How do I achieve an optimal network to
serve my customers?
Kelly Gray Vice President, Location Consulting
JLL
Jason Brewer Managing Director, Global Alliances
LLamasoft
David A. Zuern VP Logistics
Benjamin Moore & Co.
1
Housekeeping
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2
Designing the Ideal Supply Chain for the
Future
Jason Brewer
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Complexity, Volatility, Change, and Competitive Advantage - the New Normal
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External Factors Impacting the Supply Chain
Greater Customer Demands
Competition Positioning and
Evolution
Transportation Cost and
Availability
Tax and Duty Changes
(Especially International)
Raw Material Availability and
Cost Fluctuations
Greater Focus and
Opportunity in Emerging
Markets
Political Upheaval
Labor Laws and Agreements
Weather Disruptions
5
Internal Factors Impacting the Supply Chain
SKU Proliferation
Shortened Product
Lifecycles
Evolving Business Channels
(Growth of Ecommerce,
Desire for Omni-channel)
Procurement Changes
(On/Off Shoring, Order Qty.)
Aging Infrastructure
Fulfillment Strategy or
Inventory Deployment
Initiatives
Change in Other Business
Strategy
Mergers and Acquisitions
Spinoffs
6
With all this Complexity, Volatility, and Change – Come More Questions to Answer
Common
Questions
Addressed
Network Structure • Location and Number of Facilities • Additional Capacity Needs • Consolidation • Merger and Acquisitions • Distribution Capacity
Inventory • Inventory Levels • Inventory Deployment
Strategy
Production Footprint • Mix • Scheduling • Location • Insource / Outsource • Capacity
Transportation • Route and Asset Optimization • Mode Analysis • Backhauls • Frequency
Product Demand • Segmentation • Channel Strategy
Product Flow • Fulfillment Strategy • Cost to Serve • Ports of Entry • Cross Docking • Customer Allocation
Service & Performance Metrics • Redundancy • Service Levels • Synergies
7 © 2014 LLamasoft, Inc. All Rights Reserved
How Market Leaders Are Responding
Supply chain design is now a must-have capability to keep up
with the pace of change and sustain a competitive advantage
Leaders have created centers of excellence and put in place an integrated supply chain design platform and business process
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Modern Supply Chains Need a Modern Approach and Platform to Network Optimization
• Visualization
• Scenario Management
• Data Management
• Quick Drilldown of Results
• Advanced Mapping
• Geocoding
• Geographical Outputs
• Simulation and What If Analysis
• Ability to be Utilized Across the Enterprise
Key Functionality to the Tool
• Understanding “Good Assumptions” for
Missing Data
• Extrapolation of Future Business
Requirements into Tangible Supply Chain
Requirements
• Aggregation at the Correct Level Given the
Objectives (Strategic vs. Tactical)
• Intelligent Scenario Development
• Defining the Correct Constraints
• Clustering and Segmenting
• Realistic Roadmap to Implement
Key Aspects to the Approach and Methodology
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Integrated Approach Ensures Network Studies are More than “Greenfield” Analysis
Transportation Optimization
Inventory Deployment Facility Design
Network Structure
Examples of Targets of
Optimization:
• Service Level
• Cost to Serve
• Consolidation / Expansion
• …
• Often basic approach to network design is to
conduct a “greenfield” analysis and use as the
future network
• Often ignores both the current and future as well
as potential design changes at each facility
• More mature supply chains have issues
connecting reality to “greenfield” studies
• For high capital networks in mature markets – in
depth facility reviews become even more
important
• Must be based on actual budgets, timelines,
risks, expectations, roadblocks, etc.
