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Supply chain logistics current landscape & trends - prof beier - sco 3048 - nov 8 - 2012
- 1. Supply Chain Logistics Key Trends That Will Impact Your Career SCO 3048 - Transportation and Logistics Management Professor Beier November 8, 2012 Richard Murphy Jr. President & CEO www.murphywarehouse.com & Adjunct Professor of Landscape Architecture College of Design, U of MN and Past Chair Council of Supply Chain Management Professionals (CSCMP) Center For Transportation Studies (CTS), U of MN American Society of Landscape Architects – MN Chapter Perspective 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. Why Care About: Supply Chain Logistics…??? Transportation…??? Why Care About: Supply Chain Logistics / Transportation Touches Everything We Do 8.5% of Economy! $1,282 Trillion in Dollars 2
- 3. Why Care About: Supply Chain Logistics / Transportation % of Economy 8.3% Logistics $4.01 per person in U.S. vs. 17.3% Healthcare $7.89 per person in U.S. Perspective Why Care About: Supply Chain Logistics / Transportation Strategic Advantage - Supply Chain Execution P&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. Perspective Why Care About: Supply Chain Logistics / Transportation Strategic Advantage - Supply Chain Execution Apple iPod Global Supply Chain – leading edge tech would 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 Chain in the world for 6 straight years..!! Perspective Why Care About: Supply Chain Logistics / Transportation UPS’s new branding campaign has pulled back the curtain and introduced the consuming public to the importance of supply chain logistics in their lives and the economy 4
- 5. Where Do I Come From 3PL Industry (3rd Party Logistics Services) 9.08% of Total U.S. Logistics Industry Fastest Growing Segment of Logistics Industry Where Do I Come From In the Beginning…1904 4th Generation Family Business “Feeding the horse-power was key” 5
- 6. Perspective Who is Murphy Supply Chain Logistics Services / 3PL We 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 / Consumer Truck Loads Handled / Year: 120,450 Medical / Health Care Rail Cars Handled / Year: 9,000 (equivalent to 31,500 TL’s) Grocery / Food Processing Beverage Plastics Recreational / Camping Industrial Forest Products (Paper/Packaging) International 3PL – “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. Perspective Medical Support Logistics JIT Replenishment Surgical Kits Custom 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 Support Store Backroom Logistics Supply of 1500+ Stores with items to run stores Supplies, training manuals, uniforms. Sales/promo materials, bags, etc. Full “pick-pack” operation.. Inbound Flow - Raw Materials Global Sourcing – Domestic Production Multiple Concepts in Operation Food Products – Raw, In-Process & Finished Import From Middle East & elsewhere Vendor Park (Global Consolidation Point) Outbound Flow – Finished Goods North America Distribution U.S. Distribution Recreation Industry Canadian Company Covering Entire U.S. from One Central DC Operations Include: Item Pick / “Pick-Pack” Case Pick Pallet pick Small-to-Large Order Custom Labeling Carrier Selection and Management 7
- 8. Perspective Customer Returns Management “Reverse Logistics” What happens to your clothes once they reach 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 Distribution Contract Logistics - 5 State Distribution Beer: 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 time Reduces Distributors’ Cash Flow Requirements Typical Beer activity: 52 turns per year DC Designed for “Flow-through” Perspective Seasonal Space Offsets Marriage of Offsetting Space Use Periods Sugar One turn per year. Fall inbound; spring to fall outbound. Christmas Items % of Warehouse Christmas Holiday Season only. 8
- 9. Product Assembly & Packaging Value 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 Displays Value Added Services Postponement Concept Retail Supply Chain – Big User Increasing Important for Retail Sectors: Club Stores Mass Merchandisers Box Retail / Department Stores Auto Stores & Repair Channels Grocery Wholesalers & Retail Chains Super-sized Stores Murphy Project Example Multi-vendor 4th of July promotion End-of-Aisle Displays Multi Vendor Sales Promotions Master invoicing & coordination 9
