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

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Supply Chain Logistics Trends 11/2012

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

  1. 1. Supply Chain LogisticsKey Trends That Will Impact Your CareerSCO 3048 - Transportation and Logistics ManagementProfessor BeierNovember 8, 2012Richard Murphy Jr.President & CEOwww.murphywarehouse.com&Adjunct Professor of Landscape ArchitectureCollege of Design, U of MNandPast ChairCouncil of Supply Chain Management Professionals (CSCMP)Center For Transportation Studies (CTS), U of MNAmerican Society of Landscape Architects – MN ChapterPerspective 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… 1
  2. 2. Why Care About:Supply Chain Logistics…???Transportation…???Why Care About:Supply Chain Logistics / TransportationTouches Everything We Do8.5% of Economy!$1,282 Trillion in Dollars 2
  3. 3. Why Care About:Supply Chain Logistics / Transportation% of Economy8.3% Logistics$4.01 per person in U.S.vs.17.3% Healthcare$7.89 per person in U.S. PerspectiveWhy Care About:Supply Chain Logistics / TransportationStrategic Advantage - Supply Chain ExecutionP&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 3
  4. 4. PerspectiveWhy Care About:Supply Chain Logistics / TransportationStrategic Advantage - Supply Chain ExecutionApple iPod Global Supply Chain – leading edge techwould 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 Chainin the world for 6 straight years..!! PerspectiveWhy Care About:Supply Chain Logistics / TransportationUPS’s new branding campaign has pulledback the curtain and introduced the consumingpublic to the importance of supply chain logisticsin their lives and the economy 4
  5. 5. Where Do I Come From3PL Industry (3rd Party Logistics Services)9.08% of Total U.S. Logistics IndustryFastest Growing Segment of Logistics IndustryWhere Do I Come FromIn the Beginning…19044th Generation Family Business“Feeding the horse-power was key” 5
  6. 6. PerspectiveWho is MurphySupply Chain Logistics Services / 3PLWe 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. Companies Served:Square Feet Operated: 2,800,000 ; Employees: 185 Fortune 100 to Small Entrepreneurs  ISO 9001 & 14000 / OSHA SHARP / Organic Food Certified Domestic and Global  LEED “Gold” Certified / Energy Star Certified Facilities  US Customs – CES, CFS, GO; FTZ (Foreign Trade Zone) Industries Served:SKU’s Controlled: 29,000+ ; Orders / Month: 30,000+ Retail / Catalogue / ConsumerTruck Loads Handled / Year: 120,450 Medical / Health CareRail Cars Handled / Year: 9,000 (equivalent to 31,500 TL’s) Grocery / Food Processing Beverage Plastics Recreational / Camping Industrial Forest Products (Paper/Packaging) International3PL – “3rd Party Logistics Services Provider” Perspective How do firms use Murphy And Other 3PLs 13 Examples 100% 1. Big Box / Mass Merchant / Retail 80% 2. Global Sourcing – Domestic Distribution 60% 3. Domestic Sourcing – Domestic Distribution 40% 4. Vendor Consolidation Park Seasonal Spec 20% Sugar 5. Seasonal Space Offsets 0% Jan Feb March April Jan Aug Sept Oct May June July Dec Nov 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 6
  7. 7. PerspectiveMedical Support LogisticsJIT ReplenishmentSurgical KitsCustom 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 SupportStore Backroom LogisticsSupply of 1500+ Stores with items to run stores  Supplies, training manuals, uniforms. Sales/promo materials, bags, etc.  Full “pick-pack” operation.. Inbound Flow - Raw MaterialsGlobal Sourcing –Domestic ProductionMultiple Concepts in OperationFood Products – Raw, In-Process & FinishedImport From Middle East & elsewhereVendor Park (Global Consolidation Point) Outbound Flow – Finished GoodsNorth America DistributionU.S. DistributionRecreation IndustryCanadian Company CoveringEntire U.S. from One Central DCOperations Include:  Item Pick / “Pick-Pack”  Case Pick  Pallet pick  Small-to-Large Order  Custom Labeling  Carrier Selection and Management 7
