Global Logistics

1. Global Logistics Making Sense of it All By Tom Craig – tomc@ltdmgmt.com

2. Topics  Ocean Transport  Supply Chain Management

3. Ocean Transport

4. State of the Industry • Too many ships • Slow growth of global trade with recession • Losses (especially Asia- Europe)

5. The Times – They Are A Changing Global Trade / Global Logistics

6. Top 10 Container Carriers 1996 1. APM-Maersk 2. Evergreen 3. P&O Nedlloyd 4. Sea-Land 5. COSCO 6. Hanjin 7. MSC 8. NYK 9. Mitsui 10. Hyundai 2010 1. APM-Maersk 2. MSC 3. CMA-CGM 4. APL 5. Evergreen 6. Hapag-Lloyd 7. COSCO 8. CSAV 9. CSCL 10. Hanjin

7. Top 10 Container Ports 1980 1. New York/New Jersey 2. Rotterdam 3. Hong Kong 4. Kaohsiung 5. Singapore 6. Hamburg 7. Oakland 8. Seattle 9. Kobe 10. Antwerp 2011 1. Shanghai 2. Singapore 3. Hong Kong 4. Shenzhen 5. Busan 6. Ningbo 7. Guangzhou 8. Qingdao 9. Dubai 10. Rotterdam

8. Top 10 North American Ports 2000 1. Long Beach 2. Los Angeles 3. New York/New Jersey 4. Charleston 5. Oakland 6. Seattle 7. Norfolk 8. Houston 9. Savannah 10. Tacoma 2011 1. Los Angeles 2. Long Beach 3. New York/New Jersey 4. Savannah 5. Vancouver 6. Oakland 7. Seattle 8. Virginia 9. Houston 10. Manzanillo

9. Ocean Transport Mega Ships

10. Mega Ships Mega Ship Aircraft Carrier

11. Issues They Face • Megas (Triple E) – 18,000+ TEU (vs. 1,000 TEU in 1970’s) • Lower Operating Costs • How Will Ships be Filled? • Which Ports Will Handle Them? • How Will Ports Handle Them? • What’s the Investment? • Bottlenecks!

12. The P3 Network and More

13. The P3 Network • Maersk, MSC, CMA-CGM – The 3 Largest Carriers • Formed an operating alliance • FMC, EU, & China reviewed • Three Issues – • Market Share • Big Ships • Hubs/Ports Used

14. P3 Market Share • 44% Asia-to-Europe • 24% in the Trans-Pacific • 42% in the Trans-Atlantic Trade

15. P3 Vessel Size • Average vessel for Asia- Europe – increasing from 9,300 TEU to 14,200 by end of 2015 • Maersk’s Largest Vessels – surpass MSC and CMA CGM when all Megas delivered • Creates a Domino Effect

16. The G6 Alliance

17. The G6 Alliance • From New World & Grand Alliances  APL (#4)  Hapag-Lloyd (#6)  NYK  OOCL  Hyundai  Mitsui

18.  COSCO (#7)  Hanjin (#10)  K Line  Yang Ming  Evergreen (#5) – May Join The CKYH Alliance

19. Canals  Panama Canal – 2015 or 2016 Expansion  Updates on East Coast ports with bigger ships & widening  $1.6 Billion Overrun  Construction was slowed during dispute  Suez Canal - Congestion

20. Pending Chaos!?

21. Issues • Supply (of ships/container space) exceeds demand • Pricing/Rates – flat and somewhat low • Will “Money People” sit still? • Last time – carriers laid up significant tonnage “coincidentally” at same time

22. Singapore 2009

23. Shake Out Ahead?  Financial  Much red ink for last 5 years  Hanjin – operating loss $225 Million / net loss $631 Million for 2013  M&A  CSAV / Hapag-Lloyd (could this new carrier join the P3?)

24. The Next Few Years  As big ships are spread around globally  More rate volatility in more trade lanes  Schedule/Service Vagaries  Dropped weekly sailings  Fewer Carriers

25. Ocean Carriers & Global Supply Chain Erosion

26. What Carriers Are Doing  Fewer carriers in business  Alliances, slot exchanges, and vessel sharing – created and changed  Shipping Routes – added and revised  Sailing Schedules – made and reworked  “Slow Steaming” – ongoing practice

27. What It All Means  Irregular Performance  Lack of service reliability  Potential changes as to ports to handle ships

28. Which Means  Increased uncertainty for planning  Undermine inventory yield maximization  More inventories and more capital tied up

29. Impact TOTAL GLOBAL INVENTORIES REQUIRED INVENTORY TO MEET REQUIRED TO MEET SALES SAFETY STOCK ADDITIONAL BUFFER TO COMPENSATE FOR UNRELIABILTY

30. By The Way… • How does all this factor into your importing and carrier selection (even if you use a NVO)? • Do you form an IGA shippers association to leverage buying power for import freight? • Have you considered how much is big and big – big carriers and big shippers?

31. Questions???

32. Supply Chain Management

33. Is This Your Supply Chain?  What do you know about your SC Performance?  Are you doing much “fire-fighting” (reactive vs. proactive)?  Do you have little/no metrics, beyond complaints, charge backs or costs?

34. Yours?  Do you have a monolithic supply chain operation?  Little/no service differentiation beyond customer order requirements?  Is it defined by costs, tasks, and/or functions?

35. Is This Your Supply Chain?

36. Perfect Order  Delivered / Complete / Accurate / On-Time  How well do you do with customer orders?  How well do your suppliers do with your PO’s?