- 10. Perspective U.S. Customs Services Import / Export Tools Midwest International Logistics Center A Murphy Group Facilitate entry Shipping Quality control Packaging & labeling Close coordination with Customs Brokers Operations Include: Foreign Trade Zone #119 (FTZ) U.S. Customs Central Examination Station (CES) U.S. Customs General Order Facility Container Freight Station (CFS) Perspective Core Competency Strategies Real Estate & Shareholder Value Case No Fortune 500 wants to tie funds in real estate Result: 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 Ctr Murphy 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. Key Trends That Will Impact Your Career Order of Discussion • Fuel Pricing • Truck & Rail Capacity • Domestic Networks • Global Sourcing + Near Sourcing • Security • Facility Design • Green / Sustainability Trend - Fuel pricing Fuel Prices Will 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 Planning Customer Expectations Will Be Impacted 11
- 12. Trend - Fuel pricing Fuel Prices We 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 pricing Fuel Prices July 2012 - 13% in 3 months! Impact of softening world economy 12
- 13. Trend - Fuel pricing Fuel Prices September 2012 + 13% in 2 months! Impact of global economic uncertainty & Iran. Continues to hover around $4.04 per gallon. Trend - Fuel pricing How 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. Trend - Fuel pricing Crude Oil Supply Strategic Perspective Oil supply subject to serious geographic “choke points” If closed prices will rise drastically! Trend - Fuel pricing Crude Oil Supply Growing Global Demand Will Keep Pushing Prices Higher China’s economy continues to consume more oil per year adding to world demand India and other developing economies also need to be considered! 14
- 15. Trend - Fuel pricing Crude Oil Supply Growing Global Demand Asia is World’s Largest Petroleum Consumer Today India and other developing economies are growing in usage! Transportation Fuel Price Implications Transportation Mode Shifting Mode Shifting to Occur More Frequently Shippers moving down rungs to save money and reduce carbon footprint Air Ground Air Ocean Intermodal Boxcar Truckload Intermodal LTL Truckload Rail Barge 15
- 16. Trend - Fuel pricing Fuel Price Implications Transportation Mode Shifting Air Freight Shifting to Ocean Trend - Fuel pricing Fuel Price Implications Transportation Mode Shifting One of the U.S. Largest Truck Companies Shifted to Intermodal Big-time! JB Hunt pursuing a switch strategy for about a decade 16
- 17. Trend - Fuel pricing Fuel Price Implications Natural Gas for Trucks Growing Supply & Delivery Network Note new fuel pump sign Options Trend – Truck / Rail Capacity Trucking Industry Truck Driver Shortage National Media have discovered it…!!! 17
- 18. Trend – Truck / Rail Capacity Trucking Industry Truck Driver Shortage Local Media have also discovered...!!! 2012 Sample News Stories WEAU - Eau Claire, La Crosse, and all of Western Wisconsin. Trend – Truck / Rail Capacity Trucking Industry Capacity Reductions Truck 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. Transportation Trucking Industry Capacity Reductions Bankruptcies 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 Transportation Trucking Industry Capacity Reductions Parked equipment starting with recession Truckload 1 in 5 trucks (20%) left industry since 2007. LTL (Less-than-Truckload) 3 largest LTL carriers – FedEx Frt.. Con-Way and YRC – closed the equivalent of a large rival carrier (in terms of terminals). Continue to hold back on adding capacity to push prices up (to recover lost money during recession) 19
- 20. Transportation Trucking Industry Capacity Reductions Capacity Crunch is Starting… As economy grows without carrier’s adding capacity the ratio of trucks to loads is dropping – thus rising prices. Why Do We Care About Truck Capacity Or Driver Shortage? Freight Modal Shares In domestic tonnage Trucking capacity issue will plaque economy for years! Railroads cannot meet all future demand for capacity Trucks: 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. Trend – Truck / Rail Capacity Capacity Example MN Driver Shortage & Lost Business Impact 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. Transportation Rail Industry Rebirth Before Recession Hit Key Realities: More energy efficient Lower emissions Lower cost Longer lead-times Were near max capacity…!!! Adding capacity very expensive Intermodal growing 21
