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www.sustainableroadfreight.org Trends Changing the Shape of FMCG Networks Dr Andrew Palmer Centre for Sustainable Road Freight BESTFACT Workshop, Milan 4 th December 2014

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Page 1: Trends Changing the Shape of FMCG Networks - · PDF fileTrends Changing the Shape of FMCG Networks Dr Andrew Palmer Centre for Sustainable Road Freight ... % of truck kilometres run

www.sustainableroadfreight.org

Trends Changing the Shape of FMCG Networks

Dr Andrew PalmerCentre for Sustainable Road Freight

BESTFACT Workshop, Milan 4th December 2014

Page 2: Trends Changing the Shape of FMCG Networks - · PDF fileTrends Changing the Shape of FMCG Networks Dr Andrew Palmer Centre for Sustainable Road Freight ... % of truck kilometres run

The Supply Chain Chronology

1970’s Oil crisis

1980’s Stock reduction

1990’s Customer service

2000 ? ……

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Logistics Trends – 2000 to 2020

Delivery

Reliability and

Congestion

Vertical and

Horizontal

Collaboration

Multi

Modal

Multi Channel

Retailing /

Home Delivery

Different

Types of

Warehouses

Global

Sourcing /

Focused

Manufacturing

Product Line

Proliferation

All Year

Seasonal

Produce

Rapid

Replenishment

Reverse

Logistics

Sustainability

City

Logistics

Consumer needs – and the supply chain response – produce fragmented and additional product flows

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What Causes Supply Chain Networks to Change

Influences such as:• Economic

• Environmental

• Social

• Political

• Technological

• Legal

Sustainability

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The EU Vision

EU Transport Policy Vision (EC 2011):

� Reduce Europe's dependence on imported oil

� Cut carbon emissions in transport by 60% by 2050

�Modal shift: 30% off road by 2030 – 50 % by 2050

�Multi-modal: European corridor network (low carbon/green)

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Decarbonisation Scenario for Road Freight in 2050

Source: Piecyk, 2010

Total tonne-kms stable at 2007

level

40

60

80

100

120

140

160

Inde

x va

lue

1990

= 1

00

GDP Tonne-kms (all modes) Tonne-kms (HGVs)

Product Compaction

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Larger High Capacity Vehicles

Double Deck Trailers

Longer Semi Trailers

… and potentially

Longer Heavier Vehicles

(Mega Truck)

Page 8: Trends Changing the Shape of FMCG Networks - · PDF fileTrends Changing the Shape of FMCG Networks Dr Andrew Palmer Centre for Sustainable Road Freight ... % of truck kilometres run

Source: Piecyk, 2010

Total tonne-kms stable at 2007

level

Road share of freight tonne-

kms reduced from 68% to 50% 72.6 72.3 73.6 74.6 74.3 75.3 75.9 76.1 76.5 76.8 76.5 76.8

20.7 20.9 19.7 18.8 19.1 18.2 17.8 18.1 17.7 17.5 17.9 17.8

6.7 6.8 6.7 6.5 6.6 6.5 6.3 5.8 5.8 5.7 5.5 5.5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

% of

tonn

e km

trav

elle

d

YearRoad Rail IWW Source: Eurostat, 2009

Percentage Modal Split in EU25

65% 67% 65% 64% 62% 64% 62% 64% 64% 63% 67% 68%

6%7%

7% 7% 7% 8% 7%8% 8% 9%

9% 8%

23% 21% 23% 24% 26% 24% 26% 24% 23% 24% 21% 20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Percentage Modal Split in UK

Road (HGVs+LGVs) Rail Water Pipeline

Decarbonisation Scenario for Road Freight in 2050

Page 9: Trends Changing the Shape of FMCG Networks - · PDF fileTrends Changing the Shape of FMCG Networks Dr Andrew Palmer Centre for Sustainable Road Freight ... % of truck kilometres run

World Economic ForumSupply Chain Study 2009

� 27% of good vehicles in the EU are running

empty

� Average loading of the rest is 57%

� Overall efficiency: 43%

� Flow imbalance could only explain half of this

loss

� For how long?

