USA Supply USA Supply Chains

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USA Supply USA Supply Chains

Asia – USA Supply Chains: Current

Practices Practices, Trends and Challenges

Dr. Rob Leachman

Leachman and Associates LLC

and U. C. Berkeley

Oct. 24, 2011


Agenda Agenda

• Overview of Asia – USA Supply Chains

• Trends

• Challenges

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 2


How many y containers come from

Asia to USA?

• In 2007, about 7 million containers were

shipped shipped from Asia Asia to to the the USA

USA

• That’s more than 130,000 containers per

week!

October 9, 2011

Rob Leachman Made in

China, Sold in the USA 3


How many y container ships p come

from Asia, and where do they go?

• In 2007, 78 container ships came from

Asia to to North North America America each each week. week

• Most of these ships made stops at

October 9, 2011

several ports in North America.

– They unloaded most most of their containers at

the first stop …

Rob Leachman Made in

China, Sold in the USA 4


First stop p for the 78 ships p per p week

October 9, 2011

Pacific Northwest

ports: 15 ships

Oakland:

4 ships

Los Angeles l

and Long Beach:

39 ships

Mexico:

1 ship

Through the

Panama Canal

to East Coast

or Gulf Coast

ports: 20 ships

Rob Leachman

Made in China, Sold in the USA 5


What’s in the containers?

Commodity Percent of Total Volume

F Furniture it & B Bedding ddi 17.1% 17 17.1% 1%

Electronics 8.3%

Machinery 8.0%

Toys, Toys Toys, Games Games & & Sporting Sporting Goods Goods 7.5% 75% 7.5%

Clothing 6.8%

Auto Parts & Motorcycles 6.1%

Plastic Plastic Goods Goods 5.0%

Steel Goods 3.9%

Shoes and Boots 3.5%

Leather Goods (Handbags) ( g )

2.4%

Rubber Goods 3.3%

Wooden Goods 2.3%

All other 26.0%

Source: PIERS, WTA and d PMA 2005 data

d

October 9, 2011

Rob Leachman Made in

China, Sold in the USA 6


Who is importing p g all those goods g

from Asia?

Importer 2004 Volume

(containers)

containers)

Wal Wal-Mart Wal Mart 314 314,000 000 (696,000 (696 (696,000 000 in 2010)

2010)

Home Depot 170,000

Target 110,000 (2 nd in 2010)

Sears/K-Mart

Sea Sears/K s/K Ma Mart t 107 107,000 000

Ikea 55,000

Lowe’s 55,000

Costco 40,000

Ashley Furniture 38,000

Source: PIERS

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 7


Who’s importing p g all those goods g

(cont.)?

• ~40%: Large nation-wide nation wide “big-box” “big box” retailers

– importing inexpensive inexpensive and and moderately moderately expensive

expensive

goods

• ~25%: 25%: Large Large OEMs OEMs marketing marketing nation nation-wide

nation nation-wide wide

–relatively elatively expensive goods, e.g., electronics,

machinery machinery, appliances, appliances auto auto parts, parts fashion, fashion shoes

• ~35%: Small OEMs, small and regional retailers

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 8


Elements of Asia – USA Supply Chains

Asian Vessel to

Factories Port of Entry

Retail Outlets in

other Regions g

Local Retail

Outlets

Inland Point

Intermodal

“IPI”

RDCs in other

R Regions

i

Regional Distribution Center

(RDC) for local region

RDCs in other Regions

Trans Trans-load Trans Trans-load load

facility

Local RDC

Domestic Rail or Truck

to other Regions

Import

warehouse

Local Retail

Outlets

Retail Outlets in

other Regions

Domestic

Container/Trailer

Rob Leachman

Oct. 24, 2011 Asia - USA Supply Chains

9


Box Types

• Marine container container - holds up

up

to 2,700 cu. ft. of cargoes

• Domestic container or

trailer - holds up to 4,000 cu.