- 22. Transportation Rail Industry Truck to Rail Conversion vs. Oil Prices Note direct correlation As fuel prices rise more convert to rail Rail Industry Growing Volume Brings Growing Rail Congestion Impact: Slower Trains Olympic Data:: WSJ 2/25/10 37 MPH 32 MPH Rail Data: AAR web data 2/3/10 22
- 23. Rail Industry Growing Volume Rail Congestion Impacts: Productivity Plateau Last 15 year period Rail industry will not see a major productivity improvement till another “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. Transportation Rail Industry Intermodal Growing to off-set diesel prices, truck shortage and congested seaports TOFC (Trailer-on-flat-car) COFC (Container-on-flat-car) 23
- 24. Transportation Rail Industry Intermodal International vs. Domestic Containers Note how domestic is overtaking international in volume Domestic 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. Transportation Rail Industry U.S. vs. World Rates U.S. System Very Efficient & Economical U.S. is only country in world where the rails are privately owned. Rest are government owned. Transportation Ocean Industry Over Capacity During Recession Two Issues Impacted 1. Drop in business had carriers parking equipment throughout the world waiting for resurgence 2. 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. Transportation Ocean Industry New Ships Huge Photos show Emma Maersk Worlds largest container ship Transportation Ocean Industry Capacity 2011 & 2012 Late 2011 – Over Capacity Again Driving down prices to historic low levels 2012 – prices rose slightly and plunged again mid year with no expectation of rising over next few years! 26
- 27. Transportation Ocean Industry Industry Shakeout Continued Overcapacity Is Seriously 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 Transportation Container Locations The Supply / Demand Balance Issue Imports Predominate Container Box Imbalances – too many in one spot, while too 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 needs Impacts pricing and availability, thus import & exports strategies! Exports Predominate 27
- 28. Transportation Slower Speeds & Other Routes To Save Fuel & Canal Fees Started in 2008 Fuel Price Bubble Returned in 2010 to off-set low freight 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. Transportation River Barge Industry Inland Waterway Keep in mind the inland waterways as a transportation option 28
- 29. Transportation Transportation Economic Comparison Transportation Transportation Implications Mode Integration Will Increase Tonnage on Highways, Railroads and Inland Waterways 2002 Powder River Basin Montana Coal Fields Rail industry folks are saying country will see western North Dakota show up soon with huge rail volume from oil industry growth Source: “Preliminary National Rail Plan” Fed Rail Admin., Oct 2009 29
- 30. Domestic Logistics Trends & 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 Networks Domestic Network Design Where And How Many Source: New Age of Trade. Cushman & Wakefield, 2009 30
- 31. Domestic Logistics North America “Mega-Regions” Domestic Logistics Asia “Mega-Regions” Global Logistics Will Be Impacted by these Growing Regions 31
- 32. Domestic Logistics North America “Mega-Regions” Eastern Market Still Biggest Impact To Models Source: The Tioga Group Domestic Logistics Domestic Network Design Order Profile Changes Old Rules No Longer Apply Christmas Sales - Now in July…!!! 32
- 33. Domestic Logistics Consumer Demand SKU Proliferation “We want it Now!....and Our Way!” Trend – Domestic Networks Domestic Network Design Increase In Locations Last 15 yrs trend - fewer & bigger warehouses: 3 - 5 Total JIT, ERP, TQM, Lean Impacts Lower fuel costs helped allowed Today, attention given to increasing number of 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. Trend – Domestic Networks Domestic Network Design Fuel Impacts, Congestion, etc. Pushing Towards More Locations Local 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 factors Long 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 Networks Network Design “More is Less” “DC” stands for Distribution Center / Warehouse 34