The total cost burden of road freight transport

inefficiency is €160 billion

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Source: McKinnon, 2009

Total tonne-kms stable at 2007

level

Road share of freight tonne-

kms reduced from 64% to 50%

% of truck kilometres run

empty reduced from 27% to

17%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Irelan

dGre

ece

Nether

lands

Finlan

dAus

triaSpa

inPola

ndNor

wayFra

nce

Portu

gal

Hungar

y

United

King

dom

Czech

Repu

blicSwed

enGer

man

y Den

mar

k

Average of 27% empty runningSource: Eurostat, 2009

23

24

25

26

27

28

29

30

31

32

% Kms Empty Running in UK

Decarbonisation Scenario for Road Freight in 2050

Page 11: Trends Changing the Shape of FMCG Networks - · PDF fileTrends Changing the Shape of FMCG Networks Dr Andrew Palmer Centre for Sustainable Road Freight ... % of truck kilometres run

Source: McKinnon, 2009

Total tonne-kms stable at 2007

level

Road share of freight tonne-

kms reduced from 64% to 50%

% of truck kilometres run

empty reduced from 27% to

17%

Average weight based load

factor up from 57% to 70%

EU average payload weight (tonnes)

Source: European Parliament DG- Internal Policies, 2010

Utilisation of trucks in the non-food retail supply chain (UK)

Decarbonisation Scenario for Road Freight in 2050

Page 12: Trends Changing the Shape of FMCG Networks - · PDF fileTrends Changing the Shape of FMCG Networks Dr Andrew Palmer Centre for Sustainable Road Freight ... % of truck kilometres run

Total tonne-kms stable at 2007

level

Road share of freight tonne-

kms reduced from 64% to 50%

% of truck kilometres run

empty reduced from 27% to

17%

Average weight based load

factor up from 59% to 70%

40% improvement in energy

efficiency

DfT 2010

Decarbonisation Scenario for Road Freight in 2050

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Source: McKinnon, 2009

Total tonne-kms stable at 2007

level

Road share of freight tonne-

kms reduced from 64% to 50%

% of truck kilometres run

empty reduced from 27% to

17%

Average weight based load

factor up from 59% to 70%

40% improvement in energy

efficiency

30% reduction in the carbon

content of the fuel energy

76%

reduction in

CO2

emissions

Incr

easi

ng T

ailp

ipe

CO

2S

avin

gs

Increasing Cost

eco-driving training

low rolling resistance

tyres

stop/start hybrid

aerodynamic trailers

full hybrid

fuel cells

biogasaero fairings

biofuel(FAME)

mechanical turbocompound

electric turbocompound

compressed natural gas

electric vehicles

hydrogen

automatic tyre

pressure adjustment

Source: Ricardo report for Dept for Transport

Decarbonisation Scenario for Road Freight in 2050

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Opportunities for Sustainable Cost Effective Logistics

• Optimising supply chain networks

• Collaboration

• Telematics

• Vehicle types

Load capacity utilisation and empty running

Local sourcing

Road share of freight – modal split

• Driving style

• Aerodynamics and tyres

• Avoiding congestion (routing & scheduling, out of hours delivery)

Kms per litre of fuel –engine/energy

efficiency

• Fuel type (electric, biodiesel, biomethane, hybrid)

CO2 emissions per litre of fuel – carbon

content of fuel

Few

er

Km

sFriendlier

Km

s

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Supplier

Producer

Retailer

Shop

Retailer

Producer

Supplier

Shop

Product 1 Product 2

� Traditionally: vertical collaboration (SCM)

Vertical and Horizontal Collaboration

Keywords:• VMI• CPFR• ECR• Inventory control• Just in time• Push or pull • Transparency• Customization • Ordering policies• Bullwhip effect• Chain dominance• Product design• Integration• Power

Keywords:• Synergy• Bundling• Gain sharing• Competitors• Legal aspects• Give and take• Modal shift• Risk sharing

• Alternatively: horizontal collaboration

Page 16: Trends Changing the Shape of FMCG Networks - · PDF fileTrends Changing the Shape of FMCG Networks Dr Andrew Palmer Centre for Sustainable Road Freight ... % of truck kilometres run

Future Supply Chain 2016

• Global Commerce Initiative & Capgemini

• Joint work of 24 major FMCG companies

• New sustainable supply chain architecture: collaborative warehousing and distribution

