LOGISTIC BYTES. How-to guide for contemporary supply chain professionals. Page 1

Transcription

1 LOGISTIC BYTES How-to guide for contemporary supply chain professionals Page 1

2 CONTENTS Introduction 5 1. LOGISTIC SOLUTIONS How to bypass your destination warehouse by shipping direct-to-store Embrace change with a flexible supply chain Deconsolidation: The solution for more flexible and cost-effective logistics in the final mile Six reasons (plus one) for switching to a Global LCL solution The most successful retailers take a partner-oriented approach for their omni-channel model Damco control tower solution for international supply chains The new SOLAS regulations Adapting the USA s containerized supply chains to the expanded Panama Canal Integrating omni-channel supply chains: The big challenge for retailers SUPPLY CHAIN TACTICS Six ways to lower your logistics costs without compromising on speed or quality International expansion, without the growing pains Global supply chain strategy: Decision points Collaboration, the secret ingredient of successful retail supply chains Moving stock fast from a low-demand market to a high-demand one Physics of a customer-centric supply chain How to reduce complexity in your logistics purchasing while increasing efficiency Are you using the hidden potential of free trade agreement? Optimizing complex supply chains for fast-moving consumer goods Can traditional supply chain solutions meet the expectations of fashion industry customers? Driving supply chain efficiencies in a bearish commodity market Speed to market - a critical driver for fashion logistics Common control tower misconceptions DATA TECHNOLOGY AND INTELLIGENCE Supply chain optimisation: Improve your performance by turning data into intelligence Damco delivers consumer digital technology to meet retail demand Supply chain software technology works, but does it do the work? Why data drives logistics optimisation in the petrochemical industry Crystal clear supply chains: Creating one shared version of the truth yields massive benefits Why it pays to handle your shipping documents efficiently and diligently How benchmarking can lead to best in class supply chains Improved inbound planning efficiency for a European retailer Port rationalisation and container utilisation studies bring major savings in logistics cost and efficiency 163 Page 2

3 4. LOGISTICS IN DEVELOPING REGIONS Changing Africa s supply chain narrative Serving landlocked countries and developing trade in West Africa In West Africa, dependable airfreight forwarders are hard to find Surviving in the new Nigerian commercial landscape Inbound logistics for the African mining industry: circumventing the challenges Currency deal should increase West African trade and logistics with China Chinese companies in Central Africa overcome logistics challenges Getting your imports over critical customs, inspection and quarantine hurdles in China Air-freighting critical oil & gas equipment from China to Venezuela Preparing for Vietnam s anticipated economic growth How to benefit from India s retail potential Shipping mosquito nets to remote North-Indian region A fast and economic rail solution between China and Europe MODES OF TRANSPORT China-Russia rail service a flexible balance between cost and transit time Fast trains replace the slow boat to China Create a competitive advantage by moving to rail and road transport West China development, new railways, and the China-Europe connection Airfreight for retailers: Everything you need, including a fresh look at your situation Non-standard airfreight solutions for high-value fashion item cargoes The logistics of moving exceptional cargos Out-of-gauge item trucked 11,000 km across Eurasia DISTRIBUTION AND CONSOLIDATION Using network optimisation to increase revenues and cut costs Do you know how much your inventory costs you? (And what to do about it?) Regional Hub Allocation: How well placed are your warehouses? Network optimisation helps cleaning up the patchwork Bypass your destination warehouse with direct to store Customized distribution solution keeps Chinese consumers fashionably dressed Hong Kong fulfilment centre serves Asia s fashionable expectations Panama Hub helps global brands to penetrate Latin American markets The longer the spoke, the more effective the hub Why multi-country consolidation helps you fill up your containers Consolidation hub in South Vietnam accelerates domestic ocean deliveries to the North 262 Page 3

4 7. LOGISTIC SOLUTIONS Direct sourcing of perishable foods gains ground Tailored logistics solutions in Southeast Asia New opportunities in Vietnam and Cambodia Why Damco is leading the way in Myanmar Offsetting market forces in China by optimising logistics Optimising export supply chains from China produces significant savings Reliable sourcing in India for retail and apparel customers India - A sourcing region on the rise Supporting international expansion into Africa and the Middle East with a tailored sourcing infrastructure Near Shoring in Europe: Opening up new sourcing regions Why more and more electronics manufacturers are near sourcing production in Mexico Near sourcing from Mexico: Managing the good, the bad, and the ugly LOGISTICS SERVICE PROVIDERS What to look for when selecting A 3PL How 3PLs can help improve logistics in China Why Logistics Service Providers need to offer more than just import/export operational services Operational Excellence: Don t expect anything less from your logistics partner Why working with a reputable 3PL in Nigeria makes sense Damco origin workshops assure close alignment of customer goals and supply chain solutions TRENDS IN LOGISTICS Trends that are shaping the future of logistics How the Internet of Things will change logistics How to deal with new trends in retail logistics Trends in raw materials sourcing for the lifestyle industry Adapting to the rapidly changing retail industry Offshoring E-commerce fulfilment: The next step Key logistic trends In the chemical industry SUSTAINABILITY IN LOGISTICS How to integrate sustainability into your supply chain Sustainable logistics is more than getting the numbers right New Damco sustainability strategy focuses on helping customers to bring logistics onto their sustainability agendas Why Asia plays a key role in Damco s sustainability goals Joining shippers, carriers and logistics providers, the CCWG helps TO reduce carbon footprints Supporting high-level HSSE standards in the chemical industry 430 AUTHOR DETAILS 432 Author details 433 Page 4

5 INTRODUCTION Many different factors make global supply chain management increasingly complex for importers and exporters, shippers and distributors. At Damco, we therefore aim to provide our customers and partners with the latest insights into a wide variety of topics related to supply chain management. Our Damco-updates about trends and developments in logistics can come in the form of webinars, blogposts, papers, infographics, videos, presentations and newsletters. This comprehensive book, entitled Logistics Bytes - A how-to guide for contemporary supply chain professionals, is a compendium of the content that we have published over the last 2 years. The articles cover a wide array of subjects, ranging from logistics tactics and strategies, applying big-data technology, characteristics of logistics in developing regions and optimizing sustainability in logistics - to name only a few of the topics touched upon in this publication. We trust that this guide will inspire you with new ideas and approaches towards your end-to-end logistics management, and that it provides you with an indispensable source of information for your day-to-day logistics tasks. If you have any questions, or cannot find the information that you are looking for, please don t hesitate to contact us via marketing@damco.com. Alternatively, please don t hesitate to locate and contact the nearest Damco office via We look forward to hearing from you! The Damco team Introduction Page 5

6 1. LOGISTIC SOLUTIONS 1. Logistic Solutions Page 6

7 1.1 HOW TO BYPASS YOUR DESTINATION WAREHOUSE BY SHIPPING DIRECT-TO-STORE By: Jens Sode & Heino Kempers Improve customer service, optimise operations, reduce risk Management Summary For retailers and lifestyle brands, satisfying the demands of their customers ranks high on the list of challenges they face. In order to meet the capriciousness of today s consumers and the increasing pressure from the competition, every element of their operation needs to be as agile and efficient as possible. This situation has stimulated innovative retailers to develop an alternative for the traditional supply chain model. The new model, direct-to-store or DC bypass, eliminates the regional distribution centre from the supply chain by moving a maximum of value-added services like quality checks, making the orders store-ready, co-packing and labelling to consolidation centres at origin. This preparation allows orders then to be shipped directly to stores, customers or e-commerce distribution centres. All services that constitute the direct-to-store model can be provided by a third-party logistics service provider. The success of the model depends on pre-defined business rules and processes and on integrated visibility across the entire supply chain. We see that customers who use it, apply it to the product categories for which it is most attractive: time-sensitive products (fresh products, trendy items), products with special characteristics (high unit values, large dimensions, heavy weight), and seasonal products. If all conditions are met, the benefits of the direct-to-store model are usually significant. One major result is an improvement in product velocity. Not only does this allow retailers to respond more flexibly to changing customer demands, but it also reduces inventory and the associated costs of capital. Because the cargo is no longer routed via a regional DC, the distances travelled by truck are much shorter. Consequently, transportation costs are lower, as are carbon emissions. Retailers using the model for seasonal items no longer need to have warehouses that are dimensioned for peak periods 1. Logistic Solutions 1.1 How to bypass your destination warehouse by shipping direct-to-store Page 7

8 but sit half-empty most of the time. And last but not least: direct-to-store distribution eliminates a degree of risk from the supply chain - a factor that is becoming increasingly important for retailers. The Key Challenge: Satisfying Customer Need The challenge mentioned most often by our clients, especially in the retail and lifestyle industries, is how to satisfy their customers needs in an efficient way. Consumers are increasingly demanding and expect their items of choice to be available at all times, in physical stores as well as online. Fashion trends change rapidly, making today s hot item old-fashioned by the day after tomorrow and forcing retailers to navigate between the Scylla of over-stocking and the Charybdis of empty shelves. An efficient supply chain, with the shortest possible lead times, enables retailers to follow the capriciousness that has become the standard of consumer behaviour. It comes as no surprise, then, that most leading research companies report that companies with efficient supply chains have the best chances of surviving the competition. Not only because they have the ability to react and adapt as the market situation changes, but also, and even more importantly, because they have a lower cost base to operate from. Furthermore, we see an increasing number of companies investigating the risks in their supply chain. Realising how critical the supply chain is for their commercial success, they become aware that any disruption, however small, can immediately have serious consequences. A port strike, an episode of bad weather at origin, or a supplier who for whatever reason misses a delivery date - any of these things, and many others, may cause a shipment of Christmas items to arrive in stores after the holidays, effectively making them worthless. Companies that intend to stay ahead of the game are trying to identify and understand their risks and developing and deploying mitigating strategies and actions in the supply chain. The direct-to-store model addresses each of these considerations by enabling retailers to improve their customer service, reduce their operational costs and minimise the risk in their supply chain, with a reduced carbon footprint as a bonus. Bypassing the Traditional Regional Distribution Centre Over time many international companies have closed their local distribution centres and moved their stock to a regional distribution centre, serving their region-wide customer base or branches. 1. Logistic Solutions 1.1 How to bypass your destination warehouse by shipping direct-to-store Page 8

9 Distribution centres also expanded their functions by providing value-added logistics services, such as customising and localising products, adding components or manuals, testing, quality control or final assembly. Later on, more sophisticated high-end activities such as postponement manufacturing were also added. A new distribution model Many international companies still consider this centralised supply chain structure to be the most efficient way of organising their distribution. But some, faced with the need to respond to the increasing complexity of managing more and farther located suppliers while servicing more scattered markets, have moved their logistics operations to low-cost countries and centralized the distribution directly from origin. Labour-intensive logistics activities are increasingly being performed at lower-cost locations by suppliers themselves or by logistics service providers. Sourcing consolidation platforms operated by third-party providers are taking the role of traditional distribution centres. In essence, what has evolved here is a new distribution model, based on direct shipments from origin to a final retailer, a store or an e-commerce provider, while bypassing the traditional distribution centre. This model is called direct-to-store or DC bypass. We can describe it as consisting of two parts: upstream and downstream: In the upstream part of the supply chain, direct-to-store takes advantage of sourcing consolidation platforms located in the origins, like China or Indonesia, where goodsare consolidated and prepared store- or customer-ready. From there these goods are shipped to their final destination. In the downstream part, shipments bypass the traditional distribution centre and, supported by cross-docking, directly reach the final destination, which can be a customer s regional distribution centre or a store. This distribution model enables retailers and lifestyle brands to make significant improvements in their potential to serve consumers while at the same time reducing costs, risks, and carbon emissions. To understand how these benefits come about we will first explore the model in some detail and look at two implementation examples. 1. Logistic Solutions 1.1 How to bypass your destination warehouse by shipping direct-to-store Page 9

10 Direct-to-store vs. centralised distribution As a start let s compare direct-to-store to the centralised distribution model that is used by manycompanies today. One should keep in mind that one condition for benefiting from the direct-tostore model is that a company should be able to allocate bulk orders to customers early in the supply chain: the more accurate the demand forecasts, the later the inventory allocation can take place. This rarely applies to a retailer s full product range, which is why companies that benefit from the direct-tostore model typically use both distribution models and use the direct-to-store model for specific cargo flows and/or customers. With that in mind, let s have a closer look at both models (see figure 1). Figure 1: A comparison of traditional centralised distribution and the direct-to-store model New markets and new products: innovation and expansion, both geographically and in terms of product offering, fuel growth and keep consumers engaged. Holidays and seasons are opportunities to benefit from consumers willingness to spend money on particular items. Optimising this benefit requires an intimate knowledge of local circumstances and customer preferences. 1. Logistic Solutions 1.1 How to bypass your destination warehouse by shipping direct-to-store Page 10

11 New sourcing geographies, mentioned earlier, may be needed to add flexibility and speed to the supply chain. Cost-to-serve is an important consideration: retailers are becoming increasingly aware of the costs associated with their inventories and the gains that can be realised by optimising them. Outsourcing non-core activities will enable a retailer to focus on his strength. Implementing this part of a strategy requires finding the right partners and working closely together with them. In the case of the centralised distribution model, deliveries from suppliers are transported to a central location, usually in full-load quantities, rather than to each store or customer. Loads are then consolidated from a number of suppliers and delivered to the store, ideally in a single full load. The centralised distribution centre acts as a single entry point to a region. Logistics operations like pick-and-pack or making the order shop-ready are performed at the destination in the regional DCs. In a supply chain based on the direct-to-store model, deliveries from several suppliers are consolidated at a consolidation centre at the origin, close to the suppliers. Value-added logistics services like quality checks, making the orders store-ready, co-packing, labelling and consolidation are performed in the consolidation centre at origin in this model: significantly earlier in the supply chain. Because of this preparation, orders can then be shipped directly to a store. Deconsolidation of containers at destination is required for example when a container carries products for several stores or customers, or when the product s final destination doesn t have the capabilities to receive an ocean container. Sometimes this process only involves trans-loading of the cargo from ocean container to a truckload, and in other situations it may involve cross-docking of the cargo to prepare store shipments. Deconsolidation of direct-to-store containers may result in full-truck loads (FTL), less-than-truck loads (LTL) or parcel loads. Implementing Direct-To-Store with a Logistics Service Provider A typical direct-to-store implementation is a smart combination of logistics services that can be provided by a third-party Logistics Service Provider or LSP. How this works is made visible in Figure 2 1. Logistic Solutions 1.1 How to bypass your destination warehouse by shipping direct-to-store Page 11

12 Figure 2: Logistics services provided by a Logistics Service Provider (LSP) in direct-to-store implementations Step by step, from left to right in the diagram, the process is as follows: Companies place their orders with their suppliers and send a copy of every order to their Logistics Service Provider (LSP). it is critical that the suppliers deliver according to plan; this can be ensured by a vendor management programme, provided by the LSP since it is part of their core business, LSPs are usually better positioned for running vendor management programmes than retailers. Based on the order information and well-defined business rules, agreed between the company and the LSP, the latter creates shipment plans. The LSP shares instructions with the suppliers and cargo is delivered to the consolidation centre or port of loading based on the plan. At a consolidation centre close to the suppliers, a LSP consolidates the cargo based on well-defined and agreed business rules. 1. Logistic Solutions 1.1 How to bypass your destination warehouse by shipping direct-to-store Page 12

13 Logistics services such as quality checks, store-ready packaging and barcode labelling and scanning at outer or inner carton levels can be provided at these locations. All items are consolidated into container loads or airfreight shipments and transportation is arranged to the final destination. At the destination, shipments can be checked and deconsolidated at a deconsolidation facility managed by the LSP. Since the majority, if not all, of the required value-added activities have already been taken care of, companies no longer need to flow their shipments to their DCs. Additional logistics value-added services, if needed, can be provided at the deconsolidation centre. From this location the orders are delivered directly to the customer s DC or store, or they can be held for later delivery. Because the entire model is managed by one third-party logistics service provider, information about the status and location path is available end-to-end throughout the entire supply chain. This information is typically made available to all relevant stakeholders. Direct-To-Store Benefits are usually significant Damco customers who have adopted the direct-to-store model have realised a variety of benefits. As we mentioned in the previous section, the model can provide visibility of all orders from beginning to end. Depending on the specific business parameters it is even possible to track a shipment on in-store date, thus eliminating unpleasant surprises or half-informed decisions. The direct-to-store model reduces costs in several ways. Bypassing the regional DC and delivering the orders directly to the store will result in lower labour costs and save storage space at the DC. Also, because logistics value-added services are typically executed at a consolidation centre at origin, companies will benefit from lower processing costs. Some companies choose to apply the direct-to-store model only, or mainly, to handle their seasonal freight flow. In this situation the main benefit is that the model will alleviate the pressure on their own DCs. And in all cases the improved efficiency of distribution at destination will drive significant carbon emission reductions - a major issue for many fashion and lifestyle brands. 1. Logistic Solutions 1.1 How to bypass your destination warehouse by shipping direct-to-store Page 13

14 Last but not least, direct-to-store will yield significant improvements in product velocity. For many retailers this is the central benefit, because it enables them to improve the way they serve their customers needs. The improvement in product velocity, together with some of the effects mentioned before, will in turn also result in a reduction of supply chain costs and cost of capital. Will Your Supply Chain Benefit From Direct-To-Store Distribution? The direct-to-store model is more attractive for some product categories than for others. We have identified three groups of products for which the model is especially beneficial. Time-sensitive products Products with a value that rapidly diminishes or expires within a period of time mainly benefit from improved product velocity. Examples of products in this category are: Fresh products, such as food and flowers. This category probably is the most demanding of all because in most cases the entire supply chain will be temperature-controlled. Trendy items that are quickly outmoded (electronics, clothes). Promotions (for example, items related to product launches or fairs). Collectibles. Products with specific characteristics Items with a high unit value, such as jewellery, benefit from the reduced time-to-market. They may also require a level of security that cannot be guaranteed in a standard regional DC. Another category that doesn t fit with standard DCs (and sometimes that is to be taken literally) are products with a high volume or weight, such as furniture and outdoor equipment. Many retailers prefer not to handle these special items in their own DCs because of technical restraints. Seasonal products Time-sensitive products typically have high volumes of sales in a short period of time. Directto- store distribution reduces the need for extra DC capacity that would not be utilised for a large part of the year. This category includes products for seasonal sports (clothes, sports gear and accessories) and items for short high-volume periods like Christmas, Back-toschool, Black Friday and Valentine s Day. 1. Logistic Solutions 1.1 How to bypass your destination warehouse by shipping direct-to-store Page 14

15 Case Studies The following two case studies will be helpful to give an indication of how large the benefits ofthe direct-to-store model can be in specific situations. Multi-brand retailer with European destination markets The first case involves a multi-brand retailer who predominantly imports goods from Asia to Europe, using two regional DCs. For a pilot project with the direct-to-store approach, this Damco client selected three of their approximately 100 active customers, from the same brand, based on volume and location. The expected annual volume for this pilot was 6,366 pallets, 115,000 cartons or 1,375,000 units. Figure 3: Existing and new situations for a pilot with direct-to-store for a retailer importing from Asia to Europe In the existing situation all cargo was shipped to the German port of Bremerhaven by ocean carrier. From there it was railed to the European DC in the Czech Republic, to be trucked to the UK in the final 1. Logistic Solutions 1.1 How to bypass your destination warehouse by shipping direct-to-store Page 15

16 leg of the supply chain. The total distance travelled by the cargo at destination was around 2550 km. In the new situation, tested in the pilot, the cargo is shipped from Asia to the port of Rotterdam, where it is loaded onto a barge for transport to a logistics service provider s deconsolidation centre in Belgium. From this deconsolidation centre it is then trucked to the customers. In this arrangement the cargo travels 1020 km by road: 1530 km less than with the previous solution. Not only was the distance covered by truck reduced to less than half, but also the supply chain has become much simpler and easier to manage (see figure 4). Figure 4: Pilot situation supply chain The retailer places an order with their supplier and sends a copy to the logistics service provider that is managing their logistics. The LSP uses this information for planning purposes. With support of decision trees, previously agreed between the retailer and the LSP, the cargo is consolidated and shipped, either to the European DC or - as part of the pilot project - directly to the customer. 1. Logistic Solutions 1.1 How to bypass your destination warehouse by shipping direct-to-store Page 16

17 In the last case the cargo is routed to a cross-docking centre in Belgium. Here the goods are unloaded from the container, made store-ready and loaded onto a truck. This all happens within 24 hours after the container arrives at the cross-docking facility. After loading, the truck takes the goods to the customer for delivery. This implementation reduced the total lead-time by no less than 11 days. It also generated a saving on inventory costs of 200,000 per year and increased stock turns from 9% to 13%. And, last but not least, carbon emissions were reduced by an impressive 50%. North American retailer, sourcing domestically and internationally Similar benefits were realised with a different direct-to-store set up by a North American Damco customer. This is a retailer who services over 500 stores in the US (see figure 5). Figure 5: A US retailer using the direct-to-store model ships directly to stores from two deconsolidation centres 1. Logistic Solutions 1.1 How to bypass your destination warehouse by shipping direct-to-store Page 17

18 This retailer receives all of their internationally sourced products and most of their products from domestic origins at one of two cross-docking facilities. Both of these facilities, one on the East Coast, the other on the West Coast, are run by a logistics service provider and have a fully automated deconsolidation setup. The retailer places orders with the suppliers based on sales forecasts. The products are prepacked and labelled with a unique bulk label at origin. This organisation has implemented a delayed allocation process that allows a bulk order to be matched with store-level needs. In other words: products that are on their way to the cross-dock centre can be allocated to a store and will then be delivered directly to that store. This implementation of the direct-to-store model yielded a lead-time shortening of 5 days and an operating costs reduction of 10%. Better Customer Service, Increased Efficiency, Fewer Risks With the above description of the direct-to-store model in mind it is easy to understand how and why it can help retailers outclass their competition. The main effect is that it improves the ability to service their customers by improving product velocity and offering end-to-end visibility, which support their responsiveness to changes in market situation and customer demands. A direct-to-store supply chain also contributes to a more efficient operation. It reduces the overall need for inventories because, as we saw in the case studies, lead-times can be shortened dramatically. Lower inventories translate immediately into lower capital costs. Similarly, the direct costs relating to transportation and product handling will go down by adopting the model, and carbon emissions will be reduced because cargo is trucked over smaller distances. A third significant advantage is elimination of risks from the supply chain. As the processes in the supply chain can be managed more accurately, a retailer can afford to operate more driven by direct store or customer demand and will be able to manoeuvre smoothly around peak capacity constraints. This reduces the need for markdowns and the risk of having warehouses filled with obsolete inventory. 1. Logistic Solutions 1.1 How to bypass your destination warehouse by shipping direct-to-store Page 18

