Sourcing – Domestic Distribution

3. Domestic Sourcing – Domestic Distribution

4. Vendor Consolidation Park

5. Seasonal Space Offsets

6. Domestic Manufacturing Support / JIT Plant Support

7. Distribution / Transportation Services • Regional Distribution

• U. S. Distribution

• Consolidation / Cross Docking

• Rail Transload / Truck-Rail-Ocean Integration

8. Contract Logistics

9. Medical Support Logistics

10. Value Added Services • Parts Assembly

• Pick and Pack operations

• Packaging

11. Customer Returns Processing

12. Core Competency Strategies Solutions

13. Build to Suit Operations and Warehouses

Perspective

0%

20%

40%

60%

80%

100%

Jan

Feb

Mar

ch

April

May

June July

Aug

Sept Oc

t

Nov De

c

Jan

Seasonal Spec

Sugar

7

Medical Support Logistics JIT Replenishment

Surgical Kits

Custom kits for various surgery operations Customized for teams of Doctors at every hospital.

Kit contains all the items needed for a surgery.

JIT delivery to hospital.

Hospital Supplies IV Solutions, Needles, Dressings, etc.

Mass Merchant Retail Support Store Backroom Logistics

Supply of 1500+ Stores with items to run stores

Supplies, training manuals, uniforms. Sales/promo

materials, bags, etc.

Full “pick-pack” operation..

Perspective

Global Sourcing – Domestic Production Multiple Concepts in Operation

Food Products – Raw, In-Process & Finished Import From Middle East & elsewhere

Vendor Park (Global Consolidation Point)

North America Distribution

Inbound Flow - Raw Materials

Outbound Flow – Finished Goods

U.S. Distribution Recreation Industry

Canadian Company Covering Entire U.S. from One Central DC Operations Include:

Item Pick / “Pick-Pack” Case Pick Pallet pick Small-to-Large Order Custom Labeling Carrier Selection and Management

8

Customer Returns Management “Reverse Logistics”

What happens to your clothes once they reach the final end of retail

Clothing – garments shipped overseas for fibers to be separated and reused. A local fashion designer has a clothing line made from re-

cycled threads.

Shoes – rubber soles recycled; fabric used as compost.

Leather Goods – reprocessed into other leather items.

Perspective

Regional Distribution Contract Logistics - 5 State Distribution

Beer: Domestic + imports + end-of-isle displays. Operate at 40-55º; keg room at 36º

Strict lot control & rotation: “Born-on Date”

Facility handles 18 rail cars indoors at one time

Reduces Distributors’ Cash Flow Requirements

Typical Beer activity: 52 turns per year DC Designed for “Flow-through”

Seasonal Space Offsets Marriage of Offsetting Space Use Periods

Sugar One turn per year.

Fall inbound; spring to fall outbound.

Christmas Items Christmas Holiday Season only.

% o

f W

are

ho

us

e

Perspective

9

Value Added Services “Postponement”

Important Concept in Marketing • Allows manufacturers to “postpone” final

format of products

• Reduces total number of SKUs and inventory size

• Allows customization to customer specs at last minute

• Typical services include: Brand labeling / Packaging (private label)

Order entry and customer service

Kit assembly / Make-to-order

Multi-pak creation

Shelf / end-of-isle display ready

Reverse logistics for store returns

Product repair

Inventory control

Halloween Candy

Mix packs

Multi-paks

Tray Pack

End-of-Isle Displays

Product Assembly & Packaging

Value Added Services Postponement Concept

Retail Supply Chain – Big User

Increasing Important for Retail Sectors: Club Stores

Mass Merchandisers

Box Retail / Department Stores

Auto Stores & Repair Channels

Grocery Wholesalers & Retail Chains

Super-sized Stores

Murphy Project Example Multi-vendor 4th of July promotion

End-of-Aisle Displays

Multi Vendor Sales Promotions

Master invoicing & coordination

10

U.S. Customs Services Import / Export Tools

Midwest International Logistics Center A Murphy Group

Facilitate entry Shipping Quality control Packaging & labeling Close coordination with Customs

Brokers

Operations Include:

Foreign Trade Zone #119 (FTZ)

U.S. Customs Central Examination Station (CES)

U.S. Customs General Order Facility

Container Freight Station (CFS)

Perspective

Core Competency Strategies Real Estate & Shareholder Value Case

No Fortune 500 wants to tie funds in real estate Result: strong movement to outsourcing

Assets do not readily deliver “Shareholder Value”

and can be a drag on Balance Sheets

Murphy offered “flexible wall concept” something real estate developers can not do.