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Key Takeaways
• Supply Chains are Faced with Mounting Internal and External Pressures
• Complexity of Designing a Supply Chain as a Competitive Advantage is Increasing with this Changing Pace
• Both the Methodology as Well as the Tools Used are Critical to Success
• Key Steps to Design your Future Supply Chain: – Determine Your Future Supply Chain Needs
– Develop Alternatives How to Best Accomplish
– Model the Scenarios
– Finalize the Business Case for the Solution
• New Technologies Make it Easier than Ever to: – Visualize
– Evaluate Scenarios
– Conduct Sensitivity Tests
– Simulate Future Network
• Tools are Only as Powerful as the Inputs and Those Driving the Analysis
11 © 2014 LLamasoft, Inc. All Rights Reserved
The Third Discipline of Supply Chain Management
Supply Chain Management
Planning Execution Design
Enterprise Resource Planning Production Planning & Scheduling Inventory Management & Planning Sales & Operations Planning Demand Forecasting Sourcing & Procurement Integrated Business Planning
Transportation Management Warehouse Management Workforce Management Yard Management Tracking & Tracing Global Trade Management 3rd Party Scheduling & Billing
Network Strategy Route Modeling Demand Segmentation Enterprise Simulation Inventory Policy Analysis Product Flow-path Design Service-level Optimization
12 © 2014 LLamasoft, Inc. All Rights Reserved
An Integrated Supply Chain Design Platform Enables Businesses To:
Quickly generate models to help visualize and analyze the current supply chain operations
Validate potential supply chain changes and continuously test new what-if scenarios
Optimize the supply chain for the right balance between cost, service, sustainability, & risk
React rapidly to unplanned disruptions, market fluctuations, or new business strategies
13
Industrial Location Selection
Kelly Gray
JLL
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Distribution demand driven by future population centers
Major population hubs centered around “mega-regions” will
contain almost 80% of total population by 2025 Megaregion
2010
Pop.
2025 Pop.
Est.
Arizona Sun
Corridor 5.65 mil 7.76 mil
Cascadia 8.37 mil 8.75 mil
Florida 17.27 mil 21.45 mil
Front Range 5.47 mil 6.92 mil
Great Lakes 55.53 mil 60.68 mil
Gulf Coast 13.41 mil 16.33 mil
Northeast 52.33 mil 58.4 mil
Northern
California 14.04 mil 16.35 mil
Piedmont Atlantic 17.61 mil 21.69 mil
Southern
California 24.36 mil 29.01 mil
Texas Triangle 19.73 mil 24.81 mil
Source: America 2050
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Transportation costs are 50.0 percent of the average
distributor’s overhead.
It is no coincidence major industrial markets are near
major population centers.
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Q3 2015 U.S. Industrial Market
Source: JLL
September 2015
Moving clockwise
Holding steady
Moving counter-clockwise
Peaking
market
Falling
market
Rising
market
Bottoming
market
Palm Beach
Broward County / Fort Lauderdale, Jacksonville, San Antonio
Boston, Cincinnati, Cleveland, Detroit, Greensboro / Winston-Salem,
Las Vegas, Milwaukee, Phoenix, Pittsburgh
Chicago, Denver, Minneapolis / St. Paul, Northern New Jersey, Salt Lake City
Central Valley (CA), Inland Empire, Los Angeles
Atlanta, Baltimore, Hampton Roads, Indianapolis, Long Island, North Bay (CA),
Orange County(CA), Reno, Richmond, San Diego, Seattle, St. Louis,
United States
Dallas / Fort Worth, Oakland / East Bay, Silicon Valley / South Bay
Central New Jersey, Houston, Philadelphia / Harrisburg, Sacramento
Charlotte, Columbus, Kansas City, Memphis, Miami-Dade, Nashville, Orlando, Portland,
Tampa Bay, Washington DC
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National Class A cap rates
Q3 2015 U.S. Industrial Market
Cap rate compression mirrors this trend
NJ
CT
MA
NH
NC
VA
WA
VT
AL
AZ
AR
CA CO
FL
GA
ID
IL
IN
IA
KS KY
LA
ME
MI
MN
MS
MO
MT
NE
NV
NM
NY
ND
OH
OK
OR
PA
SC
SD
TN
TX
UT WV
WI
WY
MD
DE
RI
Houston
5.25 - 6.25%