19 Damco is there to help! Over the past years, Damco s supply chain specialists have gained considerable experience in implementing the direct-to-store program for several customers with varied business requirements. If you are interested in exploring how the model may improve your supply chain, we will be happy to share our expertise with you. You can find more information about direct-to-store program on Damco website: 1 Leaflet 2 Video 3 Product Details 1 view.pdf Logistic Solutions 1.1 How to bypass your destination warehouse by shipping direct-to-store Page 19

20 1.2 EMBRACE CHANGE WITH A FLEXIBLE SUPPLY CHAIN By: Jasper Verburg How vendor compliance and automated origin management help supply chains deal with increasingly dynamic environments Management Summary Supply chain management is becoming increasingly complicated because of the volatility and dynamism of today s global markets. Some of the major factors that add pressure are increasing customer requirements, a growing complexity at origin and destination, new competition from former suppliers and regulatory frameworks that become increasingly relevant. This situation requires a new level of agility and flexibility that the regular supply chains of today often cannot deliver. A variety of existing practices that once may have been good enough now yield sub-optimal results. Freedom for personal interpretation in non-automated planning and re-planning, ad-hoc problem solving that in a larger context creates disadvantageous outcomes, organisational structures that limit adaptation to changing circumstances, and fragmentation of the decision making process are a few of the many influences in play. We often see organisations trying to deal with the dynamism of their environment by relying on origin consolidation services. While these services definitely add value, they usually are not flexible enough to realise optimum results. Automated load planning (ALP) systems, using the power of information technology to find the best transportation solution for a particular shipment at a given moment, do a better job. Not unlike a GPS navigation system, they work within pre-set preferences (target parameters and business rules) and adapt to changing circumstances whenever necessary. Decision trees are a basic element of ALP systems; amongst other functions, they allow for immediate and system-wide adaptation of a company s requirements or preferences whenever necessary. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 20

21 To maximise the benefits of automated load planning, it is important that all shipments are available at the consolidation point when they are due. Vendor compliance programmes support this - case studies show that they can optimise availability when vendors tend to be too late as well as too early. With automated load planning, supported by vendor compliance programmes when necessary, our customers increase their potential to embrace and benefit from changes in their business environment, rather than fighting them in a losing battle. A typical Damco client in the Lifestyle vertical saw a 5% reduction of supply chain costs and a 1% increase in sales margin after implementing these mechanisms. This makes it worthwhile to investigate if your company might benefit from the introduction of automated load planning and vendor compliance programmes. Volatile Global Markets Add Complexity to Supply Chain Management In today s world, both markets and supply chains have become global. Predicting demands is becoming more difficult, while supply delays and disruptions have a large impact. We have identified four typical characteristics of the global business environment that directly influence the complexity of managing supply chains. Increasing customer requirements Ultimately, consumers are in the driving seat. Consumer-type behaviour spreads across industries and organisations will require deliveries to be faster, cheaper and more frequent. They require products that meet their exact needs and deliveries that take place where and when they want it. Among other consequences, this results in a need for a more diverse delivery network and reduced average shipment sizes. It also increases the difficulty of accurate sales and operations planning and forecasting. Increasing complexity Not only markets have become more global, but often this is equally true for the supply bases. The emergence of long and dispersed supply chain networks has increased the complexity of supply chain management. Moreover, companies often rely on multiple interdependent partners to successfully execute their supply chains, which makes the networks more vulnerable to disruptions. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 21

22 The rising phenomenon of near sourcing not only provides benefits to companies, it typically also introduces additional shipping options from factories to demand regions, making shipment planning and execution even more critical. Furthermore, emerging markets add new destinations for a broader, more geographically dispersed customer base. And of course, particularly relevant to retail and consumer markets, the necessity of a seamless omni-channel experience requires timely and smart decisions on which product to allocate to which channels. Growing competition Globalisation has not only created opportunities for companies, but it has also introduced new competition. Companies that recently were suppliers in low-cost areas are now appearing as powerful competitors. This makes operating smartly and efficiently even more critical. Restricting regulatory compliance Despite efforts to take down trade barriers, the global nature of today s supply chains requires a regulatory framework to provide an equal playing field to all. Companies need to operate efficiently within those restrictions. Combined with any in-house developed company rules, these restrictions limit the degrees of freedom to plan and execute supply chains. Obstacles on the Way to Flexibility and Agility Flexibility and agility are keys for dealing with this increasing complexity of the business environment, and most companies are well aware of this. Yet they often find their existing practices and processes in their way. These are major challenges we observe in our work with clients: Supply chains often do not offer the required level of resilience. Without this, a company will have difficulty counterbalancing the increased risk profile of a complex global supply chain network. In many companies decision making is fragmented and issue-driven, leading to sub-optimal results. Good decisions require taking the bigger picture into account, including the effects elsewhere in the supply chain of any decision. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 22

23 Although initial order and shipment planning is often done automatically, fine-tuning and final decisions may rely on manual intervention, with a risk of reducing accuracy and adding planning time and staff costs. Not all companies have the ability to efficiently change purchase orders, even when it is better to do so. In such situations purchase orders remain unchanged and push-based shipping behaviour is encouraged. Moreover, while many companies are convinced that anticipating on scenarios and available options adds value, they may in reality still be organised to react to change, rather than acting pro-actively. And even when a pro-active attitude and risk mitigation are actively pursued, exception management will likely still be required. Many companies rely for this on nonautomated, non-integrated decision making loops, reducing responsiveness and flexibility. Finally, global competition and increased customer influence tend to result in downward pressure on revenues. Protecting revenues from sales at marked-down prices typically requires tight cost control as well as ensuring that markets are reached On-Time-In-Full. What makes it so difficult to meet the OTIF promise? The challenges we mentioned impact the supply chain operations of many companies. The obvious goal is to have goods arriving at the right time, in the right quantity, at the right place, and at the right costs. Easy as it sounds, it often proves difficult to meet the On-Time-In-Full (OTIF) promise in an efficient manner. Facing the issues deriving from today s increasingly dynamic global markets, companies usually have to find answers to similar areas of concern: Non-automated planning and re-planning typically allows freedom for personal interpretation and preference. It introduces possibilities to deviate from company rules and calculated optimums, in the longer run usually resulting in a reduced score on service levels. Static or reactive transport mode and carrier selection may lead to deviations from pre-agreed and procured carrier allocations. Although at first sight addressing the need on hand, it might negatively impact overall objectives, such as reaching minimum thresholds for volume incentive schemes. Forecasting and demand planning have always been an art in themselves. Knowing what, 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 23

24 when and where to deliver has become even more difficult in today s global markets. Even if forecasting and demand planning are mastered, a flexible and agile network execution is crucial to comply with requested changes in order quantities, delivery dates and delivery locations. Similarly, the need for increased delivery performance at destination increases the required flexibility and agility, as does the need to quickly resolve any supply chain disruptions that may occur. Other concerns may result from a non-integral approach to the end-to-end supply network. Using multiple visibility platforms across the network, and planning within silos of regions, brands, departments, 3PL s and/or product lines, usually result in sub-optimal planning outcomes. Last but not least, minimising inventory levels and tight cost control are prerequisites for success Traditional Origin Consolidation Services have their Limitations One typical way to address the challenges of a dynamic world is to rely on the expertise and flexibility of consolidators at origin, which usually offer a valuable contribution by efficiently organising and loading containers according to the customer s instructions. Once consignments are known, many consolidators are able to optimise the usage of space in a container through a manual or softwareaided approach. However, especially in a complex, time-pressured, and large-volume operation where customers need a high On-Time-In-Full (OTIF) delivery performance, origin consolidation services yield sub-optimal results for a number of reasons. Not all consolidators can select the correct equipment type from multiple carriers within a customer s volume allocation restrictions. Depending on the complexity of the supply chain, they may not be able to efficiently take into account all business rules. Few will automatically consider that some shipments might not have to ship out straight away and still arrive on time at their final destination, hence missing out on cost-saving potential when combined with future shipments. Once it has been decided that shipments have to sail on the next available vessel, few consolidators can take into account that some shipments take priority over others, or that particular consignments may not be combined into the same container. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 24

25 Most consolidators do not have the flexibility to efficiently re-plan if changes occur in order quantities, delivery dates or shipment destinations. Consolidators who can provide this may only use little automation and varying degrees of manual processing may be involved. Typically this is time-consuming and increases the risk of making non-optimal decisions. And this is where Automated Load Planning may start to yield benefits. Automated Load Planning: A GPS For Your SUPPLY CHAIN Deciding on the optimal route and mode of transportation for a large number of shipments, in real time, under varying circumstances and within a complex set of business rules, is comparable to finding the ideal route from A to B while driving a motor vehicle. Manually planning a route, using a map and maybe traffic reports broadcast by radio, will usually yield results that are not as good as the recommendations of a GPS-based navigation system. A modern GPS system will typically allow you to predefine your preferences (the fastest, the shortest or the most scenic route; car, truck or motorcycle). It will also provide an estimated time-to-destination, based on your current speed as well as up-to-theminute information about the traffic ahead of you, and re-route you if the traffic situation changes. An automated load planning (ALP) system essentially offers similar functionality for supply chains. It will provide you with an optimal shipment plan based on criteria such as delivery time, cost, carbon, transport mode and carrier preferences, and more importantly optimize your route to market when changes appear on the demand or supply side. Traffic Jam 2 hours Scenic route 4 hours Shortest 1½ hour Destination Origin Fastest 1 hour Figure 1: A GPS navigation system may propose and help select several routes depending on your preferences and will adapt them if the traffic situation changes. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 25

26 Automated load planning: Enables automated order and shipment planning and optimisation at origin, Facilitates efficient and effective decision making in complex, volatile environments, Reduces the time required for planning and optimising, Ensures adherence to customer business rules, Optimises cost and delivery performance, while providing insight in the carbon effects of decisions. Normal air 5 days Destination Expedited air 2 days Origin Ocean 33 days Sea/Air 10 days Figure 2: An automated load planning system, like a GPS, may offer several alternatives in line with your business rules and objectives and adapt them if the circumstances change. Vendor compliance programmes for consistency and efficiency Obviously, automated load planning can only function well if the shipments that are being planned are actually available at the origin consolidation point. To prevent creating optimal plans for a non-existing reality, for many of our customers we start planning only for those shipments that actually have been received at our loading stations. But there is a better way. With a vendor compliance programme companies may drive the behaviour of their suppliers in such a way that it allows us to start planning already based upon receipt of the booking from the vendor. Hence we are able to reduce the origin processing time, and thus total lead time, while improving the efficiency of the physical operation by having people available only when needed. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 26

27 Vendor compliance programmes can be set up in many ways to drive the desired vendor behaviour. In all cases, the main goal is to reduce the variability in the performance of suppliers; this supports the development of a consistent, reliable and efficient international supply chain. Typically, vendor compliance programmes rely on standardised processes to monitor and evaluate the performance of suppliers, linked to a scheme of penalties and/or rewards. They are designed to drive essential parameters, including: Improvement in supply chain performance, Reduction of expedited freight costs, Reduced import lead times, Improved product availability, Reduction of supply chain defects. Case studies Two case studies will help to demonstrate how significant the impact of a vendor compliance programme can be. Late Delivery Overview Compliance programme communicated to vendors # of Late delivery Compliance programme implemented Weeks Figure 3: In the case of a large USA retailer, a vendor compliance programme reduced late deliveries from the moment it was announced. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 27

28 Vendor compliance programme reduces late deliveries Compliance programme communicated to vendors Compliance programme implemented The first is an example of a large USA retailer who faced the issue of their vendors delivering cargo too late (see Figure 3). The programme focused on late delivery, late bookings and revisions, late or incorrect documents, and incorrect labelling or packaging. By applying a transparent measurement and penalty/reward system, and by working closely together with the vendors, we have been able to significantly reduce the issue. Penalties could be a percentage of the invoice value as well as a fixed amount per shipment or per purchase order. It is interesting to note that even just the announcement of the programme has helped reduce the issue. The second example (Figure 4) shows a large European department store chain that was facing the opposite problem: on average the vendors were delivering too early, leading to increased storage costs at origin and early payment to vendors due to the incoterms applicable at that time. The introduction of the vendor compliance programme early in 2010 has helped this customer to largely overcome this issue in a permanent way, helping to drive the success of the automated load planning process. To put the significant improvements of these two examples in context, we must realise of course that no programme by itself will be able to completely solve the issue. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 28

29 On time Row Labels Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar VCP start Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Figure 4: Introduction of a vendor compliance programme instantly minimised early deliveries in the case of a large European department store chain. (Left to right, every column represents a day; the day between the two vertical red lines is the agreed day of delivery. Darker fields indicate more deliveries on a day). A Closer Look at Automated Load Planning To be able to understand the potential of automated load planning for your particular situation, it will be useful to have a closer look at the process. Let us start by imagining a typical global supply chain environment, with volatile demand and supply of products, while shipments follow a static, pre-planned sequence of events once departed. In this type of environment, the decision what and how to ship is often complex but critical to the performance of the supply chain. Automated load planning aims to facilitate this complexity, to reduce the time required for planning and optimising, and to increase the adherence to business rules. It automates the decision making process at origin and provides answers to questions such as: Call off from vendor or not? Hold or ship? Consolidate or not? Which mode, carrier, departure date, routing, and transit time to select? 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 29

30 How to apply carrier contracts and allocations? Which equipment to use? How to optimise container fill rates? This type of planning typically optimises overnight. It looks at the available cargo and decides on the best way to ship, respecting both static and dynamic variables, including: On-Time-In-Full (OTIF) delivery at all times, All customer business rules and requirements, which can be set periodically (e.g. carrier allocation mix) or at PO level (e.g. delivery time, mode, contamination restrictions) Changing network circumstances, such as shipping rates, sailings/schedules, capacity availability and carbon emission factors, Any operational restrictions, such as loading cut-off times. Customer business rules Requirements and decision criteria at PO level (delivery time, modes, carrier mix, ) Service levels & objectives Operational restrictions Changing circumstances Rates Sailings/schedules Capacity availability Carbon factors Shipping order, Ready date, Packaging, Quantity Automated load planning Purchase order, Due date, Quantity Volatile supply Plan & steer Volatile demand Origin SKU Departure Shipment Arrival Destination SKU Call off from vendor or not? Hold or ship? Consolidate or not? Select mode, carrier, departure date, routing, transit time Apply carrier contracts and allocations Choose equipment Optimize container fill Figure 5: Automated load planning combines pre-set conditions, agreed service levels and situational information to make decisions about shipments. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 30

31 A three-step process The underlying process consists of three steps (see Figure 6). 1. Automated decision tree As a first step, the system uses the required delivery dates and available shipping options to decide if the available shipments should be held or need to move, and if so, at what speed. It can also trigger exception approval loops in case shipments cannot be planned within pre-set boundaries. Often decision tree logic is used in this step. 2. Allocation and load optimisation In the second step, shipments are allocated to available equipment and the optimum mix of shipments per container is determined. Based on the restrictions set by the customer, the ALP system decides if shipments can be combined or not. Next, it selects the routing, carrier and sailing based on customer-specific service target levels and the available shipping options and equipment. It will then best-fit shipments into containers, often using a space optimiser algorithm to maximise the fill rate. 3. Execute to plan Triggering the actual execution is the final step. Once the optimisation is done, ALP systems may book the shipments directly with carriers and pre-advise destinations. They may also provide detailed load plans to the origin loading stations. If required, planners can overwrite the load plans to accommodate last-minute practical requirements and the actual execution can be monitored. For a customer operating in this way, costs are minimised by optimising the equipment mix and space utilisation for all shipments at origin and within the known decision-making restrictions. The carbon effects are calculated based on the results of the shipment optimisation. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 31

32 SO2 SO1 Carriers 1 2 Monitor SOx Move Hold Exception 3x45High Load ROUTE DC Consol Direct MODE 2x40High 1x20Dry Ship Advice STEP 1 Automated Decision Tree Take all shipping orders for one customer Determine mode, route or hold cargo based on required delivery dates STEP 2 Allocation and Load Optimization Determine co-loading options Select equipment Select carrier Select sailing Maximize fill rate STEP 3 Execute to Plan Book with carrier Send Pre-Advice Send Load Plan to CFS Follow progress Figure 6: ALP systems follow a three-step process Possible future enhancements Currently, automated load planning systems basically are used to make decisions for shipments that are ready to move from origin. We may well imagine that in the near future, more developed systems will be able to change the plans of shipments that have already left. After all, en route between origin and final destination there are several places where shipments can be re-routed, held or accelerated when necessary. Today this requires a human intervention, usually involving considerable administrative overhead. Enhanced ALP systems may make this much simpler. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 32

33 Volatile supply Shipping order, SKU, Ready date, Packaging, Quantity Automated load planning Plan & steer Network status updates Purchase order, SKU, Due date, Quantity Volatile demand Origin SKU Departure Shipment Arrival Destination SKU Call off from vendor or not? Hold or ship? Consolidate or not? Select mode, carrier, departure date, routing, transit time Apply carrier contracts and allocations Choose equipment Optimize container fill Hold or continue? Change or keep destination? Change or keep delivery speed? Figure 7 demonstrates how this would work. The two red dots between departure and arrival represent two typical moments where the route can be modified: Let us assume that the diagram involves a sea-air shipment from Asia, via Dubai, that is intended to go to Paris. While the cargo is moving, we could decide to use the stop in Dubai (the red dot on the left) to divert the shipment to Madrid. An ALP system might make that easy compared to today s manual processing. The red dot on the right is the port of discharge, only followed by the final mile to the destination warehouse. A particular shipment was planned for transport by barge, but we find out that it is actually going to be too late. Today a manual intervention would be a decision to move it by truck. Future ALP systems may be able to automatically trigger this type of decision without any human action, when this complies with the pre-defined parameters and business rules. Next to steering shipments that are already in transit, we may also use big-data capabilities to include the status of shipments on the move into our decision making for shipments still at origin. For instance we may decide to opt for a faster route-to-market for a shipment still at origin if another shipment containing the same SKU s gets delayed in transit. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 33

34 This would mean expanding the planning parameters to SKU level instead of just shipment level. We can also imagine taking into account additional decision factors, such as carbon emissions. Figure 7: Future ALP systems may be used to re-route, speed up or slow down shipments even when they are already on their way. Decision Trees, a Key Component of ALP The use of decision trees (Figure 8), which is a key component of automated load planning, has many advantages. Amongst others it ensures strict compliance with companies business rules and prioritisation logic. During the implementation phase it will help them to really re-think if all the given rules are necessary. The more restrictions need to be factored in, the less optimal the planning result will be. What we have seen in working with our customers, is that they really appreciate this structured health check of how their supply chain is run. Shipment choice Choose how to ship Option 1 Option 2 Option 1A Option 1B Option 2A Option 2B Option 2C Option 2C - a Option 2C - b Decision how to ship Figure 8: A simple decision tree for shipping decisions 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 34

35 One of the obvious handicaps in more complex environments is that it may be difficult to think in advance of all the various scenarios that need to be included in the decision trees. One may still end up with a large non-defined category of shipments. However, an evident benefit is that in case companies want to change anything in the way shipments get decided on, this can easily be changed at the root of the system (i.e., in the decision tree) and it will be instantly applied across their business. They won t be depending on manual implementation and people reading instructions. This helps in flexibly responding to any changing circumstances. Another significant benefit is that companies are not restricted to just having one decision tree; They may have multiple ones active next to each other. This can be a major advantage when different products or different business units have different needs or requirements, maybe even depending on geographical region or time of the year. ALP allows them to segment their one size fits all supply chain into custom-made supply chains for every need (Figure 9).z Current Process Future Process Single one-size-fits-all Supply Chain Segmentation Custom Supply Chain A Custom Supply Chain B Custom Supply Chain C Figure 9: An ALP may facilitate supply chain segmentation by allowing the use of different decision trees and supply chains for separate products or markets. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 35

36 In a way, this comes down to expanding to multiple decision trees, depending on multiple factors. While it may make sense to drive specific shipment behaviour and decision-making for specific parts of a company s business, it typically does increase the planning complexity at origin - and it gets worse if one ships a large number of shipments and needs to make decisions fast. In these situations an automated load planning system may be just the solution that is needed to both control and execute the desired complexity. One of our US customers referred to this when saying Let s operate the complexity we need. Future development: beyond decision trees While automated load planning systems based on decision trees definitely offer great value, there is room for further improvements, which we will describe here briefly. In shipping decisions, most of our customers need to balance mutually excluding objectives. They for instance need to balance OTIF delivery performance with keeping costs down - and typically these objectives don t go hand-in-hand. When choosing the most cost-effective shipping method, this usually results in slow-moving and/or consolidated modes of transport. This will most likely negatively impact OTIF performance. On the other hand, if one were to strive for maximum OTIF performance, one would need to ship everything as fast as possible to maximize the chance of it arriving on time, e.g. by using airfreight. This reduces cost performance. OTIF Performance High Extreme position 1 Maximum on-time delivery Fastest mode as possible Highest shipping cost The real optimal solution Trade off within SLA Depending on other shipments Differs per each moment Extreme position 2 Maximum cost performance Cheapest mode as possible Lowest on-time reliability - Optimum for a particular situation Low Low High Cost Performance Figure 10: Maximum OTIF and minimal costs are mutually exclusive parameters, and the optimum usually lies somewhere in the middle 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 36