- 35. Trend – Domestic Networks Network Design “More is Less” Typical Network Costs Considered More DC’s less expensive overall Trend – Domestic Networks Network Design “More is Less” Typ. Network Costs + Carbon Footprint Reduction Even More DC’s result in less carbon! Source: MIT 10-2008 35
- 36. Trend – Domestic Networks Network Design “More is Less” Typ. Network Costs + Carbon Footprint Reduction More DC’s result in less carbon! 2 DC’s 4 DC’s 6 DC’s Source: MIT 10-2008 Trend – Domestic Networks Domestic Network Design Retail / Consumer Demands Growing Impact of Big-Box Retailers Less backroom stock space Pushing 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 factor Demanding frequent replenishment & smaller orders However.... 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. Trend – Domestic Networks Domestic Network Design amazon.com Impact Fulfillment Services Have Created a Major Competition for all Retailers Amazon now the #1 Retailer in U.S. Trend – Domestic Networks Same Day Shipping amazon.com Impact The New Frontier Amazon has put drop lockers in grocery stores for consumer pickup – geared to apartment dwellers who don’t rust neighborhood thieves 37
- 38. Trend – Domestic Networks Same Day Shipping amazon.com Impact New Grocery Shopping in Korea Smartphone Shopping at Rail Stations Food Delivered to Home Global Supply Chains Impacts on U.S. Logistics Trends & 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. Trend - Global Sourcing Global Sourcing Fast, Far-reaching and Complex If Only The World’s Continents Were Closer Together We Would Not Need Container Ships – Trend - Global Sourcing and Then There’s Pirates! 2012 as of June 25th Source: www.icc-ccs.org/ 39
- 40. Global Supply Chain Impacts on U.S. Logistics and Then There’s Pirates! Two Key Areas Note 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 Sourcing Global Supply Chain Complexity Complexity Issues Time Adds Inventory & Impacts Demand Planning 40
- 41. Trend - Global Sourcing Global Supply Chain Complexity Complexity Issues 73% Experienced Global Logistics Disruptions Past 5 Years 94% of these reported impacts affected profitability & customer service (Accenture) Thailand’s recent flooding impacted 54% of computer industry memory capacity Apple was very nervous…!!! Trend - Global Sourcing Offshore Sourcing Implications Changed U.S. Distribution Patterns & More DC / Warehouse Space Needed 1+ month of inventory added to system to cover 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 Flows Historic Domestic Oriented Networks vs. New Import Oriented Networks Product flow evolved over past 25 years to today’s import focused flow 41
- 42. Trend - Global Sourcing Domestic Import Transportation Landbridges Evolved To haul import containers by rail from west coast to markets in mid & eastern parts of U.S. – Trend - Global Sourcing Landbridge Changing Economics All Water (vs. Rail) to East Coast Line Moving West All water usually cheaper Trend started only 3 years ago. – Panama Canal Today’s New Ships Too Wide For Existing Lock Widths Expansion Completion in 2014 25% of U.S. Imports flowed thru in 2008 – 6-12” Clearance! 42
- 43. Trend - Global Sourcing Panama Canal Expansion Impact NY and NJ Ports Adding intermodal Capacity & Enhanced Rail Connections CSX’s National Gateway Vision Trend - Global Sourcing Domestic Import Transportation Landbridge Changing Economics West 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. Trend - Global Sourcing New Port Competition Canada’s Prince Rupert 2 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 Sourcing Global 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. Trend - Global Sourcing Global Logistics Route “Northeast Passage” Europe and Russia Benefits Asia Benefits 34% Less Miles, Less Carbon, Less Fuel Use Trend - Global Sourcing World Traders Modern Routes The Key Routes: Land & Ocean Note How They Circumnavigate the Northern Hemisphere – 45
