Transportation Strategy – Introduction –

1. Transportation Strategy – Introduction –

2. PROFILE: 36 years corporate experience 5 years college instruction Employers IBM DuPont Monsanto ITT Industries NASA Contractor / Defense Textiles Chemicals Pharmaceuticals Automotive Electronics POSITIONS: Manufacturing Engineer Packaging Engineer Industrial Engineer (Mfg Ops) Production Planner MRP-II Project Manager Distribution Manager Division Manger, Supply Chain Director, Transportation Procurement Director, Corporate Transport & Distribution Director, Corporate Purchasing & Logistics Managing Director, Supply Chain Services Company (3PL) Supply Chain Management Lecturer Instructor: Gary J. Page PERSONAL: Married, 3 children, 3 grandchildren; lifetime member of Auburn Alumni Association; Ruling Elder in Presbyterian Church in America (PCA) GJP world view: “Triple C”, a Christian, conservative, capitalist

3. SCMN 4780 Course Syllabus

4. Classroom Format / Structure Instructor’s perspective U. S. corporation in global economy Capitalistic economic model basis Student reading assignments Apply concepts to case studies Individual / team based assignments Student / classroom interaction Instructor applications / experiences

5. Boardroom Instructor’s Purpose & Objective Classroom

6. Academic World individual recognition make the right decision project approach with due dates / deadlines suggest / propose primarily subjective efficient communication personal growth CoB Classroom-to-Boardroom Transition Business World team reward don’t make the wrong decision process mindset with progress milestones assert / recommend (SME) primarily objective effective communication professional / career growth

7. … to make profit by minimizing the impact of constraints in operating system that prevent it from increased profitability Enterprise Objectives INPUTMachines Labor Materials OUTPUTGoods Services Transformation Process CAPITAL … to achieve competitively superior performance from the transformation (operational) process What is the definition of PRODUCTIVITY?

8. Who Owns “Big Oil”? A mutual fund is a professionally managed collective investment that pools money from many investors to buy stocks, bonds, short-term money markets instruments, and other securities. Individual retirement arrangement (IRA) is the blanket term for a form of retirement plan that provides tax advantages for retirement savings in the U. S. Contrast this model with the Occupy Wall Street movement model

9. US Rules of Business (Capitalism) • In a capitalistic / free-trade economic system, the overriding (priority) duty of a company (business management) is to: • provide jobs for qualified people • maximize compensation to senior management • continuously increase business revenue (grow sales) • achieve a superior return-on-investment for its owners • The constitutional duty of government (federal, state, local) is to: • partner with business to improve business performance • regulate business practices to eliminate risk to citizens • incentivize companies for complying with government actions • ensure an open marketplace for innovation and equal opportunity

10. Productivity Improvement Regarding Job Growth in the United States “I don't think it's a matter of me being unable to convince them (US companies) to hire more people. They're making decisions based on what they think will be good for their companies. (However) … there are some structural issues with our economy where a lot of businesses have learned to become much more efficient with a lot fewer workers. You see it when you go to a bank and you use an ATM; you don't go to a bank teller. Or you go to the airport, and you're using a kiosk instead of checking in at the gate. So all these things have created changes in the economy, and what we have to do now is identify where the jobs for the future are going to be; how do we make sure that there's a match between what people are getting trained for and the jobs that exist; how do we make sure that capital is flowing into those places with the greatest opportunity.” President Barack Obama on the Today Show (June 14, 2011)

11. Today’s Worldwide Economy In the 21st century global economy, US companies with strategic growth goals choose to do business with enterprises from all economic systems Capitalism Socialism Fascism Communism

12. Current Business Climate “Today in America there are nearly twice as many people working in the government (22.5 million) than in all of manufacturing (11.5 million). It gets worse. More Americans work for the government than work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined. We have moved from a nation of makers to a nation of takers.” Stephen Moore, Wall Street Journal, March 11, 2011

