Transcript Positioning your Cross-Border Supply Chain to Meet the Economic

Positioning your cross – border Supply
Chain to meet the economic challenges
in 2009
Bob Armstrong C.I.T.P, P.Log
President
SCL Canada
Global Supply Chain Management
Conference
Plattsburg, New York
May 19, 2009
Discussion Framework
About SCL
Background Industry Statistics
Supply Chain Volatility
Strategies to Protect cross – border supply chains
during economic downturn
Questions you should be asking
Background
Retailers
Consumers
SCM is generally tactical
Key business process gaps exist
Underinvestment in technology
Need for coordinated cross
response and engagement
Distributors
EDC Canadian SC research
Logistics
Manufacturers
Building more resilient Canadian
companies
Integrating Canadian companies in
global supply chains
Suppliers
Catalyzing the “integrated”
chain in Canada
“Canadian companies’ involvement in global supply
chains appears still to be limited”
Conference Board of Canada, March 2007
supply
Physical Goods, Information, Payment Flows
Financial Institutions
Linking Supply Chain Performance to
Share Price
As the chart below shows,
companies announcing
supply chain disruptions
had stock prices that
significantly lagged their
peers over a three-year
period (one year before the
announcement, through
years afterward).
Source: Supply Chain Digest: Impact of Supply,
2007
The Perfect and Continuing Storm
U.S. Logistics Industry : Overall logistics costs on the rise!
10.1% of GDP spent in 2007 on logistics ($1.39 trillion)
Source: 19th State of the Logistics Union
June, 2008
The Perfect and Continuing Storm
From 2006 to 2007 Supply Chain Impacts
Total U.S. logistics costs rose 7% last year despite a slowing
economy
Of that 7%, total transportation expenses rose 6%
9% increase in total inventory carrying costs, which included
warehousing costs
9.9% increase in total warehousing operations
Source: 19th Annual State of Logistics Report
June 2008
The Perfect and Continuing Storm
Average Monthly Canadian Fuel Prices
Jan. ‘03 – Dec. ‘08
There is a wide range of costs variability within sectors
of the economy
Compared to the US total SCM and
logistics costs are:
+12% (Canadian manufacturers)
+18 % (Canadian wholesalers)
+30% (Canadian retailers)
Possible factors:
Inventory management practices
(+20% ICC)
Service outsourcing
Size of firms
Highly qualified personnel
Regulations (cabotage…)
Source: SOL Report 2008
The US outsourced 50% more of its logistics
activities than Canada
Possible factors:
Mandates
Innovation
Value added services
Regulation
HQP
Culture / business model
Size of firm
Source: SOL Report 2008
Supply chain collaboration is more important
than costs in terms of innovation drivers
Users (Canadian
manufacturers, wholesalers,
and retailers) are prioritising
better co-ordination with
suppliers and/or customers
over lower costs
The users perceive more
benefits from these
practices both in terms of
costs and co-ordination
than do logistics service
providers
Source: SOL Report 2008
60% increase in investment in new distribution innovation and
facilities in Canada from 2001-2007
•Complexity of inventory
management with supply chain
partners around the globe
•Strategic investments in advanced
deconsolidation facilities and
innovation
Not all manufacturing sub sectors are embracing the Just-In-Time
and mass customisation road
•Many sub-sectors reduced their
inbound inventory turns due to an
increase of inputs from low cost
country sourcing
• Globally, the Canadian
manufacturing sector was
innovative in finding ways to
maintain its inventory turns while
increasing its GVC footprint
47% GDP growth for the Canadian logistics service industry
since 1998
•Growth particularly marked in:
•Truck transportation
•Increased use of JIT by
Canadian firms
•Value added 4-5PL sectors
•More than $10 billion to
the Canadian economy
•Return on Equity is directly linked to
the value added and complexity of
the logistics service provided:
•Trucking (5%)
•3PL (12%)
•4-5PL (20%)
GDP for logistics service providers is expected to increase by
an additional 40% between 2007 and 2015
•3PL and couriers are
expected to integrate 4-5PL
value added activities
•The increase demand for
supply chain agility maintain
the leading position of trucking
Annual demand for employees in logistics and SCM is estimated
at 86,330 employees (12.3%) over the next five years
•Logistics and SCM activity requires
HQP (20%) and quality operational
(80%) workforce to stimulate
economic growth
•In 2007 Canada counted 590,000
logisticians and more than 239,000
truck drivers in total in 2007
•Quebec and Ontario count for 60%
of the total Canadian logistics
workforce
Supply Chain Strategy Alignment
Survey: CSC
2009 Realities affecting the Canadian Supply
Chain
Volatility is rampant!
