consolidation strategies
DESCRIPTION
2008, June 05th, SwissHotel, Moscow Conference : “Freight 2008: Logistics and Supply Chain Conference, organized by Seanews”, organized by SeanewsTRANSCRIPT
CONSOLIDATION STRATEGIES IN LOGISTICS
1
05TH JUNE 2008
INTRODUCTION
2
Serge Rivet 3
Graduated from the Bordeaux Management School (France).
Started his career in Russia, in 1997.
Has been working for foreign and Russian companies in the area of logistics and supply-chain management.
Worked for international logistics operators such as FM Logistic and Kuehne & Nagel.
Conducted projects in large companies, such as Eldorado, and Mosmart (retailers).
Animated a "Pooling" project from Moscow to the regions for ECR Russia
Created Conseo CIS in summer 2007 in Moscow Consulting, Project Management, Interim in Logistics and Supply Chain
Professional Track record
10+ years of
experience in
logistics in CIS
4
Summary 5
6
Fact 1 : Drivers of logistics 7
FMCG and Retail drive logistics today
Fact 2 : Modern retail is complex
One hypermarket From 700 to 1500 suppliers From 100 to 250 orders a
day Up to 50,000 sku’s
One convenience store From 150 to 450 suppliers From 40 to 100 orders a
day Up to 10,000 sku’s
More drivers in store than clients !!!
High transport cost (last mile)
8
Fact 3 : A small market
Russia remains undersupplied in terms of modern retail space,
only 150 m2 of shopping-centre space per 1,000 inhabitants in Moscow and St Petersburg,
and as low as 40 m2 per 1,000 in Novosibirsk.
(end of 2006)
9
Fact 4 : Small Players
Company FY ’06 Net Sales USD mln
1 X5 Retail 3,551
2 Metro 2,544
3 Magnit 2,504
4 Auchan 2,016
5 Dixi 1,080
6 Lenta 1,060
7 Kopeyka 980
8 7 Continent 958
9 Victoria 900
10 Ramstore 635
Total Top-10 16,228
10
Russian Food Retail Market Evolution
10%
Top-10 Other modern formats The rest
30%
9%
10%
Total Russian food retail market estimated CAGR of 10%
USD 280 bln
USD 449 bln
In UK the top 4 of retailers represent 85% of the market In Germany the top 4 of retailers represent 80% of the market Source : Pricewaterhouse Coopers and Datamonitor
Fact 4 : High Speed Market
The largest new floorspace pipeline, (kingsturge)
Retail sector growing 30% per annum
(Economist Intelligence Unit – Feb 2007)
Food retail sales are rising 45% per annum
(Economist Intelligence Unit – Feb 2007)
by 2010, it is expected to exceed the UK, France or Germany.
(Retail and Consumer Worlds – PWC - January 2008)
11
FY 2007 Retail Revenue Growth
Source: Companies’ Data
Fact 4 : … But poor infrastructure
0%
10%
20%
30%
40%
50%
60%
70%
80%
Москва и МО Санкт Петербург Регионы
% качественных коммерческих складских площадей 0%
2%
4%
6%
8%
10%
12%
USA Europe Russia
доля вакантных складских помещений
10% 5-7% 1,5%
67% 11% 22%
12
Fact 4 : … But poor infrastructure
In the future, 20t trucks fleet will increase at ca. 9-11%, but trucks shortage risks remains
Will transport logistics in Russia pose a challenge for FMCG sector development?
Market studyMoscow May 2007
13
Fact 5 : Poor Customer Service
Assortment is a key to success
Poor supplier service this is a supplier
market
14
Source: Roland Berger / ECR Europe
8,30% 8,60% 7,90%
17,70%
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
14,00%
16,00%
18,00%
20,00%
All countries European Union
North America
Russia
Out of Shelve
???
State of mind 15
Cross Docking & Pooling
16
What is consolidation ?
Consolidation consists in grouping together flows that are usually treated separately.
The main idea is to take advantage of grouping small flows into bigger ones.
17
This is a common practice in different businesses : Buying unions Retail network /
Franchises
Cross docking, a tool for consolidation in logistics
Cross-docking is a practice in logistics of unloading materials from an incoming transport unit and loading these materials in outbound transport unit, with little or no storage in between.
