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March 2009
Inventory Visibility -- A Provider’s Perspective
John Brockwell
Global Supply Chain Practice Lead
Trade Management Consulting
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Topics
Why is J.P.Morgan in this space?
The business problem we’re trying to solve
Industry Statistics Adoption Scope Ranges of savings
Why is this good business for a service provider?
What do we see happening in this area over the next couple of years
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Treasury and
Securities Services
Chase Middle Market
Asset-Based Lending
Commercial Real Estate
Equipment Leasing
Treasury Services
Global Trade Services
Worldwide Securities Services
Card Services
Credit Cards
Merchant Processing
Consumer Banking
Auto and Education Finance
Home Finance
Insurance
Small Business Banking
Credit and Rate Markets
Investment Banking (Mergers and Acquisitions)
Institutional Equities
Proprietary Positioning
Commercial Banking
Retail Financial Services
InvestmentBank
JPMorgan Private Bank
Private Client Services
BrownCo (online trading)
JPMorgan Fleming Asset Management
Asset and Wealth
Management
JPMorganChase Bank N.A. Corporate Structure
1J P M
O R
G A
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G L
O B
A L
T R
A D
E
S E
R V
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S
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REAL-TIME FINANCIAL & PHYSICAL SUPPLY CHAIN SERVICES FOR REAL-TIME FINANCIAL & PHYSICAL SUPPLY CHAIN SERVICES FOR THE WORLDTHE WORLD
Flexible Global Trade Management Offerings
• Customs, export, and supply chain management
• SCM Process design and optimization
• Trade compliance assessments, compliance improvement plans, implementations and audits
• Sourcing and Fulfillment landed cost analysis
TRADE MANAGEMENT CONSULTING
• Letters of Credit and Open Account initiation
• Electronic notification of Purchase Order requirements to suppliers
• Exception resolution
• Government Documentary compliance review
• Settlement
• Supply chain financing
TRADE FINANCE
• Trade documents
• Duty calculation and Customs clearance
• Regulatory screening and automated license decision
• Government reporting and agency/bureau interfaces
• Consistently updated with the most recent trade regulations
STATE-OF-THE-ART
TECHNOLOGY
• Outsourced import and export trade operations support
• Product classification
• Trade compliance resolution
• Special trade program management
• Brokerage and broker management
GLOBAL TRADE MANAGED SERVICES
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Import Processes
Classify HS #’s
Submit Pre-Entry
Generate Documents
Binding Rulings
File Duty Drawback
Minimize Duties
Perform Liquidation
Assist Tracking
Education & Training
Invoice Adjustments
Post Entry Info
Inbound Landed Cost
Export Processes
Classify ECCN #’s
Screen Orders
Determine Licensing
Apply for Licenses
Generate Documents
Submit SED
Track/Trace Shipment
Education & Training
Deemed Export Mgmt
Landed Cost Modeling
Trade Management Professionals
Forwarder Processes
Select Carriers
Book Carriers
Consolidate Freight
Track Shipments
Carrier Processes
Transport Goods
Track Shipments
On-time arrivals
Bulk Breaking
Broker Processes
Pre-Entry
Submit Entry
Clear Customs
Exporter/SellerExporter/Seller International International CarrierCarrier
Importer/BuyerImporter/BuyerForwarderForwarder BrokerBroker
Export ProcessesClassification
Jurisdiction Determination
EAR/ITAR
Screen Orders
Determine Licensing
Apply for Licenses
Generate Documents
Submit Export Dec
Education & Training
Deemed Export Mgmt
Landed Cost Calc.
