Supply Chain Management

Prepared by:
Abd El-Razek Bakhati

Supervisor:
Dr. Ahmed Hamidou
2016 saw the first drop in US business logistics costs since 2009

($ billion)
2016 YoY 16/15 5-yr. CAGR

Transportation costs
Full truckload 269.4 –1.6% 4.3%
Less-than-truckload 58.0 0.5% –1.2%
Private or dedicated 268.1 0.7% 5.7%
Motor carriers 595.5 –0.4% 4.3%
Parcel 86.3 10.0% 6.4%
Carload 52.6 –13.8% –1.4%
Intermodal 19.3 –2.5% –0.5%
Rail 71.9 –11.0% –1.1%
Air freight (includes domestic, import, export, cargo, and express) 66.9 1.5% 2.4%
Water (includes domestic, import, and export) 40.6 –10.0% –0.1%
Pipeline 33.6 1.1% 4.2%
Subtotal 894.7 –0.7% 3.6%
Inventory carrying costs
Storage 143.5 1.8% 3.6%
Financial cost (WACC x total business inventory) 143.4 –7.7% –2.2%
Other (obsoloscence, shrinkage, insurance, handling, others) 122.9 –3.2% 0.5%
Subtotal 409.8 –3.2% 0.5%
Other costs
Carriers’ support activities 44.7 0.7% 4.2%
Shippers’ administrative costs 43.3 –4.6% 2.8%
Subtotal 88.1 –2.0% 3.5%
Total US business logistics costs 1,392.64 –1.5% 2.6%
Note: YoY is year-on-year. WACC is weighted average cost of capital.
Sources: CSCMP’s 28th Annual State of Logistics Report; A.T. Kearney analysis
Ten-year summary of USBLC
Metric Units 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Nominal GDP $ billion 14,478 14,719 14,419 14,964 15,518 16,155 16,692 17,393 18,037 18,566

Total business $ billion 2,047 2,195 1,933 2,032 2,271 2,344 2,413 2,514 2,470 2,493
inventory

Inventory % 21% 18% 19% 18% 18% 17% 18% 16% 17% 16%
carrying rate

Transportation $ billion 749 774 623 682 749 786 810 879 901 895
costs

Inventory $ billion 421 397 372 375 400 409 428 407 423 410
carrying costs
(ICC)

Other costs $ billion 73 74 68 70 74 79 83 87 90 88

Total USBLC $ billion 1,243 1,245 1,063 1,127 1,224 1,274 1,321 1,373 1,414 1,393

Total USBLC as % 8.6% 8.5% 7.4% 7.5% 7.9% 7.9% 7.9% 7.9% 7.8% 7.5%
% of GDP

Total business % 14.1% 14.9% 13.4% 13.6% 14.6% 14.5% 14.5% 14.5% 13.7% 13.4%
inventory as %
of GDP

Transportation % 5.2% 5.3% 4.3% 4.6% 4.8% 4.9% 4.9% 5.1% 5.0% 4.8%
as % of GDP

ICC as % % 2.9% 2.7% 2.6% 2.5% 2.6% 2.5% 2.6% 2.3% 2.3% 2.2%
of GDP

Total business base 100 104 110 99 100 108 107 107 106 101 99
inventory as %
of GDP
(2010=100)

Transportation base 100 114 115 95 100 106 107 106 111 110 106
as % of GDP
(2010 = 100)

ICC as % of base 100 116 108 103 100 103 101 102 93 94 88
GDP
(2010 = 100)

Total USBLC as base 100 114 112 98 100 105 105 105 105 104 100
% of GDP
(2010 = 100)

Source: A.T. Kearney analysis

The CRP (Continuous Replenishment Programs) Between P&G and
Wal-Mart

Looking back over the ten-year period between Wal-Mart and P&G, information
technology has created a common language, driven down costs, and provided an
avenue for increased sales for the P&G and Wal-Mart partnership. Several key
lessons learned are summarized in the following for understanding the role that
Information Technology can play in the manufacturer / supplier relationship:

1. Use Information Technology Resources: Information Technology (IT)

resources can play a big role in the business. IT can provide technology
solutions to link suppliers and retailers. Ensure proper staffing of these
resources to drive volume and reduce cost.
2. Teach them the business: Take time to train your IT about the business.
The days of the business ignorant programmers are fading. IT
professionals have to know the business perspectives.
3. Focus on the consumer: Use data and technology to understand better
the consumer’s needs. When a debate about approaches occur, ask
yourself the question “What is right for the consumer, what are her/his
needs?”. This will help you approach the problem differently.
4. Data can be information: Retailer data is typically used for quick
decision support; P&G data is used for analytic decision support. When
merged, this data creates tremendous gains for both companies.
Information Technology can also be used to sift through large amounts of
data and provide exceptions or out of range business parameters. Using
IT to identify key outages such as low sales on a fast moving item, out of
stock on a key sku etc., will provide powerful business solutions for both
companies
5. Employ Industry standards: Driving towards common methods of
communicating business transactions and data sharing reduces cost for the
entire supply chain. Just as we have standardized logistics such as pallet
size, truck dimensions from a supply chain perspective, automating
business transactions will also drive down costs of the
manufacturer/supplier relationship.
6. Commitment to Information Sharing: Sharing point of sales data.
Market data, and consumer data among channel partners for joint decision
making is a key to the success of the integrated supply chains.
How to Negotiate with Powerful Suppliers

In many industries the balance of power has dramatically shifted from buyers to
suppliers. A classic example comes from the railway industry. In 1900 North
America had 35 suppliers of cast rail wheels; railway builders could pick and
choose among them. A century later no one looking to build a railroad had this
luxury, as only two suppliers remained. Today there is just one, which means that
railroad builders have no choice but to accept the supplier’s price.

Bring new value to the supplier.

This is the easiest approach. Companies can provide new value in several ways—
for example, by serving as a gateway to new markets or reducing the supplier’s
risks.

Change how they buy.

Companies can consolidate their purchase orders, rethink purchase bundles, or

decrease purchase volume.

Create a new supplier.

This is a high-risk option, but it can transform a company’s prospects. Firms have
essentially two paths: They can bring in a supplier from an adjacent market or
vertically integrate to become their own supplier.

Play hardball.

As a last resort, companies can cancel current orders and future business or
threaten litigation.

Whatever option firms choose, they need to clearly understand the problem,
work on it across functions, and think analytically and outside the box.