Cummins has ability to flex lease wall

Works because Murphy is a user of space – not

just a landlord

Placing DC next to plant saves $750,000 per

year in local cartage costs.

EPA Super Fund Site before Murphy built.

Perspective

Cummins Power Generation Plant

Murphy Dist Ctr

11

Key Trends That Will Impact Your Career

Order of Discussion

• Fuel Pricing

• Truck & Rail Capacity

• Domestic Networks

• Global Sourcing + Near Sourcing

• Security

• Facility Design

• Green / Sustainability

Fuel Prices Will go up!

And Stay Up and Impact All Supply Chains Areas

• Transportation Rates

• Sourcing Locations

• Domestic & Global Distribution Networks

• Product Development & Packaging Systems

• Inventory Levels and Demand Planning

Customer Expectations Will Be Impacted

Trend - Fuel pricing

12

Fuel Prices We all know what happened in 2008, but notice 2010 & 2011….

+ 41% in 12 months! (7/2/10-7/11/11)

Diesel fuel powers the supply chain sector

2008

2010-11


Fuel Prices July 2012

- 13% in 3 months! Impact of softening world economy


13

Fuel Prices September 2012

+ 13% in 2 months! Impact of global economic uncertainty & Iran.

Continues to hover around $4.04 per gallon.


Source: Stifel Nicolaus – State of Trucking Industry, 2/24/09

2008 2007

2004

2001

1999

Start

How far a Truck travels on $500 of Diesel Fuel

September 17th, 2012


14

Crude Oil Supply Strategic Perspective

Oil supply subject to serious geographic “choke points” If closed prices will rise drastically!


Crude Oil Supply Growing Global Demand

Will Keep Pushing Prices Higher China’s economy continues to consume more oil per year adding to world demand

India and other developing economies also need to be considered!


15


Crude Oil Supply Growing Global Demand

Asia is World’s Largest Petroleum Consumer Today India and other developing economies are growing in usage!

Fuel Price Implications Transportation Mode Shifting

Mode Shifting to Occur More Frequently Shippers moving down rungs to save money

and reduce carbon footprint

Air Ground

Air Ocean

Intermodal Boxcar

Truckload Intermodal

LTL Truckload

Rail Barge

Transportation

16


Air Freight Shifting to Ocean



One of the U.S. Largest Truck Companies Shifted to Intermodal Big-time! JB Hunt pursuing a switch strategy for about a decade


17

Fuel Price Implications Natural Gas for Trucks Growing

Supply & Delivery Network Note new fuel pump sign Options


Trucking Industry Truck Driver Shortage

National Media have discovered it…!!!

Trend – Truck / Rail Capacity

18

Trucking Industry Truck Driver Shortage

Local Media have also discovered...!!! 2012 Sample News Stories


WEAU - Eau Claire, La Crosse, and all of Western Wisconsin.

Trucking Industry Capacity Reductions

Truck Driver Shortage: 350,000+ Shipping delays & higher prices

Insurance does not allow drivers

under age 25.

Driver labor pool averages 5

years older than general labor

pool; retirements will hurt

industry.


19


Bankruptcies As fuel prices rose

As access to credit tightened

As the economy dropped

Pace has slowed since 2011

200

400

600

800

1,000

1,200

1,400Q

1 0

0

Q1

01

Q1

02

Q1

03

Q1

04

Q1

05

Q1

06

Q1

07

Q1

08

Q1

09

Q1

10

Transportation


Parked equipment starting with recession

Truckload 1 in 5 trucks (20%) left industry since 2007.

LTL (Less-than-Truckload)

3 largest LTL carriers – FedEx Frt..

Con-Way and YRC – closed the

equivalent of a large rival carrier (in

terms of terminals).

Continue to hold back on adding capacity to push prices up (to recover lost money during recession)

Transportation

20


Capacity Crunch is Starting… As economy grows without carrier’s

adding capacity the ratio of trucks

to loads is dropping – thus rising

prices.

Transportation

69%

7%1% 0%

15% 10%

0%

70%

15%

9%7% 2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Truck Rail Pipeline Water Rail

Intermodal

Air

2005

2017

Source: U.S. Freight Transportation Forecast to…2017

Why Do We Care About Truck Capacity Or Driver Shortage? Freight Modal Shares In domestic tonnage

Trucking capacity issue will plaque economy for years!

Railroads cannot meet all future demand for capacity Trucks: 70%

Rail (all forms): 17%

Will drive prices up… & shipping delays up…!!!