37 In reality the optimal choice in this trade-off likely is somewhere in the middle. But depending on the situation, today s choice might well be different from tomorrow s. Decision trees are not able to cope with such dynamics very well, let alone if the optimal service level performance is to be reached over time, rather than for each individual shipment. Maybe when looking over a period of time the best decision is to decide that a particular shipment will arrive late (reducing OTIF performance but improving cost performance) because we want to maximize the consolidation potential with future shipments. And it gets even worse if we start to add additional optimisation objectives, such as carbon emissions, because every new objective adds a dimension to the decision space (see Figure 11). OTIF Optimum COST CO 2 Figure 11: A simple decision tree for shipping decisions. This type of situation is beyond the problem-solving capabilities of a human being in a high volume, time-pressured environment, and not many of today s automated planning systems can deal with this level of daily complexity. This is when scenario planning and learning algorithms will come into play. Benefits of Automated Load Planning Based on what we have described so far, a one-sentence summary of the benefits of ALP could be this: Automated load planning can provide the functionality that enables you to embrace change rather than fight it. Because an automated load planning system may help a company to adapt its static operations to new dynamic environments, its implementation will ideally realise the following benefits: 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 37

38 Achieving maximised fill rates at lowest costs whilst respecting your delivery promises, Avoiding human errors, thanks to automated operation, Increased speed of decision making, Respecting your business rules at all times, Maintaining the freedom to still make final decisions yourself, if desired. All of this, of course, should contribute to a positive bottom line effect. A case study involving a customer of the Damco lifestyle vertical will be helpful to indicate how large this effect can be. This global sportswear brand company is a good representative of the environment in which automated load planning renders most value to supply chain optimisation. This company is characterised by: A complex supply chain (multiple factories and multiple markets across the globe, multiple transport modes), A complex set of decision rules (what can ship how, when and under which circumstances), Strict carrier split allocation targets, Constantly changing shipping rates and capacity availabilities, A large quantity of orders and frequent order changes, Limited decision making and processing time at origin. By applying a combination of strict vendor compliance and automated load planning this company is now able to act in much more agile and flexible ways. It can respond and adapt much more dynamically to changes in the environment it operates in, while remaining in complete control of its segmented supply chains. At bottom line level, this Damco customer has been able to achieve a 5% reduction in supply chain costs. One element of this improvement is a decrease in logistics costs and lead times, due to their optimised inventory levels, reduced airfreight, and improved utilisation of containers and DCs. Also, automation and increasing visibility helped lower their administration costs. On top of this, the company saw an additional 1% increase in sales margin. Because their products hit the market faster and more accurately (the OTIF performance we mentioned before), there was no need to mark down products as often as before. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 38

39 Will your company benefit from automated load planning? From the above it is obvious that automated load planning, in combination with a vendor compliance programme, may potentially render significant value to companies. But these mechanisms work better in certain environments than in others. In working with our customers, we see that their success in this area is not only dependent on quantifiable characteristics of their business environment and processes, but also on aspects of attitude and company culture. These are the soft characteristics of the typical business environment where ALP and vendor compliance programmes will yield significant improvements: Vendors are perceived as partners, not merely as suppliers: there is a spirit of co-operation between parties. The company is truly interested in end-to-end optimisation. The goal is not just to cut out-ofpocket logistics spend. There is a desire to create an agile, pull-based supply chain. And this is an overview of the typical factual characteristics of the business environment: The daily number of shipments is large, using multiple routes to market. The supply chain needs to accommodate frequent changes, originating from the business itself (changing orders, modified company requirements) and from the supply chain environment (changing rates, sailings, capacities, availability of equipment). There are multiple shipping options from the origins (mode, route, carrier, direct/indirect). Many vendors from the same origin ship relatively small-sized shipments to the same or similar destinations. Multiple vendors ship the same SKU s from different geographies. The number of delivery locations is large and tends to increase. If the situation of your company matches some but not all of these criteria, it may still be worthwhile to at least investigate the potential of automated load planning and vendor compliance programmes. 1. Logistic Solutions 1.2 Embrace change with a flexible supply chain Page 39

40 1.3 DECONSOLIDATION: THE SOLUTION FOR MORE FLEXIBLE AND COST-EFFECTIVE LOGISTICS IN THE FINAL MILE By: Jens Rømer Sode Introduction Consumers continue to place changing demands on the supply chain through their shopping preferences. This creates a logistics challenge - how can we leverage the destination supply chain to increase service and reduce costs? The answer lies in deconsolidation. Consumers are rapidly converting to e-commerce year-on-year Christmas sales figures demonstrate this, and we see that retailers are adapting to provide omni-channel offerings. Retailer suppliers are having to evolve their supply chains to meet these changing demands and are facing new challenges - an increasingly complex customer base, more sourcing locations, and a highly competitive marketplace (pushing to reduce costs and increase service levels). To tackle these challenges and meet market demands, we see supply-chain solutions such as near sourcing, more distribution centres or cross-dock facilities, and doing final assembly / customization near customer. This white paper aims to show how destination (final-mile) activities using deconsolidation solutions can help increase exibility and bring down costs. Background: What Determines The Pace Of Your Supply Chain? The model (below) highlights three key trends that are affecting most supply chains. While these trends bring opportunities, they also impose certain risks and challenges. Dealing with these challenges is becoming a necessity to survive in the global market place. Let s take a look at these trends, one-by-one: 1. Logistic Solutions 1.3 Deconsolidation: The solution for more flexible and cost-effective logistics in the final mile Page 40

41 The inexorable rise in e-commerce Forrester Research, Inc. published a report in 2013 which forecasts that online retail (e-commerce) will become a significant part of most countries economies by The research also predicts that the online retail market will represent 10% (USD 370 billion) of total retail sales by Logistic Solutions 1.3 Deconsolidation: The solution for more flexible and cost-effective logistics in the final mile Page 41

42 The research identifies two reasons for this inexorable rise in the growth of e-commerce. Firstly, the exponential increase in the use of smartphones and tablets boosts the time consumers spend shopping online. Secondly, traditional retailers are spending considerably more on their online sales divisions, offering omni-channel solutions to consumers. Giant retailers The Forrester research indicates that investments by traditional retailers in online sales have already contributed to e-commerce growth. Consequently, online investment has had a trickle-down effect on manufacturers who are expected to serve the increasingly varied demands of retailers. These demands can impact the number of stock keeping units (SKUs) required, the order sizes, the number of delivery points, and the loading instructions. For example, in the footwear industry the requirements of one shoe-retailer may be completely different from those of another retail chain. Also, these giant retailers sell multi-brand offerings and may include consumer products not only in their physical stores, but also on websites and in smartphone apps. 1. Logistic Solutions 1.3 Deconsolidation: The solution for more flexible and cost-effective logistics in the final mile Page 42

43 Expansion of global sourcing There s no doubt that supply chains have grown more complex over the past decade. South China was once a hub for footwear manufacturing but now this business is spread across Vietnam and Indonesia, and numerous other locations. Factors such as duty rebates also play a key role in sourcing decisions. And companies often create capabilities in multiple locations to make easy transitions or shifts to other sourcing locations. Finally, sourcing decisions are not only cost-driven; they are also made because companies want to focus on their core activities. Meeting consumer needs, on the other hand, requires more customization as a result of e-commerce, and there are multiple touch points in the supply chain before the product is completely ready. With the explanation of above three trends, we see that supply chains serving the retail market today have to focus on two things: 1) become more agile / flexible and improve customer services, and 2) reduce costs. In the next section, we ll share how destination services can influence these two factors and how they can help companies. How Can The Destination Supply Chain Help To Reduce Costs? Supply chains have traditionally focused on the origin-to-destination port in order to maximize container fill, reduce 20, and use consolidation services etc. For many, the final mile to the destination represents a largely untapped opportunity, due partly to the considerable spread in sourcing locations. Here, deconsolidation services can be used to further optimize flows from different countries and then redistribute to final customers. A typical deconsolidation service facility manages three aspects with system visibility at the core of it: 1. Logistic Solutions 1.3 Deconsolidation: The solution for more flexible and cost-effective logistics in the final mile Page 43

44 Within these three aspects, the following have potential cost advantages: Inland transportation in 53-foot trailers can often be much cheaper than direct containers There is greater likelihood of consolidating multi-country products into a single delivery to a store and/or customer There are possibilities to leverage transport rates by consolidating with other brands (particularly if the decon solution provider is working with other customers who may be shipping to the exact same retailer) Inventory holding costs can be reduced or eliminated by by-passing warehouses and DCs When a decon solution is used intelligently, the required storage space reduces. So how can control of the destination supply chain help to improve customer service levels? Well, in addition to cost advantages, the destination supply chain allows companies to be better positioned to cater for shipments with more SKUs or a multiple product mix (e.g. footwear and apparel in one shipment). In addition, it more readily enables special needs/extra value added services of customers to be fulfilled without hurting lead times. Moreover, destination services like cross-docking can save a lot of time, reducing the product cycle time so that products can be moved down the chain faster. Why can t that all be done in a warehouse, and how does a Decon facility differ from a warehouse? Traditionally, supply chains have relied on pushing inventory to big distribution centres where it can be stored to meet possible demand. While this model can still provide the agility expected today, given that warehouses are located optimally to serve specific markets, it may not be a sustainable option simply due to the heavy costs associated with inventory holding and the slower cash conversion cycle. Also, there is a significant difference between how an optimal Decon facility or a cross-dock facility is designed compared with a warehouse. For instance, a traditional warehouse is typically designed for maximizing storage capacity whereas a cross-docking facility places greater importance on ease of product movement. Similarly, a cross-docking facility requires very good network connectivity so that products can go in and out faster. And ideally, it needs to be a centre-of-gravity from the perspective of the customers being served. 1. Logistic Solutions 1.3 Deconsolidation: The solution for more flexible and cost-effective logistics in the final mile Page 44

45 Lastly, it may be extremely expensive for supply chains to own and maintain (or lease) multiple warehouses simply because they require a certain storage place. With cross docking facilities the situation can be different since the point of cross-docking is to move products in and out quickly, which naturally means less storage is required. Is it smart to outsource crossdocking? The answer to this is that it very much depends on the business model a company has and its network of customers, etc. Clearly, if the aim is to reduce asset-holding costs and cross-docking is not considered to be a core activity, it may be smarter to outsource. Outsourcing may also provide other benefits, such as a better carrier network, flexible contracts instead of long-lease agreements, opportunities to benchmark, etc. Conclusion What we can establish based on the above discussion is that supply chains today have a tremendous opportunity to leverage an optimal destination network and achieve market leadership. They can do this both by improving customer services and reducing costs at the same time. The destination network, however, cannot be designed in isolation and it s extremely important to take a holistic view; from factories at the sourcing locations all the way through to customers at the destination. Having the right team and/or the right logistics partner with the technology to support these changes will not only enable success but also ensure survival in an increasingly competitive environment. 1. Logistic Solutions 1.3 Deconsolidation: The solution for more flexible and cost-effective logistics in the final mile Page 45

46 How to determine the right outsourcing partner? When selecting an outsourcing partner, the following should be considered: Tangible USD commitments/co2 savings that the partner can potentially provide: While some suppliers may only have the ability to provide the product, others may be able to create visibility on the value they are creating. The mechanism for this can be agreed in advance, while the data can be used for managing the partner s performance as well. IT infrastructure: It s important to consider the IT infrastructure of potential partners as this will help show how efficient their processes are. Visibility of supply chain: A partner who has an overview of the extended supply chain may be in a better position to analyse data and propose better solutions that take the complete supply chain into account. Case study: Combining direct and consolidated shipments A leading footwear company that was using direct-to-customer flow, for one of its markets, changed its flow to be a combination of direct and consolidated shipments, attaining savings in excess of USD 200,000 annually. These savings relate to a specic low-volume country and not the entire globe. How: Damco analysed the containers that were being shipped directly into the final delivery DC. The newly designed solution changed the customer s direct supply-chain model for this market into a deconsolidation model, where different markets were combined to realize big savings. 1. Logistic Solutions 1.3 Deconsolidation: The solution for more flexible and cost-effective logistics in the final mile Page 46

47 Case study: Including a destination deconsolidation facility A large corporation in branded lifestyle apparel included a destination deconsolidation facility in their supply chain. This solution proved to be a cost saver on logistics, inventory and working capital. It accelerated product time-to- market. Now it allows more efficient shipping. Annually this saves the corporation at least USD 250,000 on logistic costs, and even more with overall savings. How: An extra option was added in the supply chain of this corporation to create more possibilities in the decision tree. Ideally, large full containers are shipped directly to the customer, but for all other orders deconsolidation is done at a new facility that is strategically chosen to optimise the supply chain. Automated system planning for customer orders enables agility and efficiency to meet customer needs. Besides that, the new solution provides a standardized process in which newly acquired brands can easily be implemented. 1. Logistic Solutions 1.4 Six reasons (plus one) for switching to a global lcl solution Page 47

48 1.4 SIX REASONS (PLUS ONE) FOR SWITCHING TO A GLOBAL LCL SOLUTION By: Kasper Krog In today s industry landscape, consumer demand for fast, and price sensitive products is driving the global market trend towards ever shorter product life cycles and raising a challenge to retailers as they seek to make the right sourcing and logistic decisions. As market dynamics pressure for shorter and shorter product life cycles, managing stock levels becomes key to margin optimisation and the industry trend leans towards lower stock levels with faster rotations. Companies order their merchandise in smaller volumes, while increasing the number of orders in order to create the flexibility necessary to respond to shifting consumer demand. This results in a noticeable increase in the demand for less-than-container load (LCL) cargo type, and with it the costs of transportation. To address this situation, Damco is offering a dedicated Global LCL sea freight solution. FCL economies of scale for LCL cargo Global LCL 4 combines multiple LCL ocean shipments for one or several shippers into full container loads. Low volumes can be shipped with the price and efficiency benefits that are normally restricted to full container load (FCL) movements. Damco s Global LCL solution is supported by our strategically located gateways across the globe, our numerous direct LCL services, and our consolidated container services connecting to landside deliveries in key worldwide destinations. The solution also benefits from Damco s global network of offices and our extensive experience in LCL shipping. Six reasons to reconsider your current LCL practice Lower costs Logistic Solutions 1.4 Six reasons (plus one) for switching to a global lcl solution Page 48

49 By letting Damco combine your LCL cargo into full container loads, you benefit from the leverage of our total shipping volumes across a broad range of carriers. The costs per shipment drop to a level that is otherwise unavailable for standard LCL shipments. Save time thanks to reliable lead times and faster delivery With Global LCL, you know exactly when your cargo sails (generally on a weekly schedule) and when it arrives. Fixed transit times allow for smooth connections to the final destination. Full flexibility Using our extensive global network and dedicated LCL specialists in key markets, Global LCL covers almost every origin and destination through more than 10,000 corridors worldwide. From pick-up to destination delivery, you may expect a personal service with attention to every detail. One-stop shopping Global LCL includes optional services such as documentation management, customs clearance or brokerage, on site pickup and special handling. You ll have one point of contact to get a complete, tailor made solution that exactly fits your needs. Performance measurement based on agreed KPIs We continuously measure our performance against a number of selected EDI milestones and periodically report how we are doing. Cargo visibility Based on the transparency provided by our global integrated IT system you will have real-time visibility of the location and status of your cargo on MyDamco.com. MCC for additional efficiency and cost reduction If you source from multiple countries in Asia, as many companies do, our multi-country consolidation service 5 can help you reduce your transportation costs while at the same time improving your supply chain efficiency. Depending on the combination of origin and destination, we will ship your LCL cargo from the vendors to one of our two MCC hubs, in Hong Kong or Malaysia. Once there it will be consolidated into one or more full containers and shipped to its destination. Many of our global retail and lifestyle customers find that MCC boosts their efficiency because they can 5 multi%20country%20consolidation 1. Logistic Solutions 1.4 Six reasons (plus one) for switching to a global lcl solution Page 49

50 now have goods from many sources delivered in one container straight to their distribution centre. It also reduces their carbon footprint because trucking is used more efficiently. In the case of one Damco client in the lifestyle industry, MCC reduced costs by 40% and emissions by 30%. While not all cargo qualifies for an MCC treatment among other conditions, some cargo may have to be delayed to fill up a container it definitely is an option worth considering. More information You may find more about Global LCL program from our LCL product sheet on Damco.com Logistic Solutions 1.4 Six reasons (plus one) for switching to a Global LCL solution Page 50

51 1.5 THE MOST SUCCESSFUL RETAILERS TAKE A PARTNER-ORIENTED APPROACH FOR THEIR OMNI-CHANNEL MODEL By: Hans Elmegaard In recent years, retailers have found it increasingly difficult to attract consumers to stores. The reasons include a tough economic environment, but also growing competition from online marketplaces such as Amazon and e-bay. These challenges have forced traditional retailers to rethink their business models. One of the results is omni-channel. For omni-channel to succeed, close partnership between retailers and logistics service providers is essential. What is omni-channel? Omni-channel refers to retailers using multiple methods to reach consumers. It means giving customers a choice: coming into the store; ordering online and having products delivered to their home or other location; or selecting the option of picking products up at the store. Crucially, omni-channel seeks to serve all these additional distribution channels from the same stocks, assets and supply chains. This has major economic advantages, but creates considerable extra complexity in the supply chain something retailers and logistics providers are becoming increasingly concerned with. But in an age where one-click purchases and two-day delivery are becoming the norm, consumer convenience is key. The omni-channel model is only expected to get more popular and more advanced. Customized and complex Omni-channel systems must be customized to suit each retailer s business, taking into consideration their retail locations, the products they sell, and the shopping habits of their clientele, among many other factors. These factors greatly influence retailers supply chains, and to get the most out of your omni-channel system, it needs to be integrated with the supply chain. 1. Logistic Solutions 1.5 The most successful retailers take a partner-oriented approach for their omni-channel model Page 51

52 Unfortunately, this is where issues can occur. When the business side and the logistics side are not synchronised, this can lead to problems with efficiency and accuracy in omni-channel. If customers get their orders later than projected or receive the wrong products, it can be damaging and costly to the retailer. Partnering with logistics providers Because the supply chain plays an important role in the omni-channel model, it s crucial for retailers to work closely with logistics service providers. With their specialist knowledge, logistics providers can help retailers design the best solutions to suit their business. In this respect, transparent and collaborative business relationships are more important than ever before. In the past, retailers were essentially in charge of everything, and they would simply ask logistics providers to act based on their needs. Today, the most successful modern retailers take a more partner-oriented approach. This approach is ideal for creating a sustainable supply chain setup within the omni-channel model, with a supply chain that is flexible enough to change when it needs to. This means that when we set up an omni-channel system for retailers today, we would not expect it to look the same in five years. The retail business can change very quickly, so they need to have a supply chain model that is able to adapt to change further down the road. Great potential for future growth Omni-channel is a very new concept in much of the world, so there is still a long way to go and a lot more potential for development. Major retailers have experienced notable success with omni-channel, so expect it to expand and be applied to a variety of new industries and countries around the world, addressing B2B models as well as consumer markets. 1. Logistic Solutions 1.5 The most successful retailers take a partner-oriented approach for their omni-channel model Page 52

53 The key takeaway is that omni-channel goes hand in hand with logistics. To get the most out of omnichannel, retailers need to place a priority on logistics and work closely with their logistics providers; they simply cannot overlook the effect on their supply chains. This article is based on an interview published in Logistics Manager. For the original article see link below Logistic Solutions 1.5 The most successful retailers take a partner-oriented approach for their omni-channel model Page 53

54 1.6 DAMCO CONTROL TOWER SOLUTION FOR INTERNATIONAL SUPPLY CHAINS By: Neil Wheeldon Playing from the full score Supply chains are made up of different players, rather like in an orchestra they have to produce the right notes at the right time to create a pleasing (and profitable) harmony. But if each member of the orchestra can only see their own lines, the chances are the results will be less than harmonious, even if the conductor on the podium is doing their best to keep everyone together. Supply Chain Orchestrator is Damco s approach to giving all supply chain players the full score, so that they can play in concert, and respond intelligently to the maestro s baton. What is a control tower? In supply chains, this approach is often termed a Control Tower (CT). CT is a fairly flexible term one of the best definitions, we think, is from Cap Gemini, which also reveals what a Control Tower is not: Control Towers are cross-divisional organisations with system integrated information hubs that provide supply chain visibility. These hubs are used for gathering and distributing information, and allow people trained to use these visibility capabilities to detect and act on risks or opportunities more quickly. Of course, it isn t a physical structure and may not even be in a single location. It isn t a podium from which a single maestro co-ordinates the entire orchestra, although this may be a possibility. As with an airport control tower, many operators see and act on the current and projected information that is available to them, to improve performance or mitigate risk. But this doesn t remove responsibility from the individual supply chain players, any more than it would from an airline pilot or the second bassoon. Taking a broader view Perhaps most importantly, a Control Tower is emphatically not something you can buy in the modern equivalent of shrink-wrapped software, to plug and play. For most supply chains, creating and operating on CT principles will require fundamental changes in the way individual players see and perform their tasks, and how they are measured and rewarded. IT systems, data collation techniques, 1. Logistic Solutions 1.6 Damco control tower solution for international supply chains Page 54

55 instant real time electronic communication and the rest are of course essential, but if members of the supply chain insist on only viewing their own small local world, nothing will be achieved. The triangle player may hit that vital note right on bar 43, but if the fiddle section has over-interpreted lento and is still on bar 42, that is not good music. What Control Towers can do is to aggregate data from many sources inside and out of the organisation they can t of themselves guarantee that the data is clean or accurate. The CT can enable operators to visualise and predict major and fundamental challenges to the supply chain but the CT cannot of itself create the integration between players required for effective action to be taken. So the CT approach, such as we use in Orchestrator, is fundamentally about people, processes, understanding and experience with perhaps a little technology thrown in. Implementing a Control Tower approach We believe there are four key fundamentals. Establishing the vision: this is a change management process Un derstanding the journey: establishing common goals, and explaining that the significant benefits may not be immediately visible, is vital Selecting the right partner(s): you need partners who understand and support your vision and your wider business strategy. Often, only an LSP with their understanding of the daily challenges of the supply chain can really help you transform your capabilities in line with your own business vision Aligning the metrics: the CT approach can only work if the metrics and KPIs across all the partners are aligned to support the strategy. Execution Again there are four key considerations. One or many? Depending on the organisational structure, a single CT may not be appropriate: different divisions, geographies or customer requirements may require different approaches to CT structure. Location. The CT needs to be close to the talent : the supply chain, but also the Board and other decision makers. 1. Logistic Solutions 1.6 Damco control tower solution for international supply chains Page 55

