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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

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positioning your cross border supply chain to meet the economic challenges in 2009

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
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
Background

“Canadian companies’ involvement in global supply chains appears still to be limited”

Conference Board of Canada, March 2007

  • Catalyzing the “integrated” supply chain in Canada
    • Building more resilient Canadian companies
    • Integrating Canadian companies in global supply chains
  • EDC Canadian SC research
    • SCM is generally tactical
    • Key business process gaps exist
    • Underinvestment in technology
    • Need for coordinated cross response and engagement
linking supply chain performance to share price
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
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 storm6
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 storm7
The Perfect and Continuing Storm

Average Monthly Canadian Fuel PricesJan. ‘03 – Dec. ‘08

there is a wide range of costs variability within sectors of the economy
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
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
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

slide11

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
slide12

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
slide13

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%)
slide14

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
slide15

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
2009 realities affecting the canadian supply chain
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
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
“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 downturns20
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

Risks

Start – up cost

Service for profit attitude

Selection process / cost

Information system interfacing

Non-performance

Cost creepers

Legal expenses

Limited intervention

Insourcing

Risks

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: Risks
outsourcing vs insourcing benefits
Outsourcing

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

Insourcing

Benefits

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

Outsourcing vs. Insourcing: Benefits
strategies to protect supply chains from economic downturns23
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
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 downturns25
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
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
Comments
  • Bob Armstrong

President of SCL

7270 Woodbine Ave, Suite 204

Markham, Ontario

L3R 4B9

905-513-7300

barmstrong@sclcanada.org