ft. of cargoes

• The contents of 5 hi hi-cube cube

marine containers can fit in 3

domestic containers

• A train of domestic containers hauls 17% more cargo per

unit length, weighs 1.3 ton ton less less per TEU of cargo, and and requires

40 40% % less destination drays than a train of marine boxes

Rob Leachman

Oct. 24, 2011 Asia - USA Supply Chains

10


Marine Stack Train

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 11


Domestic Stack Train

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 12


What matters in the design g of

supply chains

• Transportation and handling costs

• Inventory costs

Oct. 24, 2011

– Pipeline inventory

– Seasonal stock accumulation

–Safety Safety y stock inventory y to hedge g against g risks

of (1) demand forecast errors, and (2) late

transportation deliveries deliveries or missed

connections

Rob Leachman

Asia - USA Supply Chains 13


Push Supply Supply-Chain Chain Strategy

Potential port of entry

Regional distribution

center

Rob Leachman

Oct. 24, 2011 Asia - USA Supply Chains

14


Push Push-Pull Pull Supply Chain – All at San Pedro Bay

Potential port of entry

Regional distribution

center

Rob Leachman

Oct. 24, 2011 Asia - USA Supply Chains

15


Push Push-Pull Pull Supply Chain – Four Corners

Potential port of entry

Regional distribution

center

Rob Leachman

Oct. 24, 2011 Asia - USA Supply Chains

16


Comparison of of Supply Supply Chain Chain Strategies

Strategies

• Push Systems feature low transportation and

handling costs, while Push Push-Pull Pull Systems feature

low inventory y costs

• Each strategy most suitable for different goods:

Push Push-Pull Push Pull 3, 4

or 5 Corners

Cheapest Imports Moderate Moderate-value value

(25% of total at Imports (50% of

present) total)

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains

Push Push-Pull Pull All at

San Pedro Bay

Expensive Imports

(25% of total)

17


Who Who Uses What Supply Chain

Push Push Push-Pull Push Push-Pull Pull 3, 3 4 4 or

or Push Push-Pull Push Push-Pull Pull All All at

at

5 Corners San Pedro Bay

Nation Nation-wide

Nation wide Large Nation Nation-wide

Nation wide Original Equipment

Equipment

Importers of Importers of Manufacturers of

Inexpensive Goods Moderate Moderate-value value Expensive Goods

( (~10%) 0%)

Goods (~30%) ( 30%) with nation nation-wide wide

sales (~25%)

Small and Regional

Importers (~35%)

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains

18


Distribution bu o of o Asia a – USA U imports po

Commodity Percent of Avg. Declared

Total Volume Value ($ ($ per per cu. ft.)

Furniture & Bedding 17.1% $7.87

Electronics 8.3% $39.24

Machinery 8.0% $51.08

Toys, Games & Sporting Goods 7.5% $16.57

Clothing 6.8% $32.98

Auto Parts & Motorcycles 6.1% $24.65

Plastic l Goods d 5.0% $14.63 $ $14.63 3

Steel Goods 3.9% $15.43

Shoes and Boots 3.5% $24.91

Rubber Rubber Goods Goods 3.3% 33% 3.3%

$14 $14.37 37

Leather Goods (Handbags) 2.4% $16.14

Wooden Goods 2.3% $8.24

All All other other (86 (86 commodity commodity types) types) 26 26.0% 0%

Source: PIERS, WTA and PMA 2005 data

Rob Leachman

Oct. 24, 2011 Asia - USA Supply Chains

19


Perceentage

of Total T TEUs

100.00%

90.00%

80.00%

70.00%

60.00%

50.00%

40.00%

30 30.00% 00%

20.00%

10.00%

Value Distribution of 2005 Asia ‐ USA Waterborne

ContainerizedImports

Containerized Imports

0.00%

0.0 ‐

4.0

50%

Moderate-value

Imports

4.0 ‐

8.0

Source: WTA, PIERS, PMA

Oct. 24, 2011

8.0 ‐

12.0

25%

Inexpensive

Imports

12.0 ‐

16.0

16.0 ‐

20.0

20.0 ‐

24.0

24.0 ‐

28.0

28.0 ‐

32.0

32.0 ‐

36.0

36.0 ‐

40.0

25%

Expensive

Imports

40.0 ‐

44.0

Declared Value Val e ($ per cu. c ft.) ft )

44.0 ‐

48.0

48.0 ‐

52.0

52.0 ‐

56.0

> 56.0

Rob Leachman

Asia - USA Supply Chains 20


Example Supply Chains

• Big Big-Box Box Stores I

–80 80-90% 90% Push-Pull. Push Pull. Has a 5-corners 5 corners network (all corners

with import warehouses) but currently uses only 4 of the

corners.

– 10 10-20% 0 20% Push h for f one one-time time sales l events and d for f low- l

value goods.

• Big Big-Box Box Stores II

–90 90-95% 95% Push-Pull. Push Pull. Has a 5-corners 5 corners network (4 corners

have import import warehouses), warehouses) but currently any particular

product line uses only 3 corners.

