Nick Gazzard, CEO - Incept UK, presents the latest global findings on capturing value from flow optimization and smart logistics.

1. New global findings on capturing value from
flow optimisation & smart logistics
Nick Gazzard CEO Incept

2. © Inception Consulting Ltd 2016
Incept specialises in “end-to-end”
multi-actor value network analysis
using industry best practise research
expertise and extensive global
experience
Industry groups and NGO’sAcademic partners & publications
“Enabling new opportunities
to enhance performance in
value networks”
"Value Networks aid our
understanding and ability to
address key issues and
opportunities in our business“
Wal Mart
Recent client engagements include
© Inception Consulting Ltd 2016

3. Sources: Prof Martin Christopher 1998, Images – Maersk & Globaia.org
Trading off manufacturing and
consumer delivery cost
ContainerisationGrowth in global trade
What shaped global freight networks?

4. What now?
Sources: Cerasis,, Cruijssen,F. Argus DPD Microzoning Rotterdam 2015, FT, Forrester, Garry White / Telegraph April 2014 Oct 2014 Times Jan 2014,
Roland Berger, Stats SA 2016, DBW April 28th 2016, Wall St Journal 2014, ONS UK 2014, IGD Supply chain analysis 2016 UK Cencsus
Cities only cover
2% of the earth’s
surface but
consume 75% of
its resources
Urbanisation & eCommerce
transforming consumer behaviour
Last mile activity = 65% of retail costs
Delivery frequency up = drop
size down + rising inventory =
higher costs
Growing product ranges
increase the number of slow
moving SKU’s
Activities like layer pallet
picking are driving dramatic
increases in costs
Discount & on-line = big
challenge for traditional retail
Sector investment prospects
downgraded
Sector economics in South
Africa are becoming brutal
Q1 Sales + 28% to $ 29 Bn
Amazon fresh launches in
UK with 130,000 SKUs
1 Hour delivery slots 7am –
11pm + same day delivery
for orders by 1pm
For c. 2.9m customers

5. Sources: PI Montreuil / Ballot, UPS, Bayer, Google, BBC Rolls Royce 2014, Starship technologies, Economist, Incept
reverse Pharma model 2016
Disruptive business models
technology & AI
Step change scale efficiencies
Adaptive urban logistics
Modular manufacturing
Sustainable “eco-nomics”
Prosumer (demand) driven
“omni-channel” networks
Transformed product and
channel economics
Compelling needs to reduce
costs & time taken for agility
Sense & respond network Push driven chain
What will drive future global networks?

6. “So what” do we do?
Sources: Graphic Head Heart + Brain, Jeffrey Pfeffer Professor of Organizational Behavior Stanford University Graduate
School of Business, Robert I. Sutton, professor of management science and engineering at Stanford, German Institute
of management 2008, Bloomberg data, Capital IQ, Booz & Co 2015
Casual benchmarking leads to adopting practices of
successful organizations without understanding the
circumstances of the success
Repeating what worked in the past without
examining whether the context is the same
Following deeply held yet unexamined ideologies
Weak innovation culture and low R&D spend
With economics likely to remain tough
Evolving marketing models & changing
consumer behaviour are driving costs up
As success is increasingly determined by agile
competing value chains and networks
“Sitting it out” is not an option
So reducing costs is critical but costs are rising - so what is going wrong?

7. Averaged costing (in)accurate to 3 decimals misses opportunities
“People with a high tolerance for
ambiguity typically do not become
financial managers”
Robert S. Kaplan
SOX & GAAP Drive “compliance”
But costs are a function of ever
more complex mixes of activity
products & flows
As complexity rises higher level
cost allocation neither reflects or
predicts costs accurately
So true cost drivers & opportunities can
be hidden….. or worse

8. The BIG opportunities are mostly inside the averages
Total E2E cost change
•1 Delivery per week = €64
•5 Per week = €85 +32%
Vs Retail benefit -14%
SKUCostpercase
Cumulative SKU % of volume
Slow movers
Fast
movers
Medium
movers
Noofflows16,000-0
Average # of pallets 1 – 34 (L to R)
• Normal pallet = €38-65
• Layer pallet = € 114
• Jumble pallet = €165
• Normal cost €0.68
• Customised €1.81
Product customisation
Layer pallet study Case study
Unit load optimisationTransport optimisation

9. “Using NVM the companies
put together a detailed view
of supply chain costs from
point of manufacture
through to the retail DC, the
tool showed very clearly
there are substantial savings
to be made in the total
supply chain I don’t think
we realised previously how
big these savings were”
Trevor Currie
Group Logistics Director
SPAR South Africa
SPAR Cost and flow optimisation for 15,000 SKUs
9

