2009 logistics cost and service presentation

LOGISTICS COST AND SERVICE20092009

Introduction

The Establish, Inc./Herbert W. Davis and Company Logistics Cost and Service Database was established in 1975 to:

Define appropriate performance measures for logistics functions.

Provide worksheets to record functional costs by facility and in total.

S mmari e the data recei ed from participating companies and aggregate itSummarize the data received from participating companies and aggregate it into a useful database for benchmarking.

Copyright © 2009 Establish, Inc. www.establishinc.com1

Today – 2009North American Status

Database of Logistics Cost and Service maintained and opened to all shippers to participate since 1975.

Participation is achieved by completing a one-page questionnaire on our website.

Participant is sent a customized benchmark comparing cost and service performance to four peer groups:performance to four peer groups:

– Product category

– Product value

– Company size – sales revenuep y

– Company size – shipped weight


Timeline

2005Revised definitions

2007

2001

1999Davis Insights added

2003 Revised formatExtended options

1992 Made Database form available on line

R t t d D t b f l b li ti f l i ti1987

Chemical Manufacturers of America Database

1999 New European Database

Restructured Database for globalization of logistics

European Database expanded, 10 countries1985

First European Database, FrancePrivate benchmarking system for GE’s 72 divisions

1983

First private Database for FIEI

Private benchmarking system for GE s 72 divisions

1982

1974

GMA - Grocery Manufacturers of America DatabasePMA - Pharmaceutical Manufacturers of America DatabaseDTPA - Drug and Toilet Preparations Association Database


First private Database for FIEISet up DatabaseCompleted first Workbook

Key Findings – 2009

What is happening in terms of logistics costs?

The Economy

Overall, most companies felt a reduction in demand leaving most supply chains with excess capacity and excess costs.with excess capacity and excess costs.

Transportation

Continually shifting to smaller and smaller order sizes, increases the need for smaller, less-cost-effective shipments.

Warehousing

Many companies have outsourced their warehousing operations to minimize the risk of large swings in demand, however, many companies are either at the minimum contract level or are not reaching the same volume incentives.g

Inventory

Increased pressure due to longer supply chains and the inability to shut down the “pipe-line” in a timely manner.

Administration and Oversight

A number of highly compensated supply chain executives have been “let-go” from their positions as downward pressure on demand has forced companies to tighten their belts and run their existing supply chain, rather than focus on


strategies for improvement.

Trend group average:

Cost as a percent of sales is up 9.4%.

Cost per hundredweight is up 10.7%.

Sales are up 1.0%.

Total costs in dollars are up 10.1%.p

Weight shipped is down 0.5%.

Product value is up 1.3%.


Interpretation for the Typical Company

If you had the following characteristics….

2008 2009

Annual Sales – millions $2,000 $2,020

Weight Shipped – million lbs. 500 498

Product Value $4.00 $4.05

Logistics Costs in $ – millions $200 $220Logistics Costs in $ millions $200 $220

Logistics Costs as a % of Sales 10.0% 10.9%

Logistics Costs per CWT $40.00 $44.00


Several Database Trends are Evident

Logistics costs have increased considerably from 2008 to 2009. There have been large increases in almost every element of the supply chain, except in the Administration and Oversight, where many companies realized a reductionthe Administration and Oversight, where many companies realized a reduction in costs by reducing staff.

Overall, the past year has not been a good one for logistics costs and service, with demand down for most of the year; although, it has been picking up in the past few monthspast few months.

Customer service levels remain flat, as most companies have focused on cost reductions rather than service improvements.