70% vs. 17%

21

Capacity Example MN Driver Shortage & Lost Business

Impact on Minnesota Outstate Plants Rural manufacturing plants - traditionally

cheap land & available labor pool a plus

2007 saw a major issue with truck availability in rural areas; went away during recession.

Shippers forward positioned inventories to Twin Cities area for more access to trucks.

2012 current growing truck shortage will create another problem for outstate plants and access to trucks.

When driver unloads in Twin Cities they will choose a Twin City load vs. driving 100+ miles outstate to get next load. Merely economics at play.

Outstate access to rail service also in play.


Rail Industry Rebirth Before Recession Hit

Key Realities:

More energy efficient

Lower emissions

Lower cost

Longer lead-times

Were near max capacity…!!!

Adding capacity very expensive

Intermodal growing

Transportation

22

Rail Industry Truck to Rail Conversion vs. Oil Prices

Note direct correlation As fuel prices rise more convert to rail

Transportation

37 MPH

32 MPH

Olympic Data:: WSJ 2/25/10

Rail Industry Growing Volume

Brings Growing Rail Congestion Impact: Slower Trains

Rail Data: AAR web data 2/3/10

23

Rail Industry Growing Volume

Rail Congestion Impacts: Productivity Plateau Last 15 year period Rail industry will not see a major productivity improvement till another “game changing” technology arrives

Tech that allows trains to follow each other closer – remember: to stop a train requires over 2 miles!

Enhanced braking tech will be required.

Rail Industry Intermodal

Growing to off-set diesel prices, truck shortage and congested seaports TOFC (Trailer-on-flat-car)

COFC (Container-on-flat-car)

Transportation

24

Rail Industry Intermodal

International vs. Domestic Containers Note how domestic is overtaking international in volume

Transportation

Domestic International

Rail Industry Two Trends

Box Car Influences 1 Box-car handles 3-4 truck loads!

Since 1970s most new warehouses not built with rail siding

Select 3PL / Contract Warehouse Companies are now one of the few places to get rail access.

Rail Transload Centers

Rail Transload Partners: Major Railroads establishing with

Warehouse / 3PL for unloading / loading

Food and Paper Industry

Outdoor rail yards for unloading / loading

Lumber / Forest Products Industry

Murphy’s Northtown Logistics Campus

BNSF Rail Transload Ctr.

Transportation

25

Rail Industry U.S. vs. World Rates

U.S. System Very Efficient & Economical U.S. is only country in world where the rails are privately owned. Rest are government owned.

Transportation

Ocean Industry Over Capacity During Recession

Two Issues Impacted 1. Drop in business had carriers parking equipment

throughout the world waiting for resurgence

2. Carriers had ordered many new and much larger capacity ships just prior to recession.

New ships started arriving in 2009

Rates plummeted in response + impact of world recession.

Bigger ships kept arriving no matter what freight was available!

Transportation

26

Ocean Industry New Ships Huge

Photos show Emma Maersk Worlds largest container ship

Transportation

Ocean Industry Capacity 2011 & 2012

Late 2011 – Over Capacity Again Driving down prices to historic low levels 2012 – prices rose slightly and plunged again mid year with no expectation of rising over next few years!

Transportation

27

Ocean Industry Industry Shakeout

Continued Overcapacity Is Seriously Hurting Ocean Carriers

Driving prices down to historic low levels

Pushing many carriers to consider mergers or closing which will reduce capacity and force rates up

Transportation

Container Locations The Supply / Demand Balance Issue

Container Box Imbalances – too many in one spot, while too few in another

Serous Impacts on ability to get boxes for export use - especially in Midwest of USA

Ocean carriers rushing boxes back to Asia for import needs

Impacts pricing and availability, thus import & exports strategies!

Transportation

Imports Predominate

Exports Predominate

28

Slower Speeds & Other Routes To Save Fuel & Canal Fees

Started in 2008 Fuel Price Bubble

Returned in 2010 to off-set low freight volumes

Added minimum one week to Pacific transit

Results in 1 - 3 weeks additional inventory required in system.

Carriers say they will continue slow sailing.