– Uses Uses Push us for o o oone one-time e time t e saes sales e events e ts (5 (5-10% 10% 0% of o total tota

imports).

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 21


Example Example Supply Supply Chains Chains (cont.) (cont )

• Big Big-Box Big Big-Box Box Stores III

– Almost all Push-Pull Push Pull using 3 corners (LA, Savannah,

NY NY-NJ). NY NJ).

• Big Big-Box Box Stores IV

Oct. 24, 2011

– Fashion items for all of of Continental Continental USA USA handled

handled

through automated trans trans-load load facility near LA LA-LB. LB.

– Other items pass p through g Push-Pull Push Pull 4 corners supply

pp y

chain.

Rob Leachman

Asia - USA Supply Chains 22


Example p Supply ppy Chains (cont.) ( )

• Big Big-Box Box Home Improvement Stores I

–Based Based on its low avg. declared value, I was not

expecting it to use Push Push-Pull. Pull. But it does!

– Routes all its imported weight freight and enough

cube freight to 3PL trans trans-loading loading docks to build

domestic container loads that weight weight-out weight weight-out out and and cubecube-

out.

• Big Big-Box Big Box Box Home Improvement Stores II

Oct. 24, 2011

– Opened a gigantic import warehouse/RDC on the

Tejon j Ranch that serves both its Sou Cal and Nor Cal

stores. (!)

Rob Leachman

Asia - USA Supply Chains 23


Example Example Supply Supply Chains Chains (cont.) (cont )

• Electronics OEM

– Imports for all of USA brought to import warehouse in

Sou Cal Inland Empire, sold to retailers there and re-

shipped as domestic freight.

• Footwear OEM

–Imports mports for all of USA brought to 3PL Sou Cal DC, sold

to footwear retailers and re re-shipped shipped as domestic

freight. freight freight. Some sales result in live trans trans-loads, loads loads, some some are

are

after the footwear resides in the import warehouse for

some time.

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 24


Interesting Interesting Innovations

Innovations

• “DC Bypass”

Oct. 24, 2011

–3PL 3PL cross-docker

cross docker has as clients using the same dock a

big retailer and several OEMs. When stuffing domestic

containers for the retailer, goods purchased by

retailer t il from f OEMs OEM are blended bl d d in i with ith retailer’s t il ’

imported goods to build the outbound loads. loads

Rob Leachman

Asia - USA Supply Chains 25


Interesting Interesting Innovations Innovations (cont.) (cont )

• The automated cross cross-dock dock

Oct. 24, 2011

– Fashion imports p for Big g Box Stores IV

– Cartons never hit the floor, 2 minutes from inbound

marine container to outbound domestic container.

– Crew of 40 (10 permanent, 30 temps) processes 60

TEUs per shift.

– But software set set-up set up for for a a new new client client takes takes 6 months months.

(!)

Rob Leachman

Asia - USA Supply Chains 26


2006 2009 Import Import Import Mix Mix Mix at at at San San San Pedro Pedro Pedro Bay

Bay

43% 53%

Push

Push

47% 57%

Push - Pull

(Nation (Nation-wide, (Nation (Nation-wide, wide, it was 64% 59% Push, 36% 41% Push Push-Pull) Push Push-Pull) Pull)

Rob Leachman

Oct. 24, 2011 Asia - USA Supply Chains

27


What’s What What’s s Going on on Here?

Here?

• Retail companies p learning g to manage g their

supply chains better

– “Power Power of Postponement”

Postponement

– Blending weight freight and cube freight

• Nation Nation-wide wide big big-box box chains increasing increasing market

market

share as regional retailers get killed off

• Rail l rates on marine boxes b rising faster f than h

rates on domestic boxes

• More all all-water water market share

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 28


Happy Observations

Observations

• Fifty years ago, a Schwinn bicycle bicycle cost cost $60

• Today, in Wal Wal-Mart Mart or Target, an equivalent

bicycle bicycle costs … $60 !

• That same bicycle can be found in big stores in

Tokyo, k S Seoul, l Taipei, Hong Kong and d Singapore S

where it costs … $70 !

