Latest t Developments in Supply Chain and Logistics The Changing Face of the Logistics Manager October 2007
Who We Are Supply Chain Research Supply Market Forecasts Supply Chain Consulting New Zealand Rail 2007 Boston Logistic Inc. Page 2
Agenda Sourcing where it starts t Transport and logistics constraints t Supply chain management imperatives Skills requirements Discussioni 2007 Boston Logistic Inc. Page 3
Sourcing where it starts t
Extended supply chain visibility, management From the supplier s s supplier Collaborative forecasting VMI/auto-replenishment Tier 2 To the customer s s customer Postponement Direct ship Transparency between levels l Visibility CRM-SRM linkage Custom supply chains Goods Supply Chain Tier 1 OEM End-to-end, worldwide, segmented Distributor Adaptive, sense-and-respond Learning organization Retailer 2007 Boston Logistic Inc. Page 5
1600 1,600 1400 1,400 Asian External Growth Exports from Selected Low-Cost Countries 18.6% CAGR Billions of f$us 1200 1,200 1000 1,000 800 600 400 200 6-7% CAGR 11.8% CAGR 0 1991 1995 1999 2003 2007 China Japan ASEAN South Korea Latin America Hong Kong East-C Europe Taiwan Mercosur India Source: Economist Intelligence Unit; growth rates based on 1998-2009. 2007 Boston Logistic Inc. Page 6
Transport and dl logistics constraints t
U.S. Bottlenecks: Long-Term View Congestion Points, 2020, with Selected Remediation Measures DEMAND Truck +58% Rail +47% Ports: Water +14% 4,300 Air +182% TEU/Acre Ports: 3,300300 CREATE /Year TEU/Acre/Year throughp (vs. 10,000)+ 000)+ ut (vs. 10,000+) 000+) Intermodal Driver Shortage Longshoremen o e Shortage (2004) PIERPass Ports: 4,000 TEU/Acre/Year (vs. 10,000+) 000+) Source: Cambridge Systematics/US ti DOT, Containerisation i ti International t ti 2007 Boston Logistic Inc. Page 8
Secondary Ports & Modes US U.S. Asia Northern Pacific Shanghai vs. Hong Kong All-water via Panama Canal Inland vs. waterfront Trans-shipment shipment via feeder port Inland Ports on the Yangtse River 2007 Boston Logistic Inc. Page 9
Fuel prices and surcharges Weighted Average World Oil Spot Prices 1989-2007 80 70 60 Dollars 50 Per Barrel 40 (nominal) 30 20 10 0 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Year 2007 Boston Logistic Inc. Page 10
Budgets are off; variance is increasing Expense: 50% are over-budget budget, 62% worsening Capital: 60% are over-budget, 73% worsening 45% 40% 35% 30% Percent of 25% Respondents 20% 15% 10% 5% 0% Expense Capital Under Under Under 5 Under 5 On Over 0 Over 5 Over15 Over25 25 50% 50% 15 25% 15% 0% Budget 5% 15% 25% 50% Budget Variance 2007 Boston Logistic Inc. Page 11
The planning method makes a difference Effectiveness, by Method % Savings Benchmark % Rating it Effective or Very Effective Partner with core suppliers Diversify supplier base Buy in advance directly Apply confidence levels l Follow consultant recommendations Reserve capacity with key suppliers Simulate optimal strategy Buy options or futures Use a flexible budget Use a panel of experts 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2007 Boston Logistic Inc. Page 12
SCM Imperatives
Imperatives for 2007 1. Leverage Asian sourcing opportunities 2. Ati Actively manage fuel expenditures 3. Make e-freight freight a reality 4. Decide to lead (or follow) in RFID 5. Stay lean despite delays and congestion 2007 Boston Logistic Inc. Page 14
Leverage Asian sourcing 18% savings on largest categories 70%increaseinsourcingby2011forsome i sourcing some China twice as attractive as other countries Country Attractiveness as a Sourcing Platform in 2011 China India Vietnam Indonesia Korea Percent of Respondents Investment % of Annual Savings 66% 0-1x 20% 1-2x 11% 3-5x Mexico 0% 6-10x Taiwan Other 4% >10x 0% 10% 20% 30% 40% 50% 60% Percent of Respondents Identifying the Country as Most Attractive Source: Boston Logistic 2007 Boston Logistic Inc. Page 15
