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Varova Customer Presentation
Helsinki FinlandOctober 2, 2019Ilkka Ampuja
Headquarters Presentations
• Maersk – Copenhagen• H+M – Stockholm• Walmart – Bentonville• Office Depot – Deerfied Beach FL• Staples – Framingham MA• DHL /USA – Westerville OH• Toys r Us – Wayne NJ• SuperValu ‐ Minneapolis
• Sears ‐ Chicago• H J Heinz – Pittsburgh• Kraft Foods – Chicago• Sysco – Houston• General Mills – Minneapolis• Kellogg’s – Battle Creek• Conagra – Chicago & Omaha• Home Depot ‐ Atlanta
CSCMP ‐ State of U.S. Logistics
• Created 30 years ago by Bob Delaney who delivered presentation for ~20 years……Succeeded by Rosalyn Wilson…now A T Kearney
• 2017 theme: ‘Accelerating into Uncertainty’• 2018 theme: ‘Steep Grade Ahead’• 2019 theme: ‘Cresting the Hill’• Half day presentation in Washington DC with press release to all major US and Canadian media
• Most comprehensive cost data on US Logistics costs & trends
U.S. Logistics System 2018$Bil +/‐ % % Total
Trucking 669 10.1% 41Other 369 13.7% 22Transportation 1.037 10.4% 63
Storage 153 3.2% 9 Finance 193 26.0% 12Other 148 14.8% 9 Inventory Carrying 494 14.8% 30Admin Cost 104 6.4% 6 2018 Total $1.635 Trillion* +11.4%
* 8.0% of US GDP US economy grew 2.9% in 2018
2018 Hi‐lites
• Every cost sector increased more than growth in US economy• Severity of cost increase & low equipment availability caught many off guard
• Banner year for piggyback as shippers shifted to rail seeking better costs and more capacity• Big shippers also shifted freight to private fleets which grew 13% ….more for capacity than cost control [Average age of private fleet driver = 57]
• Warehouse vacancy at all‐time low…rental rate at all‐time high• Demand for smaller urban warehousing is especially tight
• Logistics cost % of US economy at highest level since 2008• Current economic expansion period is now longest in US history
U.S. Logistics Costs as % of Nominal GDP
7,0
7,2
7,4
7,6
7,8
8,0
8,2
8,4
8,6
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Current Observations
• Kearney: More real collaboration between supply chain partners• Advancing optimization techniques in logistics sourcing and network design to fully leverage power of early carrier & 3PL consultation
• Collaborative contracts between shippers and carriers seek to increase sustainability and utilization of assets in use
• Brokers using Artificial Intelligence and machine learning algorithms to better match drivers to loads and service customers
• Shared economy applications will improve last mile delivery• Best companies are focused on being ‘shippers of choice’ for better service and cost
Uber Freight
• Contracts with a network of 36,000 carriers “that in aggregate have more than 400,000 drivers and have served over 1,000 shippers,” including Anheuser‐Busch InBev SA and Colgate‐Palmolive
• Already generating annual revenue of $600 million• Expect to grab 6% of US truckload market worth $12 billion
• Paying out 99% of revenue to drivers to build market share• Traditional US freight brokers pay out 85% ‐ 90%• Losing money on all loads
• Testing trailer pool in several markets to reduce driver down time• The more drivers drive…the more they earn
Shipper of Choice
• More driver friendly shippers who try to work with carriers• Decent on‐site facilities; well managed in‐out gate processes; limited loading / unloading time; reasonable contracts with shared risk; do not burden carrier with needless cost
• Carriers can ‘surgically’ measure customers on cost‐to‐serve & profit…more likely to fire undesirable shippers and underperforming locations
• Bigger shippers commit to locked in price versus playing the market for spot price
• Bottom line: more efficient shippers will get better service
Walmart PanelistKen Braunbach – VP of Inbound Transportation• “ The report is fantastic…kind of like watching a bad movie again”• Added 1,300 new drivers in 2018 for cost control
• Pay: $87,500 vs US average of $52,180 for drivers [68% higher]• Launched own intermodal fleet as a test• #1 measurement: OSCA [on‐shelf customer availability]
• Have stepped up chargebacks to suppliers for late or short shipments• Better technology to speed up inventory acquisition
• No plans to build any new warehouses in next 4 – 5 years• Will focus on better utilization of existing facilities via improved planning
Walmart