56 Sensitivity. Doing better things with cleaner existing data is generally more fruitful than merely bringing in ever more data sources. Visualise, control, or orchestrate? Or in other words, what are you trying to achieve? Merely gaining visibility may be a significant advance. Or you may want methods of control. At the highest level, the aim is to orchestrate the supply chain so that exceptions become truly exceptional. Why Orchestrator? Damco s Supply Chain Orchestrator is a fully managed end-to-end service that optimises visibility and control regardless of the underlying systems and providers. We have used our deep knowledge and understanding of complex international supply chain strategy and execution and the core capabilities we have developed in support of our own operations to create an offer that, we believe, can leverage significant capability and performance improvements for all the partners and stakeholders in a given supply chain. Further information Check link below to view the entire webinar on Control Towers in general, and Orchestrator in particular Logistic Solutions 1.7 The new solas regulations Page 56

57 1.7 THE NEW SOLAS REGULATIONS By: Simone Kraal A Shippers Guide To The Implementation Of Solas Regulations On Verified Gross Mass Of Containers Maritime Law changes from 1 July is not an announcement likely to make headlines around the world. But the latest amendment to the SOLAS Convention will affect 99 per cent of the 150 million TEUs of container traffic shipped globally. In this eguide we will explain the new amendment, how it affects shippers, and what shippers need to do to comply. Every shipper that is exporting containerised traffic via international waters will need to understand the implications. What is SOLAS? SOLAS is the International Convention on Safety Of Life At Sea. It is a consolidation of International Laws compiled in its present form in 1974, and since frequently amended. In the modern era SOLAS is the responsibility of the International Maritime Organisation, a United Nations agency with 171 Flag State members. An important point to understand is that when an amendment to SOLAS has been passed, it becomes enforceable International Law from the agreed date of implementation this does not depend on individual member states passing any domestic laws or regulations. As will be shown later on in this eguide, member states have chosen to develop national rules governing how they will ensure compliance. SOLAS includes Chapters of Law on vessel construction and equipment, fire protection, life-saving equipment, communications and other aspects of safety, both on board and at dockside. The part we are interested in is Chapter VI, which covers the carriage of cargos. What does the new amendment cover? The amendment to Chapter VI, regulation 2, is intended to reduce the loss of containers from vessels, 1. Logistic Solutions 1.7 The new solas regulations Page 57

58 provide assurance to parties in the supply chain, and improve the safety of the workforce, vessel and equipment. In order to achieve this, the Shipper is as of 1 July 2016 responsible for verifying the gross mass of any container offered for loading, and for notifying this weight to the carrier. The carrier must not load the container until they have received this notification of gross weight, the Verified Gross Mass (VGM). It may seem surprising that this requirement hasn t been made law before. In fact, under the Hague- Visby Rules (a development of the Hague Rules of 1924) the shipper has an obligation to describe a cargo, including its weight, to the carrier through the Bill of Lading honestly and accurately. However there are problems with this approach: it only covers cargos moved wholly by sea (so excludes multimodal traffic), it barely recognises the concept of containers, and more fundamentally it forms part of contract law a carrier suffering damage can take an action against the shipper in contract, but the rules do not give any party the right to intervene if they believe a cargo has been mis-declared. Arising from this it has often become practice to offer estimated or average weights. In the case of containers, these can be dangerously wide of the mark, for various reasons: the shipper may not be the packer and may not know the full contents; the shipper may for convenience be using the weight declared for Customs or similar purposes, thus ignoring both the tare weight of the container and that of dunnage and packaging; or a cargo may be divided between containers for different customers, some of which may have part loads, some full, and the weights of which may have been declared as an average. There is also of course the possibility that some shippers have simply been lying. Under the new amendment, providing a gross container weight including that of the box itself and any packaging/dunnage is a legal, not just a contractual, requirement. The VGM must be the result of an accurate, physical, weighing process. As an aside, Hague-Visby rules will continue to apply to purely contractual disputes. The VGM amendment will not affect Bills of Lading, or indeed Customs declarations that remains a separate process). What is the VGM process? VGM is the declared weight of a full export container. That includes standard sea freight containers, 1. Logistic Solutions 1.7 The new solas regulations Page 58

59 but also tank containers, flat racks, and bulk containers. VGM has to be declared before loading onto the sea-going vessel. In multimodal operations, it doesn t apply to rail, road or inland waterway legs, or to transshipments within a port. Depending on the supply chain, the Shipper can decide to obtain the VGM before the container is embarked on one of these preliminary modes. The VGM process is complete when the carrier has received the VGM and the container is boarded on the vessel. There is no requirement to reweigh containers at the destination or at a point of transshipment. This also means that the possibility of the weight changing at sea because of humidity changes, for example, is not an issue. It is the responsibility of the Shipper to provide the VGM data to the carrier. However, the Shipper may be the originator, importer or exporter of the cargo, or some intermediate logistics service provider such as a consolidator, NVOCC, or a co-loader. Technically, the Shipper is the legal entity or person named on the Bill of Lading or sea waybill, although as mentioned above, the VGM is an entirely separate piece of data from any weight declared on the BoL. The new law recognises two different ways of ascertaining VGM. Method 1 involves weighing the complete, packed and sealed, container. Under Method 2, it is permissible to weigh separately the cargo or pieces of cargo, the packaging and dunnage, and add the tare weight of the container. Cargo and packaging weights must have been physically and accurately obtained; for tare weight the shipper is entitled to rely on the weight declared, usually, on the end door of the container although if this is obscure or illegible, the container itself may have to be weighed. You do have to use the declared weight, not a nominal, design, or average weight. If your container is on board ship by 1 July the shipment can go ahead without the VGM being 1. Logistic Solutions 1.7 The new solas regulations Page 59

60 declared however if the container is still at dockside, or in transshipment to or from a mother or feeder vessel, then the new rules apply in full. It will be important for shippers to talk to their carriers and forwarders to be sure of the exact status of their containers on 1 July. The Impact on Shippers Lead Times In Method 1 the full, packed and sealed container is weighed this could occur at any convenient location with suitable facilities: at the warehouse, at some third party on the way to the terminal, at or around the terminal s container in-gate, depending on what facilities are available. Offering weighing as a service at terminals will be a commercial decision for terminal operators. Method 1 creates another process step and, particularly if weighing facilities are in short supply, may affect lead times. Under Method 2, the goods and the packing materials can be separately weighed, and added to the tare weight of the container. This has the advantage that the process can be completed and the VGM declared quite early in the supply chain process and any lead time effects can be managed out. Communication and documentation The new rules only require the VGM to be shared with the carrier. Supporting certificates or documents are to be kept by the shipper for auditing and investigation purposes. Based on international audit guidelines, you should plan to retain documents for up to seven years. As to how to communicate the VGM, most carriers prefer to receive advice by EDI. As a global standard, the VERMAS message has been created, which is an EDIFACT message set and contains, besides the VGM, the signature of the party providing the VGM, the verification date, the name of the shipper, and references such as container ID and ocean carrier booking number. Carriers will also accommodate shippers who wish to communicate the VGM by the carrier s website. Sharing the VGM via will also be accepted, but is less preferable. In some countries, further requirements have been set for the information to be shared with the carrier. As an example, the UK has introduced a requirement that the party conducting the weighing be certified and that certification number will also be needed in the data field. 1. Logistic Solutions 1.7 The new solas regulations Page 60

61 Costs It is difficult to generalize about the additional costs implied by the obligation to measure the VGM. At least initially, this will be dictated largely by the availability of and demand for weighing facilities. There may also be costs arising from an extra step in the shipping process requiring containers to go out of their way, incurring extra time and mileage. Delay, and therefore cost, may accrue if ports or countries impose onerous check-weighing regimes; on the other hand more pragmatic spot check systems should allow operations to continue smoothly. There will also be some one-off costs involved in integrating the new requirement with existing IT systems. An important point here is that the VGM does not necessarily bear any relation to the Customs-Declared weight, or indeed any other weights your system may be using so it does require its own data field. As to penalties for non-compliance, some countries are working on schemes of fines or even greater penalties. Many, however, seem to take the view that the risk of having your container stranded dockside may provide sufficient encouragement. Local Implementation The way in which the new rules will be applied already can be seen to vary between countries that have announced their plans (and many have not). Do not be fooled, however as stated above these rules will constitute International Law across all IMO member countries, regardless of whether they have enacted any local interpretations. To keep abreast of individual country rules and requirements as they emerge, we recommend bookmarking the World Shipping Council site at: Different national rules may include enforcement methods and penalties, the need for certification of weighing parties, rules on calibration of scales, and allowable margins of error or tolerances, if any. 1. Logistic Solutions 1.7 The new solas regulations Page 61

62 To take one example, allowable tolerances range from zero (Australia) to more pragmatic positions by the UK and the Netherlands which have a tolerance of 5%. Scales Some countries have included in their national guidelines requirements for the class of scales to be used. For example, Austria and the Netherlands will require the use of scales with precision class III or higher according to EU Guideline 2009/23/ EG. India requires scales that meet the ISO 9001:2008/2015 standard. The way in which terminals handle containers offered with or without a VGM is also a local decision, although commercial rather than regulatory. In the UK, several terminals have announced they will accept containers without the VGM but these will be segregated into a separate stack. Authorities in Mumbai will integrate the VGM in their normal yard operations. The major Brazilian ports are already offering weighing as a service to the shipper, while most US ports are taking the approach of no VGM is no gate in. Keep in mind that weighing at the terminal, even if it is offered, is not necessarily the cheapest or most effective solution. Damco itself is working actively with partners around the world to ensure the local provision of weighing services and the accompanying documentation support. Action List There are several checks that shippers should conduct to ensure their compliance from 1 July onwards and avoid their containers being left on the quayside. Firstly, consider whether Method 1 or Method 2 is most appropriate to your traffics and where you will carry this out, bearing in mind the availability of weighing facilities and any costs or penalties in terms of increased lead times, mileage and otherwise. How well does this fit your own internal processes in terms of time lines, cut off times and so forth? Method 2 weighing of components within the warehouse may have cost and lead time advantages, but will it disrupt other processes? Check what national regulations are being brought in what margins of error are allowed, do weighers need to be registered, and so on. Check that you know who the shipper is in terms of these rules if you are using a third party 1. Logistic Solutions 1.7 The new solas regulations Page 62

63 service provider it may not be you, and you will require assurance that this party is geared up to be compliant with the new rules. Check with carriers and third parties on any new cut-off dates. At the time of writing there have been no significant announcements, but it is evident that the VGM will now have to be supplied before the carrier can draft a loading plan, so there may be changes. Talk. Talk to colleagues and competitors (join your local shippers association); talk to your carriers, your terminal operators, local and national authorities. And talk to us! Frequently Asked Questions General Will the terminals and shipping lines weigh and verify all containers? No, Terminal operators and Carriers are not required to check or question the VGM. But if they suspect that the VGM is incorrect, they are allowed to check. Will the implementation be fully done by 01 July or will it happen gradually? Whatever the status of the implementation of the SOLAS regulations at national level, the SOLAS amendment will be effective in full from 1 July This starting date is applicable to all 171 IMO member and associate member countries. Is SOLAS applicable for LCL shipments? Yes, the SOLAS amendment is applicable for FCL and LCL shipments. Will the Master Bill of Lading still contain the product gross weight or will the VGM be the new weight on shipping documents? The Carriers have announced that they are not planning to update the MBL with the VGM. VGM Who is responsible for the Verified Gross Mass? The shipper named on the bill of lading is responsible for providing the carrier and the terminal operator with the Verified Gross Mass of a packed container. What happens if you do not comply with the new SOLAS regulations for VGM? 1. Logistic Solutions 1.7 The new solas regulations Page 63

64 Fines and other penalties may be imposed under national legislation. As a commercial issue, the penalties may involve repacking costs, administration fees for amending documents, demurrage charges, delayed or cancelled shipments. The bottom line is that no VGM means no loading. Can the VGM be amended after submission? If the VGM needs to be amended before the document cut-off it will be limited to a document amendment. If the VGM is to be changed after the cut-off, it is up to the Carrier to decide how to act upon this. Will there be any additional charges in connection with submitting the VGM? Yes, getting the VGM using method 1 or 2 requires additional effort, process and cost hence it will come as an additional service and at a price. How about containers in transshipment on / after 1 July; do they also need to have VGM? In order to avoid containers stranded in transshipment, Carriers would need to receive the VGM before 1 July. Carriers have not yet announced how much earlier they will be able to receive it Would the terminal accept container gate-in without a VGM? This is the decision for the terminal operators to make at port level. Some ports say No VGM = No Gate-in, while SOLAS regulations focuses on No VGM = No Loading. As the contract of carriage is between the shipper and the shipping company and not between the shipper and the port terminal facility, the shipper meets its obligation under the SOLAS regulations by submitting the VGM to the shipping company. Is there any tolerance or margin of error for VGM accuracy? National standards and requirements will determine the acceptable level of accuracy of the weighing equipment used. There is no provision in SOLAS for any margin of error; this is a physical weighing requirement, not a system of estimation. Gross mass derived using compliant equipment and procedures will meet the legal requirements. If, however, the packed container is weighed, for whatever reason, and the VGM is different from that provided by the shipper by an amount deemed to be 1. Logistic Solutions 1.7 The new solas regulations Page 64

65 material, then the carrier and terminal operator will have a process for determining which value to use. For the latest information you can check the World Shipping Council website. For Ex Works collections, does the Incoterms decides who needs to provide the VGM? The Incoterms govern the sale of goods and not the transport. Shipper on the Master Bill of Lading is responsible. Country-specific regulations What website can you use to check the guidelines per country? Please visit this webpage 9 Which country s legislation applies; the origin country or discharge country? The country of the port of loading (the port state) has a role to play in ensuring that vessels of any nationality calling at its ports are complying with SOLAS as well as any other IMO regulations. The relevance of the country of container loading is if that is where the VGM is established then the weighing equipment used to establish the VGM should meet the accuracy standards and requirements of the country in which the equipment is being used. Does the vessel s flag play a role? The flag state of the vessel has a role to play in ensuring that vessels of that nationality are complying with SOLAS as well as any other IMO regulations. VGM Data Transmission How should the VGM be submitted - EDI, , Internet, external platform etc? The VGM is to be provided to the carrier preferably by electronic means such as EDI. Most carriers will also open up their website to provide the VGM Logistic Solutions 1.7 The new solas regulations Page 65

66 If there s a deviation between actual weight and original packing list or customs declaration sheet, should the packing list or customs file be updated? The VGM will be treated differently from the weight declared on Customs documentation. So, there is no need to update either the customer file or the packing list. Is there a standard form or template to be used for submitting the VGM? There is no global template developed that needs to be used to communicate the VGM with a Carrier. VGM is a separate documentation flow with the Carrier. It can be shared at the same time as the Shipping Instructions are sent (if the time line matches). VERMAS is the standard for EDIFACT messages. What is the deadline for providing the VGM? There is no SOLAS prescribed time deadline for the shipper s submission of the VGM other than that such information is to be received in time to be used by the master and the terminal representative in the ship stowage plan. The cut-off can be different per Carrier and Terminal. So far, carriers have provided indication that the cut-off can be in between 24 hours before vessel arrival at Port of Loading or container gate-in. Weighing methods For method 2, is it possible to use fixed average weights per container type? No, it is not allowed to estimate weight. The tare weight of the container can be found on the door of the container. Do the weighing stations need to meet certification standards or be certified in some way? It is up to the local enforcement agency to decide what if any certification process will apply to weighing parties. More Information World Shipping Council Guidelines World Shipping Council: Country s implementation guidelines and regulations Logistic Solutions 1.7 The new solas regulations Page 66

67 World Shipping Council: VGM Industry FAQs 11 Regarding The Verified Gross Mass of a Container Carrying Cargo 12 Published by Damco: minute explanatory webinar: New Container Weighing Regulations - What you need to know (SOLAS)? - Filling In The Grid For SOLAS Implementation (26 February 2016) 14 - Translating SOLAS Amendments Into Day-To-Day Operations (28 January 2016) 15 - Preparing for SOLAS - Where things stand Today (9 December 2015) 16 - Five Things You Need to Know about The New SOLAS Regulations (1 September 2015) 17 Aquatiaeceste pel ipiciis des il expelendi core aut ma in re nobitatus et est, es minverciti di as re pa dia sim apero quaest, quias ulloreicid quo evercia quis que consecero eum que quia sam ea quiaturenit 10 Weight_Verification_Requirement.pdf Industry_FAQs_Dec_2015_US_letter_WEB. pdf Logistic Solutions 1.7 The new solas regulations Page 67

68 1.8 ADAPTING THE USA S CONTAINERIZED SUPPLY CHAINS TO THE EXPANDED PANAMA CANAL By: Josue Alzamora The best supply chains are not just fast and cost effective. They are also agile and adaptable. According to Hau Lee in his article The Triple-A Supply Chain (October 2004, Harvard Business Review), the best supply chains are capable of adapting their supply network in response to structural shifts in the market. After the Panama Canal opened in 1914, the maximum size of vessel able to navigate it currently known as the Panamax equated to a capacity of around 4,500 TEU. The new Canal lane that was inaugurated a few days ago makes it possible to transport up to around 13,000 TEU depending on vessel design, and these vessels are referred to as Neopanamax. The Panama Canal expansion is one of the most significant structural developments to impact supplier networks between Asia and the USA in the past 100 years, but how fast will US supply chains adapt? For sure, the enhanced Panama Canal presents shippers, ocean carriers, ports, and logistics operators with new opportunities, but the Canal development is only part of the story. In the last few 1. Logistic Solutions 1.8 Adapting the USA s containerized supply chains to the expanded Panama Canal Page 68

69 years, traffic has been fluctuating between the US West / East and Gulf Coast ports in advance of the opening of the new Panama Canal corridor and this can be attributed to many factors. For example: many US East and Gulf coast ports have been investing heavily to prepare for the effects of the Canal expansion (which was initially scheduled to be finished by 2014); there have been US West Coast port strikes, which had an effect on importers decisions; and population growth has influenced where demand is coming from. Increased attractiveness of East Coast inbound route The former Panamax canal sizing indirectly influenced the USA s containerized supply chain topology, historically driving supply chains to be built with West Coast entry ports serving not only the West Coast itself, but also sometimes Central, South, or even East destination locations. Business analysts predict a shift from West Coast to East/Gulf Coast ports as a result of the Panama expansion, on top of the recent moves. Although it is different for every supply chain, the line of demarcation between US areas served most economically from the West or from the East is a strip roughly between the Great Lakes and the Gulf of Mexico. All other things being equal, an obvious effect of the new Panama Canal corridor would be to shift this line further to the West, although in reality it would still depend on some other factors including, for example, the US port and intermodal network infrastructure. 1. Logistic Solutions 1.8 Adapting the USA s containerized supply chains to the expanded Panama Canal Page 69

70 Get ready to adapt The Neopanamax-ready Panama Canal is plainly a game changer for supply chains between Asia and North America and, in order to adapt, companies will have to consider a number of factors including: inbound transportation costs, warehouse location, transit time, resilience, and environmental impact. Inbound transportation costs Historically the West Coast ports have enjoyed a significant advantage in ocean costs from Asia, including the economies of operating larger vessels and having the available capacity to drive down rates. Reflecting the drop in overall ocean freight rates experienced in the last few years, an 18 month Asia to US rate comparison based on the Shanghai Containerized Freight Index (SCFI) from January 2015 to June 2016 shows a change of import ocean rates estimated to be 6% steeper to East Coast ports than to West Coast ports. Even given the lower operational costs per Container through Panama, in time, based on carriers Neopanamax services, the inbound cost gap between East Coast and West Coast ports is simply expected to become narrower, also influenced by variables such as increased capacity and competition. It is also reasonable to suppose that increased competition between ports will keep a lid on port and terminal charges, despite the need to pay for heavy investment. 1. Logistic Solutions 1.8 Adapting the USA s containerized supply chains to the expanded Panama Canal Page 70

71 The land-based infrastructure serving these ports also plays a role: rail and truck operators will need to price their services more competitively if they are to help the ports they serve retain sufficient traffic. Warehouse location In most scenarios, reducing the overall transport distances from port to warehouse and onward to the final destinations already suggests an optimized transport chain, and while inbound transport costs remain crucial, the location of distribution centers and their related costs are equally important. The reason to pay extra attention to the strategic choice of warehouse locations ties in to the expected lower inbound transport costs to the East/Gulf Coasts. This suggests some areas that might not have been the natural choice for a distribution center in the past become more attractive in the future, keeping in mind that square foot costs between the various US areas show significant differences. To illustrate the differences across the USA, here are some figures released by the CBRE in one of their recent reports: the Net Rent Index per square foot across East Coast areas, including Charleston, Savannah, Virginia, Baltimore and Jacksonville, is estimated to be 16 to 44% lower than that in the LA/ LB area. And those same East Coast areas have a Net Rent Index increase of roughly 2 to 6% per year, in comparison with LA/LB where rents are projected to increase between 8 to 9% per year. Transit time Traditionally, vessels from Asia via Panama have served the whole length of the East Coast with a series of port calls. Growing traffic might see services dedicated to just a single or fewer ports, thereby offering potential for transit time reduction for certain locations. Resilience The ability to use ports, railroads and other facilities in different parts of the USA, and within reason to move between them, naturally increases the resilience of the supply chain to external shocks ranging from port strikes, to natural disasters. So while the consumer demand alone seems to be a no-brainer, and even though many companies have already diversified their inbound port strategy to serve different markets, some firms still 1. Logistic Solutions 1.8 Adapting the USA s containerized supply chains to the expanded Panama Canal Page 71

