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05TH JUNE 2008

CONSOLIDATION
STRATEGIES IN LOGISTICS
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INTRODUCTION
 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
 Professional Track record
4

10+ years
of
experienc
e in
logistics
in CIS
 Summary
5
6
 Fact 1 : Drivers of logistics
7

FMCG and Retail drive logistics today

 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 skus
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 skus
 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)
 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
 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

 Fact 4 : But poor infrastructure
12

12%

10%

8%

6%

4%

2%
%
0%
USA Europe Russia
80%

10% 5-7% 1,5% 70%

60%
50%
40%
30%
20%
10%
0%

67% 11% 22%

 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
 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

 State of mind
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 16

Cross Docking & Pooling

 What is consolidation ?
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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
 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
 Pooling, a tool for consolidation
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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)
 Cross docking concept
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 Cross Docking forms
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Pure Cross Docking (Pre-Allocation)

Consolidation Cross Docking

 Typical applications
/ "Hub and spoke"
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Store

Store Store

Cross-
Docking
Terminal

Store
Store

Store
 Typical applications
/ Consolidation arrangements
23

Cross-
Docking
Terminal Store
 Typical applications
/ Deconsolidation arrangements
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Store

Store

Store

Cross-
Store Docking
Terminal

Store

Store

Store

Store
 Typical applications
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 26

EFFECTS OF CROSS DOCKING

 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
 Direct effect : Cost Efficiency
28

Classical Scheme
$
$
$
$

Pooling Scheme
$
$ $ $ $
 Increased delivery frequency
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a
volume

Average
Stock = a

Volume delivered = v t
volume

v v
Average
Stock = a

Volume delivered = v
 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 !

 Indirect effects :
Reduction of the Bullwhip Effect
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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
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25
27
29
31
33
35
37
39
41
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15
17
19
21
1
3
5
7
9

13
15
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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
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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

7
 Indirect effects : In-store effects
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Bringing new practices

Family Grouping and shelf ready
Rolling containers
Reduction of queues and delays at
stores

Source : Migros
 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.
 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
 State of mind
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 36

APPROACHES
 Product selection
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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)
 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.
 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 its 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 its 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.
 Planning and designing the
40
Operation (Focus)

estimated 12% reduction in

labor costs due to travel and
waiting.
 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 Marts

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
 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

CHALLENGES
 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
 Comments
45

The difference between The winner has no

the 2 top offerts > coeff
1,5 !
The market is till not
stabilized
Tender process delayed by 1 month
space
Some respondents
have been at the limit
of politeness
The entrepreneurial spirit
is missing on this market

Answer rate = 10%

Would have been be 80% in Europe
 The 3S challenge
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 The 3S challenge
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High control culture Best Practice

Control vs efficiency

Security Speed Smartness

Security Speed
 The 3S challenge
48

What we want What we do

 Challenges to consider
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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
 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 cant source locally well cross dock
is not always the best algorithm
If we cant produce locally well cross
dock is not always the best algorithm
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CONCLUSION
 More fluid and progressive market
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Prevention from
Oligopoly and
Monopoly
 A more convenient business attitude
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CON LIDARITY
SO

Cooperation with competition

 A more constructive attitude
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Making the market grow

vs
Killing the competitor
 Professionalization of the offer
55

Store wars
vs
Total war
 State of mind
56
 Questions & Answers
57
 Thank You for attention!
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Serge Rivet
s_rivet@conseo-cis.com
www.conseo-cis.com
+ 7 916 453 30 55
Skype : rivetmoscow