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Page 18: Trends Changing the Shape of FMCG Networks - · PDF fileTrends Changing the Shape of FMCG Networks Dr Andrew Palmer Centre for Sustainable Road Freight ... % of truck kilometres run

27 companies took part in the project

Company

Booker Group Plc

Kraft Foods

Nestle UK Ltd

Pepsico Food & Beverages Europe

Sainsbury’s

Arla Foods

ASDA Stores Ltd

Bacardi Brown-Foreman Brands

Brakes

Coca-Cola Enterprises Ltd

Colgate Palmolive (UK) Ltd

Diageo Great Britain Limited

Gerber Juice Company Ltd

H J Heinz

Kellogg Marketing & Sales Co

Kimberley Clark

L’Oreal UK and Ireland

Marks & Spencer plc

Mars

Molson Coors Brewing Company

MusgravePalmer & Harvey McLane Ltd

Procter & Gamble

Tesco

Unilever UK

United Biscuits

Waitrose

No of

Flows

No of

Movements

/Year

No. of Pallets or

Pall Equiv

Moved/Year

Annual km

(millions)

No of

trips/year or

Trip Equiv's

No. of Vehicles

or Full Veh

Equiv's

Annual Tpt

CO2 Emissions

(tonnes)

47,104 9,772,164 126,681,239 1,184.982 4,770,674 6,765 1,120,200

Ave days

worked

per week

Vehicle

shifts/day

Ave Tonnes/

Pallet

Annual

Tonne km

(billions)

Ave Height

of Pallet (m)

Average

length of

haul (km)

6.3 2.2 0.7 10.63 1.6 124.2

Represents

� £200 billion of UK turnover

� 8% of all UK road freight movements

� 6.3% of road freight kilometres travelled

� 2.5% of movements classified as backhaul

Ave

km/pallet

Ave

pallets/veh/

week

Ave tns

CO2/veh/year

Ave

km/veh/year

Ave km/veh

shift

9.354 360 166 175,166 248

Base case statistics for one year

Project STARFISH

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Initiatives Considered

Validation

1. Individual company

a. Base case

b. CofG depots within existing boundaries

c. Optimum boundaries for existing depots

d. CofG depots within optimum boundaries

Collaborative

2. Backhaul opportunities

3. Consolidation of small deliveries

4. Use of regional consolidation centres

5. Freight village concept

6. Use of urban consolidation centres

7. Identify inter regional multi modal opportunities

Company Specific

8. Using larger vehicles

9. Out of hours

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Collaboration Matrix

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Co

mp

an

y

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Company

Key:

Yes

Maybe

No

Page 21: Trends Changing the Shape of FMCG Networks - · PDF fileTrends Changing the Shape of FMCG Networks Dr Andrew Palmer Centre for Sustainable Road Freight ... % of truck kilometres run

Profile of Flows (9 companies)

0

200

400

600

800

1000

1200

1400

1600

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52

No

of

cust

om

ers

re

ceiv

ing

de

liv

eri

es

Delivery size in pallets/pallet equivalents

Delivery Size Profile 2010 v 2013 (9 companies)

2013 delivery size 2010 delivery size

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Total CostTotal

Kilometres Total HoursTonnes of

CO2

% saving over Full Load Movements 8.0% 12.3% 5.3% 12.2%% saving over All Movements 4.7% 6.6% 3.0% 6.9%

Criteria

�Keep within the company if possible

� Characteristics of product (height, weight, crushability/stackable)

� Compatible vehicle type

� Loads of 20 pallets or more

� At least 10 movements per month

� Not currently classified as a backhaul (though 3PL, if used, may already do this)

� Cost justified based on a maximum diversion of up to 100km in total extra distance, or 50% of outward journey distance

� At least 15km journey

� Shift time available

Backhauling

Page 23: Trends Changing the Shape of FMCG Networks - · PDF fileTrends Changing the Shape of FMCG Networks Dr Andrew Palmer Centre for Sustainable Road Freight ... % of truck kilometres run

• York Bardon 96,500 kms

• Halifax Bardon 27,000 kms

• Melksham Midlands 157,250 kms

Total 280,750 kms

Empty running reduction

&

Source: IGD & Richard Hasting, Nestle / Rob Wright, UB

Your competitor may be your best logistics partner

Collaborative Backhauling

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Summary of Consolidation Results