72 traditionally channel a large proportion of containers through the busiest West Coast ports and simply accept the expense of lengthy intermodal legs and a higher risk in case of unforeseen events. Taking into account the revamped supply chain infrastructure, including the many investments triggered by the Panama Canal expansion project since it started in 2007, for some firms it may now be possible and even desirable to re-evaluate their market reach. For example, they could look at the limitations of the geographical areas served from each port, when shipping to and distributing from West, Gulf and East Coast ports as appropriate. This could extend beyond a short term shift of containers to currently used warehouses, and form the basis for a longer term strategic decision, with considerations such as where inventories are being held for fast reaction to serve nearby market demand. Environmental impact Another potential benefit of using Panama to access Gulf and East Coast ports lies in its impact on the environment, particularly with regard to emission levels. If longer sea legs can be combined with shorter road and rail distribution elements, quantifiable improvements can be demonstrated, and many companies will weigh these up alongside time and overall cost considerations. Optimize for the most competitive supply chain For consumer industries with their dominant share of the Asia to US containerized volume, it is essential to take a look at both the highly populated and growing population areas; this variable alone can provide a good indication of the ideal locations for distribution centers that ultimately merge most of the inventories being imported. The population of the USA is notoriously concentrated on its periphery: California, New York and the North East, the Great Lakes, and increasingly, Texas and Florida. While it is not apparent that containerized cargo will rapidly shift from one particular US port to another due to the expanded Panama Canal route, what is important for widespread US companies is to take advantage of the alternative to further optimize their supply chains with all the recent infrastructure developments in sight. This will in many cases require them to challenge the usual routes and the current supply chain design, to quickly adapt in order to enjoy benefits beyond those of having shorter 1. Logistic Solutions 1.8 Adapting the USA s containerized supply chains to the expanded Panama Canal Page 72

73 or more cost effective transport legs. The precise manner in which these benefits can be realised will vary greatly between supply chains and companies, with the underlying threat being to adapt too slowly or to not adapt at all, affecting overall competitiveness. Damco has been addressing the general effect of the Panama Canal expansion since our initial study carried out in 2011 (focused on USA and Canada) and also presented these effects to the Panama Canal Authority (ACP) at a large conference that same year. On June 28th, a Damco delegation joined the Panama Embassy to The Netherlands at The Hague, in an event to celebrate the inauguration of the expansion of the Panama Canal. Based on extensive experience in performing supply chain development for a diverse range of companies, Damco can support its customers by: conducting supply chain simulations and analyses using both historical data and forecast trade flows; evaluating different variables such as cost, service, product availability, risk and emission impacts of proposed changes; and assisting in the implementation and operation of chosen alternatives. 1. Logistic Solutions 1.8 Adapting the USA s containerized supply chains to the expanded Panama Canal Page 73

74 1.9 INTEGRATING OMNI-CHANNEL SUPPLY CHAINS: THE BIG CHALLENGE FOR RETAILERS By: Damco Blog Team Retailers all over the world feel the pressure to add an online presence to their brick-and-mortar channel. Most of them are still struggling to make the resulting omni-channel situation profitable. The experiences so far demonstrate that online retailing is not an activity that can simply be grafted onto an organisation s existing operations, since both the marketing and sales processes will be significantly different. A successful omni-channel operation requires a complete re-evaluation of the supply chain and increasing visibility is a key element. The challenge: integrating the two channels Internet-based retailers have dramatically changed the expectations of consumers in areas like personalisation of web shops, customer focus, options for delivery or pick-up, and return policies. If they can order a specialty item late in the evening and have it on their doorstep the next morning, it is incomprehensible to them that a physical shop would have them wait for that same item for two full days. While this is an obvious threat to traditional retailers, they can avail themselves of assets that pure web shops can t. With their physical presence in both out-of-town shopping areas and city centres, they can offer consumers the direct product experience: touching the fabric of a garment, seeing the bright image of a TV set. On top of that, shops in hot spots are perfect locations for pick-ups and returns, and the resultant passing traffic may generate additional sales. Successfully integrating the two channels is what retailers are grappling with these days. Visibility supports control and trust Damco works with most of the major global retail chains. From what we see, it is evident that there is no standard solution. The ideal approach depends on the market situation, the product categories and consumer segments involved, and much more. But we find that there are some commonalities that support our clients in being more successful. The key element is visibility across the entire supply chain. 1. Logistic Solutions 1.9 Integrating omni-channel supply chains: the big challenge for retailers Page 74

75 Retailers want to be agile, so that they can quickly respond to emerging trends and minimise risks. This requires a complete, integrated overview of the supply chain from origin to destination one that far exceeds the scope of a warehouse management system. Damco can provide this end-to-end visibility tools that also include all relevant data from multiple suppliers. The resulting visibility enables retailers to reduce stocks and move articles to the place where they are needed, but equally to switch between multiple suppliers in different sourcing countries and regions. For example, we see several of our clients reducing their dependency on suppliers in Bangladesh by sourcing from new countries like Ethiopia and Turkey. The effectiveness of this type of management decision depends on the availability of complete and trustworthy data. A logistics manager in London cannot go and count stock items on a shelf in Myanmar he needs a reporting system that he can trust blindly. Opening new destination markets, proving sustainability, and more Complete, end-to-end visibility of all elements in the supply chain also enables retailers to expand into new destinations with limited effort. By using existing facilities, both at origin and in the destination region, they can test the waters in a new market with just a handful of small stores and a good web shop. A complete overview of the supply chain also helps retailers and consumer brands to realise their sustainability goals. With Damco s Supply Chain Carbon Dashboard, they can pinpoint the elements that contribute most to their carbon footprint and explore alternative scenarios. Now that sustainability is becoming increasingly important as a brand value, especially in the fashion and lifestyle industries, a measurable CO2 reduction supports the desired profile of being environmentally responsible. Unlimited potential Opening up new destinations and supporting environmental efforts are only two of the benefits of the end-to-end visibility that Damco helps its clients achieve. Depending on a particular retailer s situation, there may be many more. It all begins with knowing what is going on in the supply chain, from every individual supplier at origin to every DC and shop at destination. Knowledge is power! 1. Logistic Solutions 1.9 Integrating omni-channel supply chains: the big challenge for retailers Page 75

76 2. SUPPLY CHAIN TACTICS 2. Supply chain tactics Page 76

77 2.1 SIX WAYS TO LOWER YOUR LOGISTICS COSTS WITHOUT COMPROMISING ON SPEED OR QUALITY By: Nirmal Thakkar Management Summary The most reliable estimates put the average costs of logistics, across all industries and company sizes, at close to 10% of total sales revenue high enough to justify the question what can be done to reduce them. There are thorough ways to approach the issue, such as supply chain redesign, which are guaranteed to work but take considerable time and effort. However, in most supply chains there is also some low-hanging fruit, which is the focus of this white paper. Transportation costs generally represent the largest contribution to total logistics spending. They may be brought down by consolidating less-than-container and less-than-truck loads, by adapting an NVOCC approach to benefit from fluctuating freight rates, or by centralizing procurement. Modal shifts, especially replacing airfreight, can be very effective, and scrutinizing transportation invoices will usually be worth the effort. Delivery costs are significant and the penetration of e-commerce plus the associated rise in customer expectations tend to drive them to still greater heights. It is no wonder that there are many experimental initiatives to fulfil the essential last mile more cost effectively without affecting the consumer s experience. Part of the solution may also lie in adaptations earlier in the supply chain. Delivery in emerging markets deserves special attention: existing First World models rarely fit. Inventory is another important cost element, and better forecasting appears to be the most effective instrument to reduce costs here, with established as well as innovative technologies being offered. Network optimisation is a guaranteed, but not necessarily simple way to reduce inventory levels and costs. 2. Supply chain tactics 2.1 Six ways to lower your logistics costs without compromising on speed or quality Page 77

78 Returns and repairs, decisive parts of the customer experience, can become very costly if not handled well. Reverse logistics is a field of its own. Optimising the return and repair process for speed will reduce costs, but minimising the number of returns is even more powerful. This can be achieved by establishing and enforcing strict return policies and by providing better and more complete product information. Supply chain vulnerabilities are a cost factor that only becomes visible when something out of the ordinary happens. Making a supply chain more robust to disruptions creates expenses now, but can save a fortune in cost and reputation damage later. Partial solutions have a limited effect and can even be counterproductive for the supply chain as a whole. The ultimate tool for logistics costs reduction is a system that provides a transparent view of the entire supply chain. For this type of solution, support of external specialists is usually indispensable. Picking the Low-Hanging Fruit in Supply Chain Costs From a business point of view, logistics costs are just another overhead and therefore every way to reduce them is welcome. Depending on the industry, its scale, and its particular business model, the actual impact of logistics costs may vary. But with a reported average across a wide range of industries of 9.34% of sales, the contribution of logistics costs to total costs definitely is not negligible. Many things can be done to reduce logistics costs, and many approaches have proved to be successful. Supply chain redesign is one example, but that could involve a fundamental operational change that could take considerable time and other resources which companies typically perform no more than once every five years. Fortunately, besides these sort of radical interventions there are other, a bit simpler things a business can do to pick the proverbial low-hanging fruit. 2. Supply chain tactics 2.1 Six ways to lower your logistics costs without compromising on speed or quality Page 78

79 This white paper covers a number of aspects to consider when you want to reduce supply chain costs without affecting your speed or service levels. Not all of them will apply equally in every situation and some are more complicated than others. You may likely have implemented several of them a long time ago and these may be due for review. Others, however, may alert you to something you haven t done yet or trigger a new idea for your specific situation, enabling you to take that next step in logistics cost reduction. Transportation Costs Transportation accounts for a significant share of total logistics costs for any company dealing with physical goods. Analyst s reports present different estimates, with a highest average value of 47% of total logistics costs. The actual number may be higher or lower for your company, but even at the lower range of the scale it is a cost element that is worth looking into. Consolidation Focusing on cost drivers that are easy to identify and remedy, a first one is the effect of less-thancontainer and less-than-truck loads. Any effort at improvement here begins with having reliable data available. Do you know what fraction of the containers you ship and of the trucks that move your cargo are fully loaded? If you don t, it will most likely pay to find out. The numbers will help you to assess the potential benefits of load consolidation. Developing and implementing a consolidation strategy may be something that you can do yourself or should leave to an external party such as a 3PL. Benefit from freight rate variability Due to their annual procurement cycle, many shippers pay a fixed rate for their shipments for a given 12-month period. While this provides certainty and protection against sudden fluctuations, it also precludes the possibility of getting a better rate if that becomes available. In an environment where freight rates are extremely volatile (see figure 1), it can be advantageous to take the approach of a non-vessel owning common carrier (NVOCC) and play the market, even if only to a certain degree. Because this requires specialised skills and excellent market intelligence, it is usually something that the average company would be wise to outsource. 18 Logistics Cost and Service 2014, Establish (presented at CSCMP s Annual Global Conference, 2014) 19 Logistics Cost and Service 2014, Establish (presented at CSCMP s Annual Global Conference, 2014) 2. Supply chain tactics 2.1 Six ways to lower your logistics costs without compromising on speed or quality Page 79

80 644 Max: Ø: Min: Figure 1. The Harper Index is an indication of the price levels for container shipping. Mismatches between supply and demand can cause prices to vary widely over relatively short periods of time. Centralised procurement With few exceptions, companies that run an international supply chain with several origin and destination regions at some point find themselves with a patchwork of logistics supplier contracts. Based on the way their targets are set, local organisations often negotiate terms that are not beneficial for the overall supply chain usually with good intentions, and without being aware of it. Centralised procurement can be a good means to reduce transportation costs, provided it respects the logistic requirements of the supply chain instead of just pushing for lower prices and creating all sorts of collateral damage in the operation. 2. Supply chain tactics 2.1 Six ways to lower your logistics costs without compromising on speed or quality Page 80

81 Modal shifts: replace airfreight Airfreight is by far the most expensive mode of transportation, but many companies see it as unavoidable for their particular situation. In some cases this is true. But in many others a closer look at the supply chain reveals that a shift to a different mode (usually, air to road) or to a combination of modes also supports the required delivery times. Because of the extreme price difference between air and all other modes, it usually pays to explore the potential benefit of a modal shift for any organisation that consistently, or perhaps worse, casually, uses airfreight. Study those invoices This may sound obvious, but it is still worth mentioning: make sure that the invoices that you pay match the services that you received as well as the underlying contracts. Many companies don t have a functioning process in place to validate the freight invoices they receive. If your company is one of them, you will sooner or later pay more than you should. A good system will also enable you to obtain reliable metrics about your transportation costs that you can use for optimisation purposes. Delivery The supply chain segment that receives most news coverage is the delivery part, not only because it is abuzz with predictions, changes, and experiments, but also because it is the place where the supply chain meets the customers, with their ever-growing expectations. Same-day delivery, an elite service only a decade ago, has become the norm in many consumer and business environments and online retailers are now running trials with one-hour delivery. Amazon is studying drone delivery and has been testing deliveries through bike messengers in Manhattan. Ubercargo was launched as a way to use private drivers for the last mile, and numerous other initiatives are being discussed. All of this frenzy is driven by the value that shoppers put on control over the time and place of receiving the goods they ordered online. According to the 2013 IMRG Consumer Home Delivery Survey, a large majority of consumers rate the ability to specify a delivery date (and preferably, a time) as important to their experience. Inspired by what they see, business customers have also become more demanding. 2. Supply chain tactics 2.1 Six ways to lower your logistics costs without compromising on speed or quality Page 81

82 Experiments in the last mile The term last mile refers to the final leg of the supply chain, the transportation from the last local or regional hub to the delivery address. Its actual length may indeed be around a mile in densely populated urban areas, but it could also be a hundred miles or more in geographies with low customer densities. Final delivery is the more accurate term. Industry estimates put the cost of final delivery anywhere between 25 and 50% of total transportation costs 20. Whatever the real number may be, final delivery absorbs huge amounts of money and the trend is still rising. With the growing volume of e-commerce home deliveries the associated problems seem to increase exponentially. Traffic congestion is one of them: in some cities a gridlock of home delivery vans is close to becoming a reality. Measures to reduce urban traffic, such as congestion charges or time restrictions on deliveries, add to the problem. Failure to deliver at the first attempt (28% of parcels, in a Dutch study 21 ) is a major cost factor. There are many initiatives aiming to reduce delivery costs. Giving consumers more options for the time and place of delivery (at home, at work, at a pickup point, in a store, or even in the trunk of their parked vehicle a Volvo experiment 22 ) is a way to reduce the number of failed deliveries. Combining deliveries from different vendors to the same address reduces total driving kilometres and the associated costs. Retailers and delivery companies are experimenting with forms of crowdsourcing as a way to reduce delivery costs, for example by offering shoppers a discount for delivering items to addresses on their way home. Consider the context It would be a mistake to focus on the final delivery in isolation when attempting to lower costs, because at least some of those costs are determined elsewhere. Smarter packaging, for example, can reduce cargo volume and weight and minimise damages. IKEA, a pioneer and trendsetter in this field, has taken the integrated approach to the extreme by having its customers take care of final delivery themselves while even feeling happy about it! Global Trends & Forecasts 2015, Planet Retail Building the Shopping 2020 Supply Chain, Expertgroep Supply Chain, Global Trends & Forecasts 2015, Planet Retail Supply chain tactics 2.1 Six ways to lower your logistics costs without compromising on speed or quality Page 82

83 Understanding delivery in emerging markets For successful brands in developed markets it is a logical next step to try and gain a foothold in emerging markets. Even in the world s poorest countries there are people with high standards of living, and in bigger cities of 10 million people or more even a small percentage of the population translates into a large number of potential customers. It would be a naive and costly mistake to copy-paste the distribution models that are successful in developed environments for use in emerging markets. The differences are just too huge to ignore. Land area (in sqkm) Density (people per sqkm)2 10,000 9,000 8,000 7,000 8,683 35,000 30,000 25,000 6,000 5,000 4,000 4,320 20,000 15,000 3,000 2,000 1, , ,623 2,266 10,000 5, Rank Supply chain tactics 2.1 Six ways to lower your logistics costs without compromising on speed or quality Page 83

84 A comparison of large-city population densities worldwide shows that densities are much higher in emerging countries. Population densities in emerging market cities can be much higher than in mature markets (compare Mumbai, with over 29,000 people per square kilometre, to New York City, with just 2,050). Due to the prevalence of mom and pop stores, the number of store locations is much larger and the average shipment size much smaller, making logistics operations in emerging markets fragmented in comparison to mature markets. Since creating a freight-environment is not a first priority for the urban authorities, congestion and delays can pose huge challenges. The only way to deal with the situation and prevent unnecessary costs is to put aside First World assumptions and develop the distribution networks from the ground up. Or, in many cases, to find a logistics provider who knows the market and partner with them. Inventory According to the breakdown by Establish quoted before, inventory cost on average represents 24% of total logistics costs across all industries, but this number will be higher for retail, lifestyle, and FMCG companies. The biggest factor is normally the cost of the capital that is tied up in the inventory, but there are less visible costs that add to this, such as insurance, degradation and damage, loss and theft. There is every reason to keep inventory at the lowest possible level, but the multi-million-dollar question is what exactly constitutes the lowest possible level. Every supply chain manager is involved in an ongoing balancing act between capital, control and availability. Overstocking is a drain on resources, understocking results in missed sales. No wonder that companies go to great lengths in trying to forecast demands. Forecasting In view of the critical importance of forecasts it is surprising that many analysts report that a large share, or even a majority, of companies rely on nothing but spreadsheets to forecast demands, ignoring the fact that in recent years powerful ERP systems and dedicated solutions have been introduced that can do a far better job. According to a recent trends report by eft 23, predictive 23 Hot Trends 2015, eft 2. Supply chain tactics 2.1 Six ways to lower your logistics costs without compromising on speed or quality Page 84

85 analytics, of which demand forecasting is a sub-field, will gain considerable traction over the next few years. But the effectiveness of even the most powerful tool depends heavily on the quality of the data it is fed. A complete forecasting process may follow a top-down approach. It usually starts from historical data for the product under consideration or similar products, which will give insight in long-term trends and seasonal variations. On top of that it should consider general economic trends (those affecting the entire economy or the particular industry). On a more detailed level new product introductions, promotions, advertising, and not to be forgotten competitors actions will be included. Forecasting can be supported by automated tools, which can prove very helpful to process the large amounts of available data, but ultimately it is also an art that requires the insight of experienced planners familiar with the industry. This is an area where collaboration with suppliers in the supply chain (manufacturers, distributors) will prove valuable: combining resources, observations and understanding will result in a better and more reliable forecast. One can still go a step further by influencing demand to match the planned supply, for example by dynamically adjusting prices or delivery conditions. The main hurdle for this is that consumers are not very willing to accept variable pricing for identical items. The swelling tide, if not the tsunami, of big data gives rise to another development that is referred to as demand sensing. With the availability of point of sale data at the level of individual transactions, detailed clickstream data of all relevant websites, statistics on trending topics in various social media, real-time weather conditions, news about the behaviour of competitors, and a sea of other information, it should be possible to forecast the real demand for any product consistently, within narrow margins. That goal has not been reached yet, but the technology is progressing rapidly. Research indicates that early adopters of demand sensing software did better than their peers. 24 And Amazon reportedly is working on algorithms that enable them to pre-position or even ship items before they are actually ordered. 25 It should be noted, however, that this is not exactly a quick win because it requires dedicated effort and substantial investments. 2. Supply chain tactics 2.1 Six ways to lower your logistics costs without compromising on speed or quality Page 85

86 It should be noted, however, that this is not exactly a quick win because it requires dedicated effort and substantial investments. Network optimisation Another approach that is guaranteed to pay off, but that also takes time and effort, is to have a look at the structure and organisation of the distribution network. As a rule, distribution networks develop over time in response to shifting market conditions. When sales grow in a particular area, a DC is added there. In response to the introduction of e-commerce, brickand- mortar retailers initially established fulfilment centres in a parallel structure to their existing supply chain. The end result may be, or most likely is, a network that performs significantly less than it would if one could design it afresh for the current situation. Pure e-commerce companies of course developed their networks for e-commerce from the ground up, but they too face changes: some indeed have found it necessary to establish a brick-and mortar presence, which also impacts the network. One consequence of having too many DCs in the wrong places is that total inventory will be too high. A network optimisation exercise will remedy that, but it will also reduce costs in many other ways by lowering operational expenses and reducing trucking distances (which, as a bonus, also improves the carbon footprint). Overall cost reductions between 6 and 20% have been reported. Lowering the Costs of Returns and Repairs Hassle-free returns have become an essential element of customers expectations in engaging with webshops as well as physical stores. For many companies, liberal returns policies are a key constituent of their branding Zalando was a successful pioneer in this arena, creating a competitive advantage with free returns for 100 days. The downside is that returns have grown to huge volumes. Zalando s return rate amounts to 50% of its deliveries, and in the UK the returns of clothing in the week after Christmas 2014 ( Returns Week ) were 46% of total online sales. 26 The costs involved with returns are immense: the Reverse Logistics Association estimates the annual costs of returns in the United States at between $150 and $200 billion. Inbound Logistics estimates that the average retailer s reverse logistics costs for consumer goods are equal to an average 8.1 percent of total sales a figure which, unlike forward logistics, includes the value of the goods Supply chain tactics 2.1 Six ways to lower your logistics costs without compromising on speed or quality Page 86