Fuel and Commodity Pricing
Carrier Capacity
Consumer Demand
Currency
Supplier Stability
Offshoring…………………Near shoring?
Strategies to Protect Supply Chains from
Economic Downturns
Strategy One:
Ensure you have truly leveraged the marketplace for logistics savings to meet
service requirements
Our research indicates that many companies (in good times and bad) have not
gone through the process of collecting the required data, understanding their
business requirements and innovatively streamlining their logistics and
transportation processes.
“Buyer Beware”
The Logistics Services Industry
Internal technical knowledge has been farmed
out to service companies (transportation /
3PL)
Many companies lacking the internal
expertise, systems, information and …… time
to properly understand cost savings
opportunities
Strategies to Protect Supply Chains from
Economic Downturns
Strategy Two:
Evaluating your distribution competency:
Difficult times have many C-level executives seeking ways to offset infrastructure
and fixed commitments. The “O” word (Outsourcing) question invariably comes up
at these times. Each business needs to be very clear where its core competencies
lie and where it can leverage those capabilities through a partnership with the
right Third Party provider. This process, by the way, may not lead to a “lower cost
line” per se, but can offset assets and risk, which is very desirable during a
downturn.
Outsourcing vs. Insourcing: Risks
Outsourcing
Insourcing
Risks
Risks
-
-
Start – up cost
Service for profit attitude
Selection process / cost
Information system interfacing
Non-performance
Cost creepers
Legal expenses
Limited intervention
-
Facility size constraints (may be carrying
excess space or insufficient space)
Capital outlay and cost commitments
People (unionization)
Training (learning curve)
Performance proficiency linked to internal
processes and systems
Management Team focus
Project management (scale & scope)
Develop redundant processes / systems
Loss flexibility (can’t share resources
across facilities or other task)
Outsourcing vs. Insourcing: Benefits
Outsourcing
Insourcing
Benefits
Benefits
-
-
-
-
Quick entry and exit to markets
Mitigates risk
Short term commitments
Access to established management &
staffing personnel
Minimal capital investment
‘Pay as you play’
- space / labor
Provides access to advance distribution
systems
May bring transportation savings as a
result of economies of scale
Able to tie performance to service fees
- should result in heightened
performance
-
Human capital is owned
Total flexibility (non constrained
intervention)
Develop / instill company culture & values
Increased equity
Capitalize cost diminishes with each
operating year
Intellectual capital is owned
Cost efficiencies are 100% owned
Learnt processes are deployable across
other facilities at an incremental cost
Strategies to Protect Supply Chains from
Economic Downturns
Many companies still struggle with less than ideal or disjointed cross company
planning processes formally known as Sales and Operations Planning. Given the
current economic landscape and the tightening of credit, companies need to seriously
look at ways of reducing working capital and improving cash flow through inventory
reduction but optimizing the inventory asset mix to ensure meeting the required
customer service requirements. An effective planning process supported by good
inventory policies and tools will enable these results.
Sales & Operations Planning
A Decision-Making Process
Integrates Financial & Operating Plans
Focus on Achieving Plan
Balanced Demand & Supply
Top Mgt’s “Handle on the Business”
Strategies to Protect Supply Chains from
Economic Downturns
Strategy Four:
Optimally configured network:
With the increase in transportation costs and with the push in offshore sourcing,
protecting a company’s supply chain includes clearly understanding that the
network costs (transportation, facility costs and inventory) is the best it can be for
supply chain efficiencies and customer satisfaction. Many businesses do not have
the analysis and business case support to suggest a change in a company’s
network and understanding the benefits.
Questions you should be asking
1) How certain are you that you are receiving the best value from your logistics service
providers
2) Do you have an effective integrated planning process (Sales and Operations Planning
Process)
3) Is Distribution and Logistics a true core competency?
4) Have you ever looked at business casing a distribution outsourcing option
5) Could your distribution network deliver better customer service at a lower cost?
6) How do you manage your cross – border supply chain?
7) Are you and your staff fully aware of both Canadian and U.S. customs programs and
procedures and the impact on your company as an exporter and/ or importer?
8) Do you outsource the customs clearance process? Do you have an agreement with your
custom broker that clearly details each parties responsibilities?
Comments
Bob Armstrong
President of SCL
7270 Woodbine Ave, Suite 204
Markham, Ontario
L3R 4B9
905-513-7300
[email protected]