• 43% growth in online sales in 2018• Now #3 online retailer behind Amazon and E‐Bay
• Surpassed Apple in 2018• Merging Jet.com fully into Walmart…Sams is still separate• Click and pickup is expanding rapidly
• Big appeal to young who don’t want to spend time shopping• The more customers use pick‐up the more they spend• 1,600 pickup points now expanding to 3,100 vs Amazon with 32• 65% of Walmart’s pickup grocery customers are also Amazon Prime • Average spend per trip for grocery pickup is $125 while in‐store is $50
New Technologies
• Werner ‐ heat maps by vertical & geography for planning• Railroads – predictive analytics for planning workload• Railroads ‐ sensors to predict equipment breakdowns vs reacting• Bumble Bee Seafood– blockchain to trace origin of fish in minutes• Augmented reality for vision picking at DHL
• https://freightcomms.com/vision‐picking‐at‐dhl‐augmented‐reality‐in‐logistics/
• Freight tracking [truck or ocean] on cell phone• Drone deliveries ready to launch
Two Story Ecommerce Distribution Center
Baseline
Best‐Use‐Of‐Current
Absolute Minimum Cost
Final Management Choice
Cost Comparisons
$000 Transport Inv & OH Total %Baseline 34,500 19,750 54,250 100Locations 26,800 22,500 49,300 91Least 30,600 13,400 44,000 81Final 29,900 15,300 45,200 83
USA Trade with China
• Has been one‐sided for years and only gets worse• USA has been willing to accept loss of technology via forced contracts or sabotage in exchange for cheap labor & cheap consumer products• 21% of US companies trading with China report attempted tech thefts this yr
• ‘There are only two kinds of large US firms…those that have been hacked by China and those who don’t know they have been hacked’‐ James Comey while he was FBI Director
• Total impact of China tariffs is not significant in $20 T economy• USA exports $2.5 Trillion…$120 billion goes to China: 0.6% of economy• USA imports $3.1 Trillion…$540 billion comes from China: 2.7% of economy
Impact in China
• Corn prices in China are near a four‐year high as domestic production falls and trade tensions limit imports from the U.S. (WSJ)
• Major shortage of pork + higher price due to African swine fever• 200 million pigs will die…supply down 30%...prices up 70%
• Imports from China to the U.S. in April were up 2% annually, a sign that tariffs are impacting• Excluding China, imports from Asia were up 5.9%, and paced by a 29.3% gain in imports from Vietnam
• Black & Decker returning all Craftsman tool manufacture from China
More Impact
• Chinese people will spend less because of lower wages and job losses• They will shift in mass to non U.S. brands & goods because of tariffs• U.S. companies already in China will suffer and few U.S. companies will seek to enter the market
• Many US firms or from other countries wanting to maintain US relationship have already shifted production away from China …probably never to return
• But Chinese play for the long‐haul and are fully ‘united’ behind tariff battle with USA
Freight Communications
• Based in Singapore…strong focus in international• 500,000 newsletter subscribers• ‘The complete news source for freight forwarding, shipping, logistics, and supply chain professionals.If knowing something will help you, you’ll hear from us first.’
• www.freightcomms.com: excellent source of supply chain info
Takeaways
• Technology will always separate the very best from others• Expanding supply chain getting closer to customers and suppliers delivers excellent value in knowledge and ability to eliminate costs
• Real time visibility is the target: need technology and sharing of info• Robotics coming vey quickly: By 2025 there will be more than 4 million warehouse robots in use at 50,000 locations globally, up from 5,000 locations in 2018, according to a report from ABI Research, with much of the growth coming from ecommerce fulfillment including demand for same‐day delivery
Closing Thoughts
“The greatest obstacle to discovery is not ignorance ….it is the illusion of knowledge”
‐ Daniel J. Boorstin: Author, Historian, Librarian of Congress
“Ignorance is not bliss…it’s just stupidity”
‐ Andy Ahearn: Transportation Consultant
Supply Chain Optimizers
Contact Info
Jack Ampuja, PresidentSupply Chain Optimizers LLCEmail: [email protected]: 716 689 4601 Website: www.supplychainoptimizers.comExecutive in Residence @ Niagara UniversityWebsite: www.niagara.edu/supplychain