Transportation

River Barge Industry Inland Waterway

Keep in mind the inland waterways as a transportation option

Transportation

29

Transportation Economic Comparison

Transportation

Source: “Preliminary National Rail Plan” Fed Rail Admin., Oct 2009

Transportation Implications Mode Integration Will Increase Tonnage on Highways, Railroads and Inland Waterways 2002 Powder River Basin Montana Coal Fields

Transportation

Rail industry folks are saying country will see western North Dakota show up soon with huge rail volume from oil industry growth

30

• Geographic “Mega Regions”

• Network Design Changes: “More is Less”

Fuel Price Impact

Carbon Footprint Impact

• Freight Security / Theft

• The “amazon” Effect

• Same Day Shipping Trend

Domestic Logistics Trends & Implications

–

Domestic Network Design Where And How Many

Source: New Age of Trade. Cushman & Wakefield, 2009

Trend – Domestic Networks

31

Domestic Logistics

North America “Mega-Regions”

Domestic Logistics

Asia “Mega-Regions” Global Logistics Will Be Impacted by these Growing Regions

32

Source: The Tioga Group

Domestic Logistics

North America “Mega-Regions” Eastern Market Still Biggest Impact To Models

Domestic Network Design Order Profile Changes Old Rules No Longer Apply Christmas Sales - Now in

July…!!!

Domestic Logistics

33

Domestic Logistics

Consumer Demand SKU Proliferation

“We want it Now!....and Our Way!”

Domestic Network Design Increase In Locations

Last 15 yrs trend - fewer & bigger warehouses: 3 - 5 Total

JIT, ERP, TQM, Lean Impacts Lower fuel costs helped allowed

Today, attention given to increasing number of warehouses: 6-10 Locations Network

Impact of higher local delivery cost (vs. long haul cost) is changing networks.

Trend also towards smaller warehouses.

Source: New Age of Trade. Cushman & Wakefield, 2009


34

Domestic Network Design Fuel Impacts, Congestion, etc. Pushing Towards More Locations

Local Delivery – Higher Cost….

Congestion

Less efficient time & fuel utilization

Dock time: waiting & unloading / loading

Hourly Cost (vs. fixed per mile)

More safety incidents

Ability to use consolidation / pool distribution to

help offset above cost factors

Long Haul – Less Expensive in Comparison…

Less Congestion to fight

Engines running at peak efficiency

No dock wasted time

Fixed per mile cost (vs. variable hourly)

Less safety situations on open road

Lane Selection - Trucking companies have

become very selective in what lanes they will

accept freight to reduce “deadhead” miles driven

and keep equipment moving….thus industry

efficiency up and capacity reduced.


“DC” stands for Distribution Center / Warehouse

Network Design “More is Less”


35


Typical Network Costs Considered More DC’s less expensive overall


Source: MIT 10-2008


Typ. Network Costs + Carbon Footprint Reduction Even More DC’s result in less carbon!


36

2 DC’s

6 DC’s 4 DC’s

Source: MIT 10-2008



Typ. Network Costs + Carbon Footprint Reduction More DC’s result in less carbon!

Domestic Network Design Retail / Consumer Demands Growing Impact of Big-Box Retailers Less backroom stock space

Pushing inventory up-stream

Merely learning what the U.S. auto industry

learned from the Japanese in the 1980’s.

Reducing cash flow tie-up a factor

Demanding frequent replenishment & smaller orders

However....

Amazon has impacted this segment

to the point where Target, Best Buy

and Wal-Mart in 2011 announced

plans to build smaller stores.

The stores would carry prime movers and have

internet order pick-up services.

Speculation in industry that bigger, central DCs

may make a come-back to serve this segment.

–

VS.


37

Domestic Network Design amazon.com Impact Fulfillment Services Have Created a Major Competition for all Retailers Amazon now the #1 Retailer in U.S.


Same Day Shipping amazon.com Impact The New Frontier Amazon has put drop lockers in grocery stores for consumer pickup – geared to apartment dwellers who don’t rust neighborhood thieves


38

Same Day Shipping amazon.com Impact New Grocery Shopping in Korea Smartphone Shopping at Rail Stations Food Delivered to Home


• Landbridge Evolution & Changes

• Panama Canal Influence

• Northwest / Northeast Passages

• Inland Ports Landscape

• Import Warehouses

• Sourcing Locations Network Redesign

Near Sourcing

Made in the USA

Global Supply Chains Impacts on U.S. Logistics Trends & Implications

–

39

Global Sourcing Fast, Far-reaching and Complex If Only The World’s Continents Were Closer Together

We Would Not Need Container Ships

–

Trend - Global Sourcing

and Then There’s Pirates! 2012 as of June 25th


Source: www.icc-ccs.org/

40

and Then There’s Pirates! Two Key Areas

Note location of attacks Straits of Malacca near Malaysia /

Indonesia the traditional pirate area for ships – major route for China’s oil

Somali pirates new to scene.