  8. 8. PerspectiveCustomer Returns Management“Reverse Logistics”What happens to your clothes once theyreach 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.Regional DistributionContract Logistics - 5 State DistributionBeer: 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 timeReduces Distributors’ Cash Flow RequirementsTypical Beer activity: 52 turns per year  DC Designed for “Flow-through” PerspectiveSeasonal Space OffsetsMarriage of Offsetting Space Use PeriodsSugar  One turn per year.  Fall inbound; spring to fall outbound.Christmas Items % of Warehouse  Christmas Holiday Season only. 8
  9. 9. Product Assembly & PackagingValue Added Services“Postponement”Important Concept in Marketing • Allows manufacturers to “postpone” final format of products • Reduces total number of SKUs and inventory size Tray Pack • 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 Halloween Candy  Reverse logistics for store returns Mix packs  Product repair  Inventory control Multi-paks End-of-Isle DisplaysValue Added ServicesPostponement ConceptRetail Supply Chain – Big UserIncreasing Important for Retail Sectors:  Club Stores  Mass Merchandisers  Box Retail / Department Stores  Auto Stores & Repair Channels  Grocery Wholesalers & Retail Chains  Super-sized StoresMurphy Project Example  Multi-vendor 4th of July promotion  End-of-Aisle Displays  Multi Vendor Sales Promotions  Master invoicing & coordination 9
  10. 10. PerspectiveU.S. Customs ServicesImport / Export ToolsMidwest International Logistics CenterA Murphy Group  Facilitate entry  Shipping  Quality control  Packaging & labeling  Close coordination with Customs BrokersOperations Include:  Foreign Trade Zone #119 (FTZ)  U.S. Customs Central Examination Station (CES)  U.S. Customs General Order Facility  Container Freight Station (CFS) PerspectiveCore Competency StrategiesReal Estate & Shareholder Value CaseNo Fortune 500 wants to tie funds in real estateResult: strong movement to outsourcing  Assets do not readily deliver “Shareholder Value” Cummins Power Generation Plant and can be a drag on Balance Sheets Murphy Dist CtrMurphy 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. 10
  11. 11. Key TrendsThat Will Impact Your CareerOrder of Discussion • Fuel Pricing • Truck & Rail Capacity • Domestic Networks • Global Sourcing + Near Sourcing • Security • Facility Design • Green / Sustainability Trend - Fuel pricingFuel PricesWill 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 PlanningCustomer Expectations Will Be Impacted 11
  12. 12. Trend - Fuel pricingFuel PricesWe 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 Trend - Fuel pricingFuel PricesJuly 2012- 13% in 3 months!Impact of softening world economy 12
  13. 13. Trend - Fuel pricingFuel PricesSeptember 2012+ 13% in 2 months!Impact of global economic uncertainty & Iran.Continues to hover around $4.04 per gallon. Trend - Fuel pricingHow far a Truck travels on $500 of Diesel Fuel 1999 2001 2004 2007 2008 Start September 17th, 2012 Source: Stifel Nicolaus – State of Trucking Industry, 2/24/09 13
  14. 14. Trend - Fuel pricingCrude Oil SupplyStrategic PerspectiveOil supply subject to serious geographic “choke points”If closed prices will rise drastically! Trend - Fuel pricingCrude Oil SupplyGrowing Global DemandWill Keep Pushing Prices HigherChina’s economy continues to consumemore oil per year adding to world demandIndia and other developing economies also needto be considered! 14
  15. 15. Trend - Fuel pricingCrude Oil SupplyGrowing Global DemandAsia is World’s LargestPetroleum Consumer TodayIndia and other developing economiesare growing in usage! TransportationFuel Price ImplicationsTransportation Mode ShiftingMode Shifting to Occur More FrequentlyShippers moving down rungs to save moneyand reduce carbon footprintAir GroundAir OceanIntermodal BoxcarTruckload IntermodalLTL TruckloadRail Barge 15
  16. 16. Trend - Fuel pricingFuel Price ImplicationsTransportation Mode ShiftingAir Freight Shifting to Ocean Trend - Fuel pricingFuel Price ImplicationsTransportation Mode ShiftingOne of the U.S. Largest TruckCompanies Shifted to IntermodalBig-time!JB Hunt pursuing a switch strategyfor about a decade 16