87 Besides returns, reverse logistics also includes the back-and-forth of items that need to be repaired or replaced. The total volume of repairs is much smaller than that of returns, but the ratio between the two streams is very different for different industries. Obviously, reverse logistics is not a detail that can be added to the supply chain as an afterthought. Not only is it too important for that, but also the processes involved are quite different from those in the outbound supply chain. Below are some of the areas to explore for companies that want to optimise their returns and repairs logistics and reduce the associated costs. Implement clear return policies and consider charging costs Although online retailers have spoiled consumers with easy returns, everybody knows there is no such thing as a free lunch. Consumers understand (but maybe choose to ignore while they can) that they pay for their free returns in one way or another. The number of returns can be reduced by sticking to clear return policies, offering free returns under specific conditions and charging a reasonable cost otherwise. Another option is price differentiation, comparable to the difference in air fare levels with different service options, by offering discounts for consumers declining the possibility of free returns or adding no-charge returns as an additional, paid option. Manage the return and repair process for higher speed One costly problem with returns, especially in the retail and lifestyle industries, is that fashionable items have very limited shelf life. If processing returns takes too long, items that could otherwise be resold must be discounted or even discarded. The trick is to get the item to the place where it is most likely to be sold quickly, be that a fulfilment centre for online sales or a physical store where the item is in demand keeping in mind that an item that was sold online first may need to be moved to a store to Supply chain tactics 2.1 Six ways to lower your logistics costs without compromising on speed or quality Page 87

88 be sold a few weeks later, or the other way around. Ideally, as soon as an item is returned to a shop, a pickup point or a returns facility, scanning its barcode or RFID should trigger an immediate transfer to its best current sales location. This evidently requires full transparency of stock levels across multiple locations and all channels. If a company doesn t have that in place yet, managing returns may be one of the reasons to start working on it. For repairs, the goal is to get the item to a designated repair facility in the most efficient way, to process the repair as needed (which may involve a diagnosis, the actual repairing or replacement, and often will include some form of interaction with the customer) and to ship it back to the owner. Here, too, speed is important because a long wait negatively affects the customer s experience. Prevent returns and repairs By far the most cost-effective way of dealing with return costs is preventing them. Some of the problems are intrinsic in the garment industry, the returns caused by the mismatch between onscreen RGB colour, print CYMK colour, the colour in the fitting room lights, and the colour at the candle-lit dinner, is notorious. Poor or misleading product information, including sizing, is another issue. But a significant proportion of returns and repairs are generated by logistics issues inaccurate picking, missing items, missed deliveries, transit damage, packages left out in the rain. These are avoidable, and measures to prevent them will pay for themselves rapidly, both in cost and in brand reputation. Identifying and Eliminating Vulnerabilities In the search for cost reduction it is tempting to optimise a supply chain for a maximum fit with its current environment, but this is a short-sighted approach that introduces serious risks. It s a bit like driving a vehicle without seat belts or airbags: thanks to the reduction in weight you will save fuel, but the risk bears no proportion to the advantage. Any supply chain that is operating smoothly in a stable environment today, will at some point be exposed to disruptions political changes, strikes, floods or any other type of mishap. The question is not if, but when. 2. Supply chain tactics 2.1 Six ways to lower your logistics costs without compromising on speed or quality Page 88

89 Designing resilience into a supply chain does create additional costs, but these should be considered as an insurance premium to avoid larger damages. The decision on how much resilience is enough is a strategic one, and the right balance will be different for different companies and situations. Taking an Integrated View of Logistics Costs To assess and improve the resilience of a supply chain, one has to look at the supply chain as a whole. The backup for a supplier in one region, for example, may be located in another region, and switching between them may also result in a change in transport service providers. In that sense, introducing resilience is part of a larger topic: the need to look at supply chain operations with an integrated view. Optimising individual supply chain elements does not automatically result in an optimal overall solution and, if not done carefully, may even be counterproductive. The key to supply chain efficiency and cost effectiveness is to look not only at the individual components but at how they interact. The growing awareness of the need for this type of approach is reflected by the popularity of terms like Control Tower. Recent developments in software and communications technology have made it possible to create systems that can collect and analyse the huge quantities of data involved and present them for use in a meaningful way. Introducing a Control Tower management layer is a phased process that may, depending on the starting point, take years rather than months to come to full fruition. But among all the actions and options described in this paper it is also the one that will yield the largest payoff. This is an area where a variety of parties, from software vendors and business consultants to 3PLs, are offering their services. 2. Supply chain tactics 2.1 Six ways to lower your logistics costs without compromising on speed or quality Page 89

90 2.2 INTERNATIONAL EXPANSION, WITHOUT THE GROWING PAINS By: Damco Blog Team Over the past five to ten years, a number of leading food & beverage retail brands have seized the new opportunity to expand rapidly into budding, promising markets all over the globe. In many cases, this fast expansion presents a serious challenge for their supply chains. Adding large numbers of origin and destination countries, often with sub-optimal and developing infrastructures, can easily turn a robust supply network into a risky liability. A global market for Western F&B retail formulas The economic growth in large regions of the world Asia, South America, Russia and India stimulates the development of an affluent middle class in many countries, eager to adopt certain elements of the Western lifestyle. This creates market opportunities for a wide range of products, from fashion, cars, and luxury items to fine art and exclusive wines. It also allows retail brands of convenience foods, such as pizzas, sandwiches, hamburgers, chicken products, coffee and tea, to introduce their concepts in those new markets. With few exceptions, these brands originate in North America. Some had already made the step into Europe, while others opted to target other markets first. In all cases, managing a reliable supply chain that will support a continued expansion is a daunting job. A complex logistics matrix One of the clients that we have supported throughout this process may serve as an example. At the current stage of their global expansion, they source their raw produce from over fifty countries and then process it in one of a small number of manufacturing plants, selling the end product in, again, more than fifty destination countries. Each of these countries has its own customs regulations and logistics restraints and quite a few are in areas where political instability and natural disasters are likely to disrupt the supply chain at some time. The complexity of the resulting logistics matrix is far greater than for an average global retail chain. 2. Supply chain tactics 2.2 International expansion, without the growing pains Page 90

91 For this client it is impossible to know everything they need to know to keep the supply chain in optimal shape. With its established local presence in all of these countries, Damco functions as the ears and eyes of the client in their day-to-day operation, not only by providing them with the information they need to make the right decisions, but also by representing them in conversations with their suppliers and by providing hands-on training for local parties when needed. Strategic partnership Beyond providing this tactical intelligence, the co-operation with this client has grown into a strategic partnership. Based on the current situation, Damco suggests possible supply chain optimisations that will minimise risks, lower costs and reduce the carbon footprint of the operation. We also participate in strategic discussions, questioning which from a global perspective would be the optimal locations for sourcing and consolidation. As a long-term partner with knowledge about our own field and about the client s business, we are invited to participate in their internal workflows aimed at further process improvements. For this client, as for any globally expanding brand, it is essential to identify threats and opportunities ahead of time. Working from their vision of the future, Damco will develop scenarios: If you want to source this amount extra from country A, and you intend to open this number of new outlets in countries B and C, then these are the consequences for your supply chain. Here are the new risks that we identify in that situation, and this is what we think you should do about them. Damco s strength: supporting painless growth For companies on a track of rapid international expansion, this form of partnership in the logistics and transportation domain is obviously the most efficient way of supporting their growth. For a retail organisation it is downright impossible to employ people for information-gathering purposes in all sourcing and destination locations; for Damco it is part of our core business to know about developments and challenges in even the most remote origin or destination locations. Based on this information, combined with our experience in a variety of industries, we can help our customers to alleviate some of the growing pains that come with global expansion. 2. Supply chain tactics 2.2 International expansion, without the growing pains Page 91

92 2.3 GLOBAL SUPPLY CHAIN STRATEGY: DECISION POINTS By: Aaron Baker As a former sea captain, I will never forget the first time I approached a junction buoy. This buoy is essentially a fork in the road, floating on the water, which marks where a waterway splits into two channels and indicates the preferred channel to transit. The options were: steer to the preferred channel and arrive at the destination in three hours; or steer to the non-preferred channel and arrive in two hours, but I would have to navigate past a number of potential hazards below the surface. This example of a tactical decision, where a single person makes a choice based on a limited scope of variables, is fundamentally similar to strategic supply chain analysis. Except in strategic analysis, multiple groups of decision makers can have conflicting interests since there can be an impact across departments and business units. It is well understood that holding safety stock at every node in a supply chain is a widespread approach to managing demand and lead time variability, but investors typically only reward maximized use of capital. In a similar notion, modeling software tools have lots of levers and knobs to adjust when optimizing aspects of a supply chain on cost, but determining the optimal enterprise solution also requires critical input from key stakeholders inside and outside a company to truly meet business objectives. The below two global supply chain strategy examples illustrate the decision makers and decision variables needed to ensure the chosen solution is optimal for the business. Sourcing A typical question raised is whether to source goods internationally or domestically. In most instances sourcing internationally from low-cost manufacturing countries appears to provide the lowest price. However, when variability from lead time of long, global supply chains becomes too volatile and appears to significantly affect service levels with potential stock outs, the domestic sourcing option 2. Supply chain tactics 2.3 Global supply chain strategy: decision points Page 92

93 looks less risky. Whereas, some may not want to hold inventory and prefer the flexibility of pushing the risk and ownership of moving goods internationally to the supplier. From a key stakeholder perspective, influential decision maker s input can significantly impact the sourcing strategy. If a company is driven by mostly autonomous merchants of an organization, their objectives would likely be weighted heavier for making sure stock outs never happen. Conversely, if an organization is driven by enterprise financial performance the sourcing decision would tilt towards minimizing the amount of time working capital is locked up in the supply chain. Ultimately, the sourcing decision point can be distilled down to whether the unit cost is lower for the buyer or seller, but deciding on how to calculate the lead time and inventory costs will be determined by the nature of the company and have an impact on the total results. Lastly, for a new product being sourced the following decision makers participation should be considered for a broader point of view on costs: global sourcing, finance, IT, logistics procurement, legal, risk, brokerage and logistics service providers. Distribution Challenging the basic global supply chain distribution network can be, well, a challenge. When companies focus on optimizing their networks for substantial cost and time savings, they are forced to widen their analysis outside of their own organization s network. The optimal result would increase control, visibility, on time delivery while decreasing costs. The buyer and supplier need to agree to analyze and design a new distribution program with their logistics service provider, which would be an alternative to taking ownership of goods at origin as well as a vendor managed inventory (VMI) model. It would be conceptually similar to DC bypass and merge-in-transit programs, with the addition that the supplier also leverages the buyers solusoll transportation rates and destination logistics services. For a change of this magnitude, the buyer has to ensure its merchants are comfortable with altering their current processes. You need to demonstrate and prove flexible allocation will be possible and 2. Supply chain tactics 2.3 Global supply chain strategy: decision points Page 93

94 lead times will be reliable. This enables goods to be allocated and distributed while still in transit, instead of waiting for receipt of goods into physical inventory. The result is that the buyer will not have to own the inventory until an order is made. At this time the ownership changes. This also eliminates the need for the supplier s destination distribution process and costs for physical cargo handling and increases speed to market and payment. Getting back to the sea captain story, I eventually took the non-preferred channel after speaking to a few local fisherman who provided their input on how to navigate through this channel and helped me save time and fuel. Similarly in global supply chain strategy, the difference between calculated savings potential and realized, actual savings in global supply chain strategy is having the input of key groups of decision makers inside and outside a company. It will add significant value to the analysis of a global supply chain strategy that is both compelling and aligned with an enterprise s business objectives. 2. Supply chain tactics 2.3 Global supply chain strategy: decision points Page 94

95 2.4 COLLABORATION, THE SECRET INGREDIENT OF SUCCESSFUL RETAIL SUPPLY CHAINS By: Hans Elmegaard In order for a supply chain to function efficiently, its many elements not only need to connect smoothly to each other but also should work in the same direction. This requires consistent communication about the goals to be reached and complete operational visibility. Modern supply chains are built on long-lasting partnerships in which a collaborative attitude is essential and the distinction between internal and external parties loses its relevance. Vertical integration makes supply chains more responsive A growing number of global retailers, especially in fashion, are heading in the direction of vertical integration, following the trail blazed a few years ago by some pioneers. The goals: being able to respond more quickly to changing customer demands, creating shorter supply chain cycles and reducing stock. Vertical integration is a response to increased volatility and strengthens a retailer s grip on these products characteristics, and by allowing a fast supply of specialties it counters dangers of price competition. While the industry averaged around four inventory turnovers per year, the number for some retailers is now 12; and where most brands need at least six months between design and final product, retailers can have a new item on the shelves in no more than 15 days. The key to this revolutionary level of responsiveness is a high degree of vertical integration between branding, supply chain and distribution. Visibility underlies external and internal collaboration While large retailers tend to own more parts of the supply chain, for example the production facilities, than smaller or starting companies, ownership is not essential for successful integration. In many areas it may be wiser for a retailer to restrict himself to his core competencies and find specialised partners for everything else. The truly essential element is collaboration, which in turn depends on partnership and visibility. The word partnership refers to the shared willingness to invest in a long-term relationship. Visibility is a technical prerequisite: for optimal operational efficiency, it must be clear what 2. Supply chain tactics 2.4 Collaboration, the secret ingredient of successful retail supply chains Page 95

96 is going on in every link of the chain. This, of course, requires a willingness to share all available data. From there, IT systems take care of collecting and aggregating the information and presenting it in a meaningful way, for example in management dashboards. The challenge of internal alignment Contrary to what one might expect, we often see large retailers, divided into rather autonomous divisions, struggle more to achieve real co-operation within their own organisation than with external partners. Divisions are usually evaluated by their own KPIs, which don t necessarily align and may even counteract each other. Turning this situation around can be a major operation that requires involvement of the highest management level. But once a real dialogue develops between the sourcing department, the retail department, the IT department and the sustainability department, the benefits can be impressive. Lasting partnerships At Damco, we strongly believe in the power of collaboration. We generally work with our clients for many years, which allows us to know and serve them better and better. Many customers see us as a partner rather than a supplier and involve us in the strategy development with regards to their supply chain. When we understand their objectives we can assign the resources they need, consisting of staff, knowledge, and physical facilities. In several cases we have made investments in infrastructure that we wouldn t have made otherwise. We see ourselves as a part of our customer s operation, and are perceived that way by them. From a collaborative perspective, the traditional distinction between internal and external is mostly irrelevant. For more information on the latest retail & supply chain news, visit Also view our latest webinar: Trends in retail and their impact on global supply chains from the link mentioned below Supply chain tactics 2.4 Collaboration, the secret ingredient of successful retail supply chains Page 96

97 2.5 MOVING STOCK FAST FROM A LOW-DEMAND MARKET TO A HIGH-DEMAND ONE By: Chris Deng It can be deeply frustrating when sales of a product exceed projected demand in one market but under-perform in another. Significant amounts of the product left over in one region may need to be marked down, while customers elsewhere are eager to consume. If only there was a way to ship stock cost-effectively from a low-demand market to a high-demand one and capture sales. An international sportswear manufacturer approached Damco with this exact same problem. Consumers in South Africa were hungry for a particular product, which was out of production in the manufacturing origin. The sportswear company needed urgent support to move stock from India to South Africa in three weeks or less. Any delays would result in lost sales and as a result, lost revenue for the season. Complications with labelling Moving product from one retail market to another is difficult enough, but in the case of this particular stock the situation was even more complicated. The product included country-specific labelling on the packaging and individual product pieces. This meant changing all of the original product labels to meet specific regulations in South Africa, and then shipping the finished products to the customer in a very short space of time. Value-Added Service in a free-trade zone An operation like this is effectively reproduction of finished goods. This can be a problem at both origin and destination customs, and may incur additional taxes. To meet this challenge, Damco came up with an innovative solution: to reconfigure the stock in a free-trade zone in a third location. After careful consideration, the stock was transferred from India to Damco s Tanjung Pelepas transshipment (TPP) hub in Malaysia, which conducts multiple country consolidation and other value-added services. The Damco TPP hub, located in the heart of the free zone governed by Malaysian customs, is just 500 meters away from a deep-sea container vessel loading yard. This enabled us to conduct label 2. Supply chain tactics 2.5 Moving stock fast from a low-demand market to a high-demand one Page 97

98 replacement and proceed with the transshipment process in less than three days. Careful measures to safeguard stock Having ensured the stock arrived in Tanjung Pelepas on time, the relabeling activity could begin. However, this was a complicated process and required constant care. Comprehensive measures were put in place to ensure that the new labels were generated correctly, covering different product types as well as different product styles for the different product seasons. This involved accurate product code creation and matching, as well as scanning and relabeling products in the required order. No mistakes could be tolerated, otherwise the finished goods would fail to clear customs at their destinations. End-to-end coordination This successful solution, implemented within the required timeline, depended on strong end-to-end coordination between teams in India, Malaysia and South Africa. Close collaboration with the customer also helped improve understanding of the destination customs regulations. The customer greatly appreciated this concerted team effort since it was able to get a popular product to market on time. 2. Supply chain tactics 2.5 Moving stock fast from a low-demand market to a high-demand one Page 98

99 2.6 PHYSICS OF A CUSTOMER-CENTRIC SUPPLY CHAIN By: Aaron Baker The supply chain strategy shift from business cost efficiency to customer purchase location flexibility is similar to the Copernican Revolution. Many companies are becoming customer-centric and putting the customer s experience at the center of business objectives. Nicolaus Copernicus Revolution was the creation of a heliocentric model where the sun instead of the earth is the center of the universe. Like Copernicus, supply chain managers today need to overcome the perception of financial heresy in the business world by supporting a transportation cost increase that would maximize margins. Consider the financial implications and distribution options to satisfy omni-channel demands. Through sophisticated programs such as export distribution centers and direct-to-store services, we have seen companies improve product velocity by seven to 14 days, reduce supply chain operating costs by 15 percent, and cut carbon emissions by 15 to 20 percent. Do the Math The velocity of products moving through the supply chain and being available when and where a customer wants to purchase them is a combination of lead time, safety stock policy, and demand variability. In many respects, the math to calculate the velocity is easy; it s the demand variability input that holds much of the complexity. In many industries, we are challenged to design and execute a supply chain that is agile enough to respond to demand while being cost efficient. An agile supply chain is analagous to a ball rolling downhill. The ball has both kinetic and potential energy until it hits the bottom with an impact. Interestingly, kinetic energy increases while potential energy decreases as the ball gets closer to impact. Similarly, products have the highest potential for business impact at the beginning of the supply chain. At this point, goods can be configured, labeled, or packed based on customer requirements. If you can delay flowing goods through the supply chain until demand is known, and design a faster speed- 2. Supply chain tactics 2.6 Physics of a customer-centric supply chain Page 99

100 to-market model, you minimize waste and maximize the margin impact. A less tangible factor is friction caused by conflicting internal objectives across multiple business stakeholders. Friction slows the speed at which the ball rolls down a hill. A merchant or production planning group usually plans when and where goods are needed. Their objectives gravitate toward product availability and flexibility to allocate goods as close to final use as possible; whereas, other stakeholders objectives hinge on cost efficiency. Friction is a crucial element to consider when deciding the optimal distribution model. Maximizing Impact Many companies design and implement sophisticated supply chain programs. The spectrum of distribution options to enable these programs spans from export distribution centers at origin, multicountry consolidation, merges in transit, destination crossdocks, import distribution centers, and distribution center bypass. These distribution options are like points on the hill where the ball is rolling. Understanding the appropriate business KPIs to focus on will identify the best distribution option to use for maximum impact. The customer-centric calculus required to satisfy customer demand, while managing the supply chain efficiently, needs to include the continuously changing supply chain environment that products must move through from point of creation to point of consumption. As the new theorem states, why hold inventory when you can flow it? This article was previously published in Inbound Logistics Supply chain tactics 2.6 Physics of a customer-centric supply chain Page 100

101 2.7 HOW TO REDUCE COMPLEXITY IN YOUR LOGISTICS PURCHASING WHILE INCREASING EFFICIENCY By: Richard Morgan With new international markets opening up all the time, efficient shipping is more essential than ever. For logistics service providers, it is no longer enough to offer a comprehensive range of products and services alone; the process of finding and purchasing the best deal must also match evolving customer needs. Developments in the consumer sector show that customers appreciate being able to explore and order products online. To help reduce this complexity in your logistics Damco introduced an innovative product finder that offers the same freedom and convenience to companies seeking logistics services. Understanding the need for speed Seasonal demands, holidays and competitive pressures mean that exporters are often working within tight timeframes to get their products to market. Unfortunately, their logistics providers are not always able to keep up with their needs. The time it takes to obtain a complete quote (including details about origin and destination, air, ocean and LCL freight schedules and options like insurance and trucking) can be an obstacle in an otherwise smooth process. We now offer our customers a radical solution to make purchasing faster and less complex. The flexibility of self-service We recently hosted a webinar to introduce to you the vital insights into the globalisation trend that is driving increasing demand for international shipping, especially from China. The statistics are sometimes surprising, pointing to a future where the vast majority of customers will be making their logistics purchases online, without involving a salesperson. Our new Product Selector places its customers in the vanguard of this trend. Supported by all the relevant information, they can choose from standard components and optional add-ons to build the right package for their needs. The tool offers them more flexibility and control over their purchases along with the option to purchase through a sales representative if they like. Like all Damco products and services, those ordered online will be followed up by top quality order fulfilment. 2. Supply chain tactics 2.7 How to reduce complexity in your logistics purchasing while increasing efficiency Page 101

102 Find out more Damco s Product Selector is a first of its kind within the logistics industry. Visit to explore trade lanes and request a quote for your shipment. 2. Supply chain tactics 2.7 How to reduce complexity in your logistics purchasing while increasing efficiency Page 102

103 2.8 ARE YOU USING THE HIDDEN POTENTIAL OF FREE TRADE AGREEMENT? By: Steve Cheung Low or even zero import duties can apply to cargos shipped between countries in a Free Trade Agreement, provided certain specific requirements are met. Many companies leave this potential untapped because they think complying with the rules is too complicated and not worth the trouble. But while it is true that qualifying for FTA exemptions requires a number of administrative and organisational adaptations, it definitely pays to look into the possibilities. The benefits can be significant and well worth the effort. Free Trade Agreement to grow regional trade A Free Trade Agreement consists of a group of countries in a particular region that have agreed to reduce trade barriers in the form of import tariffs and quotas, with the goal of increasing the trade of goods and services in the area. The most well-known example probably is the North American Free Trade Agreement (NAFTA), but it is not the only one: most of the world s countries are members of a regional FTA. In this blog we will focus on the ASEAN Free Trade Agreement (AFTA) and the ASEAN- China Free Trade Agreement (ACFTA). AFTA was founded in 1992 and consists of the 10 member states of ASEAN, the Association of Southeast Asian Nations: the Asia Tigers (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam) and four smaller players (Brunei, Cambodia, Laos and Myanmar). The block has almost completely eliminated import and export duty taxes on goods traded between them and the goal is that the entire area will be duty-free by the end of Supply chain tactics 2.8 Are you using the hidden potential of free trade agreement? Page 103