–

Global Supply Chain Impacts on U.S. Logistics

Global Supply Chain Complexity Complexity Issues Time Adds Inventory & Impacts Demand Planning


41

Global Supply Chain Complexity Complexity Issues 73% Experienced Global Logistics Disruptions Past 5 Years

94% of these reported impacts affected

profitability & customer service (Accenture)

Thailand’s recent flooding impacted 54% of computer industry memory capacity

Apple was very nervous…!!!


Offshore Sourcing Implications Changed U.S. Distribution Patterns & More DC / Warehouse Space Needed

1+ month of inventory added to system to cover travel times

Distance adds time More safety stock required 2011 - Slower containership speeds for fuel

efficiency adding additional time and inventory to system; 1-3 additional weeks.

Domestic Product Flows Historic Domestic Oriented Networks vs. New Import Oriented Networks

Product flow evolved over past 25 years to today’s import focused flow


42

Domestic Import Transportation Landbridges Evolved To haul import containers by rail from west coast to markets in mid & eastern parts of U.S.

–


Landbridge Changing Economics All Water (vs. Rail) to East Coast

Line Moving West All water usually cheaper

Trend started only 3 years ago.

–

Panama Canal Today’s New Ships Too Wide For Existing Lock Widths

Expansion Completion in 2014 25% of U.S. Imports flowed thru in 2008

– 6-12” Clearance!


43

Panama Canal Expansion Impact

NY and NJ Ports Adding intermodal Capacity & Enhanced Rail Connections CSX’s National Gateway Vision


Domestic Import Transportation Landbridge Changing Economics

West Coast Ports Benefiting From Multi Impacts in 2010-2011 Reflects improved intermodal rail service to central & eastern destinations.

Impact of “slow-steaming” by the container ships which adds time to

ocean portion that must be saved on landbridge portion.

No one knows how long this reversed trend may continue, especially once the

wider Panama Canal opens.

Mini Landbridge Impact – Line Moving East Again 2012

–


44

New Port Competition Canada’s Prince Rupert

2 Days Closer to Asia

Congestion + clean air mandates at

LA Ports forcing many to look at

alternative west coast ports and

inland routes

Being 2 days closer to Asia

means that by the time a ship

reaches LA Ports the container is

already in the Midwest..!!

U.S. Congress looking into unfair

trade practice if Prince Rupert

received Canadian support


Global Logistics Route “Northwest Passage”

Feasibility for Container Ships. A cable-laying ship sailed through in 2008

from Hong Kong to a project in the North Atlantic.

Coast Guard data finds 62 other commercial and re-supply ships and three ore carriers in the Passage in 2008.

Shorter route to East coast and St. Laurence Seaway ports from Asia.


45

Global Logistics Route “Northeast Passage”

Europe and Russia Benefits Asia Benefits

34% Less Miles, Less Carbon, Less Fuel Use


World Traders Modern Routes

The Key Routes: Land & Ocean Note How They Circumnavigate the Northern Hemisphere

–


46

Domestic Import Logistics Port Congestion and High Fuel Price Impacts

Creation of Inland Ports Chicago

Columbus

DFW Texas

Kansas City

Memphis

Atlanta


Domestic Import Logistics

Port Congestion and High Fuel Price Impacts

Creation of Import Warehouses

Up to 100 Miles from Ocean Ports Services Often Provided by 3PLs

3 - 40’ ocean containers = 2 - 53’ trailers

Reasons for:

Land shortages near seaports

Transportation efficiencies gained by transloading containers to 53’ trailers – whether intermodal or over-the-road

Activities include:

Transloading

Repack

Value add labeling

30.2% of all U.S. import containers where

transloaded into 53’ trailers in 2010.


47

Import Containers + Container Chassis

“Maersk Effect” No longer want containers tied-up inland

Pricing penalty for not transloading near port

1st ocean carrier to implement rules

Others analyzing due to box shortage

Further growth for transloading expected

Ocean Carriers Getting Out of Chassis Ownership

Announced late 2010 by carriers


U.S. Imports: System Jolt Fuel Cost Impacts On Sourcing Location Mexico vs. China Can long supply chains still be cost effective?

Source: WSJ, 6-13-2008, page A1


48

U.S. Imports: System Jolt Fuel Cost Impacts On Sourcing Transportation Often Largest Cost in the Global Supply Chain


Changes In Offshore Costs Logic Changing

Total Landed Cost vs. Only Labor Cost Corporations are abandoning their myopic

focus on hourly wages for “Total Landed Cost”.