  17. 17. Trend - Fuel pricingFuel Price ImplicationsNatural Gas for Trucks GrowingSupply & Delivery NetworkNote new fuel pump sign Options Trend – Truck / Rail CapacityTrucking IndustryTruck Driver ShortageNational Media have discovered it…!!! 17
  18. 18. Trend – Truck / Rail CapacityTrucking IndustryTruck Driver ShortageLocal Media have also discovered...!!!2012 Sample News Stories WEAU - Eau Claire, La Crosse, and all of Western Wisconsin. Trend – Truck / Rail CapacityTrucking IndustryCapacity ReductionsTruck 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. 18
  19. 19. TransportationTrucking IndustryCapacity ReductionsBankruptcies  As fuel prices rose  As access to credit tightened  As the economy dropped  Pace has slowed since 2011 1,400 1,200 1,000 800 600 400 200 Q1 00 Q1 01 Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 TransportationTrucking IndustryCapacity ReductionsParked equipment startingwith recessionTruckload1 in 5 trucks (20%) left industrysince 2007.LTL (Less-than-Truckload)3 largest LTL carriers – FedEx Frt..Con-Way and YRC – closed theequivalent of a large rival carrier (interms of terminals).Continue to hold back onadding capacity to push pricesup (to recover lost money during recession) 19
  20. 20. TransportationTrucking IndustryCapacity ReductionsCapacity Crunch is Starting…As economy grows without carrier’sadding capacity the ratio of trucksto loads is dropping – thus risingprices.Why Do We Care AboutTruck Capacity OrDriver Shortage?Freight Modal SharesIn domestic tonnageTrucking capacity issue willplaque economy for years!Railroads cannot meet all futuredemand for capacityTrucks: 70%Rail (all forms): 17% 80% 70% 69% 70%Will drive prices up…& shipping delays up…!!! 60% 50% 2005 70% vs. 17% 40% 2017 30% 20% 15% 15% 10% 9% 7% 7% 10% 2% 1% 0% 0% 0% Truck Rail Pipeline Water Rail Air Intermodal Source: U.S. Freight Transportation Forecast to…2017 20
  21. 21. Trend – Truck / Rail CapacityCapacity Example MNDriver Shortage & Lost BusinessImpact 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. TransportationRail IndustryRebirth Before Recession HitKey Realities:  More energy efficient  Lower emissions  Lower cost  Longer lead-times  Were near max capacity…!!!  Adding capacity very expensive  Intermodal growing 21
  22. 22. TransportationRail IndustryTruck to Rail Conversion vs. Oil PricesNote direct correlationAs fuel prices rise more convert to railRail IndustryGrowing VolumeBrings Growing Rail CongestionImpact: Slower Trains Olympic Data:: WSJ 2/25/10 37 MPH 32 MPH Rail Data: AAR web data 2/3/10 22
  23. 23. Rail IndustryGrowing VolumeRail Congestion Impacts:Productivity PlateauLast 15 year periodRail industry will not see a majorproductivity improvement tillanother “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. TransportationRail IndustryIntermodalGrowing to off-set dieselprices, truck shortage andcongested seaportsTOFC (Trailer-on-flat-car)COFC (Container-on-flat-car) 23
  24. 24. Transportation Rail Industry Intermodal International vs. Domestic Containers Note how domestic is overtaking international in volumeDomestic International Transportation 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. 24
  25. 25. TransportationRail IndustryU.S. vs. World RatesU.S. System Very Efficient &EconomicalU.S. is only country in world wherethe rails are privately owned. Restare government owned. TransportationOcean IndustryOver Capacity During RecessionTwo Issues Impacted1. Drop in business had carriers parking equipment throughout the world waiting for resurgence2. 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! 25
  26. 26. TransportationOcean IndustryNew Ships HugePhotos show Emma MaerskWorlds largest container ship TransportationOcean IndustryCapacity 2011 & 2012Late 2011 – OverCapacity AgainDriving down prices tohistoric low levels2012 – prices rose slightlyand plunged again mid yearwith no expectation ofrising over next few years! 26