Page 25: Trends Changing the Shape of FMCG Networks - · PDF fileTrends Changing the Shape of FMCG Networks Dr Andrew Palmer Centre for Sustainable Road Freight ... % of truck kilometres run

Shared VMI process

- Daily EDI inventory and shipments from RDC

- Proposed deliveries of pooled orders by 3rd party provider

- Validation and transfer from pooling partners to transport coordinator

- Physical preparation of orders in shared warehouse

- Physical delivery in one single full truck to RDC

1

2 3

4

5

1

2

3

4

5

Synchronisation

Collaborative Consolidation

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• 3 FTL shared deliveries / week to 30 RDC

• 15 to 30 % inventory reduction in RDC

• 35% full trucks ratio increase

• Carbon footprint reduced by 400 tons

The Benefits

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Source: ELUPEG/Peter Surtees, Kimberly-Clark

Project Sphinx

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28

A complex project involves a number of organisations, systems and processes and requires strong collaboration

Retailers

Multiple Transporters

Logistics ProviderCMI Service Provider

PartnersTransport Coordination

Source: ELUPEG/Peter Surtees, Kimberly-Clark

The Operation

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Factories Warehouse RetailersCollaborative Warehouse Point of Sale

Flow of VMI information

8

9

10

11

12

13

14

15

16

Jan

11

Mrz

11

Mai

11

Jul 11 Sep

11

Nov

11

Jan

12

Mrz

12

Reduction of

20%

BEFORE AFTERFrom 1 to 3 deliveries / week Daily deliveries

Full Truck

19 Pal

15 pal9 pal

18 Pal

Source: ELUPEG/Peter Surtees, Kimberly-Clark

Vendor Managed Inventory

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� Shorter replenishment cycles

� Enhanced customer service

� Improve on-shelf availability – sell more

� Reduce retailer-held inventory

� Maintain or improve truck capacity utilisation

� Reduced distribution costs

� Reduced carbon footprint

Source: Peter Surtees/ELUPEG

The Benefits

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Summary of Multimodal Results

Terminals near depots Region Supply/Delivery areaNo of wagons

per day

No of trains per

day

3MG (Merseyside Multimodal Gateway) - Widnes North West From North East 15 0.68

To North East 36 1.64

3MG (Merseyside Multimodal Gateway) - Widnes North West From Greater London 23 1.05

To Greater London 7 0.32

DIRFT/EMDC East Midlands From Scotland 22 1.00

To Scotland 34 1.54

DIRFT/EMDC East Midlands From Wales 13 0.58

To Wales 24 1.09

DIRFT/EMDC East Midlands From North East 24 1.09

To North East 24 1.09

Trafford Park North West From Wales 14 0.64

To Wales 25 1.14

Trafford Park North West From Scotland 2 0.09

To Scotland 19 0.86

� Fourteen rail terminals considered

� Relationship between road distance and rail distance

� Three road distance bands (up to 2mls, 15mls, 30mls)

� Minimum 100mls of rail distance to be economically viable

� 26 pallets per wagon, 22 wagons per train

� Approximately 15% cost saving for traffic over 150mls, 30% over 300mls

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Collaboration - What are the Barriers?

1. Competition law2. Fear of losing competitive advantage3. Technical incompatibility4. Organisation culture5. Peoples capability and skills

8%28%13%39%12%

BARRIERS VALUES

Own organisation culture/internal politics 4.1

Lack of trust 4.0

Hard to find partners 3.6

Managerial inertia 3.4

Costly in terms of time and effort 3.3

Technical incompatibility 3.3

Poor knowledge of internal flows 3.2

Fear of losing competitive advantage 3.2

Increased complexity of operation 3.2

Lack of cross network visibility 3.1

Peoples capability and skills 3.0

Fear of the unknown 2.7

Free-riding 2.6

Service expectations 2.4

Competition law 2.3

Gain sharing 2.3

Dependency on external support 1.8

Difficult to distinguish own company in group 1.6

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Company Specific Results

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www.sustainableroadfreight.org

Trends Changing the Shape of FMCG Networks

Thank YouQuestions?

BESTFACT Workshop, Milan 4th December 2014