What do expect retailers and suppliers from 3 pl

WHAT DO EXPECT RETAILERS FROM LSP ?

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NOVOSSIBIRSK 24 / 04 / 2008

INTRODUCTION

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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

Professional Track record

10+ years of

experience in logistics

in CIS

RETAIL IN RUSSIA

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History of Retail in Russia

Soviet Style Retail

1994 : First retail chains appearing in Moscow

1998 : Russia’s Default

2001 : coming of 1st big foreign Retailers

2004 : Visible Regional Retail Expansion

• 1% Of the Moscow Retail • 0% of Russian Retail • Great part of imported products • Expensive Prices

• Sadko Arkada ‘s margins = 100 – 200 %

• Almost no Self Service • Foreign companies take over Eastern Europe Retail Market but do not touch Russia

Great impact onto retail market • Re-orientation towards discounter format • Re-orientation towards National Products (development of foods product industry) • As a result, in 2000, most of the today’s big players and formats are already created

• Moscow shows mainly super and hypermarket development • ST Petersburg shows mainly discounters

• The Relationship between the retailers and suppliers turn to retailers advantage • Did not accelerate the coming of foreign retailers

• Metro, Auchan, Ramstore, Ikea, • No Tesco, No Carrefour, No Casino, No Ahold, No WalMart

• Appearing of local regional operators (magnit, MDM, Edelweiss, …)

• Retails becomes a real economic sector, with its rules, trends and players • Retail becomes a consumption habit on federal level

Remarks : • The entry ticket to the retail market gets more and more expensive for new retailers, as big players has already come and developed infrastructure (Specialists, Logistics, Regional Network, etc..) • The next solutions to enter are mainly :

• Development of new formats, underdeveloped in Russia • Acquisition of existing networks (Federal or Regional) • Franchising

• State Monopoly • Recurrent deficit • Small assortment • No import • Small Formats • Specialized Formats

Source : Renaissance Capital

Small market ?

  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)

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High Volumes : A very important European market

  4th largest retail market in Europe

  (kingsturge)

  The largest in Eastern Europe

  (Retail and Consumer Worlds – PWC - January 2008)

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The expansion time has come 9

Windows of opportunity Analysis (Based on GRDI ranking for 1995 – 2006)

Space : Large geographical scope 10

Russian Regions Real Estate Markets in 2007 Knight Frank

Volume : Consolidation to happen

Company FY ’06 Net

Sales USD mln

1 X5 Retail 3,551

2 Metro 2,544

3 Magnit 2,504

4 Auchan 2,016

5 Dixi 1,080

6 Lenta 1,060

7 Kopeyka 980

8 7 Continent 958

9 Victoria 900

10 Ramstore 635

Total Top-10 16,228

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Russian Food Retail Market Evolution

10%

Top-10 Other modern formats The rest

30%

9%

10%

Total Russian food retail market estimated CAGR of 10%

USD 280 bln

USD 449 bln

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

High Speed Market : promising futures

  The largest new floorspace pipeline,   (kingsturge)

  Retail sector growing 30% per annum

  (Economist Intelligence Unit – Feb 2007)

  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)

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FY 2007 Retail Revenue Growth

Source: Companies’ Data

Logistics & Retail

  Key aspects impacting logistics :

  Volume :  Already high volumes in the region   Biggest volumes expected in the

area by 2010

  Geography :   Large geographical scope

  Concentration :  Consolidation of the retail volumes

expected

  Moving fast  High speed of change

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EXPECTATIONS OF RETAILERS

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CLASSICAL EXPECTATIONS 15

Classical Motivations for Outsourcing Logistics

Focus on Core Competency   focus on its core competency, or what it

does best.

Technological Flexibility   it is extremely dif8icult for an

organization to keep abreast of the latest functionality

  RFID , (SaaS), upgrades and maintenance,.

Increase capital availability   without substantial investment in

information technology.   Capex turns into Opex

Geographical Coverage   3PL’s that operate in an area are able to

consolidate volume from other organizations to keep costs lower.

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CONCRETE EXPECTATIONS 17

Tackling the infrastructure issue 18

The Infrastructure issue

  45% of retail executive consider that problems with infrastructure influence their business

  Third factor

Infrastructure barriers

• Lack of retail space and rising prices for retail space in large cities. especially critical in Moscow

• Lack of warehouse facilities: This is a common issue faced by retailers in all of Russia’s largest regions. Many overcome this problem by constructing their own distribution centers;

• Limited transportation infrastructure: Retailers face the problem of deliveries delay and longer transit periods due to poor roads and heavy traffic. The situation is forecast to worsen in the next two to three years;

• Lack of electricity and poor lines of communications in the regions

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The Infrastructure issue / FYI 20

Surface Road Network Railway Network

Russia 17 000 000 km2

738 000 km of hard road

87 000 km

Europe / France

= 30 x France

890 000 (France)

222 000 km (Europe )

USA = 1,8 x USA

226 500 aux Etats Unis

WH vacancy rate

Russia 1,5 %

Europe / France

Europe = 5% – 7,5%

USA 10%

Retailers expect 3PLs: 21

Space •  Moscow •  Regions

People •  Tackle the

turnover problem

Equipment •  Temperature

Control •  Trucks

Capacity

Quality 22

Compensating Suppliers poor service

  Assortment is a key to success

  Poor supplier service   this is a supplier

market

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Source: Roland Berger / ECR Europe

8,30% 8,60% 7,90%

17,70%

0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

14,00%

16,00%

18,00%

20,00%

All countries European Union North America Russia

Out of Shelve

???