  27. 27. TransportationOcean IndustryIndustry ShakeoutContinued Overcapacity IsSeriously 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 TransportationContainer LocationsThe Supply / DemandBalance Issue Imports PredominateContainer Box Imbalances –too many in one spot, whiletoo 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 needsImpacts pricing andavailability, thus import &exports strategies! Exports Predominate 27
  28. 28. TransportationSlower Speeds & Other RoutesTo Save Fuel & Canal FeesStarted in 2008 Fuel Price BubbleReturned in 2010 to off-set lowfreight 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. TransportationRiver Barge IndustryInland WaterwayKeep in mind the inland waterwaysas a transportation option 28
  29. 29. TransportationTransportationEconomic Comparison TransportationTransportation ImplicationsMode Integration Will IncreaseTonnage on Highways,Railroads and InlandWaterways 2002Powder River BasinMontana Coal FieldsRail industry folks aresaying country will seewestern North Dakotashow up soon with hugerail volume from oilindustry growth Source: “Preliminary National Rail Plan” Fed Rail Admin., Oct 2009 29
  30. 30. Domestic LogisticsTrends & Implications– • 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 Trend – Domestic NetworksDomestic Network DesignWhere And How Many Source: New Age of Trade. Cushman & Wakefield, 2009 30
  31. 31. Domestic LogisticsNorth America “Mega-Regions” Domestic LogisticsAsia “Mega-Regions”Global Logistics Will Be Impactedby these Growing Regions 31
  32. 32. Domestic LogisticsNorth America “Mega-Regions”Eastern Market Still Biggest Impact To Models Source: The Tioga Group Domestic LogisticsDomestic Network DesignOrder Profile ChangesOld Rules No Longer ApplyChristmas Sales - Now inJuly…!!! 32
  33. 33. Domestic LogisticsConsumer DemandSKU Proliferation“We want it Now!....and Our Way!” Trend – Domestic NetworksDomestic Network DesignIncrease In LocationsLast 15 yrs trend - fewer & biggerwarehouses: 3 - 5 Total  JIT, ERP, TQM, Lean Impacts  Lower fuel costs helped allowedToday, attention given to increasing numberof 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 33
  34. 34. Trend – Domestic NetworksDomestic Network DesignFuel Impacts, Congestion, etc.Pushing Towards More LocationsLocal 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 factorsLong 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. Trend – Domestic NetworksNetwork Design“More is Less” “DC” stands for Distribution Center / Warehouse 34
  35. 35. Trend – Domestic NetworksNetwork Design“More is Less”Typical Network Costs ConsideredMore DC’s less expensive overall Trend – Domestic NetworksNetwork Design“More is Less”Typ. Network Costs + Carbon Footprint ReductionEven More DC’s result in less carbon! Source: MIT 10-2008 35
  36. 36. Trend – Domestic NetworksNetwork Design“More is Less”Typ. Network Costs + Carbon Footprint ReductionMore DC’s result in less carbon! 2 DC’s 4 DC’s 6 DC’s Source: MIT 10-2008 Trend – Domestic NetworksDomestic Network DesignRetail / Consumer DemandsGrowing Impact of Big-Box RetailersLess backroom stock spacePushing 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 factorDemanding frequent replenishment &smaller ordersHowever....  Amazon has impacted this segment to the point where Target, Best Buy VS. 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.– 36
  37. 37. Trend – Domestic NetworksDomestic Network Designamazon.com ImpactFulfillment Services Have Created aMajor Competition for all RetailersAmazon now the #1 Retailer in U.S. Trend – Domestic NetworksSame Day Shippingamazon.com ImpactThe New FrontierAmazon has put drop lockers ingrocery stores for consumerpickup – geared to apartmentdwellers who don’t rustneighborhood thieves 37
  38. 38. Trend – Domestic NetworksSame Day Shippingamazon.com ImpactNew Grocery Shopping in KoreaSmartphone Shopping at Rail StationsFood Delivered to HomeGlobal Supply ChainsImpacts on U.S. LogisticsTrends & Implications– • Landbridge Evolution & Changes • Panama Canal Influence • Northwest / Northeast Passages • Inland Ports Landscape • Import Warehouses • Sourcing Locations  Network Redesign  Near Sourcing  Made in the USA 38