Metrics
Import Data review - 10+2
Trade Logistics Mgt
Supply Chain Security and
Safety- CTPAT/AEO
Import ProcessesClassify HS #’s
Import Data Mgmt
Manage Doc Creation
Binding Rulings (BTI)
Manage FTAs
Manage Duty Recovery
Manage CoO
Declare Goods Value
Education & Training
Post Entry Processing
Supplier Management
Metrics
Trade Logistics Mgt
Supply Chain Security and
Safety – CTPAT/AEOSupporting
Technology
We’re integrating systems and platforms to leverage the financial and trade information from export to import and on to final delivery
Track Shipments Resolve Issues Manage Brokers
Government
Export Declaration Import Declaration
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Global trade management costs are small as a percentage of the value of the goods traded but the activity is critical
Trade Management Affects
•Revenue, Cost of Goods Sold, Inventory, Development Expense, Sales and General Administration
(SG&A), Days Purchases Outstanding, Days Sales Outstanding
• Operational staffing
• Supply Chain Flow - Defects in the Trade Management process can and do
stop the supply chain
Trade Management
Costs
•People
•Processes
•Technology
Typically for large companies < .1% of goods value traded
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Supply Chains have become more global, more extended, and riskier
Supplier
ComponentsManufacturing
Distribution
Customer
Consumers
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Future trends demand flexible “smart” global supply chains that support operations
Supply chain security programs
Failure to plan and develop secure supply chains will result in significant disruptions when supply chains are threatened
Environmental and Safety regulatory concerns
Failure to incorporate the regulations in supply chain processes can expose companies to disruptions, seizures, significant fines and inventory write-downs
New intense competition for demanding global customers
Highly efficient “Greenfield” competitors are entering the global markets
Customers in all global markets are demanding high product availability and reliability, creating intense competition and high risk of “diminished value”
Security, Environment and Customer Demands create significant risk to inventory value, we have a choice, to let it happen or manage it with flexible supply chains
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More hand-offs in the supply chain decreases reliability
Domestic factory to the store, 3 days at 95% reliability
1 day 2 days 18 days 1 day 3 days
International factory to the store, with 5 hand-offs and each leg 95% reliable for a total of 25 days. 0.95x0.95x0.95x0.95x0.95 = 77.4% reliability
Irregularities in goods flow like cargo cut-offs or customs delays can result in full days added to the supply chain, causing expedited
freight and increased inventory
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The purpose of the Value Chain is to deliver product at maximum profit to the market
Time
Raw Materials & Component
s
Inbound Logistics
Manufacturing
Outbound Logistics and Inventory Investment Risk
Selling Season Start
Selling Season End
Selling Season Expected Price
75% reduction in price
In Season Out of Season
Service Level Requirement
For On Time Delivery Late
Sh
ipm
en
t
Dim
inis
hed
Sale
s
Diminished Profit due to Higher
Product, Storage Cost, Inventory
Obsolescence and Write-downs
Product & Distribution
CostsForecasting
Diminished Price
Does not include lost revenue and profit from product service and follow-on sales
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If you think “Diminished Value” is an abstract term … …………………………………….think again!
Inventory write-off, lost sales, lost service contracts, lost tie in sales, disappointed customers, expensive restock
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Understanding the Risks
Sourcing and Fulfillment decisions are often based on assuming
an accurate Forecast and a Perfect Order
12© 2006 JPMorgan Chase and Co. All rights reserved. JPMorgan Chase Bank, N.A. Member FDIC.
The Perfect Order
•Order Fill Rate 100%
•On-Time Delivery 100%
•Discount or mark-downs 10%
•100% Quality (no rejects)
•Accurate Paperwork 100%
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Perfect Order meets the Real World
“91% of companies reported that unexpected supply chain costs were eroding their anticipated low-cost country savings”
-- New Strategies for Global Trade Management
Aberdeen Research
Top Reasons:
Transportation (due to variability)
Raw Materials
Supplier Charges
Taxes and Tariffs
Inventory
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Value of a Perfect Order
3% better = 1% additional Profit Margin
5% better = 2.5% increase in Return on Assets
10% better = $0.50 better Earnings Per Share
—AMR Research
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How are companies addressing the challenge?
Majority of logistics departments currently monitor carriers’ websites for tracking
Roughly one out of four companies utilizes an internally-developed tracking solution or maintains inventory visibility through their ERP solution
Most tracking is focused on in-transit events
Trend for increased monitoring of order acknowledgements and/or advanced shipping notices
54% of these firms are automatically monitoring order quantities, shipment dates and order commitments
Of companies that track 71% check shipment status at least once per day
-- A Study on Inventory Visibility
Logistics Management Magazine and Sterling Commerce, December 2008
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Why is this good business for a service provider to be in?
The inventory visibility space is being attacked from many different angles ERP providers Pure inventory visibility software as a service (SaaS) companies 4PL’s/3PL’s Global Trade Management companies Even Banks !!!
Why? Leverage existing data flowing through systems Extend reach – become more “sticky” with the customer Economies of scale
I/T infrastructure Software application logic Database formats Connections with carriers
Provide better service to the client
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What is the future of inventory visibility?
Increased integration with supplier and customer collaboration efforts
Demand forecasting Supplier inventories Key milestones in supplier’s supply chain for raw materials and
components Intra-company inventories Vendor managed inventory
Trend towards re-creating a vertically integrated “enterprise” through information vs. brick-and-mortar