Recent Industries

Consumer Electronics

High-Value Industrial Durable

Computers

High-Value Consumer Packaged Goods

Grocery

Produce and Fresh Foods

Peripherals

Telecommunications

Industrial Replacement Parts

Meat and Fish Products

Frozen Food

Beverages

Chemicals

Industrial Supplies

Consumer Replacement Parts

Consumer Household Products

Health and Beauty Aids

High-Value Pharmaceuticals

Small Appliances

Large Appliances

Publishers

Low-Value Pharmaceuticals

Industrial and Consumer Wholesalers/Distributors

Apparel RetailersTires

Consumer Packaged Goods

Building Supplies/Hardware Products

C G

Apparel Retailers

Drug Chains

Mass Merchandisers

Low-Value Industrial Durable


Low-Value Consumer Packaged Goods Low Value Industrial Durable

Logistics Cost – Percent of Sales by Industry Classification

Building Supplies

Grocery

g

Healthcare

Industrial Equipment

High Tech

Healthcare

Pharmaceuticals


Not to scale

Logistics Cost – Percent of Sales by Industry Classification

Building Supplies

Grocery

Healthcare

IndustrialEquipment

Database Average

High Tech

Healthcare

Pharmaceuticals


Not to scale

The Hierarchy of Supply Chain Cost Factors

Corporate PoliciesCorporate PoliciesCorporate Policies

S l Ch i P li iSupply Chain Policies

Logistics Policies

Supply Chain Policies

Logistics Policies

Logistics Procedures

Logistics PracticesLogistics Practices

Transportation Choices


Average Company—2009 Database

% of Sales $/CWTCost In

% of Sales $/CWT

Transportation 4.12% $40.00

Warehousing 1.73 14.73

O d E t /C t S i 0 54 6 01Order Entry/Customer Service 0.54 6.01

Administration 0.26 2.07

Inventory Carrying 1.83 18.08

T t l L i ti C t 8 48% $80 89Total Logistics Costs 8.48% $80.89


Cost Breakdown Percent of Sales

Customer Service/

6% 22%

3%AdministrationWarehousing

Customer Service/Order Entry Inventory Carrying

20% 3%

49%Transportation


Product ValueCost declines with higher value

11.6112

Cost as a% of Sales

9.57

8.068

10

6.35

6

8

2

4

0<$1.50 $1.50 - $5 $5 - $15 >$15

Product Value in $/Pound


Product Value in $/Pound

Company SizeSmall companies pay more

11 44

Cost as a% of Sales

11.44

8.097.35 7 23

10

12

7.23

6

8

2

4

0<$200 $200 - $500 $500 - $1,250 >$1,250

Annual Sales ($ MM)


Logistics Cost—Percent of Sales

789

10

34567

0123

1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010


Logistics Cost—Percent of Sales

8.0Last Five Years

7.5

7.0

6.5

6.02005 2006 2007 2008 2009


Logistics Cost Change

2009 2008

% of Sales $/CWT

2009 versus 2008

Transportation + 9.3% + 10.4%

Warehousing + 2.5 + 3.7

Order Entry/Customer Service + 4.4 + 5.4

Administration - 16.7 + 15.5

Inventory + 10.9 + 12.5

Total + 9.4% + 10.7%


Why are Overall Costs Rising?

The average company in our trend group has incurred a cost increase in almost every cost category except administration and oversight.

S h d ti i d d l i i lSome sharp reductions in demand are leaving many companies supply chains with excess capacity.

Order sizes are continually decreasing with stricter delivery restrictions, increasing the need to use less cost-effective transportation modes.

The increases in warehousing costs are related to demand variability and excess capacity.

The increases in inventory are due to the lack of response time in some longer supply chains (product is often already in transit when demand drops).g pp y (p y p )

There have been other reductions in the oversight and management functions as staff levels were drastically reduced.


Annual Functional Cost Change(Percent of Sales)

50

25Warehousing

-25

0Transportation

Inventory

Warehousing

-50

-7579 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09


Cost Breakdown Transportation Costs

Vehicle

25%

20%12%

Fuel

VehicleOperating

20082008

18%

43%

OperatingVehicleLabor

18%17%

2009

41%

24%Fuel


41%Labor

Customer Service Levels

Definition

– The prompt and complete delivery of goods ordered

Measurements

Prompt = 7 8 days total order cycle timePrompt = 7.8 days total order cycle time

CompleteOrders 91%Lines 94%U it 95%Units 95%


Average Performance Reported

Total Cycle Time (Days) 8 7 8 7 8 8 8 9 9 8

00 01 02 03 04 05 06 07 08 09

FULL DATABASE

Total Cycle Time (Days) 8 7 8 7 8 8 8 9 9 8

Product Availability (% Orders) 86 87 88 85 91 88 84 83 90 91

(% Li ) 92 92 95 91 94 92 89 93 92 94(% Lines) 92 92 95 91 94 92 89 93 92 94

(% Cases) 92 90 93 93 91 94 90 94 94 95


Davis Insights

1. Strongest forces driving decisions in logistics.

2. Most pressing issue in managing a logistics organization.

3. Most pressing issue in operating logistics functions.

4. Most difficult customer service requirement.

5. Most recent changes in logistics network.

6. Most recent change in systems that support logistics.


Strongest Forces Driving Decisions in Logistics

80

% of Responses

60

70 2008 20072006 2009

40

50

20

30

0

10


Most Pressing Issue in Managing Logistics

Costs.

Changing service requirementsChanging service requirements.

Outsourced logistics providers.

Reliability and quality of inbound productsReliability and quality of inbound products.

Inventory availability and velocity.

Global sourcingGlobal sourcing.

Reductions in lead time for inbound products.

Uncertainty over market demand or other forces (fuel).Uncertainty over market demand or other forces (fuel).


Most Pressing Issue in Operating Logistics Functions

Controlling and reducing costs.

Managing complexity and variability.

Continuous network optimization and transition.

Customer delivery requirements.

Managing temporary staff.


Most Difficult Customer Service Requirement

Mass customization while reducing costs.g

Labeling and packaging requirements.

Extended payment terms and charge backs.y g

Delivery requirements (carriers, appointments, etc.).


Most Recent Changes in Your Logistics Network

50

% of Responses

40

2008 20072006 2009

20

30

10

20

0


Most Recent Change in Systems that Support Logistics

% of Responses

502008 2007

40

2008 20072006 2009

20

30

10

20

0


In Summary

The average company in 2009 has logistics costs of 8.47% of sales.

Year-over-year costs rose sharply in 2009 from 2008.

Most companies are focusing on:

– Reducing their cost levels while maintaining enough flexibility to react when demand improves.

– Rationalizing the number of locations in their network.

– Making improvements within their ERP or WMS systems.


How to Participate

Fill out a short one-page input sheet on-line.

No charge for initial comparison.

Confidentiality of your data is assured.

Participants receive custom benchmarks:

Percent of annual sales– Percent of annual sales

– Cost per hundredweight

– Five cost categories: transportation, warehousing, customer service/order entry, inventory carrying, and administration

– Averages and quartiles are provided

– Benchmarks based on product value, weight and revenue

– Customer service performance


2009 logistics cost and service presentation

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