  39. 39. Trend - Global SourcingGlobal SourcingFast, Far-reaching and ComplexIf Only The World’s ContinentsWere Closer TogetherWe Would Not Need Container Ships – Trend - Global Sourcingand Then There’s Pirates!2012 as of June 25th Source: www.icc-ccs.org/ 39
  40. 40. Global Supply Chain Impacts on U.S. Logisticsand Then There’s Pirates!Two Key AreasNote 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. – Trend - Global SourcingGlobal Supply Chain ComplexityComplexity IssuesTime Adds Inventory & Impacts Demand Planning 40
  41. 41. Trend - Global SourcingGlobal Supply Chain ComplexityComplexity Issues73% Experienced Global LogisticsDisruptions Past 5 Years  94% of these reported impacts affected profitability & customer service (Accenture)Thailand’s recent floodingimpacted 54% of computerindustry memory capacityApple was very nervous…!!! Trend - Global SourcingOffshore Sourcing ImplicationsChanged U.S. Distribution Patterns &More DC / Warehouse Space Needed1+ month of inventory added to system tocover 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 FlowsHistoric Domestic Oriented Networksvs. New Import Oriented NetworksProduct flow evolved over past 25 years to today’simport focused flow 41
  42. 42. Trend - Global SourcingDomestic Import TransportationLandbridges EvolvedTo haul import containers by rail from west coastto markets in mid & eastern parts of U.S. – Trend - Global SourcingLandbridge Changing EconomicsAll Water (vs. Rail) to East CoastLine Moving West  All water usually cheaper  Trend started only 3 years ago. –Panama CanalToday’s New Ships Too Wide ForExisting Lock WidthsExpansion Completion in 201425% of U.S. Imports flowed thru in 2008 – 6-12” Clearance! 42
  43. 43. Trend - Global SourcingPanama CanalExpansion ImpactNY and NJ Ports Adding intermodalCapacity & Enhanced Rail ConnectionsCSX’s National Gateway Vision Trend - Global SourcingDomestic Import TransportationLandbridge Changing EconomicsWest 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 – 43
  44. 44. Trend - Global SourcingNew Port CompetitionCanada’s Prince Rupert2 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 Trend - Global SourcingGlobal 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. 44
  45. 45. Trend - Global SourcingGlobal Logistics Route“Northeast Passage”Europe and Russia BenefitsAsia Benefits  34% Less Miles, Less Carbon, Less Fuel Use Trend - Global SourcingWorld Traders Modern RoutesThe Key Routes: Land & OceanNote How They Circumnavigate theNorthern Hemisphere – 45
  46. 46. Trend - Global SourcingDomestic Import LogisticsPort Congestion andHigh Fuel Price ImpactsCreation of Inland Ports  Chicago  Columbus  DFW Texas  Kansas City  Memphis  Atlanta Trend - Global SourcingDomestic Import LogisticsPort Congestion andHigh Fuel Price ImpactsCreation of Import WarehousesUp to 100 Miles from Ocean PortsServices Often Provided by 3PLs3 - 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 labeling30.2% of all U.S. import containers wheretransloaded into 53’ trailers in 2010. 46
  47. 47. Trend - Global SourcingImport 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 expectedOcean Carriers Getting Out ofChassis Ownership  Announced late 2010 by carriers Trend - Global SourcingU.S. Imports: System JoltFuel Cost Impacts On Sourcing LocationMexico vs. ChinaCan long supply chains still be cost effective? Source: WSJ, 6-13-2008, page A1 47
  48. 48. Trend - Global SourcingU.S. Imports: System JoltFuel Cost Impacts On SourcingTransportation Often Largest Cost inthe Global Supply Chain Trend - Global SourcingChanges In Offshore CostsLogic ChangingTotal Landed Cost vs. Only Labor Cost  Corporations are abandoning their myopic focus on hourly wages for “Total Landed Cost”. Total Landed Cost Model 48
  49. 49. Trend - Global SourcingImports“Near Sourcing”Factors influencing re-evaluationof 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) Trend - Global SourcingGlobal Sourcing NetworkRe-evaluation More ImportantWhen to move from off-shoring toin-shoring & near-sourcing Source: MIT 10-2008 49
