New global findings on capturing value from

flow optimisation & smart logistics

Nick Gazzard CEO Incept

© Inception Consulting Ltd 2016

Incept specialises in “end-to-end” multi-actor value network analysis

using industry best practise research expertise and extensive global

experienceIndustry 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

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?

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 & eCommercetransforming 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 BnAmazon 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

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?

“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?

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

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%

SKU

Co

st pe

r case

Cumulative SKU % of volume

Slow movers

Fast movers

Medium movers

No

of flo

ws 1

6,0

00

-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

“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

SKU

Store sto

ck level

Flow optimisation SKU Range & flow groups

SKU

Co

st per case

Cumulative % of volume

Size of the prize : SKU flow optimisation

Fast moversE2E display

pallets & single SKU unit loads

Medium movers

Automation & multi SKU unit

loads

Slow moversSub-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

OR

DE

R S

IZE

BY

SK

U

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)

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

Size of the prize : E2E Collaborative group roadmap

• xx

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

Analysis shows a really significant channel cost gradient

Growth for multi-channel retailers is coming in channels costing up to 4 x hard discount

Pu

sh d

riven ch

ainSen

se & resp

on

d n

etwo

rk

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

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

1.32M-Box

Pallet

Cost per case by scenario and equipment type

Excluding packaging

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?

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

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

With potential to save up to 60% of costsWhat are we waiting for………….?