Actively manage fuel expenditures 10-100% 100% savings from actively managing g fuel spend spend Energy Costs Under Alternative ti Buying Strategies, t October 2005 - November 2006 Weighted da Average World Oil Spot Prices 1989-2006 Buying consortium Centralized Purchasing 80 Value Engineering i g 70 60 Options Gas Stockpile 50 Oil Dollars Per 40 Barrel 30 20 10 Contracts Surcharges Price Increase 0 Spot Source: US Energy Information Administration -100% -50% 0% 50% 100% Percent Change from Baseline Cost Source: Boston Logistic 2007 Boston Logistic Inc. Page 16
Make e-freight a reality Supply Chain Logistics IT Applications Trends Requirements Checklist Customer Interaction Driver Communication Communications Value-Added Services Vehicle Tracking Equipment Global l Networks Telecom Network VPN Security Supply Chain Security Infrastructure re VOIP Data Exchange Call Center/Customer t Click to talk Wireless Transmission i Support Mobile Solutions Call Center Management Network Management 2007 Boston Logistic Inc. Page 17
Decide to lead or follow in RFID ROI: -38% to 107% in 161 case studies 153% industry growth by 2010 Fertile ground for some applications Range of Potential ti RFID Applications and Benefits Application Benefit Financial Metric Track Equipment Utilization ROA Track Inventory Turns Working Capital Deploy Labor Productivity Profits Track Production Cycle time Revenues Track Devices Availability Performance Monitor Access Violations Claims/damages Speed X-Actions Throughput h Revenues Source: Boston Logistic 2007 Boston Logistic Inc. Page 18
Stay lean despite delays and congestion Congestion accounts for 34% of recent increase in inventories i Postponement, e dynamic routing strategies es 16 14 12 10 %ofgdp 8 6 4 2 Logistics Cost as a Percent of GDP 0 1984 1989 1994 1999 2004 2009 Source: Rosalyn Wilson/CSCMP State of Logistics Report, Boston Logistic 2007 Boston Logistic Inc. Page 19
Skills Requirements
Acquiring New Skill Sets What are the greatest t challenges to achieving i maximum i efficiency i within your company s purchasing practices? Applicants must possess Shortage of Leadership Creativity Aggressiveness Financial acumen Problem-solving skills Shortage of skills Inadequate spend ddata Low executive priority Di Drive for results Lack of Need not apply: benchmarks Lifetime purchasing career Individual contributors Win-lose negotiators t Cost of technology Other Gaps 0 20 40 60 Percent of Respondents Source: SAP and Economist Intelligence Unit, April 2005 2007 Boston Logistic Inc. Page 21
Thank you! David Jacoby: djacoby@bostonlogistic.comcom Boston Logistic helps supply chain executives make critical supply chain decisions that involve investment and risk by forecasting the evolution of supply markets and technologies. Our mission is to help our clients develop globally competitive supply networks that maximize Supply Chain Value. Our products and services include: Research that help investors and policy makers quantify the benefit of emerging technologies and decide whether or not to invest in them Forecasts that help ppurchasing managers decide how, where, and when to buy critical externally-purchased yp materials and services Consulting that supports high-stakes decisions such as acquisitions, outsourcing, off-shoring shoring, and make-or- buy Industries Served: Discrete Manufacturing: Machinery, Equipment, Vehicles, Parts, Mechanical and Electrical Devices Process Manufacturing and Conversion: Paper, Pulp, Energy, Packaging, Processed Minerals/ Aggregates, Plastics, Metals, Chemicals Transportation: Railroads, Ocean Shipping Lines, Airlines, Trucking Companies, Package Delivery, Intermodal Logistics: Dedicated and Third Party Logistics, Ports, Stevedoring, Storage, Material Handling, Distribution, Maintenance, Retail 2007 Boston Logistic Inc. Page 22