Total Landed Cost Model


49

Imports “Near Sourcing”

Factors influencing re-evaluation of offshore manufacturing:

Energy costs – esp. in logistics / transportation

Complexity of supply chains and visibility issue

Long lead times

Excess inventory required

Larger carbon footprints – “Green” movement impact

Product Quality Controls

Available labor pools in select countries

Impact in China from growing internal consumer market (vs. export market)


Global Sourcing Network Re-evaluation More Important

When to move from off-shoring to in-shoring & near-sourcing

Source: MIT 10-2008


50

Global Sourcing Network Case Study 1

Impact of fuel prices and rising Asian labor cost

Source: MIT 10-2008


Global Sourcing Network Case Study 2

Impact of fuel prices + rising Asian labor cost June 2012 Report


51

Near Sourcing Challenges Factors Impacting Return to Our Near Source Region:

Mexico

Major drug war scaring off potential manufacturers – all other factors positive.

Central America

Infrastructure poor and only close to coasts. Suffers from being too small to house multiple suppliers operations easily.

Brazil

Excellent conditions including ports, infrastructure near major cities, and economy large enough to support full supplier base.


“Made in America” Receiving Serious Board and Supply Chain Management Discussion

Quality control growing issue in select overseas markets + patent infringement.

Future fuel prices worrying executives.

Some European companies already set-up Manufacturing in USA because it offers:

Skilled labor force

Automated manufacturing technology

Strong transportation infrastructure

Proximity to world’s largest market

Political stability

NOTE: This even before the current Euro Financial Crisis

Source: DC Velocity Viewpoints web letter February 28, 2008

Mitch MacDonald, Group Editorial Director.


52

“Made in America” Star Tribune Newspaper

July 14, 2012


Additional Forces Trends & Implications

–

–

–

–

• Logistics Security

• Urban Land Prices: Impacts on

Location & Facility Design

• Green / Sustainability Impacts

• Integrated Alternative Energy

Sources

53

Logistics Security Cargo Theft Growing Concern

Warehouse Break-ins Truck Heists

FBI estimates $60B / year

Warehouses & Carriers handling high

value products see increase in out-side

initiated theft

Map / Diagram: 2011 Report

FreightWatch International http://www.freightwatchintl.com/?q=node/3

Trend - Security

Domestic Logistics

Logistics Security Cargo Theft Growing Concern

What is Stolen and Where

54

Logistics Security Cargo Theft

Even White House Truck Was Hit President Obama’s podium, seal & teleprompter stolen

Trend - Security

108

“Hope none of us have unhappy employees like this…”

Trend - Security

Logistics Security Why Logistics Theft Growing

Product Value Increasing + Counterfeiting

Esp. electronics, meat / fish, cigarettes, metals.

Easily sold domestically & globally Orders go out for products from

organized gangs/crime.

Cuban criminals been hard at work steeling Cigarettes.

Low risk of being caught Since 911 FBI’s Cargo Theft Teams

assigned to domestic security.

Inadequate criminal justice system Drug arrest yields 20 years in

prison

$2M Cigarette heist yields 10 year max, usually less!

Result, drug criminals have shifted to Logistics theft.

“Crime doesn’t pay” no longer applies!

55

Domestic Logistics

Urban Land Prices Pushing Logistics Campuses Further Out

To Suburban Edge Plus outward rural edge

Adding increased transportation time, cost & congestion

500% land price increases are sites near freeway rung system closer to urban center

Big campuses can’t be too close to cities, but can’t be too far out either

Where to Find Warehouses / DCs Today

Logistics Parks & Corridors – Freight Villages

Regional Economic Development

Drivers

Logistics & Real Estate New Mantra

“Location, Location, Logistics” Old mantra was “location, location, location”

Trend - Facility Design

56

The Sky’s the Limit Existing Warehouse Upgrade

Raising the Roof To Stay Closer To Urban Core As real estate prices go up and close-in locations

disappear conversion of low height warehouses to tall structures will grow in practice

Cheaper than new construction

Photos: Albertson 600,000 sq. ft. DC Chicago – 18’ up to 38’

A. Epstein and Sons International, Inc. Chicago

Experts in field:

http://www.rooflifters.com/


The Sky’s the Limit “Back-To-The-Future”

Multi-Story Warehouses In Your Future Ocean port congestion and land availability & cost are the drivers

Former U.S. multi-story warehouses now expensive condos!