  50. 50. Trend - Global SourcingGlobal Sourcing NetworkCase Study 1Impact of fuel prices and risingAsian labor cost Source: MIT 10-2008 Trend - Global SourcingGlobal Sourcing NetworkCase Study 2Impact of fuel prices + rising Asian labor costJune 2012 Report 50
  51. 51. Trend - Global SourcingNear Sourcing ChallengesFactors Impacting Return to OurNear 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. Trend - Global Sourcing“Made in America”Receiving Serious Board andSupply Chain Management DiscussionQuality control growing issue in selectoverseas markets + patent infringement.Future fuel prices worrying executives.Some European companies already set-upManufacturing 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. 51
  52. 52. Trend - Global Sourcing“Made in America”Star Tribune NewspaperJuly 14, 2012Additional ForcesTrends & Implications •– Logistics Security • – Urban Land Prices: Impacts on Location & Facility Design • Green / Sustainability Impacts • – Integrated Alternative Energy – Sources 52
  53. 53. Trend - SecurityLogistics SecurityCargo Theft Growing ConcernWarehouse Break-insTruck HeistsFBI estimates $60B / year  Warehouses & Carriers handling high value products see increase in out-side initiated theftMap / Diagram: 2011 ReportFreightWatch Internationalhttp://www.freightwatchintl.com/?q=node/3 Domestic LogisticsLogistics SecurityCargo Theft Growing ConcernWhat is Stolen and Where 53
  54. 54. Trend - SecurityLogistics SecurityCargo TheftEven White House Truck Was HitPresident Obama’s podium, seal& teleprompter stolen Trend - SecurityLogistics SecurityWhy Logistics Theft Growing “Hope none of us have unhappyProduct Value Increasing + employees like this…”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! 108 54
  55. 55. Domestic LogisticsUrban Land PricesPushing Logistics CampusesFurther OutTo 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 centerBig campuses can’t be too close tocities, but can’t be too far out eitherWhere to Find Warehouses /DCs TodayLogistics Parks & Corridors –Freight Villages  Regional Economic Development Drivers Trend - Facility DesignLogistics & Real EstateNew Mantra“Location, Location, Logistics”Old mantra was “location, location, location” 55
  56. 56. Trend - Facility DesignThe Sky’s the LimitExisting Warehouse UpgradeRaising 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/ Trend - Facility DesignThe 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 56
  57. 57. Trend – Green / SustainabilityWall Street Impact on GreenInvestors see “green” practices asreflection of good managementLogistics industry undergoing changesto meet these new expectations Trend – Green / SustainabilityWall Street Impact on GreenSustainability Reports 57
  58. 58. Trend – Green / SustainabilityPossible Green Impact ToThink AboutParadigm ShiftLogistics Traditional Goal: Speed & AccuracySustainability Goal: Carbon, etc. Reduction2 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…!!! Green LogisticsConsolidation & Cross DockingOne Implication of new measuresOld Concepts - Renewed InterestGrowing 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. 58
  59. 59. Trend – Green / SustainabilityFacility DesignStormwater Regulation ImpactsChanging facility design & management  Traditional Focus: get stormwater off-site fast  Today’s Focus: handle stormwater onsite and reuseFew outside profession realizegrowing impact…!!!EPA mandated cities to control theirstormwater – 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. Site Level GreenFacility DesignGray + Green InfrastructureCities starting to treat & regulate street treeslike 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 privateproperty to help in this cause.Gray Infrastructure Green Infrastructure 59
  60. 60. Trend – Green / SustainabilityGreen Urban InfrastructureWhy Trees Will Be In Your FutureTrees 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 Green Logistics Site: 4700 & 4850 Main St NE, Fridley, MN 55421 Actual data from Murphy expense recordsFacility DesignNative Prairie vs. Lawn Native Prairie vs. LawnWhy Consider? Total Cost DifferencesEnvironmental & Economic Impacts $25,000  Why have manicured lawn entirely surround $21,650 large DC & manufacturing facilities?  Manicured lawn costs 7.3x move to $20,000 maintain than native prairie plants!  Prairie roots are 3-15 feet deep – help Total Costs facilitate stormwater mgmt. Much more $15,000 environmentally friendly and sustainable! $10,000 $5,000 $4,240 $- 6 acres 4.2 acres Praire Areas Lawn Areas 60