- 46. Trend - Global Sourcing Domestic Import Logistics Port Congestion and High Fuel Price Impacts Creation of Inland Ports Chicago Columbus DFW Texas Kansas City Memphis Atlanta Trend - Global Sourcing Domestic Import Logistics Port Congestion and High Fuel Price Impacts Creation of Import Warehouses Up to 100 Miles from Ocean Ports Services Often Provided by 3PLs 3 - 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 labeling 30.2% of all U.S. import containers where transloaded into 53’ trailers in 2010. 46
- 47. Trend - Global Sourcing Import 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 expected Ocean Carriers Getting Out of Chassis Ownership Announced late 2010 by carriers Trend - Global Sourcing U.S. Imports: System Jolt Fuel Cost Impacts On Sourcing Location Mexico vs. China Can long supply chains still be cost effective? Source: WSJ, 6-13-2008, page A1 47
- 48. Trend - Global Sourcing U.S. Imports: System Jolt Fuel Cost Impacts On Sourcing Transportation Often Largest Cost in the Global Supply Chain Trend - Global Sourcing Changes In Offshore Costs Logic Changing Total 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. Trend - Global Sourcing Imports “Near Sourcing” Factors influencing re-evaluation of 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 Sourcing Global Sourcing Network Re-evaluation More Important When to move from off-shoring to in-shoring & near-sourcing Source: MIT 10-2008 49
- 50. Trend - Global Sourcing Global Sourcing Network Case Study 1 Impact of fuel prices and rising Asian labor cost Source: MIT 10-2008 Trend - Global Sourcing Global Sourcing Network Case Study 2 Impact of fuel prices + rising Asian labor cost June 2012 Report 50
- 51. Trend - Global Sourcing Near Sourcing Challenges Factors Impacting Return to Our Near 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 and Supply Chain Management Discussion Quality control growing issue in select overseas markets + patent infringement. Future fuel prices worrying executives. Some European companies already set-up Manufacturing 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. Trend - Global Sourcing “Made in America” Star Tribune Newspaper July 14, 2012 Additional Forces Trends & Implications •– Logistics Security • – Urban Land Prices: Impacts on Location & Facility Design • Green / Sustainability Impacts • – Integrated Alternative Energy – Sources 52
- 53. Trend - Security Logistics Security Cargo Theft Growing Concern Warehouse Break-ins Truck Heists FBI estimates $60B / year Warehouses & Carriers handling high value products see increase in out-side initiated theft Map / Diagram: 2011 Report FreightWatch International http://www.freightwatchintl.com/?q=node/3 Domestic Logistics Logistics Security Cargo Theft Growing Concern What is Stolen and Where 53
- 54. Trend - Security Logistics Security Cargo Theft Even White House Truck Was Hit President Obama’s podium, seal & teleprompter stolen Trend - Security Logistics Security Why Logistics Theft Growing “Hope none of us have unhappy Product 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. Domestic Logistics Urban Land Prices Pushing Logistics Campuses Further Out To 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 center Big campuses can’t be too close to cities, but can’t be too far out either Where to Find Warehouses / DCs Today Logistics Parks & Corridors – Freight Villages Regional Economic Development Drivers Trend - Facility Design Logistics & Real Estate New Mantra “Location, Location, Logistics” Old mantra was “location, location, location” 55
- 56. Trend - Facility Design The Sky’s the Limit Existing Warehouse Upgrade Raising 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 Design The 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. Trend – Green / Sustainability Wall Street Impact on Green Investors see “green” practices as reflection of good management Logistics industry undergoing changes to meet these new expectations Trend – Green / Sustainability Wall Street Impact on Green Sustainability Reports 57