13. Supply Chain Described CONSUMPTION EXTRACTION supply chain is likened to a river  upstream or downstream

14. U. S. Business Supply Chain History Trading Era prior to 1750 local craftsman, local sales and supply, bartering goods / services 1st Industrial Revolution 1750 – 1880 steam engine, textile factory, transportation, telecommunication 2nd Industrial Revolution 1880 – 1980 electricity, mass production, automobile industry / assembly, World Wars I & II, computer biz aps, regulatory environment Consumer Age 1980 – today quality revolution with customer focus, globalization, product customization, JIT, dot.com

15. 21st Century Supply Chain Characterized extraction conversion manufacture assembly the consumer “pulls” material from its origin (the earth), produces, packages and ships products (material) to consumer utilizing an order fulfillment process distribution retail consumption

16. 21st Century Supply Chain Characterized Nodes - value added to product information flow extraction conversion manufacture distribution retail consumption assembly material / product flow Linkages – transport between nodes

17. Supply Chain Business Relationships VERTICAL INTEGRATION JOINT VENTURE STRATEGIC PARTNERSHIP TRANSACTIONAL RELATIONSHIP

18. Transportation (Linkage) Industry Profile • PARTICIPANTS • Shippers • Carriers • 3rd Party Logistics • RELATIONSHIPS • Common • Contract • Private • MODES • Motor Freight (TL) • Motor Freight (LTL) • Motor Freight (bulk) • Rail • Air Freight • Ocean (tanker) • Ocean (container) • Inland Water • Letter / Package • Pipeline • Intermodal

19. The “Language” of Business Income Statement Sales Revenue Material Cost plus Conversion Cost Net Income minus plus Earnings as % of Sales Cost of Sales (COS) Distribution Expense divided by plus Marketing & Admin Cost Sales plus Allocations & Taxes Return on Capital (ROC) multiplied by Inventory Investment Sales Working Capital Turnover plus divided by CapitalEmployed Net Recv, Payables plus Net Fixed Assets Balance Sheet

20. Enterprise: Functional Alignment

21. Organization: Business Alignment

22. S/C Management Challenge Functional Strategy Point of Conflict Business Competitive Strategy

23. Transportation Strategic Objectives

24. Profitability (Margin) Analysis Companies obsessively strive to improve its financial profitability. Management routinely turns its attention to cost containment as a means to improve performance. WHY? BASE CASE Sales 1,000,000 Expenses: Overhead 200,000 Variable 650,000 NIBT 150,000 Margin % 15.0% 10% SALES INCREASE Sales 1,100,000 Expenses: Overhead 200,000 Variable 715,000 NIBT 185,000 Margin % 16.8% 10% COST DECREASE Sales 1,000,000 Expenses: Overhead 200,000 Variable 585,000 NIBT 215,000 Margin % 21.5%

25. Profitability (Margin) Analysis Companies obsessively strive to improve its financial profitability. Management routinely turns its attention to cost containment as a means to improve performance. WHY? BASE CASE Sales 1,000,000 Expenses: Overhead 200,000 Variable 650,000 NIBT 150,000 Margin % 15.0% 10% SALES INCREASE Sales 1,100,000 Expenses: Overhead 200,000 Variable 715,000 NIBT 185,000 Margin % 16.8% ~3% COST DECREASE Sales 1,000,000 Expenses: Overhead 200,000 Variable 632,000 NIBT 168,000 Margin % 16.8% Which tactical initiative carries a higher risk?

26. ATTRIBUTE 20th CENTURY Organization Pyramid Focus (Priorities) Internal Management Style Structured Structure Self-Sufficiency Resources Physical Assets Operations Vertically Integrated Products Mass Production Reach Domestic Financial Reporting Quarterly Inventory On-Hand Months Strategy Top-Down Leadership Dogmatic Worker Expectations Security Motivation To Compete Improvement Incremental Quality Affordable Best Source of Strength Stability The 21st Century Business Model 21st CENTURY → Matrix → External → Flexible → Interdependencies → Information → Virtual Integration → Mass Customization → Global → Real-Time → Hours → Bottom-Up → Inspirational → Career Growth → To Excel → Revolutionary → No Compromise → Ability to Change

