Transitioning from the BackRoom to the

BoardRoom- The New Chief Logistics Officer

Dr. Stephen G. Timme

President, FinListics Solutions and Adjunct Professor,
Georgia Institute of Technology
Jose Li
Principal, FedEx
Retail & eCommerce Industry Marketing

www.supplychainsummit.com
 The Challenge

• Many companies historically

have not aligned logistics with Revenue
financial performance goals. Growth

• High performance
Financial
companies use Profitabil
Performa
logistics to achieve ity
nce
financial goals
through:
– Higher Value-Adding Revenue Growth Capital
– Improved Profitability Utilizatio
– Greater Capital Utilization n

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 Aligning Logistics with Financial Goals:
A Top-Down Approach

Inventory,
1 Financial Revenue, SG&A,
Drivers COGS, Fixed
Assets, A/R, A/P
Uses gaps in financial
Logistics performance drivers to
2 Business determine potential for
improving Logistics business
Processes processes, activities, tasks

3 Logistics
Activities/Tasks

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 Financial-Logistics Connection
Financial Metric Examples of How Logistics Adds Value
Revenue Growth (Same Store and •Fill rates •Lead times
New Store Sales) •Forecasting •New Product Speed to Market
•Customer Service

COGS as a Percentage of Revenue •Inbound Transportation Mgt. •Procurement

(Gross Profit Margin) •Inventory Mgt. •Reverse Logistics
•Network Design •Selective Outsourcing

SG&A as a Percentage of Revenue •Warehouse Mgt. •Customer Service

•Outbound Transportation •Information Technology
•Logistics Administration

Days in Inventory (DII) •Transportation Mgt. •Inventory Visibility

(GMROII) •Warehouse Mgt. •Forecasting Accuracy
•Network Design •Demand Planning

Days Sales Outstanding (DSO) •Shipment Integrity •Invoicing Accuracy

•Fill Rate •Internal Communications
•Proof of Delivery

Days Purchases Outstanding (DPO) •Procurement Terms •Payment Practices

Fixed Asset Utilization •Warehouse Management •IT Management

(Revenue / SF for stores) •Transportation Management •Selective Outsourcing

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 Logistics – Who’s View?

CxO View of Logistics

CEO • Deliver value-adding growing revenue.

• Like merchandise availability, new merchandise speed to market and customer service.

CFO • Better manage the balance sheet primarily in terms of inventory and fixed assets and the
income statement in terms of logistics related expenses.

Merchandisers • Sales, sales and more sales.

• Like visibility into current and future demand including both quantities and required lead
times or replenishment times.

•
VP Logistics •
Better plan and fulfill market demand for goods and service and do so more efficiently.
Like Logistics buy-side, sell-side, planning and execution.

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 Much Potential to Unlock Hidden Value:
Retailers’ Operating Income Margin
1st Quartile Median

12%
9.8%
10%
8.2%
8% 7.5% 7.4% 7.1%

6% 5.0%
4.2%
4% 3.4%

2%

0%
Apparel Electronics Non-Store Department

Annual value of
improving to 1st $23M $24M $29M $48M
Quartile*
*per $1,000 million in revenue
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 Much Potential to Unlock Hidden Value
Retailers’ Days In Inventory
1st Quartile Median

120
105
100
87 86
80 74
69 65
56
60

40 29
20

-
Apparel Electronics Non-Store Department

Value of improving
to 1st Quartile* $34M $63M $67M $60M
*per $1,000 million in revenue
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 GMROI – Need for Logistics
Speed
Apparel Electronics Non-Store Department
$Revenue $1,000 $1,000 $1,000 $1,000
$Gross Profit 391 319 370 345
$Inventory 145 159 112 188
GMROI 269% 201% 330% 183%
(GP / Inventory)

GP Margin 39.1% 31.9% 37.0% 34.5%

(GP / Revenue)

X Inv Turn 6.89 6.31 8.91 5.31

(Revenue / Inventory)

= GMROI 269% 201% 330% 183%

Profitability x SPEED

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 Need for Logistics SPEED – A Retail
Example*
Base case: 30% Gross Profit
Margin x 7 Inventory
Turnover = 210% GMROII
35%
Breakeven % Gross Profit