104 ACFTA was established in 2002 and came in effect on January 1, It is the largest FTA in the world in terms of population and the third-largest in terms of GDP. Under the agreement, tariffs will be reduced to zero on thousands of product categories, totalling 90% of all imported goods. As a result of ACFTA, the average tariff rate of Chinese goods sold in the area decreased from 12.8% to 0.6%. For ASEAN goods imported into China it was reduced from 9.8% to 0.1%. Transit cargo may also qualify, if conditions are met When importing goods into a member country of the FTA, the importing party must prove that they meet the regulatory conditions for tariff reduction. One of the requirements is that their origin is documented in a so-called Certificate of Origin, a form that must be supplied by the manufacturer. The tariff reductions primarily affect goods shipped directly from one country to another, but they may also be applied to products moving via a third country within the area. For example, a shipment of T-shirts from Vietnam that is transported to China via a hub in Malaysia will be treated as a shipment from Vietnam directly into China, provided its origin in Vietnam can be proved. 2. Supply chain tactics 2.8 Are you using the hidden potential of free trade agreement? Page 104

105 Vendor management and document management facilitate the process The regulations are unforgiving: if the formalities are not fulfilled correctly, the FTA benefits do not apply. Specific forms have to be filled out at origin as well as in the hub, and everything has to be completed before the cargo arrives at its destination. Because this all starts with documents that are to be provided by the vendors, we find that vendor performance can make or break any FTA project. Working with our customers in this field we have seen great results from implementing vendor management programmes, designed to educate, support and evaluate vendors. A typical vendor management programme will begin with an analysis to identify the relevant KPIs which, in the case of FTA compliance, will always include timely delivery of the required documentation. Vendors will then be trained in workshops to help them understand and fulfil their customer s needs. A detailed KPI reporting system enables us to monitor vendor compliance and identify areas that need closer attention. Vendor management is usually combined with a penalty/ reward programme that helps enforce it. Another tool that can be of great value is Damco s Document Management service, an application within mydamco that takes care of the efficient electronic distribution of shipping documents. In complicated sourcing situations, involving multiple vendors in multiple countries, Document Management helps its users speed up document processes and improve document accuracy exactly what is needed to be more successful in claiming FTA benefits. Damco makes FTA compliance easy Several of our large retail customers have realised significant savings by enlisting Damco s support to improve their compliance with FTA requirements. In doing so, not only do they benefit from our knowledge and infrastructure but also from our local presence in all countries, which enables us to interface with local manufacturers, and from the good working relationships we have developed with the local authorities. 2. Supply chain tactics 2.8 Are you using the hidden potential of free trade agreement? Page 105

106 2.9 OPTIMIZING COMPLEX SUPPLY CHAINS FOR FAST-MOVING CONSUMER GOODS By: Lachlan Philp Supply chains for fast-moving consumer goods (FMCGs) like toiletries, soft drinks, over-the-counter medications and other consumables can be extremely complex. Suppliers, production plants, distribution centres and markets are usually located in multiple countries and regions. In some cases, raw materials are part of the chain and these can be affected by factory closures, strikes and other industrial factors. What s more, brand loyalty to FMCGs like toiletries are particularly vulnerable to stock issues. Customers often switch to competitor products when their favourite brand isn t on the supermarket shelf. That s why FMCG companies need efficient, responsive and robust global supplychains. In recent years, FMCG companies have started shipping to emerging markets in Asia, Africa and Latin America where growing middle classes have more disposable income to spend. FMCG suppliers are often the first foreign companies to enter these new regions which until recently, largely exported goods. Now countries in these regions are importing goods on a large scale for the first time. FMCG companies with operations in these countries often don t have the internal structures and processes to handle imports efficiently and comply with customs regulations. In addition, local operating companies can have their own ways of doing things, making it difficult for parent companies to impose standard procedures and implement improvements. Supply chain improvement can generate considerable long-term savings for FMCG customers, a sector with very tight profit margins. As well as cost savings, customers have one point of contact instead of numerous different logistics providers. This along with standardized processes not only gives customers certainty, a library of performance data allows them to measure progress and seasonality so they can plan better. Streamlining the customer s supply chain With many years experience working with FMCG companies across multiple brands and geographies 2. Supply chain tactics 2.9 Optimizing complex supply chains for fast-moving consumer goods Page 106

107 we can help them build efficient, flexible, cost-competitive and continuously innovating supply chains. Through our online portal, customers have end-to-end visibility. It can connect to hundreds of local trucking and shipping providers. It also displays shipment milestones tailored to the customer s requirements, like empty container release, actual date of departure and trans-shipment arrival. These milestones are based on electronic data interchange, but if information is unavailable due to a technical fault, we fill the gaps manually. All this allows customers to see exactly what s moving and what s delayed at any given moment. We can also use our customs expertise to avoid import penalties and take advantage of special arrangements like free trade agreements. After managing a customer s supply chain for several months, we use the data generated to implement improvements. It conducts a supply chain health check by defining strategic priorities, benchmarking financial and operational indicators, and mapping existing processes. After comparing current performance with desired performance, we simulate improvement scenarios and develops implementation plans. As part of these improvements, we can often offer alternative trucking, freight and customs clearance services. With this solution, we can take over regional supply chain management including origin export coordination, carrier management, destination import coordination and information management. These supply processes are designed in partnership with customers who have full control at all times. The solution also includes KPIs so customers can assess performance over time. For one FMCG customer, we took over the end-to-end logistics management and centralized the supply chain with physical, financial and information flows all fully integrated. We now updates the customer s SAP system, controls virtual inventory, manages third-party logistics, liaises with customs and verifies all external invoices sent to the customer. As a result, 95% of the customer s shipments are on time. In future years, we hope to continue to develop these solutions, for example by connecting the supply chains of an FMCG customer s partner organizations. This will give FMCG customers even more end-to-end visibility leading to greater certainty and control. 2. Supply chain tactics 2.9 Optimizing complex supply chains for fast-moving consumer goods Page 107

108 2.10 CAN TRADITIONAL SUPPLY CHAIN SOLUTIONS MEET THE EXPECTATIONS OF FASHION INDUSTRY CUSTOMERS? By: Hans Elmegaard Are fashion retailers missing out on growth opportunities that supply chain solutions could support? Changes in society often trigger important shifts in consumer behavior, requiring retailers to review existing strategies if they are to achieve renewed growth. This is particularly important in the fashion industry, where fierce competition is accompanied by the complexity of increasing e-commerce and multichannel distribution. Damco s close analysis of the global situation highlights how insightful supply chain management can significantly support retailers strategic actions. Going with the flow In order to have the agility to keep in step with market movements, fashion retailers need end-to-end visibility of their supply chain, so as to understand what changes need to happen; where and what control is needed. Taking a broader view and engaging more closely with other links in the supply chain can also bring profitable opportunities to light despite the challenges of fast-moving scenarios. This requires a longer-term view of the whole process that includes working capital and inventories. One major factor that determines success for retailers of all sizes is the alignment of internal business functions with each other. Without shared communication between Sourcing, IT, Retail, Sustainability, and other departments, it s difficult to identify opportunities for cost and efficiency advantages through supply chain solutions. When this alignment and collaboration extends to genuine partnerships with well-informed logistics providers, fashion retailers can reap the benefits, and maintain growth in spite of market volatility. We want it now! Societal changes drive changes in consumption patterns. There are more single-person households, a higher percentage of senior citizens, and families with both parents working. And today we have an experience-driven culture, where people value time-saving convenience and clarity. Technological developments respond to and drive a rapidly increasing trend towards mobile and online shopping. 2. Supply chain tactics 2.10 Can traditional supply chain solutions meet the expectations of fashion industry customers? Page 108

109 In Australia, for example, huge numbers of shopping apps 2.9 million are used by 59% of Australians who shop on smartphones rather than on home computers. Social media also greatly impact consumer behavior, forcing retailers to respond fast. Consumers want multichannel availability, and they want it now. They have access to a broad overview of the market and pricing, thus increasing the need for competitiveness among retailers. Quick changes Traditional supply chain models can no longer be expected to meet expectations in the world of retail fashion. Trends in fashion and lifestyle are no longer seasonally driven, since globally sourced items can change on a weekly basis, instead of old style seasonal trends. Sourcing locations also continually change. Increased costs and logical challenges in China, for example, now encourage near-sourcing from Mediterranean countries in Europe, or from Mexico for North America. The bottom line is that retailers everywhere must be able to offer customers new choices that both simplify and facilitate their shopping experience. And since they can t please everybody, all of the time, increased competition and complexity call for strategic differentiation. Strategic choices In the complicated environment of today s fashion world, retailers need good, clear strategies to keep consumers engaged, with frequent new products. They need in-depth knowledge of local consumer behaviors and preferences, in order to be able to focus on well-defined segments, and benefit from consumers willingness to buy for seasonal or special occasions. Keeping up with fast-changing trends requires flexibility and speed, to identify and implement new sources globally. In this volatile landscape, it makes sense to outsource non-core activities, so that global supply chain management can support the retailer s strategic choices. And of course, that means choosing the right partners, who can provide the kind of close, well-informed teamwork that helps bring it all together. Read more on how changes to the supply chain will affect local retailers in Australia as published in The Ragtrader, July ELMEGAARD.pdf 2. Supply chain tactics 2.10 Can traditional supply chain solutions meet the expectations of fashion industry customers? Page 109

110 2.11 DRIVING SUPPLY CHAIN EFFICIENCIES IN A BEARISH COMMODITY MARKET By: Ivan Thuynsma How mining companies can benefit from 3PL services to gain visibility and control of their supply chains Management Summary Mining, minerals and commodity industries generally are (as of 2015) in a bearish market. For various reasons, from Eurozone problems to the refocusing of the Chinese economy, demand is down significantly. The effects on global shipping, where mineral-related trade is dominant, and other logistics aspects are profound, as new investment is cancelled or postponed and existing assets and routes curtailed or withdrawn. Since new investment will inevitably lag any market upturn, in some cases by years, difficult supply chain conditions are likely to continue even into a more bullish commodity marketplace. Meanwhile, it is imperative that miners maintain sites in production, but this depends on the reliable arrival of capital and investment equipment, spare parts and consumables, and other stores. Neither suppliers nor mine owners are necessarily best placed to achieve the most reliable and cost-effective supply chains to mine sites. There is a role for third party logistics providers to create and use visibility and control in the supply chain, to ensure On Time In Full delivery of supplies, at optimal cost, to mine sites around the world, using techniques of vendor, carrier and cargo management. This eguide explains how that can work. Mining and the Logistics and Shipping Industries The global mining industry accounts for a significant proportion of global shipping volumes. Iron ore and coal alone account for almost two thirds of dry bulk shipping. Over the past eight years China has been the largest consumer of minerals in the world, importing in 2014 coal, iron ore and other minerals 2. Supply chain tactics 2.11 Driving supply chain efficiencies in a bearish commodity market Page 110

111 valued at USD 141 billion from producers across the globe (although this figure was down from USD155 billion in 2013). The huge Chinese consumption has not only stimulated demand for bulk shipment of ores, but has also fuelled investment by mining companies. This has led to increased demand for the shipment of plant and equipment and their associated spares and support, often to relatively remote and inaccessible parts of the world many thousands of miles from the source of supply. Increased activity at ports, in Africa and elsewhere, has allowed investment in facilities too, and by increasing general prosperity and demand has had a positive impact by generating other shipping requirements and supporting developments such as containerisation, new services and increased rotations. However, as is well known, global markets for commodities including minerals are currently depressed. Economic problems have reduced demand in a number of regions including Europe, while China s decision to rebase its economy towards greater domestic consumption of consumer goods, and away from reliance on the export of materials, has also had a major impact. Most mineral producers are currently experiencing a bear market. In a market where demand is weakening, classically, prices fall. Unfortunately, this is at best a mixed blessing for shipping users such as the mining industry. Shipping, and the transport and logistics sector generally, is (like mining) very capital-intensive. Funding for new investment is secured on the value of current assets: if in a depressed market the earning potential of a ship or other asset is impaired, new or replacement investment cannot be funded and so is postponed or cancelled. This applies not just to ships, but to warehousing, trucks, port facilities and so on. Additionally many (especially but not exclusively older) assets and capacity that has been profitable in a bull market would now be operating at a loss. The result is that ships are laid up, or withdrawn for repair, or simply scrapped. Similarly, services may be reduced or withdrawn entirely, or changed to a more economical slow steaming schedule. There may be a reduction in competition as operators 2. Supply chain tactics 2.11 Driving supply chain efficiencies in a bearish commodity market Page 111

112 withdraw, merge, or close. Few operators are minded, or in a position, to make opportunistic or speculative investments against future renewed prosperity. These actions are an inevitable and understandable attempt to stabilize or raise prices, (which may or may not work). Inevitably, too, when a bull market does reappear, which can happen very quickly, it will take the shipping industry months to reintroduce, or years to reinvest and rebuild, capacity. So minerals producers face the double challenge of a depressed market in which the services to the locations they require are not readily available, without necessarily the consolation of radically lower pricing, to be followed by a period in which service capacity still remains tight but prices soar. As sharks have to keep swimming, so miners have to keep producing in either of these cases, if equipment and supplies cannot be shipped to mines in a timely and effective fashion, production is jeopardised. It is important to realise that despite the mining industry s dominant position as a user of global shipping, it has little influence and no control over the decisions made by players in shipping and transport. The only available response, therefore, is to build agile and robust supply chain strategies that can function in both bull and bear markets by giving the users, the mining companies, visibility and control. Causes of Supply Chain Failure In the mining industry, more than in most, no two companies are the same. But they all have in common that they depend on a steady and reliable inbound supply chain for equipment, spares and other materials. In that respect they are no different from companies in many other vertical markets, and lessons learned there can usefully be applied to the mining sector. The mining companies experience supply chain problems as destination issues problems that become apparent at the mine or at the inbound port. In reality, many or most of these are origin issues and must be resolved there something also seen in sectors such as Retail, Lifestyle, and Technology. But the destination is where the miner is usually first aware of a problem, so we will look there to see the characteristics of supply chain breakdown. 2. Supply chain tactics 2.11 Driving supply chain efficiencies in a bearish commodity market Page 112

113 Typical challenges faced include late and/or short deliveries, in response to which it becomes necessary to build up excess inventory at the mine site. Incorrect documentation can delay Customs clearance, lead to the wrong duties being paid, and may even conceal the fact that the delivery is short or otherwise in error. As a result the mine management has to operate in reactive mode to the threat of a production shutdown or capacity reduction and to avoid these losses, incur large and avoidable costs in emergency provision such as chartered air freight if this is possible, which for heavy equipment into remote locations it may not be. The issues are very similar in verticals such as Retail or Technology late deliveries lead to missed sales and price markdowns, or line stoppages, low customer satisfaction, obsolete stock, damaged brand image and expensive emergency freight and recovery costs. Assuming the original Purchase Orders were correct, none of this is the fault of, or under the control of, the management at the mine or shop or factory. The root causes largely arise at the point of origin. These may include late or incorrect production, but also late and incorrect booking of transport and shipping, faulty preparation of documentation, late, short or inaccurate shipments (even if production has been correct, it doesn t mean an accurate order is always shipped), and poor product quality. Some of these are supplier issues in manufacturing the answer may be to change supplier, although given the specialised nature of much mining equipment this may not be possible. But many of these problems are caused by a lack of control of the whole shipment process. Absence of Control The mine management, somewhere far way, lacks meaningful control because there are multiple parties involved suppliers, (who may be manufacturers, but may equally be dealers or other middlemen), freight forwarders, shipping and other contractors and agents, outbound and inbound port services, official bodies and so on. That may to some extent be inevitable although there is considerable scope to simplify the way in which this multiplicity of parties are dealt with. Perhaps more importantly, it is common practice for the supplier to determine the mode of transport, the identity of the carriers and other partners, and to perform the cost v speed benefit analysis (and if the supplier is bearing the shipping cost, even if that is recovered in the contract, there are clear 2. Supply chain tactics 2.11 Driving supply chain efficiencies in a bearish commodity market Page 113

114 incentives to go for the cheapest or easiest option). As suggested earlier, in the case of specialised equipment or spares, the supplier may have an at least temporarily captive market, and market pressures to improve performance may be weak. Additionally, the partners and options that the supplier selects may not be the most reliable or most competent overall, or on particular routes. There may also be the problem of multiple, inappropriate, or even outdated Incoterms being applied in contracts, which leave most or all of the responsibility for shipping with the supplier. Mining companies may understandably wish to leave the risks and liabilities of the shipping operation with suppliers. However, in doing so, they leave themselves with no control, scattered visibility, and fragmented distribution. This perhaps gets to the heart of the issue. Global shipping is not usually a core competence for a mine operator, but nor is it for a specialised equipment manufacturer. To resolve these issues there is a role for third party logistics service providers (3PLs). A Role for 3PLS in the Mining Supply Chain A 3PL will seek to take end to end control over shipments from the factory gate, reduce fragmentation in the process, and create visibility of the supply chain for the mine management. A necessary condition for control is to change the Incoterms to EXW or FOB (ex-works/free on board) rather than terms that leave the seller responsible for ocean/air freight and onward delivery. Enabling control of the process has three principal components: vendor management, carrier management, and cargo management. Vendor management Creating visibility and control begins at the point of origin with the Purchase Order and a vendor management programme. 2. Supply chain tactics 2.11 Driving supply chain efficiencies in a bearish commodity market Page 114

115 Vendor management starts with applying KPIs (Key Performance Indicators) to all Purchase Orders. POs are sent by EDI or to the 3PL s operations office. They verify with the supplier that the PO has been received and accepted, and the expected ready date for collection exworks or delivery into the 3PL network. This information, and any alterations, is shared up to the mine site, again by or ideally by EDI to their ERP system, on a daily basis. The mine s managers and purchasing officers constantly know the status of the order. The 3PL will be continually interacting with the supplier to ensure the ready date is going to be met, and if problems do become apparent, can work with the mine management to influence the vendor to push the order up the production priorities, or change the mode of transport to recover lost time, as economically and operationally appropriate. Active vendor management thus gives the mine management visibility and control over transport and the ability to decide, in good time, whether it is necessary, for example, to spend a few thousands on air freight to save hundreds of thousands through shutdown, or whether there is another work-around available. Carrier management Carrier management involves, firstly, forecasting the demand for volumes, dates and routes. Often the 3PL will be able to combine the requirements of several or many suppliers and recipients. A 3PL may be in a position to see all the flow from a supplier to different mines in a region, or alternatively, all of a mine s demand from different vendors in a supply area. The 3PL will negotiate with the various carriers who can or could offer a suitable service and determine the options based on price and service level (express e.g. air freight or a fast direct shipping service or a more economic, slow-steaming or multi-destination service). Note that negotiation with carriers is a continuous process. Pricing deals in the shipping industry are almost invariably one-off and of short duration, and shipping operators can and do turn their plans around faster than they can turn their ships. The need to engage in a fast-moving volatile and specialist market is one reason why a 3PL may be better placed than either buyer or vendor. The 3PL will then make the booking with the carrier. Again, all the relevant information is recorded and 2. Supply chain tactics 2.11 Driving supply chain efficiencies in a bearish commodity market Page 115

116 made visible in the system to the mine management by or EDI. The 3PL will be charting carrier performance historically and in real time, monitoring adherence to lead times and identifying problems and their possible knock-on effects in the supply chain, and seeking the root causes of anomalies some of which, such as port congestion, may be outside the carrier s control. Again, reports enable mine management to be part of an agile supply chain, which can plan round problems and make necessary changes in real time as conditions change. Cargo management A 3PL will be seeking to consolidate cargos as far as possible to reduce unit costs (there are many costs that are relatively independent of volume or tonnage) and achieve economies of scale. At the same time, the 3PL will, with the mine management, be alert to the occasions when a direct, if more expensive, shipment is appropriate, for example if there is a risk of a production halt. It is a general truth that the cheapest price does not necessarily yield the lowest cost of ownership. Within such constraints the 3PL will be constantly looking to configure cargos and shipments so as to optimise logistics and transport costs. Consolidation, when appropriate, should occur as close to the supplier base as possible, to yield the greatest economies (in, for example, inland transport legs as well as in port and ocean operations). There will be a need for intermediate storage facilities at consolidation centres to aggregate goods for optimal loading on a specific shipment. The consolidation strategy also provides the opportunity for other important services to be performed in terms of product control. Most basically, product quantities and identities can be reconciled between the supplier s Dispatch Note and the buyer s Purchase Order, and short, part or simply erroneous shipments identified. It is important that this happens as close to the supplier as possible if rectification is to be prompt and effective. Once the cargo has been cleared through Customs it is very difficult, in any territory, to go back and claim a refund because the shipment was incomplete. As appropriate, more comprehensive Quality Control procedures can be carried out, perhaps contracted to inspection agencies such as Contecna or Bureau Veritas. 2. Supply chain tactics 2.11 Driving supply chain efficiencies in a bearish commodity market Page 116