27. Fortune Magazine’s ranking of the top 25 US companies ranked by annual sales

28. Unsuccessfully Managing Change January 4, 2012 (Bloomberg) -- Eastman Kodak, the imaging company that lost 88% of its market value last year, fell again after a report that the company is preparing for a bankruptcy filing should its effort to sell patents fail. Bloomberg News previously reported in September that Kodak was weighing options including a bankruptcy filing, according to people with knowledge of the matter. Its revenue has tumbled because of slowing demand for traditional film and competition in digital cameras and printers from Canon Inc. and Hewlett- Packard. Kodak's cash and equivalents fell to $862 million at the end of its third quarter from $1.4 billion a year earlier. December 30, 2011 (USA Today) - Sears Holdings continued to struggle Friday in a week that the company will long remember for its announcement of plans to close up to 120 underperforming Sears and Kmart stores. The company's CEO pledged to investors and employees that the plan is to make necessary changes to get the company back on track. It operates about 4,000 Sears and Kmart stores in the U.S. and Canada and has a workforce of 312,000. Annual revenues are $43 billion. "We can do better than this, we will do better than this.“ In addition to the store closings, Sears Holdings has said it will reduce fixed costs, improve inventory management and launch more targeted pricing and promotions. "Change is never easy, but is necessary," said the CEO. "Our industry is going through profound changes and we need to evolve our business and execute with speed and excellence.“ The retail landscape has been tough for Sears Holdings acquired Kmart while Wal-Mart Stores and Target have become stronger competitors. In the last two years alone, Sears Holdings has closed, or announced the pending closure, of 181 stores.

29. Successfully Managing Change January 6, 2012 (eWEEK) -- On January 29, 2002, IBM announced that Samuel J. Palmisano would become the company's 8th CEO of IBM. Palmisano replaced Louis V. Gerstner, who would retain his position as chairman of IBM through the end of 2002. Gerstner came to IBM in 1993 and helped turn the company around after a few years of losses by focusing on Big Blue's strengths, such as services, and tapping into the Internet during the e-commerce craze. But if Gerstner's tenure was a turnaround phase, Palmisano's was one of value creation. "Without the work that Gerstner did, Palmisano could not have been successful," analyst Judith Hurwitz told eWEEK. "But with a stable and profitable IBM, Palmisano was able to focus on the future. I think his greatest contribution was to change the focus away from simply creating new tools and products to putting these products in context with business goals and objectives, first with on-demand computing and then with Smarter Planet. He made IBM look visionary and valuable to the customer." Palmisano made several key strategic moves that have paid off handsomely for IBM. He signed off on the deals to buy Pricewaterhouse Coopers Consulting and to sell off IBM's PC business to Lenovo and its hard disk drive business to Hitachi. Basically, he got IBM further out of low-margin commodity businesses and into high-margin activities. Palmisano also realized the value of research and increased upped IBM's R&D budget by 20%, to $6 billion a year. That strategy continues to pay off as IBM has led the world with the most U.S. patents granted for the last 18 years. Palmisano's tenure was also good for the company's shareholders and bottom line. Under Palmisano, IBM's earnings quadrupled. At the same time, he has driven more than $8 billion in annual costs out of the business with his quietly kept internal business transformation plan. On October 25, 2011, IBM announced that Virginia M Rometty would succeed Palmisano as CEO effective January 1, 2012. Palmisano will remain chairman of the board.

30. 21st Century Business Impacts • 9/11 attack with radically new security requirements • Enron debacle; Sarbanes-Oxley regulations on US industry • Integrated supply chain with collaborative relationships • Adversarial  collaborative company relationships • Corporate matrix organization • e-Business technology advances • Emerging growth of Chinese economy • Lean / Six-sigma performance requirements

31. World-Class Supply Chain Performance • 2011 Top 25 Supply Chain Performers • Rankings • Key findings • Themes • Recommendations • Operational Excellence

32. Implementing a Culture of Change Vision / Mission Prioritized Initiatives (Strategic / Tactical) Proven Leadership