  61. 61. Green Logistics Site: 4700 & 4850 Main St NE, Fridley, MN 55421 Actual data from Murphy expense recordsFacility DesignNative Prairie vs. LawnMaintenance Cost Difference If all Existing Set-up Cut Lawn Prairie Lawn Lawn Areas Areas AreasAnnual Costs 6 acres 4.19 acres 10.19 acresMaintenance $ 4,240 $ - $ -Mowing - 12,015.00 29,220.25Watering - 8,630.00 20,988.00Fertilization - 1,005.00 2,444.14 Total Cost: $ 4,240 $ 21,650 $ 52,652 Cost / Acre.: $ 707 $ 5,167 $ 5,167Manicured Lawn costs 7.3x more to maintain thannative prairie plants!“Over the last 14 years we have saved over$829,000 while being green by plantingnative prairies on 2 logistics campuses…!!!” Green LogisticsEnergy Creation - Solar PowerRoofs - 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: 61
  62. 62. Site Level GreenEnergy CreationSolar PowerMyth: Solar PV better in hotter climates.Fact: Solar PVs are more efficient the colder they get. Minnesota’s climate is perfect! Site Level GreenEnergy Creation By Murphy4th Largest Solar Energy Producer in MNIkea is #1 & other in top 10 are government entitiesMurphy installed 8 systems 2010 - 2012320KW total power  5 buildings  Fridley Logistics Campus: produces 50% of energy use on 2% of roof…!!! 2 LEED Gold site5 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!) 62
  63. 63. Site Level GreenEnergy CreationROI of Solar Power1st Three Systems in 2010Project 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 Green LogisticsEnergy Creation - WindWind power units – individual fans, horizontal row of blades, & stand alone tower units.Horizontal wind power units – research in Chicago on units mounted in horizontal rowof blades at roof edge to capture air flow rising up and over building, and to better handleturbulent urban air patterns. 63
  64. 64. GHG Emissions Measurement Typ. Modern DC vs. Murphy Northtown DC Metric Tons of CO2e per YearToward Carbon Neutrality 4000 3873Murphy Northtown Fridley Facilities 3500 Metric Tons of CO2e per Year 3000500,000 sq. ft. 250012.83% carbon emission 2000vs. standard warehouse ** 1500 1000 724 500 Murphy Warehouse - Moving Toward Carbon Nuetrality 0 Typ. Warehouse / Murphy DC Warehouse Bldg. Metric Tons of OnlyGHG Emissions for Warehouses CO2e per Year100% Typical GHG Emissions (460,000 sq.ft warehouse) 3873 GHG Emissions Measurement Murphy Northtown Campus Actual GHG Emissions (Murphys actual same size bldg.) 724 Metric Tons of CO2e per Year Emissions savings due to energy efficiency measures 3149 750 724Additional Emissions Reduction Measures 650 On-site Carbon Sequestration in trees and prairie 142 550 Metric Tons of CO2e per Year Altnerative energy generation (Solar PV power) 85 497 Total Additional GHG Emission Reduction 227 450Toward Carbon Nuetrality 350 Actual Murphy Bldg. GHG Emissions 724 250 Total Murphy Additional GHG Emission Reduction 22712.8% Net GHG Emissions (for a 406,000 sq. ft. warehouse) 497 150 ** Source: US EPA / US DOE Energy Star Program; 3873 GHG reflects an 50 average warehouse with score of 50. Murphy bldg’s scored 99 & 98 -50 -85 respectively out-of-possible 100 points, thus placing them in top 1% category. -142 -150 Murphy Tress & Solar Power Net Murphy Warehouse Prairies GHG GHG Campus GHG Bldg Only Sequestration ReductionSupply Chain LogisticsKey Trends That Will Impact Your CareerSCO 3048 - Transportation and Logistics ManagementProfessor BeierNovember 8, 2012Richard Murphy Jr.President & CEOwww.murphywarehouse.com&Adjunct Professor of Landscape ArchitectureCollege of Design, U of MNandPast ChairCouncil of Supply Chain Management Professionals (CSCMP)Center For Transportation Studies (CTS), U of MNAmerican Society of Landscape Architects – MN Chapter 64

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