Dallas-Ft. Worth
4.90 - 5.75%
Charlotte
6.00 - 7.00%
Atlanta
5.50 – 6.25%
Baltimore/DC
5.50 - 6.00%
New Jersey
4.75 - 5.75%
Eastern PA
5.25 - 6.25%
Harrisburg
5.50 - 6.25% Columbus
5.90 – 6.75%
Chicago
4.95 - 5.95%
Minneapolis
6.00 - 6.75%
Southern California
4.25 - 5.25%
Seattle
4.50 - 5.50%
Kansas City
6.00 – 6.75% Louisville
6.00 – 6.75%
Boston
6.50 - 7.25%
Memphis
6.00 – 6.75%
Nashville
6.00 – 6.75%
Portland
5.50 - 6.50%
Indianapolis
5.75 - 6.50% Cincinnati
6.00 – 6.75%
St. Louis
6.00 – 6.75%
Tampa
6.50 – 7.50%
Orlando
6.50 - 7.25%
SF Bay Area
4.50 - 5.50%
Reno
5.50– 6.50%
4.00 – 5.00%
5.00 – 6.00%
6.00 – 7.00%
San Diego
6.00 – 6.75%
Denver
5.50 - 6.50%
Phoenix
5.25 - 6.25%
Salt Lake City
5.75 – 6.75%
Las Vegas
6.00 – 6.75%
Sacramento
6.00 – 6.75%
Miami
4.75 – 5.25% Source: JLL Research, July 2015
Jacksonville
6.50 - 7.25%
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Integrated Intelligence
The Right Decision Labor Real estate
Operating cost
Supply Chain Strategy
Brand and image
Competitive environment Political stability
Future growth Portfolio optimization
Taxes Infrastructure
Business climate Utilities
Environmental issues Logistics
Incentives
Real estate makes up for only a small portion of total operating costs…
And therefore only a portion of real estate decision making…
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Cost-Service Trade-Offs
There is a trade-off between: • Proximity to population • Real estate cost and quality • Transportation costs and infrastructure quality • Workforce costs and demographics • Taxes and Incentives
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Understand (Define) / Plan Evaluate (Filter) Implement (Execute)
Strategic Analysis Mapping Primary Research
Location Intelligence Service
Leverage data for mapping and reporting services for markets, trade areas and sites
Business Data Mapping
Econometric Data Mapping
Housing Data Mapping
Aerial Imagery Mapping
Demographic Data Mapping
Drive Time Analysis Modeling
Center of Gravity Mapping
Researching and using additional data for macro and micro modeling
Property Ownerships
Rent Rates
Traffic Counts
Developments / Construction
Zoning Information
Site Plans
Market Profiles
End Goal: To understand the global business ecosystem
and select a geography of opportunity
Location Intelligence
Creating macro and micro
modeling
Questionnaire
Market Analysis and
Location Selection
Modeling
Labor Potential
Market Validation Study
Custom Key Indicators
Technology Tools
(Location Services)
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Analytical factors
STATE INCENTIVE ENVIRONMENT
LABOR COST VARIABILTIY
LABOR MARKET MODELING
SUPPLY CHAIN ANALYTICS
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Incentive
Triggers
Leveraging opportunities to “win-win”
Business and
Economic Incentives
Identify, negotiate,
and implement
incentives “triggered”
by business initiatives
and projects
Incentives, in the form
of tax, financial or
operational benefits,
can significantly
offset project, tax or
ongoing expenses
Deliver a proven
competitive process
to develop and present
the project “business
case” to state and local
officials
22
Operating Cost Model
Takes into account quantitative considerations, such as:
• Wage rates
• Real estate
• Taxes and Incentives
*Hypothetical results
$3,983,315 $4,307,830 $4,713,049 $5,236,113 $5,236,113 $5,462,279 $6,223,290 $5,545,647
$420,249 $414,864 $441,131
$392,170 $392,170 $370,196 $404,906
$370,167
$5,451,763 $6,465,000
$6,670,000 $5,310,000 $5,310,000 $5,752,500
$6,300,000
$5,637,500
$8,684,336
$10,021,940 $9,749,522 $10,299,546
$8,866,919
$10,341,225
$11,827,971
$10,453,088
$(5,000,000)
$(3,000,000)
$(1,000,000)
$1,000,000
$3,000,000
$5,000,000
$7,000,000
$9,000,000
$11,000,000
$13,000,000
$15,000,000
$(5,000,000)
$(3,000,000)
$(1,000,000)
$1,000,000
$3,000,000
$5,000,000
$7,000,000
$9,000,000
$11,000,000
$13,000,000
$15,000,000
Baltimore PRINCIPIOBUSINESS PARK
NORTH EAST LOGANTOWNSHIP