CONSEQUENCES OF POOR SERVICE

Service Level Coefficient 0.80 1.28155 0.90 1.64485 0.95 1.95996 0.98 2.32635 0.99 2.57583 0.995 2.80703 0.998 3.09023 0.999 3.29052

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Ref : normal distribution (Gaussian distribution)

Coefficient Service Level 1 0.682689492137 2 0.954499736104 3 0.997300203937 4 0.999936657516 5 0.999999426697 6 0.999999998027

Retailers expect 3PLs:

  Quality  Service level  Reliability

  ! Nota Bene !  Retailers take control of

logistics traditionally taken by suppliers or distributors

  This will impact the role of distributors

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Federal Solutions 26

Number of logistics services providers wanted per company

2004 2006 2008 1-2 8 0 12 3-4 4 8 8 5-6 0 19 50 7-8 23 58 19 9-10 27 12 8 11-12 27 0 0 >13 12 4 4

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in %of respondents Average quantity if suppliers

Dynamic Supply Chains in Russia Christopher Jahns - Inga-Lena Darkow - Tobias Weigi German Logistics Association - 2006

But rare federal operators

  Logistics companies in Russia:   4000 - 6000

  Around 100 companies can be rated as logistics service providers.

  The market share of LSPs in 2006 :   Top 20 LSP in Russia = 9 %   Top 10 LSP In Germany = 12 %

  Russia’s logistics market is very fragmented,

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DEVELOPMENT STRATEGIES OF LOGISTICS SERVICE PROVIDERS IN RUSSIA

Frank Straube, Peter Franke Berlin Institute of Technology -2008

Industrial, Warehouses and Land Department 2007 Actuals Knight Frank - October 2007

Retailers expect 3PLs:

 Federal Players

 Which is normal for a network business as retail

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Manage Complexity 30

Simplify complexity / situation

  One hypermarket   From 700 to 1500

suppliers   From 100 to 250 orders a

day   Up to 50,000 sku’s

  One convenience store   From 150 to 450 suppliers   From 40 to 100 orders a

day   Up to 10,000 sku’s

  More drivers in store than clients !!!

  High transport cost (last mile)

  High logistics costs in store (surveys show around 50%)

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Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Supplier

Store

Store

Store

Store

Store

Store

Store

Supplier

Supplier

Supplier

Store

Store

Store

Cross- Docking Terminal


Supplier

Supplier

Supplier

Supplier

Store

Store

Store

Store



  Consolidation services  Cross Dock  Flow through  Merge in transit

Xdock / as a solution

X Dock / General Figures

  Cross-‐docking enables Wal-‐Mart to achieve the economies that come with purchasing full truckloads of goods while avoiding the usual inventory and handling costs.

  Wal-‐Mart runs a full 85% of its goods through its warehouse system -‐-‐ as opposed to only 50% for Kmart.

  Goods are crossed from one loading dock to another in 48 hours or less This enables them to be in the store and ready to be sold

  This reduces Wal-‐Mart's costs of sales by 2% to 3% compared with the industry average.

  For Carrefour :

  Average 20% of reducQon of DC inventory level (France)

  50% decrease of out-‐of-‐stocks (Poland)

Carrefour CIES Conference

Geneva 12 October 2006

Pooling / Consolida=on - One year a?er

Xavier HUA

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Logistics enters the store 34

Source : Roland Berger Source : Migros

Up to 50% of time worked in stores is pure logistics or logistics-like process !

Simplify complexity / Solutions

Retailers wants to translate complexity from stores to warehouses

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Professional solutions 36

Simplify complexity / adequate solutions

  Real time interfacing   SSCC / ASN / EDI

  Large Pickings   Family Grouping   Bulk and weighted products

  Technologies   Rolling containers

  Swap Bodies

  Cubicle scanner

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Simplify complexity/ Flexibility

 Ability to manage peaks

 Seasons  Promo

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0

0,2

0,4

0,6

0,8

1

1,2

1,4

1,6

0

0,2

0,4

0,6

0,8

1

1,2

1,4

Simplify complexity/ Visibility

  Project management

  Standard project management approach to start opeartions for a new customer counts around 600+ decisive steps

  Clear pricing

  With open-book or closed book, unless explicitly stated in the contract, extra usage fees may apply

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Simplify complexity

  Proves of expertise

  Transfer of know-how and technologies

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Minimize risks 41

Minimize Risks

Loss of Control

  This is the single biggest disadvantage of using a 3PL.

