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Consolidation strategies

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2008, June 05th, SwissHotel, Moscow …

2008, June 05th, SwissHotel, Moscow
Conference : “Freight 2008: Logistics and
Supply Chain Conference, organized by
Seanews”, organized by Seanews

Published in: Business, Travel

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  • 1. 1 05TH JUNE 2008 CONSOLIDATION STRATEGIES IN LOGISTICS
  • 2. 2 INTRODUCTION
  • 3. 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
  • 4. Professional Track record 4 10+ years of experienc e in logistics in CIS
  • 5. Summary 5
  • 6. 6
  • 7. Fact 1 : Drivers of logistics 7 FMCG and Retail drive logistics today
  • 8. Fact 2 : Modern retail is complex 8   One hypermarket   From 700 to 1500 suppliers   From 100 to 250 orders a day   More drivers in   Up to 50,000 sku’s store than clients !!!   One convenience store   High transport cost   From 150 to 450 suppliers (last mile)   From 40 to 100 orders a day   Up to 10,000 sku’s
  • 9. Fact 3 : A small market 9   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)
  • 10. Fact 4 : Small Players 10 FY ’06 Net Sales Russian Food Retail Market Evolution Company USD mln 1 X5 Retail 3,551 Top-10 Other modern formats USD 449 bln 2 Metro 2,544 The rest 30% 3 Magnit 2,504 Total Russian food retail market estimated 4 Auchan 2,016 CAGR of 10% 5 Dixi 1,080 USD 280 bln 10% 10% 6 Lenta 1,060 9% 7 Kopeyka 980 8 7 Continent 958 9 Victoria 900 10 Ramstore 635 Total Top-10 16,228 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
  • 11. Fact 4 : High Speed Market 11   The largest new floorspace pipeline,   (kingsturge)   Retail sector growing 30% per annum   (Economist Intelligence Unit – Feb 2007) FY 2007 Retail Revenue Growth   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) Source: Companies’ Data
  • 12. Fact 4 : … But poor infrastructure 12 доля вакантных складских помещений 12% 10% 8% 6% 4% 2% % качественных коммерческих 0% USA Europe Russia складских площадей 80% 10% 5-7% 1,5% 70% 60% 50% 40% 30% 20% 10% 0% Москва и МО Санкт Петербург Регионы 67% 11% 22%
  • 13. Fact 4 : … But poor infrastructure 13   In the future, 20t trucks Will transport logistics in Russia pose a challenge for fleet will increase at ca. FMCG sector development? 9-11%, but trucks Market studyMoscow May 2007 shortage risks remains
  • 14. Fact 5 : Poor Customer Service 14   Assortment is a   Poor supplier key to success service   thisis a supplier market 20,00% 18,00% Out of Shelve 17,70% 16,00% ??? 14,00% 12,00% 10,00% 8,30% 8,60% 7,90% 8,00% 6,00% 4,00% 2,00% 0,00% All countries European North Russia Union America Source: Roland Berger / ECR Europe
  • 15. State of mind 15
  • 16. 16 Cross Docking & Pooling
  • 17. What is consolidation ? 17   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. This is a common practice in different businesses :   Buying unions   Retail network / Franchises
  • 18. Cross docking, a tool for 18 consolidation in logistics   Cross-docking is a practice in logistics of unloading materials from an incoming transport unit and loading these materials in Supplier Store Supplier Store outbound transport unit, Supplier Store Cross- with little or no storage in Supplier Docking Store between. Supplier Terminal Store Supplier Store Supplier Store
  • 19. Pooling, a tool for consolidation 19 in logistics   Downsizing the cost of delivery of small volumes to far destinations, by consolidating volumes of several companies = Small Volumes Big Volumes Transport Cost Transport Cost (LTL) (FT)
  • 20. Cross docking concept 20
  • 21. Cross Docking forms 21 Pure Cross Docking (Pre-Allocation) Consolidation Cross Docking Сборка
  • 22. Typical applications / "Hub and spoke" 22 Store Store Store Cross- Docking Terminal Store Store Store
  • 23. Typical applications / Consolidation arrangements 23 Cross- Docking Terminal Store
  • 24. Typical applications / Deconsolidation arrangements 24 Store Store Store Cross- Store Docking Terminal Store Store Store Store
  • 25. Typical applications 25
  • 26. 26 EFFECTS OF CROSS DOCKING
  • 27. Direct effect : Simplification 27 Supplier Store Supplier Store Supplier Store Supplier 49 transactions Store Supplier Store Supplier Store Supplier Store Supplier Store Supplier Store Store Supplier Cross- 14 Docking Store Supplier transactions Terminal Store Supplier Supplier Store Supplier Store
  • 28. Direct effect : Cost Efficiency 28 Classical Scheme $ $ $ $ Pooling Scheme $ $ $ $ $
  • 29. Increased delivery frequency 29 a volume Average Stock = ½ a Volume delivered = v t volume ½v ½v Average Stock = ¼ a Volume delivered = v
  • 30. Direct effect : Virtuous effects 30 Consolidation does not make you only save money …. More More Frequent Frequent deliveries deliveries More Less More Less income Stock income Stock More More Working Sales Capital Surface … it makes you earn money !