GREENCASTLE MARTINSBURG SPOTSYLVANIA SANDSTON
Annual Operating Costs
TRANSPORTATION WAGE RATES REAL ESTATE INCENTIVES TOTAL SCORE
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Location Selection Model
67.2
73.8 74.2
62.2 61.3 61.6 57.0 57.5
67.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
0
10
20
30
40
50
60
70
80
Reno Stockton Lathrop Fremont San Jose Oakland Richmond Napa W Sacramento
Location Selection Model Score
Subtotal WORKFORCE/ COMMUNITY Subtotal WAGE RATES Subtotal TRANSPORTATION Subtotal REAL ESTATE Total Score
Takes into account quantitative as well as non-financial considerations,
such as:
• Demographics
• Workforce size and characteristics
• Rates of unionization
• Infrastructure quality
*Hypothetical results
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Integrated Intelligence
Implementation Real Estate
Strategy Incentives
Strategy
Workforce
Strategy Supply Chain
Strategy
Thank you!
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Network Optimization Case Study
David A. Zuern
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Benjamin Moore & Co.
• Founded 1809 in Brooklyn, NY
• Architectural and Design Coatings Focus
• HQ in Montvale, NJ
• Acquired by Berkshire Hathaway in 2000
• 6 Manufacturing Sites in US/Can
• 18 Distribution Centers in US/Can
• Sell Through 5,000 Independent Retailers
• Very Competitive Market; 4,500 SKU’s
• High Service Aspect; 98% of todays’ orders delivered
next morning via BMC Fleet or CC at 99.7% fill rate
• New Focus on Logistics/Distribution as a key market
differentiator and “must have” for retailer growth
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US Manufacturing & Distribution
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US Dealer Base
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Are we in the right locations for our current business?
As we grow, where should we be looking for future DC location opportunities?
Can we enhance service with the current network?
Network Optimization Project
• “Snapshot” study with 3-4 month turnaround
• Goal to develop and gain approval for 3-5 year strategic DC facilities plan:
• Based on current and future demographics and sales trends
• Included basic DC operating and transport costs from MFG to DC to Retailer
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$
Conclusions:
Current network “almost” optimal
‒ Pell City, AL and Portland, OR DCs slightly off center of gravity
‒ Chicago and Newark DCs near/over capacity
Competitors always improving, so must we!
Future “add” opportunities
include Washington DC area and Miami
Transportation savings and big
service upgrades available on West Coast with a “Full
Service DC”
+
!
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Short Term Strategic Plan:
Establish “Full Service” West Coast DC:
– High growth area, right demographics
– Sales opportunity with expanded offerings
– 2-3 day service improvement for Hazmat products
– Requires a move and expansion from current facility
– Provides 5% relief for Chicago DC
Establish new DC in Washington DC area:
– High growth area, right demographics
– Add private fleet ops for 67 retailers (60% of vol)
– All LTL customers moved to 1 day
– Provide 15% volume relief for Newark DC
– Allows Newark to focus on key NY/NJ/CT market
WA
OR
CA
DC
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Longer Term Strategic Plan:
• Look at Atlanta and Miami as next steps
• Discuss Canada growth options further
• Evaluate current Fleet Ops for expansion
• Circle back on strategy in 3 years to reevaluate
assumptions and market changes
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New Oakland Distribution Center… Opened March 2015
LEED Silver Certified
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New Oakland Distribution Center
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Landover, MD DC…July 20
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Landover, MD…90k sq. ft.
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