2009 Logistics Cost and Service Presentation

LOGISTICS COST AND SERVICE 2009
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. Summarize S mmari e the data received from participating companies and aggregate it recei ed into a useful database for benchmarking.
Copyright 2009 Establish, Inc.
www.establishinc.com
Today 2009 North 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: Product category Product value Company size sales revenue p y Company size shipped weight
Timeline
2007 2005 2003 2001 1999 1992 1987 1985 1983 1982 1974 Revised definitions Revised format Extended options Davis Insights added New European Database
Made Database form available on line Chemical Manufacturers of America Database Restructured D t b R t t d Database f globalization of logistics for l b li ti f l i ti European Database expanded, 10 countries
First European Database, France Private benchmarking system for GE s 72 divisions GEs GMA - Grocery Manufacturers of America Database PMA - Pharmaceutical Manufacturers of America Database DTPA - Drug and Toilet Preparations Association Database First private Database for FIEI
Set up Database Completed first Workbook

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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. 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 Annual Sales millions Weight Shipped million lbs. Product Value Logistics Costs in $ millions Logistics Costs as a % of Sales Logistics Costs per CWT $2,000 500 $4.00 $200 10.0% $40.00
2009 $2,020 498 $4.05 $220 10.9% $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 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 months 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 Peripherals Telecommunications Industrial Replacement Parts Chemicals Industrial Supplies Consumer Replacement Parts Small Appliances Large Appliances Publishers Tires Consumer Packaged Goods Building Supplies/Hardware Products Low-Value C Consumer Packaged G Goods High-Value Consumer Packaged Goods Grocery Produce and Fresh Foods Meat and Fish Products Frozen Food Beverages Consumer Household Products Health and Beauty Aids High-Value Pharmaceuticals Low-Value Pharmaceuticals Industrial and Consumer Wholesalers/Distributors Apparel Retailers Drug Chains Mass Merchandisers Low Value Low-Value Industrial Durable
Logistics Cost Percent of Sales by Industry Classification
Building Supplies g
Grocery
Industrial Equipment
Healthcare
High Tech
Pharmaceuticals
Not to scale
Logistics Cost Percent of Sales by Industry Classification
Building Supplies
Grocery Industrial Equipment
Database Average
Healthcare
High Tech
Pharmaceuticals
Not to scale
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The Hierarchy of Supply Chain Cost Factors
Corporate Policies Corporate Policies
Supply Chain Policies S l Ch i P li i Supply Chain Policies
Logistics Policies Logistics Policies
Logistics Procedures Logistics Practices Transportation Choices
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Average Company2009 Database
Cost In % of Sales Transportation Warehousing Order E t /C t O d Entry/Customer Service S i Administration Inventory Carrying Total L i ti C t T t l Logistics Costs 4.12% 1.73 0.54 0 54 0.26 1.83 8.48% 8 48% $/CWT $40.00 14.73 6.01 6 01 2.07 18.08 $80.89 $80 89
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Cost Breakdown Percent of Sales
Customer Service/ Order Entry
Inventory Carrying
6%
Warehousing
22%
Administration
20%
3%
49%
Transportation
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Product Value Cost declines with higher value

Cost as a % of Sales
12 10 8 6 4 2 0
11.61 9.57 8.06 6.35
<$1.50
$1.50 - $5
$5 - $15
>$15
Product Value in $/Pound
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Company Size Small companies pay more
Cost as a % of Sales
12 10 8 6 4 2 0
11.44 11 44 8.09
7.35
7.23 7 23
<$200
$200 - $500
$500 - $1,250
>$1,250
Annual Sales ($ MM)
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Logistics CostPercent of Sales
10 9 8 7 6 5 4 3 2 1 0
1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
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Logistics CostPercent of Sales Last Five Years

8.0
7.5
7.0
6.5
6.0 2005 2006 2007 2008 2009
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Logistics Cost Change
2009 versus 2008 % of Sales Transportation Warehousing Order Entry/Customer Service Administration Inventory Total + 9.3% + 2.5 + 4.4 - 16.7 + 10.9 + 9.4% $/CWT + 10.4% + 3.7 + 5.4 + 15.5 + 12.5 + 10.7%
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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. Some sharp reductions in demand are leaving many companies supply S h d ti i d d l i i l 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.
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Annual Functional Cost Change (Percent of Sales)
50 25
Warehousing
0
Transportation
-25 -50 -75
Inventory
79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09
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Cost Breakdown Transportation Costs

