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

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