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Supplier
Supplier
Supplier
Store
Store
Store
Supplier
Supplier
Supplier
Supplier
Store
Store
Store
Store Cross-
Docking Terminal
Pooling, a tool for consolidation in logistics
Downsizing the cost of delivery of small volumes to far destinations, by consolidating volumes of several companies
19
= Big Volumes Transport Cost
(FT)
Small Volumes Transport Cost
(LTL)
Cross docking concept 20
Cross Docking forms 21
Consolidation Cross Docking
Сборка
Pure Cross Docking (Pre-Allocation)
Typical applications / "Hub and spoke"
Cross- Docking Terminal
Store
Store
Store
Store
Store
Store
22
Typical applications / Consolidation arrangements
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Cross- Docking Terminal Store
Cross- Docking Terminal
Store
Store
Store
Store
Store
Store
Store
Store
Typical applications / Deconsolidation arrangements
24
Typical applications 25
EFFECTS OF CROSS DOCKING
26
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Supplier
Store
Store
Store
Store
Store
Store
Store
Supplier
Supplier
Supplier
Store
Store
Store
Supplier
Supplier
Supplier
Supplier
Store
Store
Store
Store Cross-
Docking Terminal
49 transactions
14 transactions
Direct effect : Simplification 27
Direct effect : Cost Efficiency
$ $ $
$ $
Classical Scheme
Pooling Scheme
$ $
$ $
28
Increased delivery frequency
t
volu
me
Volume delivered = v
Volume delivered = v
a
½ v ½ v
Average Stock = ½ a
Average Stock = ¼ a
volu
me
29
Direct effect : Virtuous effects 30
More Frequent deliveries
Less Stock
More Working Capital
More income
More Frequent deliveries
Less Stock
More Sales
Surface
More income
Consolidation does not make you only save money ….
… it makes you earn money !
Indirect effects : Reduction of the Bullwhip Effect
Consumer Sales at Retailer
0 100 200 300 400 500 600 700 800 900 1000
1 3 5 7 9 11
13
15
17
19
21
23
25
27
29
31
33
35
37
39
41
Con
sum
er d
eman
d
Retailer's Orders to Wholesaler
0 100 200 300 400 500 600 700 800 900 1000
1 3 5 7 9 11
13
15
17
19
21
23
25
27
29
31
33
35
37
39
41
Ret
aile
r Ord
er
Wholesaler's Orders to Manufacturer
0 100 200 300 400 500 600 700 800 900 1000
1 3 5 7 9 11
13
15
17
19
21
23
25
27
29
31
33
35
37
39
41
Who
lesa
ler O
rder
Manufacturer's Orders with Supplier
0 100 200 300 400 500 600 700 800 900 1000
1 4 7 10
13
16
19
22
25
28
31
34
37
40
Man
ufac
ture
r Ord
er
31
Indirect effects : In-store effects
Bringing new practices Family Grouping and shelf ready
Rolling containers Reduction of queues and delays at
stores
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Source : Migros
X Dock / General Figures Cross-docking enables Wal-Mart to
achieve the economies that come with purchasing full truckloads of goods while avoiding the usual inventory and handling costs.
Wal-Mart runs a full 85% of its goods through its warehouse system -- as opposed to only 50% for Kmart.
Goods are crossed from one loading dock to another in 48 hours or less This enables them to be in the store and ready to be sold
This reduces Wal-Mart's costs of sales by 2% to 3% compared with the industry average.
For Carrefour : Average 20% of reduction
of DC inventory level (France)
50% decrease of out-of-stocks (Poland)
Carrefour CIES Conference Geneva 12 October 2006 Pooling / Consolidation - One
year after Xavier HUA
33
Interesting trends in Russia 34
Buying Unions
• Concept existing in Russia
Consolidarity & Pooling
• ECR project • Dairy & Fresh project • Other projects to come
• Move of big retailers to Xdock
> Mosmart, Dixi … • New retail projects starting Xdock from beginning
>Smart Value Retail Cross Docking
• Concept coming to Russia
Retail Logistics Parks
State of mind 35
APPROACHES
36
Product selection 37
Highly predictable
Product (low variance)
Easy to handle Product
(high cubic volume)
High volume products
(popularity)
Perishable products that require immediate shipment
items that do not require extensive quality checks during receipt
Product moving from one retail store to another
Compatible products !!!
Supplier selection. 38
Infrastructure
High Service Level
Value Added
Services
Information Sharing
X
Suppliers that have DCs
Suppliers that effectively and efficiently share information
with their customers.
Suppliers that configure products for efficient handling through the next point in the supply chain, consistently comply with customer mandates for labeling, ticketing, packaging, and product quality
Suppliers that consistently provides
the correct quantity of the correct product at the precise time it will
be needed.