Vehicle
20%
Fuel
Operating
12% 25%
2008
43%
Labor Vehicle 18% Operating 17%
2009
Fuel 24%
41% Labor
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Customer Service Levels
Definition The prompt and complete delivery of goods ordered
Measurements Prompt = 7.8 days total order cycle time 78 Complete Orders Lines Units U it 91% 94% 95%
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Average Performance Reported
FULL DATABASE 00 Total Cycle Time Product Availability (Days) (% Orders) (% Li Lines) ) (% Cases) 8 86 92 92 01 7 87 92 90 02 8 88 95 93 03 7 85 91 93 04 8 91 94 91 05 8 88 92 94 06 8 84 89 90 07 9 83 93 94 08 9 90 92 94 09 8 91 94 95
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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.
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Strongest Forces Driving Decisions in Logistics

% of Responses
80 70 60 50 40 30 20 10 0
2008 2006 2007 2009
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Most Pressing Issue in Managing Logistics
Costs. Changing service requirements. requirements Outsourced logistics providers. Reliability and quality of inbound products. products Inventory availability and velocity. Global sourcing. sourcing Reductions in lead time for inbound products. Uncertainty over market demand or other forces (fuel).
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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.
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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.).
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Most Recent Changes in Your Logistics Network

% of Responses
50
2008 2007 2009
40 30 20 10 0
2006
29
Most Recent Change in Systems that Support Logistics

% of Responses
50 40 30 20 10 0
2008 2006 2007 2009
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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.
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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 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
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LOGISTICS COST AND SERVICE 2009

Copyright 2009 Establish, Inc.

Today 2009 North American Status

Copyright 2009 Establish, Inc.

Set up Database Completed first Workbook

Key Findings 2009

with excess capacity and excess costs. Transportation

smaller, less-cost-effective shipments. Warehousing

the pipe-line in a timely manner. Administration and Oversight

Copyright 2009 Establish, Inc.

Copyright 2009 Establish, Inc.

Interpretation for the Typical Company

If you had the following characteristics.

2009 $2,020 498 $4.05 $220 10.9% $44.00

Copyright 2009 Establish, Inc.

Several Database Trends are Evident

Copyright 2009 Establish, Inc.

Copyright 2009 Establish, Inc.

Logistics Cost Percent of Sales by Industry Classification

Copyright 2009 Establish, Inc.

Logistics Cost Percent of Sales by Industry Classification

Grocery Industrial Equipment

Copyright 2009 Establish, Inc.

The Hierarchy of Supply Chain Cost Factors

Corporate Policies Corporate Policies

Supply Chain Policies S l Ch i P li i Supply Chain Policies

Logistics Policies Logistics Policies

Logistics Procedures Logistics Practices Transportation Choices

Copyright 2009 Establish, Inc.

Average Company2009 Database

Copyright 2009 Establish, Inc.

Cost Breakdown Percent of Sales

Customer Service/ Order Entry

Copyright 2009 Establish, Inc.

Product Value Cost declines with higher value

11.61 9.57 8.06 6.35

Product Value in $/Pound

Copyright 2009 Establish, Inc.

Company Size Small companies pay more

Annual Sales ($ MM)

Copyright 2009 Establish, Inc.

Logistics CostPercent of Sales

Copyright 2009 Establish, Inc.

Logistics CostPercent of Sales Last Five Years

6.0 2005 2006 2007 2008 2009

Copyright 2009 Establish, Inc.

Logistics Cost Change

Copyright 2009 Establish, Inc.

Why are Overall Costs Rising?

Copyright 2009 Establish, Inc.

Annual Functional Cost Change (Percent of Sales)

-25 -50 -75

Copyright 2009 Establish, Inc.

Cost Breakdown Transportation Costs

Copyright 2009 Establish, Inc.

Customer Service Levels

Definition The prompt and complete delivery of goods ordered

Copyright 2009 Establish, Inc.

Average Performance Reported

Copyright 2009 Establish, Inc.

Copyright 2009 Establish, Inc.

Strongest Forces Driving Decisions in Logistics

Copyright 2009 Establish, Inc.