33%
Inventory
31%1 Turnover
30% Increases to 8.5:
29% 25% GPM x 8.5 =
212% GMROI
27%
2 3
25% 25%
Competition Lowers GPM to 25% 24%
but no change in Inventory 22%
Turnover: 25% x 7 = 175%
20% GMROI
6.0

6.5

7.5

8.0

8.5
7.0

9.0
(SPEED)
*Graph for 200% minimum Inventory Turnover
GMROII
Retail is an industry of constant change…

Check Out line…

‘Express’ Check Out

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…many other opportunities for change

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Observations on our retail customers

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 Observations on our retail customers

- 2-4% of COGS is inbound logistics, usually managed by vendors, often times

charging premiums of 20-60%

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 Observations on our retail customers

- Proper visibility in supply chain allows more efficient scheduling of cash flows,
labor personnel, and back-room operations

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 Observations on our retail customers

- Direct marketers use vendor-direct (drop shipping) for ~20% of orders

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 A Look at How FedEx Helps Retailers
SCENARIO #1: DC by-pass and direct US distribution solutions that reduce
Time-to-Market: C- Store Retailer increasingly sourcing merchandise from
overseas

Challenges Solutions Results

 Finding most efficient  FedEx Ocean to Ground
logistics from overseas distribution
vendors to US stores
 Import documentation
 Improved visibility from  Customs, duties & taxes
origin to destination,
through a single while vessel at sea, pre-
source clears shipment
 Limit coordination with  Distributed via Express,
multiple vendors Ground, or Freight
networks
 Visibility through Global
Trade Data & EDI
 Shorten time-to-market for
merchandise (days in
inventory)
 Improved visibility in the
process, from origin to
destination, through a single
source
 Helped improved
merchandise gross margins
by 5.5%

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 A Look at How FedEx Helps Retailers
SCENARIO # 2: Entire supply chain assessment for 230-store multi-channel
retailer

Challenges Solutions Results

 Time-definite deliveries  Worked with retailer to  Helping reduce
for DC to store schedule 2-hour delivery
replenishment transportation spend by
windows for store $3MM; inbound savings
 85% of vendors on replenishment
Freight-Free Paid; amount to $1MM per year
retailer paying 20%-  Converted vendors to  Store receiving process
40% mark-ups on Freight-Free Collect helps schedule store labor,
inbound maximize inventory turns,
and reduce Out of Stocks

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 A Look at How FedEx Helps Retailers
SCENARIO # 3: 100-Store multi-channel retailer and FedEx conducted a ‘Retail
Best Practices and Framing Session’

Challenges Solutions Results

 Leading retailer  Conducted ½ day ‘Retail Best  Proposed 3 options for
looking to understand Practices and Solutions retailer to address # 1
industry best practices Framing session’ with issue. Customer chose
Logistics, Store Ops, IT, FedEx Multiweight
 Transportation/logistics Purchasing, Finance,
group looking to Merchandising  Piloted solution in 9 stores
involve all for 4 months. Measured
stakeholders in value  Assessed retailer’s entire before/after picture and
chain supply chain (inbound, exceeded proposed
internal, outbound, returns) benefits. Retailer rolling out
 Prioritize key initiatives from 3 process flows (product, solution to rest of stores
that add value to Store information, financial dollars)
experience  Retailer valued FedEx’s
 Retailer identified top 3 issues solution approach to help
that would ‘make their lives them solve their business
easier’ and chose ‘Opening problems
the back room 4 times a day’
as #1
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 What would these changes mean to an
average $100MM retailer?

Scenario # 1: each 1-day reduction in cost of goods sold per day = $178K
Scenario # 2: $3MM in transportation savings equate to $60K for a $100MM retailer,
or a 1% increase in operating profits
Scenario # 3: improved labor costs could yield lower % SG&A
Scenario # 4: reduced order cycle time could yield lower Days in Inventory and
increase revenues
Revenue % Cost of % SG&A Days Sales Days In Days Fixed Asset
Growth Goods Outstanding Inventory Purchases Utilization
Business Process Sold Outstanding

Merchandising
Store Operations
Warehouse Management
Transportation

= Growth = Profitability + = Capital

Utilization

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Questions

www.supplychainsummit.com
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