  • 31. Indirect effects : Reduction of the Bullwhip Effect 31 Consumer Sales at Retailer Retailer's Orders to Wholesaler 1000 1000 900 900 Consumer demand 800 800 Retailer Order 700 700 600 600 500 500 400 400 300 300 200 200 100 100 0 0 23 25 27 29 31 33 35 37 39 41 13 15 17 19 21 1 3 5 7 9 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 1 3 5 7 9 11 11 Wholesaler's Orders to Manufacturer Manufacturer's Orders with Supplier 1000 1000 Manufacturer Order 900 900 Wholesaler Order 800 800 700 700 600 600 500 500 400 400 300 300 200 200 100 100 0 0 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 1 3 5 7 9 11 16 19 22 25 28 31 34 37 40 10 13 1 4 7
  • 32. Indirect effects : In-store effects 32   Bringing new practices   Family Grouping and shelf ready Rolling containers   Reduction of queues and delays at stores Source : Migros
  • 33. X Dock / General Figures 33 Cross-docking enables Wal-Mart to   achieve the economies that come with   For Carrefour : purchasing full truckloads of goods while   Average 20% of reduction avoiding the usual inventory and handling costs. of DC inventory level   Wal-Mart runs a full 85% of its (France) goods through its warehouse   50% decrease of out-of- system -- as opposed to only 50% for Kmart. stocks (Poland)   Goods are crossed from one loading dock to another in 48 Carrefour CIES Conference hours or less This enables them Geneva 12 October 2006 to be in the store and ready to Pooling / Consolidation - One year after be sold Xavier HUA   This reduces Wal-Mart's costs of sales by 2% to 3% compared with the industry average.
  • 34. Interesting trends in Russia 34 Buying Unions Consolidarity & Pooling • Concept existing • ECR project in Russia • Dairy & Fresh project • Other projects to come • Move of big retailers to Xdock > Mosmart, Dixi … • New retail projects starting • Concept coming to Xdock from beginning Russia >Smart Value Retail Cross Docking Retail Logistics Parks
  • 35. State of mind 35
  • 36. 36 APPROACHES
  • 37. Product selection 37 Easy Perishable products Highly to handle that require immediate shipment predictable Product Product (high cubic items that do not require extensive (low variance) quality checks during receipt volume) Product moving from one retail store to another High volume products Compatible products !!! (popularity)
  • 38. Supplier selection. 38 Suppliers that have DCs Infrastructure Suppliers that configure Suppliers that products for efficient High Value consistently provides the correct quantity of Service X Added handling through the next point in the supply chain, the correct product at Level Services consistently comply with the precise time it will customer mandates for be needed. labeling, ticketing, packaging, and product Information quality Sharing Unique supplier of Suppliers that effectively and unique product !!! efficiently share information (Private Label) with their customers.
  • 39. Planning and Designing the 39 Operation   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.
  • 40. Planning and designing the 40 Operation (Focus) estimated 12% reduction in labor costs due to travel and waiting.
  • 41. Planning and Designing the 41 Operation Quality communication     Clear inbound & outbound information Clear product Communication labelling and routing information on all pallet consignments.   Enabling communication technologies   EDI (ASN, SSCC) Information   real-time IS are preferred to paper-based systems systems   RF (RFID??)   fill discrepancies in real time. 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.   A strategy is to have centralized buyers determine what gets shipped to stores, instead of the stores themselves; Centralize your organization
  • 42. State of mind 42 Cross Docking is a Formula One in logistics Where every victory … … is the fruit of a well orchestrated team work
  • 43. 43 CHALLENGES
  • 44. Tendering for Cross Docking 44 Responses to Logistics Tender no answer   19 LSP contacted 10% 16% no space   Would be 5 to 6 in Europe 37% no resource 37% or limited range of services in scope
  • 45. Comments 45   The difference between   The winner has no the 2 top offerts > coeff space 1,5 !   Some respondents have been at the limit of politeness   The market is till not stabilized   The entrepreneurial spirit is missing on this market   Tender process delayed by 1 month   Answer rate = 10%   Would have been be 80% in Europe
  • 46. The “3S” challenge 46
  • 47. The “3S” challenge 47   High control culture   Best Practice   Control vs efficiency Security Speed Smartness Security Speed
  • 48. The “3S” challenge 48 What we want What we do
  • 49. 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
  • 50. 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
  • 51. 51 CONCLUSION
  • 52. More fluid and progressive market 52 Prevention from Oligopoly and Monopoly
  • 53. A more convenient business attitude 53 CON LIDARITY SO Cooperation with competition
  • 54. A more constructive attitude 54 “Making the market grow” vs “Killing the competitor”
  • 55. Professionalization of the offer 55 Store wars vs Total war
  • 56. State of mind 56
  • 57. Questions & Answers 57
  • 58. Thank You for attention! 58 Serge Rivet ООО «Консэо» s_rivet@conseo-cis.com www.conseo-cis.com + 7 916 453 30 55 Skype : rivetmoscow