- 58. Trend – Green / Sustainability Possible Green Impact To Think About Paradigm Shift Logistics Traditional Goal: Speed & Accuracy Sustainability Goal: Carbon, etc. Reduction 2 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 Logistics Consolidation & Cross Docking One Implication of new measures Old Concepts - Renewed Interest Growing 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. Trend – Green / Sustainability Facility Design Stormwater Regulation Impacts Changing facility design & management Traditional Focus: get stormwater off-site fast Today’s Focus: handle stormwater onsite and reuse Few outside profession realize growing impact…!!! EPA mandated cities to control their stormwater – 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 Green Facility Design Gray + Green Infrastructure Cities starting to treat & regulate street trees like 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 private property to help in this cause. Gray Infrastructure Green Infrastructure 59
- 60. Trend – Green / Sustainability Green Urban Infrastructure Why Trees Will Be In Your Future Trees 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 records Facility Design Native Prairie vs. Lawn Native Prairie vs. Lawn Why Consider? Total Cost Differences Environmental & 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. Green Logistics Site: 4700 & 4850 Main St NE, Fridley, MN 55421 Actual data from Murphy expense records Facility Design Native Prairie vs. Lawn Maintenance Cost Difference If all Existing Set-up Cut Lawn Prairie Lawn Lawn Areas Areas Areas Annual Costs 6 acres 4.19 acres 10.19 acres Maintenance $ 4,240 $ - $ - Mowing - 12,015.00 29,220.25 Watering - 8,630.00 20,988.00 Fertilization - 1,005.00 2,444.14 Total Cost: $ 4,240 $ 21,650 $ 52,652 Cost / Acre.: $ 707 $ 5,167 $ 5,167 Manicured Lawn costs 7.3x more to maintain than native prairie plants! “Over the last 14 years we have saved over $829,000 while being green by planting native prairies on 2 logistics campuses…!!!” Green Logistics Energy Creation - Solar Power Roofs - 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. Site Level Green Energy Creation Solar Power Myth: Solar PV better in hotter climates. Fact: Solar PVs are more efficient the colder they get. Minnesota’s climate is perfect! Site Level Green Energy Creation By Murphy 4th Largest Solar Energy Producer in MN Ikea is #1 & other in top 10 are government entities Murphy installed 8 systems 2010 - 2012 320KW total power 5 buildings Fridley Logistics Campus: produces 50% of energy use on 2% of roof…!!! 2 LEED Gold site 5 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. Site Level Green Energy Creation ROI of Solar Power 1st Three Systems in 2010 Project 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 Logistics Energy Creation - Wind Wind power units – individual fans, horizontal row of blades, & stand alone tower units. Horizontal wind power units – research in Chicago on units mounted in horizontal row of blades at roof edge to capture air flow rising up and over building, and to better handle turbulent urban air patterns. 63
- 64. GHG Emissions Measurement Typ. Modern DC vs. Murphy Northtown DC Metric Tons of CO2e per Year Toward Carbon Neutrality 4000 3873 Murphy Northtown Fridley Facilities 3500 Metric Tons of CO2e per Year 3000 500,000 sq. ft. 2500 12.83% carbon emission 2000 vs. standard warehouse ** 1500 1000 724 500 Murphy Warehouse - Moving Toward Carbon Nuetrality 0 Typ. Warehouse / Murphy DC Warehouse Bldg. Metric Tons of Only GHG Emissions for Warehouses CO2e per Year 100% Typical GHG Emissions (460,000 sq.ft warehouse) 3873 GHG Emissions Measurement Murphy Northtown Campus Actual GHG Emissions (Murphy's actual same size bldg.) 724 Metric Tons of CO2e per Year Emissions savings due to energy efficiency measures 3149 750 724 Additional 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 227 450 Toward Carbon Nuetrality 350 Actual Murphy Bldg. GHG Emissions 724 250 Total Murphy Additional GHG Emission Reduction 227 12.8% 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 Reduction Supply Chain Logistics Key Trends That Will Impact Your Career SCO 3048 - Transportation and Logistics Management Professor Beier November 8, 2012 Richard Murphy Jr. President & CEO www.murphywarehouse.com & Adjunct Professor of Landscape Architecture College of Design, U of MN and Past Chair Council of Supply Chain Management Professionals (CSCMP) Center For Transportation Studies (CTS), U of MN American Society of Landscape Architects – MN Chapter 64