Higher Exit Barriers

  difficult to reverse the decision to outsource

  Contracts are usually X years in length with penalty clauses for early termination.

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  Where there may be a certain comfort level to servicing your customer when logistics is in-house, that feeling is gone when you outsource to a 3PL.

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In brief … 44

Concrete expectations

1 - Tackling the infrastructure issue

2 - Quality

3 - Federal Solutions

4 - Manage Complexity

5 - Professional solutions

6 - Minimize Risks

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Selection Criteria for Logistics Service Providers

Dyn

amic

Sup

ply

Cha

ins

in R

ussi

a

Chr

isto

pher

Jah

ns -

Inga

-Len

a D

arko

w -

Tobi

as W

eigi

G

erm

an L

ogis

tics

Ass

ocia

tion

- 200

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REALITIES

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Format

Sales Area 1,000-1,500 sqm. Location Moscow Size a chain of 35-40 stores in the next

two years Product lines

Food; Dry Groceries, Perishables self-service and basic non food

Price segment

middle

• Classical grocery products •  Foods & Non Foods • Attention : Alcohol !

Dry logistics

•  Foods •  Fruits & Vegetables • Meat & Poultry • Dairies

Perishable logistics

•  Specific (Press – Deep Freeze) Direct

Logistics

Distribution channels

•  Used for distribution •  Management of SSCC •  Management of returns

Roll Containers

•  Mandatory Trucks with Tailgates

•  interconnection with SAP Real Time

Scope of Tender

Scope

Dry products logistics Perishable products logistics

Direct delivery

Warehousing operations

(Classical Storage)

(A) In scope for the RFQ

Out of scope for the RFQ Out of scope for the RFQ

Warehousing operations

(Cross Docking)

(B) In scope for the RFQ

(D) In scope for the RFQ

Out of scope for the RFQ

Distribution (Transport)

(C) In scope for the RFQ

(E) In scope for the RFQ


Collection (Transport)

(F) In scope for the RFQ



The LSP can provide a proposal for one, some of or all of the operations (A), (B), (C), (D), (E), (F) !!!

Results

  19 LSP contacted

 Would be 5 to 6 in Europe

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16%

37% 37%

10%

Responses to Logistics Tender

no answer

no space

no resource or limited range of services

in scope

Remarks

  The difference between the 2 top offerts > coeff 1,5 !

  The market is till not stabilized

  The winner has no space   Some respondents have

been at the limit of politeness

  The entrepreneurial spirit is missing on this market

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  Tender process delayed by 1 month

  Answer rate = 10%   Would have been be 80% in Europe

Conclusion

 3PLs till have to convince they are an alternative to insourcing

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CHALLENGES

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Manage Start Up Cost 56

Manage start up costs

0

0,1

0,2

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1

May

200

8

Jun

2008

Jul 2

008

Aug

200

8

Sep

2008

Oct

200

8

Nov

200

8

Dec

200

8

Logistics Costs


0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

Logistics Costs


0,00%

0,50%

1,00%

1,50%

2,00%

2,50%

3,00%

Jan 2010 Feb 2010 Mar 2010 Apr 2010

Logistics Costs

Manage start up costs 60

Volume

Time

Cost

The 3 “S”

Challenge 2 61

Challenge # 1 = The 3”S”

  High control culture   Control vs efficiency

  Best Practice

Security Speed

Security Speed

Smartness

Adapt to a moving situation 63

Challenges 64

It is taking 5-7 years in Russia, to do what took 20-30 years to happen in

France

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Network Management

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Network Management

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?????

Network Management

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Network Management

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Network Management

EOQ(*)

  For retailers, Find the right balance between - Store or ship - cross dock and store

  When costs are high and changing

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D: The demand for product in quanQty per unit Qme. Q: The order quanQty. (variable we want to opQmize) C: The order cost. h: Holding costs per product per unit Qme.

(*) модель оптимального размера заказа Principle of R. H. Wilson

Partnership 71

Chicken and the egg issue

  Who takes risks and commitments ?

  Who makes money ?

 3PLs play their strong role thanks to oligopoly position

 Retailers play on their volumes, and want to get their traditional “Strong role”

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Collaboration

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Retailer

Supplier

Turnover

Price= 100

Retailer

Turnover

Price= 100

Supplier

Interface costs: 17

Retailer

Turnover

Price= 96

Interface costs : 13

Supplier

CONCLUSION

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A tough situation

  Be ready for the worst  Consider plan Bs  Take time

  You will get the best Results

  Get ready for war – you’ll get peace

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Perspectives

  Retail and Logistics market are both young

  They will change

  It is an opportunity not to take bad habits

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The theory of constraints

You are as weak as the weakest element in your organization

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Questions & Answers

Serge Rivet [email protected]

+ 7 916 453 30 55

Skype : rivetmoscow

ООО «Консэо» www.conseo-cis.com

Thank You for attention!

What do expect retailers and suppliers from 3 pl

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