Found in Japan, China and Europe

Up to 10 stories

20’ ceilings

ProLogis Parc, Tokyo – 10 stories w 20’ ceilings


57

Wall Street Impact on Green Investors see “green” practices as reflection of good management

Logistics industry undergoing changes to meet these new expectations

Trend – Green / Sustainability

Wall Street Impact on Green Sustainability Reports


58

Possible Green Impact To Think About

Paradigm Shift Logistics Traditional Goal: Speed & Accuracy Sustainability Goal: Carbon, etc. Reduction

2 Performance Measures Changes

1. 100% Order Accuracy 2. Zero Customer Order Complaints

Traditional Focus – Customer Satisfaction. Do whatever it takes to make customer happy! Order minimums are no problem… delivery ASAP!

Green Focus – to avoid redelivery to keep carbon emissions low. Increasing order minimums to reduce delivery frequency and longer order lead times to facilitate transportation consolidation.

Impact on supply chain velocity... slowing the velocity…!!!


Consolidation & Cross Docking One Implication of new measures

Old Concepts - Renewed Interest

Growing interest by “individual” shippers to: Consolidate multiple orders to a region.

Hold till enough product ordered to ship full loads.

Utilize cross-dock operations to deliver locally.

Growing interest by “groups” of shippers to: Consolidate orders to build full loads for direct TL

shipment or to a cross-dock facility.

Green Logistics

59

Facility Design Stormwater Regulation Impacts

Changing facility design & management

Traditional Focus: get stormwater off-site fast

Today’s Focus: handle stormwater onsite and reuse

Few outside profession realize growing impact…!!!

EPA mandated cities to control their stormwater – quantity & quality

Regulations required cities to comply with no additional Federal Funds, thus local fees.

Stormwater fees growing 2000+ cities to date nationwide.

Minneapolis - $3,400 per acre (i.e. $0.12 per sq. ft. of warehouse). Most DC/warehouses use 20+ acres; cost is $68,000+/yr.


Facility Design Gray + Green Infrastructure

Cities starting to treat & regulate street trees like sewers and roads.

To handle urban heat, stormwater, and improve real estate values thus higher property tax values.

Only a matter of time before they look to private property to help in this cause.

Gray Infrastructure Green Infrastructure

Site Level Green

60

Green Urban Infrastructure Why Trees Will Be In Your Future

Trees and Stormwater Management

Mature tree’s leaves & branches hold 80% of 1” rain in 24 hrs. In Minneapolis this represents 90% of all storms!

New planting technologies allow more: Tree root growth - thus bigger trees

Stormwater - holding & recycling

Gray Infrastructure – reducing stormwater prolongs life of sewers and pipes. Cities today can’t afford to replace current old and wearing out systems

Shade - more due to bigger tree growth reducing urban heat island impact

Increased property values


Facility Design Native Prairie vs. Lawn

Why Consider? Environmental & Economic Impacts

Why have manicured lawn entirely surround large DC & manufacturing facilities?

Manicured lawn costs 7.3x move to maintain than native prairie plants!

Prairie roots are 3-15 feet deep – help facilitate stormwater mgmt. Much more environmentally friendly and sustainable!

Site: 4700 & 4850 Main St NE, Fridley, MN 55421

Actual data from Murphy expense records

$4,240

$21,650

$-

$5,000

$10,000

$15,000

$20,000

$25,000

6 acresPraire Areas

4.2 acresLawn Areas

Tota

l Costs

Native Prairie vs. LawnTotal Cost Differences

Green Logistics

61

Facility Design Native Prairie vs. Lawn Maintenance Cost Difference

If all

Cut Lawn

Prairie Lawn Lawn

Areas Areas AreasAnnual Costs 6 acres 4.19 acres 10.19 acres

Maintenance 4,240$ -$ -$

Mowing - 12,015.00 29,220.25

Watering - 8,630.00 20,988.00

Fertilization - 1,005.00 2,444.14

Total Cost: 4,240$ 21,650$ 52,652$

Cost / Acre.: 707$ 5,167$ 5,167$

Existing Set-up

Manicured Lawn costs 7.3x more to maintain than

native prairie plants!

“Over the last 14 years we have saved over $829,000 while being green by planting native prairies on 2 logistics campuses…!!!”

Green Logistics Site: 4700 & 4850 Main St NE, Fridley, MN 55421

Actual data from Murphy expense records

Energy Creation - Solar Power Roofs - Large available flat areas “just sit there”

Commercial solutions include: (Solar panels not great load factors)

“Solar Energy Service Provider” - 100% responsibility to design,

build, own and operate the asset - including all upfront purchase

and installation costs.