10. SKUStorestocklevel
Flow optimisation SKU Range & flow groups
SKUCostpercase
Cumulative % of volume
Size of the prize : SKU flow optimisation
Fast movers
E2E display
pallets & single
SKU unit loads
Medium
movers
Automation &
multi SKU unit
loads
Slow movers
Sub-case
picking to
container
Display loads drive store handling
and transport efficiency
Item picking drives down in-store
inventory and space
Modular loads drive store
handling and > roll cage efficiency
> -30%
0 10 20 30 40 50 60 70 80 90 100
0
50
100
150
200
250
300
350
ORDERSIZEBYSKU
TOP 100 SKUS RANKED BY ORDER SIZE
Top 100 SKUs Potential to order on display pallets
Avg SKU cases per delivery Order on Pallet Order on Qtr pallet Order on Half pallet
Up to 50% of top 100 SKUs could be
Delivered on display pallets > -40% > -50%
(representative data)

11. Size of the prize : E2E Collaborative cost modelling group
Source: CHEP CAP E2E Group
The group developed an NVM model for
180 scenarios covering 7 product
categories, 5 routes to market (RTM), 3
operational models, 2 retailer models, 3
delivery frequencies & 2 order volumes
Some open
collaboration
scenarios show
50 % savings Vs
current costs

12. Size of the prize : E2E Collaborative group roadmap
• xx

13. Online channels are complex and hard to cost
13
Source: CHEP CAP E2E NVM Multi-channel analysis 2015
Own label long grain rice 1kg 1 kg
Tomato soup 300g 300g
Classy pesto 190g
Cola 2-litre 2 Litre
Jamaica Ginger cake 290g
Own label olive oil 500ml 500ml
Own label baked beans 420g 420g
O Sole mio Bolognese sauce 500g 500g
Aquamint 100ml 100ml
Redux herbal bath 500ml 500ml
Own label toilet tissue 4-pack 4-pack
ShreddyFlakes 750g 750g
Students Super Noodles any flavour 1OOg 1OOg
Tutley tea bags 160s 500g
After Ates Mints 300g carton 300g
Chadbury Dairy Milk 200g 200g
Australian red wine 75cl cheapest on display 75cl
We modelled a basket of
17 products through the
14 channels
To model this drives >10,000 SKU
activities X 330 input variables
equivalent to 3,300,000 individual
cost rates

14. Analysis shows a really significant channel cost gradient
Growth for multi-channel
retailers is coming in channels
costing up to 4 x hard discount
PushdrivenchainSense&respondnetwork
Source: CHEP CAP E2E NVM Multi-channel analysis 2015, Internet World Stats 2016
SA Online sales growth c. 25%
€1.79 per Eq case
€9.83 per Eq case

15. Size of the prize : Networks & modular loads
Over 149 activities in 34 locations for >3,000
RTMs & >160,000 specific cost / CO2e rates
The average cost per case for the current
scenario was €1.39
Lowest cost using “open” supply chains &
modular loads was €0.55
Saving €0.84 or 60% Vs the base
Sources: Modulushca WP 5.2 cost analysis 2014
The scenarios covered
network & process
options from 1:1
traditional operations
to shared networks
using modular loads
S1
S2
S3
S4
S5
S6
0 0.050.10.150.20.250.30.350.40.450.50.550.60.650.70.750.80.850.90.951 1.051.11.151.21.251.31.351.41.451.51.551.61.65
0.50
0.52
0.59
0.51
0.61
0.42
1.13
1.13
1.46
1.38
1.52
1.32
M-Box
Pallet
Cost per case by scenario and equipment type
Excluding packaging

16. Sources: Damage in FMCG Supply chain Wood, G. Pira International Carton user group 2002. Graphic Incept NVM, Netto – Dematic HSS 2015
Are we ready for a modular future?

17. Physical Internet offers
potential savings of
-22% in total km
+15% efficiency
+20% load factor
-50% CO2 (intermodal)
Up to 60% reduction in
logistics costs by using
modular unit loads
nbox
Dator’s second law of the future states “Any useful
idea about the future should appear to be
ridiculous”………
Sources: PI Montreuil / Ballot, UPS, Bayer, Incept nBox, James Allen Dator Hawaii Research Center for Futures, ES3
2015, DHL Supply Chain warehouse Unna DE robot called EffiBOT from Effidence 2016
Emerging and future modular concepts

18. Diving into the future - Modular unit load handing trials
Will modularity & connections work?
YES
Can fork lift & clamp trucks handle it?
YES
Empty
120Kg
load
Loaded
box
Layer dolly
Empty boxes
collapse & lock
together &
could be mixed
with full
Side can open
for inspection
or in-store
display
Operation could be faster but opening unpacking & collapsing took 30 secs
A single connected box held 90 kg & another was handled by clamp truck
The layer connector lifted a 120 kg load
The boxes travelled 2,753 km in 5 countries with no damage in the trials
nbox

19. With potential to save up to 60% of costs
What are we waiting for………….?