Unique supplier of unique product !!! (Private Label)
Planning and Designing the Operation
39
because most cross-docking activity is concentrated at receiving and loading docks, adequate number of dock doors (1 / 500m2) Where possible, eliminate racks to create more dock space. Make sure product can flow quickly and freely through the DC. Visible floor layouts, processes and systems. Well laid out visible floor areas to enable management by sight. Clear floor policy at end of shift periods.
to comply with the rigid schedules needed for cross docking, you may need a yard tractor and trained driver to move trailers around the yard. A yard manager must also be on hand to ensure that trucks are spotted at the right doors at the
right times, resolve equipment issues, and coordinate incoming and outgoing trucks so that delays can be avoided.
Because it’s important to move large volumes of product in a short time. Using double pallet jacks to transport pallets can double throughput. Conveyors that are installed on the floor of truck trailers and connect to inbound and outbound
pallet conveyors within your facility can significantly speed up pallet transfer Where appropriate, powered extendibles can aid in loading and unloading cartons as well.
When it’s time to choose managers for a new cross-docking operation, remember that forward thinking is a critical success factor. Cross docking cannot fully achieve its objectives without a good core of receiving/shipping
supervisors and logistical planners who can identify product that needs to be cross docked and redirect personnel to make it happen. Supervisors must be able to recognize opportunities for pre-receiving or pre-allocating receipts before the actual product arrives.
Training at both the supplier and DC locations will be necessary. For the supplier, training on the specific requirements (as noted in policies/procedures) of a customer must be developed.
For the DC, training on how to handle cross-dock product versus standard receipt-to-storage product will be necessary.
Planning and designing the Operation (Focus)
40
estimated 12% reduction in
labor costs due to travel and
waiting.
Planning and Designing the Operation
41
Quality communication Clear inbound & outbound information Clear product
labelling and routing information on all pallet consignments.
Enabling communication technologies EDI (ASN, SSCC) real-time IS are preferred to paper-based systems RF (RFID??)
fill discrepancies in real time.
A strategy is to have centralized buyers determine what gets shipped to stores, instead of the stores themselves;
Cross Docking relies on continuous communication between Wal Mart’s suppliers, distribution centers, and every point of sale system in each store. For this purpose, Wal Mart operates their own satellite network that sends the point of sale (POS) data directly to 4,000 vendors.
Communication
Centralize your organization
Information systems
State of mind 42
Cross Docking is a Formula One in logistics
Where every victory …
… is the fruit of a well orchestrated team work
CHALLENGES
43
Tendering for Cross Docking 44
19 LSP contacted
Would be 5 to 6 in Europe
16%
37% 37%
10%
Responses to Logistics Tender
no answer
no space
no resource or limited range of services in scope
Comments
The difference between the 2 top offerts > coeff 1,5 !
The market is till not stabilized
The winner has no space
Some respondents have been at the limit of politeness
The entrepreneurial spirit is missing on this market
45
Tender process delayed by 1 month
Answer rate = 10% Would have been be 80% in Europe
The “3S” challenge 46
The “3S” challenge 47
High control culture Control vs efficiency
Best Practice
Security Speed
Security Speed
Smartness
The “3S” challenge 48
What we want What we do
Challenges to consider 49
Sub Regions should be defined - 1 Cross Docking area for all Russia
seems difficult
With important regional devlpt, cross docking centers may
- move on the map (to east, to south) - Become more numerous
Challenges to consider 50
Far small stores can not receive too “Consolidated” volumes For instance 20t truck to convenience store !
Bulk and weighted products Make a decision between average case
weight and exact case weight (Fruits and vegetables for instance)
Cross Docking should not be the security net of the buying departments “If we can’t source locally – we’ll cross dock”
is not always the best algorithm “If we can’t produce locally – we’ll cross
dock” is not always the best algorithm
CONCLUSION
51
More fluid and progressive market
Prevention from Oligopoly and Monopoly
52
A more convenient business attitude 53
CON SO LIDARITY Cooperation with competition
A more constructive attitude
“Making the market grow” vs
“Killing the competitor”
54
Professionalization of the offer
Store wars vs
Total war
55
State of mind 56
57
Questions & Answers
Serge Rivet [email protected]
+ 7 916 453 30 55 Skype : rivetmoscow
ООО «Консэо» www.conseo-cis.com
Thank You for attention! 58