37. Benefits of Real SCM  Customer Advantage –  IT’S ABOUT THE CUSTOMER!!!  Competitive differentiation  Translates into better revenue and margins

38. Are You Happy with the Supply Chain That YOU Built?

39. How Do You View Global Logistics?

40. SCM - Hot Topics  Time Compression  Omni-Channel / Multi-Channel  Segmentation  Risk Mitigation

41. Cycle Time Compression

42. Cycle Time  Cycle Time – time from recognition of need (before PO is issued) until product delivered to you – and sold, and paid by customer (funds availability affects procurement)  Not just length, includes variance  Time – important for business

43. Cycle Time  Inventory-factor of uncertainty (buffer) – longer than cycle time, more the uncertainty, more the inventory  Key factor for responsiveness and agility  In Lean, extra time is waste

44. Cycle Time Compression  Identify and assess each sub-cycle  Look for gaps, redundancies, and meaningless items  External and internal (especially)  Streamline practices and operations

45. SC Omni-Channel / Multi-Channel

46. What It Is  Selling through multiple channels  For B2C and B2B  Sell 24/7 from anywhere in the world  From any device (e-commerce and m-commerce)

47. Omni-Channel Examples  Think Amazon and more  Home Depot  Building 3 e-commerce fulfillment centers  100,000 products (vs. 35,000 for stores)

48. SCM Omni-Channel Issues  Speed and accuracy of order shipment  How to position inventory  Where to position inventory  What inventory to position  Technology – integrated visibility for inventory and orders in all channels

49. Multi/Omni-Channel Direct shipping of gloves “from/for” other party’s ecommerce site • E-tailer does not have to hold inventory • Can your suppliers ship to customers elsewhere in the world for you?

50. Supply Chain Segmentation

51. What Segmentation Is  Superior best practice  Dividing business into discrete groups (not based on business units) based on similar characteristics  Address important company issues  Serve strategic purpose

52. Key Issues for Segmenting • Differing markets • Product portfolios • Customer portfolios • Inventory yields • Omni-Channel sales

53. More Issues for Segmenting • Global operations • Channel partners • Customer attrition • Suppliers • Supply chain risk

54. Why Segment???  Stop one-size-fits-all “service” approach  Reduce internal and external noise that crates chaos and diverts resources  Design and align operations for different sectors  Build competitive differentiation

55. How To Segment 1. Identify segments 2. Profile sectors – and customers in them 3. Determine how customers in each segment differ for SC services 4. Evaluate supply chain services, including ones not met, and performance for each segment

56. Segment Approaches  Cost – good concept – allocating and assigning costs - no direct costs  Value – economic – not good to identify segment characteristics  Need – drivers that segments have for specific service(s)

57. What To Do With Results 1. Prioritize segments 2. Be specific 3. Evaluate the quality of service 4. Implement services for each segment 5. Develop metrics for each segment’s service and measure • Have Actionable Info

58. Example Order Size and Annual Volume Small Orders Direct to Store Delivery Large Orders with Demanding Delivery Small Orders and No Real Volume Medium Size Orders with Special Preparation for Select Products Order Requirements

59. Large Order Segment 3rd Cut2nd Cut1st Cut Large Orders Rapid Order Preparation & Delivery Same Day Delivery Nationwide To Warehouses Prepared for Cross Docking Regular Delivery Export

60. Special Preparation Segment 3rd Cut2nd Cut1st Cut Mid-Size Orders Time for Picking Two Products and Making New SKU To Warehouses To Stores to Support Ads Standard Orders To Warehouses

61. Direct to Store Segment 3rd Cut2nd Cut1st Cut Small Orders Picking and Special Packaging Product Placement in DCs Outside Packager

62. Redesigned Supply Chain Special Handling--- Make New SKUs & Small Orders New Approach for Positioning Inventory -- Location and In DCs Geography/ Location--For Demanding Delivery & Store Direct

63. Supply Chain Risk Mitigation

64. What Risk Is  About business opportunity  Concept traction - Fukushima  Insurance focus - assets  Plus contingency planning

65. Supply Chain Risk  Complexity  Geographic Scope  Offshoring/sourcing  Outsourcing  Low inventory  Lean manufacturing  JIT manufacturing

66. Supply Chain Risk  Deloitte Global Survey  45% say SC risk program only somewhat effective or not effective  53% say SC disruptions have become more costly  48% say frequency of risk disruptions with negative outcomes have increased

67. More From Deloitte  Technology, industrial products, diversified manufacturing most likely to say SC disruptions have become more costly  Most costly outcome – margin erosion  71% say SC risk is important in strategic decision-making

68. More  Top challenges to risk management (RM)  Lack of cross-functional collaboration (32%)  Cost of implementing RM strategies (26%)  SC RM is organized around silos (75%)  Leads to lack of visibility and collaboration  Makes difficult to assess and manage risk on holistic basis

69. Threat Sources • Natural disasters • Geopolitical • Pandemics • Technological • Terrorists • Commodity prices

70. Sources • Labor costs • Currency • Ports • Markets • Suppliers • Execution

71. International Country Risk Guide Source: PRS Group 1. Norway 2. Brunei 3. Luxembourg 4. Switzerland 5. Singapore 6. Sweden 7. Oman 8. United Arab Emirates 9. Germany 10. Canada 11. Hong Kong 12. Taiwan #39 – China #54 – Mexico #62 - Thailand #86 – Indonesia #114 – Sri Lanka #129 - Pakistan 13. Qatar 14. Saudi Arabia 15. Denmark 16. New Zealand 17. Japan 18. Kuwait 19. Finland 20. Korea Republic 21. Trinidad & Tobago 22. Netherlands 23. Australia 24. Austria 25. Malaysia

72. Suppliers Tier 1 Suppliers and More

73. Risk  Measure risk  Financial impact  Time to recover  Identification and mitigation – not just for MNC’s  Cannot mitigate what you do not identify  For IGA?

74. Where Will Your Supply Chain Take You?