….to solutions where building owner owns the solar assets and

provider merely design-builds the system.

Staples Store, CA

2 Solar Providers:

Green Logistics

62

Energy Creation Solar Power

Myth: Solar PV better in hotter climates.

Fact: Solar PVs are more efficient the colder they get. Minnesota’s climate is perfect!

Site Level Green

Energy Creation By Murphy

4th Largest Solar Energy Producer in MN Ikea is #1 & other in top 10 are government entities

Murphy installed 8 systems 2010 - 2012 320KW total power

5 buildings

Fridley Logistics Campus: produces 50% of energy use on 2% of roof…!!! 2 LEED Gold site

5 Major Innovations (state of art in world today):

Run at low voltage – increases efficiency and solves fire department issues with live systems; system can be turned off when fire dept. shows up for fire!

Solved “shadow problem” – shading a portion of panel now doesn’t shut system down!

Can Utilize 3M Solar Reflector Tech – only solar manufacturer who can utilize this boasting power.

Smart Panel Technology – panels only produce power when asked by control device.

No Roof Penetrations – held in place by weight array (vs. attaching to roof with potential roof leaks!)

Site Level Green

63

Energy Creation ROI of Solar Power

1st Three Systems in 2010 Project Cost for 120KW power: $1,000,000

• Normal, non grant supported solar ROI period is 20-25 years.

• Murphy’s project ROI period is 4 years…!!!

4 Grants at work here:

1. Xcel Energy Grant (Utility Company)

2. Federal Stimulus

3. State Stimulus

4. State special grant for using MN solar tech.

Murphy paid $90,000 (of $1M system cost)

3M Solar Reflector Film

tenKsolar Panel

Site Level Green

Energy Creation - Wind Wind power units – individual fans, horizontal row of blades, & stand alone tower units.

Horizontal wind power units – research in Chicago on units mounted in horizontal row of blades at roof edge to capture air flow rising up and over building, and to better handle turbulent urban air patterns.

Green Logistics

64

3873

724

0

500

1000

1500

2000

2500

3000

3500

4000

Typ. Warehouse / DC

Murphy Warehouse Bldg.

Only

Met

ric

To

ns

of

CO

2e p

er Y

ear

GHG Emissions MeasurementTyp. Modern DC

vs. Murphy Northtown DCMetric Tons of CO2e per Year

Toward Carbon Neutrality Murphy Northtown Fridley Facilities 500,000 sq. ft.

12.83% carbon emission vs. standard warehouse **

** Source: US EPA / US DOE Energy Star Program; 3873 GHG reflects an

average warehouse with score of 50. Murphy bldg’s scored 99 & 98

respectively out-of-possible 100 points, thus placing them in top 1% category.

GHG Emissions for Warehouses

Metric Tons of

CO2e per Year

3873

724

3149

Additional Emissions Reduction Measures

142

85

227

Toward Carbon Nuetrality

724

227

497

Total Additional GHG Emission Reduction

Actual Murphy Bldg. GHG Emissions

Total Murphy Additional GHG Emission Reduction

Net GHG Emissions (for a 406,000 sq. ft. warehouse)

Murphy Warehouse - Moving Toward Carbon Nuetrality

Typical GHG Emissions (460,000 sq.ft warehouse)

Actual GHG Emissions (Murphy's actual same size bldg.)

Emissions savings due to energy efficiency measures

On-site Carbon Sequestration in trees and prairie

Altnerative energy generation (Solar PV power)

100%

12.8%

724

-142-85

497

-150

-50

50

150

250

350

450

550

650

750

Murphy Warehouse

Bldg Only

Tress & Prairies GHG

Sequestration

Solar Power GHG

Reduction

Net Murphy Campus GHG

Metr

ic T

on

s o

f C

O2e p

er

Year

GHG Emissions MeasurementMurphy Northtown Campus

Metric Tons of CO2e per Year

Supply Chain Logistics Key Trends That Will Impact Your Career

SCO 3048 - Transportation and Logistics Management Professor Beier

November 8, 2012

Richard Murphy Jr. President & CEO

www.murphywarehouse.com

&

Adjunct Professor of Landscape Architecture

College of Design, U of MN

and

Past Chair

Council of Supply Chain Management Professionals (CSCMP)

Center For Transportation Studies (CTS), U of MN

American Society of Landscape Architects – MN Chapter

Supply chain logistics current landscape & trends - prof beier - sco 3048 - nov 8 - 2012

Education

Transcript of Supply chain logistics current landscape & trends - prof beier - sco 3048 - nov 8 - 2012