• Push Push-Pull Pull supply chains and modern logistics

provide us with the lowest lowest-cost cost goods in the

world

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 29


Bothersome observations

• Steamship lines and railroads make more

money on marine stack trains than on

domestic stack trains, so they promote them

• Ports also tend to promote marine stack trains

rather than domestic stack trains

• Importers wishing to to develop develop Push Push-Pull Pull supply

supply

chains can be frustrated

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 30


Bothersome Bothersome observations (cont (cont.) )

• Most large importers have departments to

manage transportation/logistics that are

separate from their departments managing

inventory/merchandising

• A uniform supply supply-chain chain strategy is typically

applied across across the the whole whole product product portfolio portfolio even

when there is sufficient volume to more

efficiently practice practice a a portfolio portfolio of of strategies

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 31


The Future

• In In 2007, 2007 nation nation-wide, nation wide, wide Push was was 59% and Push Push-

Pull was 41% (57% at San Pedro Bay)

• B But t what h t h happens after ft i interest t t rates t rise? i ? Aft After

wages in Asia rise? After the Asian currencies are

re re-valued? valued? l d? After Aft th the market k t shares h of f th the large, l

nation nation-wide wide retailers increase?

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains

32


Perceentage

of Total T TEUs

Oct. 24, 2011

100.00%

90.00%

80.00%

70.00%

60.00%

50.00%

40.00%

30 30.00% 00%

20.00%

10.00%

Value Distribution of 2005 Asia ‐ USA Waterborne

ContainerizedImports

Containerized Imports

0.00%

0.0 ‐

4.0

50%

Moderate-value

Imports

4.0 ‐

8.0

8.0 ‐

12.0

25%

Inexpensive

Imports

12.0 ‐

16.0

16.0 ‐

20.0

20.0 ‐

24.0

24.0 ‐

28.0

28.0 ‐

32.0

32.0 ‐

36.0

36.0 ‐

40.0

25%

Expensive

Imports

40.0 ‐

44.0

Declared Value Val e ($ per cu. c ft.)

ft )

44.0 ‐

48.0

48.0 ‐

52.0

52.0 ‐

56.0

> 56.0

Rob Leachman

Asia - USA Supply Chains 33


Percentage

of Total T TEUs

Oct. 24, 2011

100.00%

90.00%

80 80.00% 00%

70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%

Value Distribution of Asia ‐ USA Containerized Imports,

2005 Actual vs. After 15% Increase in Values

0.0 ‐

4.0

49%

Moderate-value

Imports

4.0 ‐

8.0

8.0 ‐

12.0

19%

Inexpensive

Imports

12.0 ‐

16.0

16.0 ‐

20.0

20.0 ‐

24.0

24.0 ‐

28.0

28.0 ‐

32.0

32.0 ‐

36.0

36.0 ‐

40.0

Declared Value ($ $ per cu. ft.)

32%

Expensive

Imports

40.0 ‐

44.0

44.0 ‐

48.0

48.0 ‐

52.0

52.0 ‐

56.0

> 56.0

Rob Leachman

Asia - USA Supply Chains 34


“The Future Ain’t What It Used to

Be.” ”

• Push Push-pull pull supply chains will increasingly

dominate Asia – USA imports

• Railroads, steamship lines, ports, 3PLs and

other service providers should be making

strategic i plans l accordingly di l

• The public and policymakers need to be

educated d t d

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains

35


The Future (cont.) ( )

• The pricing of all all-water, water, IPI and domestic-box

domestic box

channels are are important. important

– The mix of Push vs. Push-Pull Push Pull supply chains is sensitive

to the relative pricing of of these these channels channels.

– The allocations of volumes to ports also are sensitive.

– Note how steep the value distribution curve is around

$8 $8-$12 $12 per cu. ft.

• Changed g all-water all water rates could be a big g deal. The

railroads and the lines will need to price wisely.

– Expanded p Panama Canal opens p in 2014

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 36


Things that seem inefficient

• Rail terminals terminals for for marine marine boxes boxes are are located located close to the

ports, but rail terminals for domestic boxes are not

• Cross Cross-dock dock facilities are mostly y located close to the

ports, but import warehouses are not

• Drays out of port terminals are scheduled by the

importers, not by the terminals

• Result: Unnecessary transportation, unnecessary

terminals terminals, unnecessary unnecessary congestion , unnecessary

pollution

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 37


Conclusion

• S Supply l chain h i strategies t t i are still till evolving. l i

• Much progress has been made.

• But great opportunities (and very great

challenges) g ) remain!

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 38


Further study and more information

• Academic papers p p and consulting g reports p may y be

downloaded from Prof. Leachman’s U C Berkeley

web site:

http://www.ieor.berkeley.edu/People/Faculty/lea

chman.htm

• You can contact me with your questions or

comments at leachman@ieor.berkeley.edu

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains 39


Thank you for your attention!

Oct. 24, 2011

Rob Leachman

Asia - USA Supply Chains

40

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