117 Overall, the aim as in any industry sector is to work as far as possible to pull-based lead times the JIT principle. This is not always as easy to achieve in say Africa as it is in the First World (not that it is necessarily simple there either) but that doesn t mean that the ambition has to be abandoned. The strategy is to build a supply chain through from the point of origin that takes into account all the variables that may influence stock and inventory levels, and works to mitigate as much of the risk as possible. In a nutshell, the objective of the 3PL on behalf of both mine owner and supplier is to create and use visibility and control to ensure on-time, in full delivery at optimal cost. This is a basic and universal supply chain aim, but it takes a lot of attention to resolve the many challenges. Damco and the Mining Supply Chain As may have become obvious, the processes outlined above describe the way Damco typically operates on behalf of mining supply chains. Damco has been involved in the sector for many years, and structure of the Mining vertical was formalised in The business has developed around a select core of companies both miners, such as Glencore, Areva, Kinross and First Quantum, and first and second tier suppliers including Citland International, Atlas Copco, and Orica. Damco operates consolidation centres in mining equipment supply regions around the world, in Europe, USA, Far East and in South Africa. The Global Mining team has 50 offices in 33 countries in Africa alone as well as in Canada, Australia and elsewhere. Damco also provides mine site logistics services for some customers. Besides the supply chain activities described above, Damco also offers project logistics for greenfield and brownfield sites, management of abnormal and out-of-gauge cargos and, particularly with existing customers, supply chain and consultancy services. 2. Supply chain tactics 2.11 Driving supply chain efficiencies in a bearish commodity market Page 117

118 2.12 SPEED TO MARKET - A CRITICAL DRIVER FOR FASHION LOGISTICS By: Jose Manuel Perez-Martorell Time to market is one of the critical issues confronting most of the leading retail and fashion companies nowadays. Increasing the speed of the process that comprises product design, manufacturing, distribution and final sale to the end consumer has proved to be behind some of the most successful business ventures in recent times. A well implemented and closely monitored logistic strategy is absolutely essential to achieve that success. This applies particularly in the introduction of a new line, product or product variation, but similar principles apply to the reorder and replenishment of smallbatch products such as garments. Speed Matters, For Many Reasons Speed to market matters in fashion-influenced industries, whether garments, lifestyle, or consumer electronics. Lose the opportunity and bad things happen. Sales and momentum are lost, and publicity can rapidly turn negative. A gap opens for direct competitors, who are always out there: in the garment trade in particular, there is always an opening for lookalike brands. But being there first is not the only thing that matters. Consider the prêt à porter market in fashion garments. There are actually several different speed to market issues going on here. Firstly, there is the need to get an extensive demonstration range onto the catwalks at the major, market-influencing, trade shows in London, Milan, New York, Paris and increasingly in other countries, such as China. This has its own logistics challenges. The show dates for the relevant season are known far in advance, and the ateliers work throughout the year. But fix on a range or a look too early, and a new zeitgeist or mood may be missed. So not just designs, but actual fabric and accessory samples for prototyping, and indeed materials for initial production runs, have to be shipped to manufacturers, and completed garments returned for review and revision, in a short time scale and under conditions of heavy secrecy and security. 2. Supply chain tactics 2.12 Speed to market - a critical driver for fashion logistics Page 118

119 Assuming that at least some of the new season s range is ordered by enthusiastic trade buyers, suddenly it is necessary to deliver the selected items, in volume, to those retailers. This has to be done while the excitement generated by coverage of the shows is still a market influence; but it may well be that redesign to a price is also necessary. Meanwhile, other vendors will be trying to corner the market by producing cheaper in the style of versions. A third speed to market issue arises with garments and other fashion items featured in popular media the dress that a star wears in a film or at the Oscars, for example. Entire companies, such as ASOS (As Seen on Screen), and ranges in retail stores, are built on this idea. To get a piece of the higher end trade, the original designer has to get goods to market very quickly. In all these scenarios it is clear that well planned, reliable yet agile logistics operations are vital to success. And Can Have Many Benefits The benefits of being first to market may appear obvious, but there are subtleties which in many supply chains combine with each other in interesting ways. Launch sales, obviously, benefit, but there are consequences also for continuing sales and the brand reputation. Faster market feedback High speed to market allows for a first mover advantage and helps the company to test its products and get faster feedback from the end consumer. However, without prompt feedback and the ability to respond, there is a danger of first mover disadvantage you have proved the market exists, but your competitors can spot the features that are capable of improvement and apply these to their own products or produce legal but derivative copies. More efficient reaction to market changes As a result of fast feedback, the company gets the critical data that will enable it to react to the market demands and changes more efficiently. Feedback on consumer tastes and preferences from worldwide markets can be used to allocate different product lines to different markets, remove potentially unsuccessful articles from the collection and get a more accurate forecast both regarding sales and production batches. 2. Supply chain tactics 2.12 Speed to market - a critical driver for fashion logistics Page 119

120 Becoming a trend setter A definite advantage is the chance to set the trends and even identify future tendencies. This is particularly powerful in the fashion and lifestyle sectors. The companies that achieve a faster time to market enjoy greater opportunities to become top references where the avid consumer will go for new products, models, colours and styles. In areas such as consumer electronics it may even be possible to set the de facto standards for the sector, possibly requiring competitors to licence aspects of your technology or design. Fast inventory turnover ratio Shorter manufacturing timelines and smaller production batches, added to a model that requires a continuous flow of goods to the different selling points, allow for a fast inventory turnover and the reduction of the costs associated with high stock levels and lengthy storage periods. This is particularly important in fashion or consumer technology where excess stock may be almost unsaleable after the current season, or as soon as the new version is launched. However, this fuels the risk that not all demand can be supplied if re-orders cannot be manufactured and shipped in time. This creates an opportunity for secondary traders on the likes of ebay (and of course the knock off merchants). There are many instances of goods being offered on the Internet even before they are officially available. Improved supplier relationship management Speedier time to market implies small batch sizes and thus a continuous generation of new purchase orders and it gives the chance to build strong relationships with the suppliers over time, based on continuous improvement and vendor performance. In short, the vendors benefit from a loyal and long lasting customer. In turn, the buyer may be able to obtain better credit conditions once the longstanding relationship has been established. This applies particularly where suppliers are involved in, and properly remunerated for, design and development work. 2. Supply chain tactics 2.12 Speed to market - a critical driver for fashion logistics Page 120

121 Improved cash-to-cash cycle Faster time to market means speedier sales cycles and, as a result, faster and more agile cash collection. In combination with more favorable credit terms a faster cash-to-cash cycle should be possible. Some top retail and fashion companies actually manage to collect their cash, through advance orders by shops or consumers, before their payments to their suppliers are due. At the level of the very best in class, (with a payment received from customers in 30 days or less, but probably paying suppliers on a more usual 60 or 90 day cycle) it can be possible to presell most or all of the goods, receive the money, bank it on perhaps short-term deposit, and reap considerable dividends. The best in class have a significantly negative cash to cash cycle time (in other words, cash is coming in before it neeeds to be disbursed). However, and complicating this, fashion, lifestyle, consumer technology are precisely the areas where the returns problem is most acute, with the requirement for slick systems to refund cash and return products to saleable stock, and also the risk that apparent initial success in the market may not be quite what it seems. Badly managed, the returns issue can completely wreck the cash-to-cash cycle performance. It isn t just goods that are returned so is customer cash. Market Feedback Market Changes Trend Setter Inventory Turn Around Supplier Relation Cash-to-cash Cycle 2. Supply chain tactics 2.12 Speed to market - a critical driver for fashion logistics Page 121

122 Success in Fashion Logistics Requires a Tight Fit Smart logistics planning and execution is essential in successfully placing fashion products in the market, and, a rather different question, ensuring that this is done with an adequate level of profit. A logistics operation should fit like a new suit, looking as if it was tailor-made whether it is or not. Transportation costs Just because demand is driven by fashion doesn t mean that fashion products are insensitive to price. It is generally accepted that faster means more expensive. The need for express transportation alternatives, such as airfreight, represents a higher cost per unit moved. This is said to be a necessary toll to be paid in order to achieve a higher speed to market, but fashion products may still be lowmargin, and unable to bear excess cost. If looked at in Total Cost of Ownership terms, express may in fact be the cheaper option if it allows a reduction in inventory across the total system, if it reduces risks of theft, diversion, spoilage, damage through repeated handling, obsolescence etc, and if it is possible to fully monetize the value of the faster transit time (i.e. express shipment directly into a retail store or channel is worth more than express delivery to a central warehouse). The ability to change rapidly from, for example, sea to air transport, or vice versa, can be critical and needs to be managed so that there is no hiatus in the rate at which goods arrive at destination. Typically this may mean that airfreight is used for the initial placement of products on the market, transiting to seafreight for larger, follow-up orders. (Note also that in some chains, the manufacturers of the initial launch orders may not be the same, or even in the same continent, as those for the followup bulk manufacturing of products whose launch has been successful.) To bridge these gaps and transitions, it may be necessary to ramp air down and sea up, over a period otherwise there may be a time, possibly of several weeks, where no goods are arriving at destination. But ensuring economic transport costs with changing volumes (up or down) is not straightforward. Below there are some actions that companies can take with their logistics partners to ease this situation, alone or in suitable combinations: 2. Supply chain tactics 2.12 Speed to market - a critical driver for fashion logistics Page 122

123 Cargo optimization and consolidation Airfreight equalization Multi-modal transportation alternatives Packaging solutions Near sourcing strategies (especially for early manufacturing runs) and/or Switching production to more competitive manufacturing sites competitive not just on labour costs, but on time and service elements such as distance from ports/airports, or proximity to other suppliers which aids consolidation and optimisation strategies Creation of Regional Distribution Centres, or direct delivery to store, bypassing DCs entirely Clearly there are multiple options here, and no standard model the precise nature, scale and geography of the market may dictate very different combinations of approach. Environmental and social concerns Arguably, environmental performance is particularly likely to resonate with customers in the fashion/ lifestyle verticals. The continuous flow of merchandise and the use of airfreight and road transportation modes generate high emissions of greenhouse gasses. Once again, optimization, the use of multimodal transportation options, near sourcing, regional DCs, and even greener packaging (including recycling programmes) can help reduce the CO2 emissions. On top of this, Carbon Footprint Checks, paperless operations and choosing carriers with more modern equipment can greatly help companies achieve a higher environmental score. Corporate Social Responsibility is also a major consideration. Whether spectacular disasters such as the recent factory building collapse in Bangladesh, or the lower-level but continuing use of sweat/slave shops, fashion brands are peculiarly vulnerable to the backlash from these events. Fashion, after all, is used by consumers to express who they are, or at least who they would like to be seen as. Most consumers do not wish to be seen as active supporters of child or sweated labour, unsafe working practices, below subsistence wages, and the like. Brand reputation requires that early knowledge of poor behaviour by suppliers, or wasteful energy use by carriers, is captured, noted and acted on. Very frequently, logistics partners, who have knowledge of practices, abuses, what is aceptable and what is not, across multiple supply chains and countries, 2. Supply chain tactics 2.12 Speed to market - a critical driver for fashion logistics Page 123

124 are in the best position to supply this information and advice. And, of course, when it comes to transport and emissions, they may be the only source of a comprehensive overview. Co-Ordinate Your Clothes Co-Ordinate Your Supply Chain In order to perform as a perfectly tuned engine, a company or brand will need to implement a strategy based on the following parameters, among others: Integration with freight forwarders, carriers, and other logistics partners. This goes beyond IT integration. It implies deep mutual knowledge and training about the company s procedures, objectives and particularly in fashion, values. Close interaction between logistics and purchasing/merchandising departments. It is worth remembering that the buyer in fashion, and particularly garment, operations is probably not the person who is negotiating prices and contracts. There is a large area within which a market driven buying decision can be perverted by the perceived need to cut costs or corners. Tighter control over sourcing operations and vendor management. This is critical to achieve total vendor compliance and a perfectly co-ordinated operation, assuring timely deliveries and smooth flows of merchandise. 3PL and 4PL partners can be instrumental in Vendor Management, because they usually have more, and more experienced boots on the ground to ensure that suppliers perform as agreed. Total visibility of operations.this goes beyond transportation and logistics. A visibility tool is absolutely necessary for all the different departments and partners to interact without interference. In the case of a company that operates different DCs in different locations but wants to implement a single stock strategy (where any item can be found and ordered regardless of its actual location), total visibility becomes crucial. (For short-run fashion this is absolutely essential: there are, by definition, no buffer stocks.) 2. Supply chain tactics 2.12 Speed to market - a critical driver for fashion logistics Page 124

125 Well-designed strategies for multi- or omni-channel retailing. With small batches it may not be possible to maintain separate stocks for different channels all stock needs to be available wherever the market is. Periodic performance reviews. This means looking not just at what has gone wrong (root cause analysis) but at scope for improvement even when things have gone totally to plan. Sharp and accurate Customs clearance. This is perhaps the least considered but most critical aspect of attaining effective speed to market, and one in which logistics partners can, using their local skills, knowledge and experience, make a critical difference. Achieving a smooth and fast passage through Customs on a regular basis is essential to secure a high speed logistics model. Lengthy Customs clearance procedures, recurrent inspections, quarantine and lab testing, and similar requirements can have a very negative effect and render futile all the efforts invested in achieving a high speed operation. Airfreight is in theory the swiftest way to move goods to market, but it is not unknown for airfreight consignments to get stuck in Customs clearance for ten days or a fortnight. This can be a problem with some South and Central American countries, and importing into China, but even into the US and EU if the shipper or forwarder doesn t fully understand the procedures that the particular administration operates. The problems may not arise strictly from Customs and tariff issues many countries raise non-tariff barriers, of varying legality. Some of these are structural ; others may be the result of unpredictable events for example, a calamity in an unsafe factory in, say, Bangladesh, may inspire authorities in different parts of the world to investigate the origins of, and therefore delay, similar products not necessarily from that factory or even that country. Shippers and forwarders who know how the authorities at a particular port of entry are likely to approach the issue, and can therefore predict the sorts of documentation and certification that might be insisted on, are therefore ahead of the race in getting to market. 2. Supply chain tactics 2.12 Speed to market - a critical driver for fashion logistics Page 125

126 Legal Compliance is an Accelerator It may seem curious that we end a review of speed to market in the fashion industries with an emphasis on dry and dusty legal factors. But they matter: careless non-compliance can seriously disrupt the supply chain at any point. Problems can arise already when shipping tools or samples to manufactuers at the prototyping stage. A requirement for Type Approval or certification before goods can enter the market may apply to prototypes, so that importing goods even for testing may be problematic if you don t know the ropes. Then there is the timely shipment of product for the launch and for subsequent fulfilment, quite possibly in the reverse direction. A new product or trade flow is, by definition, not something the relevant authorities have dealt with before, and they may not immediately see it as just a minor variation on a category of goods that has been easily dealt with before. However, if the brand and its partners (suppliers, logistics managers and the rest) can get their act in order, good things flow. Also, compliance secures a positive track record with the authorities over time. It qualifies an importer for a higher category before Customs (i.e. case of China and the A and AA categories). It helps achieve a larger percentage of Green Channel clearance and it reduces the incidence of inspections. In some countries, it allows for in-store labeling, saving time and money avoiding official labeling sites. It enhances the public image of the company and the perception of a high-quality, reliable and socially responsible organization in a given market. Hence, conflict is usually avoided and, should this occur, its resolution is prioritised by the authorities. First in the Market 2. Supply chain tactics 2.12 Speed to market - a critical driver for fashion logistics Page 126

127 Thomas Edison, the great inventor, claimed that build a better mousetrap and the world will beat a path to your door. But Edison was a rather better inventor than he was a businessman. Nowadays, and as the pace of fashion as a market determinant increases, a half-decent mousetrap is likely to win if it succeeds in getting to the market first. Invention, innovation, design, marketing are still the drivers, of course, but commercial success is impossible without effective logistics and supply chain operations. Marketing Invention LOGISTICS & SUPPLY CHAIN Design Innovation MAIN DRIVERS FOR COMMERCIAL SUCCESS 2. Supply chain tactics 2.12 Speed to market - a critical driver for fashion logistics Page 127

128 2.13 COMMON CONTROL TOWER MISCONCEPTIONS By: Neil Wheeldon The term control tower has been bandied around by software providers, consultancy companies and more recently traditional 3PL organizations, but what are control towers? And what are the challenges that should be considered in implementing a control tower? What is a control tower? This depends on who you ask; Software Vendor: A control tower is a centralized hub which provides visibility enabling organizations to detect and act based on supply-chain events. Consulting Organization: A centralized hub which based on gathered information to improve short and long-term decision making. Traditional 3PL: Control towers are responsible for the daily operations. Control towers plan, supervise and co-ordinate transactions between all involved parties. Embarking on developing a global or regional control tower solution can be a challenging journey which all too frequently results in control tower solutions that do not meet all the hype. As we have seen perspectives and capabilities vary widely within this discipline, so thoughtful consideration is critical to implementing a solution that achieves your objectives. What to consider: What are you trying to achieve and why? It is a simple question, but many control tower implementations fail because what are we trying to achieving? Is never articulated or nobody has asked the question why? For example creating visibility to physical transportation flows by itself does not achieve a reduction in inventory holding cost, or using a software solution by itself to integrate 4 providers and 2 in-house ERPs does not by itself improve supplier performance. Being clear about the what and why creates the overall vision and framework for a control tower to be developed and operate within, control towers can only be successful if there mission is clear. Indeed by asking what and why may help you in considering the applicability of a control tower in the first place. 2. Supply chain tactics 2.13 Common control tower misconceptions Page 128

129 How sensitive should the control tower be? One of the potential challenges in more holistic control tower solutions is the division of act activities, whilst holistic supply-chain intelligence drives more strategic decision making, the complexity of addressing problems across multiple time-zones, in multiple languages according to local legislation in real-time drives the need for highly sensitive / complex and responsive control towers or the need for distributed decision making and intelligence sharing. In much the same way the military separates grand strategy from the situation on the ground a control tower needs to be able to function strategically whilst supporting the realities of global supply-chain execution. Is my system aligned? Some believe that the implementation of a control tower by default will lead to executional improvements, by using software providers, consultants or promoting a 3PL into a 4PL role we will improve execution. This is not always the case, a control tower needs to have the authority to act across the enterprise and across many supply-chain partners, therefore systems of reward or penalisation (contracts) need to be defined to support, rather than undermine control tower efforts, authority needs to be ceded to the control tower in order to support legitimised decision making and performance management. Who do I partner with? As can be seen from the various definitions of control tower, each party interprets control towers based on a specific frame of reference or organisational approach so determining the right control tower partner very much depends on the role of the control tower and the capability requirements, it is key to evaluate what the qualities are that each organisation can bring, the partnership approach, executional experience, company capabilities, long-term support, strategic thinking, software and tools should all be considered. The selection of a partner often determines where a control tower will focus and what the operational bias shall be. 2. Supply chain tactics 2.13 Common control tower misconceptions Page 129

130 2. Supply chain tactics 2.13 Common control tower misconceptions Page 130

131 3. DATA TECHNOLOGY AND INTELLIGENCE 3. Data Technology and intelligence Page 131

132 3.1 SUPPLY CHAIN OPTIMISATION: IMPROVE YOUR PERFORMANCE BY TURNING DATA INTO INTELLIGENCE By: Ambarish Singh Today s global companies generate large amounts of data while simply running their business so much that big data has become a buzz word. The latest information technology makes it possible to analyse this data in order to spot inefficiencies in business processes and make better business decisions. Applying modern analytics software to supply chain data opens new opportunities for optimisation, cost reduction and service improvement. The connection between big data and supply chains Data is becoming more and more important. Thanks to the developments in information technology over the past several years, it is now possible and affordable to capture and store information about everything that is going on in your supply chain. Damco has specialised tools and expertise to combine and interpret that data, which helps us to find bottlenecks and come up with solutions. By this we turn raw data into supply chain intelligence. The process is simple Clients provide us with input, which we use to build a computer model of their supply chain. First we map all their locations on a world map: the manufacturing locations, warehouses, and distribution centres, but also the flow of cargo and the locations of their customers. The next step is to create a baseline, a description of the situation that not only includes all costs but also things like the current stock levels. Analysing this data allows us to see where the opportunities are under the existing conditions. We may notice that there are 20 DCs in the distribution network, while 15 would be enough to deliver the same service level. And we can be specific about the benefits by calculating how much capital is stuck as fixed costs in maintaining these DCs and what operational costs are associated with staffing and running them. 3. Data Technology and intelligence 3.1 Supply chain optimisation: Improve your performance by turning data into intelligence Page 132

133 But that is not all. We can also go a step further and ask what if questions to see how the supply chain would perform under circumstances that we or the customer think may apply in the future, for example a further shift to e-commerce. In this way, supply chain optimisation supports strategic decisions. We have dedicated supply chain optimisation teams in all global regions, each consisting of a mix of people with a variety of skills and expertise. Some are experts in modelling, others contribute many years of business experience. They are specialists in this work, prepared to answer specific customer questions but also curious to uncover what is the cause of the issues they find. The results realised Here is an example: We recently did a network optimisation project for a large global retail and lifestyle customer. Just reorganising their European distribution system resulted in 6 million of cost savings, while maintaining the same level of customer service. In our work we see clients achieve supply chain cost reductions anywhere between six and twenty percent. There is also a link between supply chain optimisation and the concept of control towers. Both of which depend on visibility and transparency. An in-depth review and reorganisation of the supply chain, is something an organisation should do every five or at least ten years. It is a strategic reorientation that is meant to have a long-term impact. A control tower is comparable in the sense that it is also based on the availability of large amounts of data from the supply chain, but it uses the data for operational, day-to-day decisions. Once an organisation has identified what its network should look like for the next five or ten years, and has it in place, it can set up a control tower to manage it. 3. Data Technology and intelligence 3.1 Supply chain optimisation: Improve your performance by turning data into intelligence Page 133

134 3.2 DAMCO DELIVERS CONSUMER DIGITAL TECHNOLOGY TO MEET RETAIL DEMAND By: Mark Pycroft High-value, high-volume consumer electronic products like tablets and e-readers represent a significant logistics challenge. They demand both rapid production cycles and the need to secure large airfreight capacity in response to a sales boost. This is especially true when there is a tight time line for shipments out of China. Long distances and lead times to main markets mean that shipping costs can represent 8% to 10% of the total cost of sourcing from China and in the wrong hands, there is a considerable risk of shortfalls in delivery at times of peak demand. Collaborative planning achieves OTIF delivery targets Damco has successfully shipped tablets and e-readers for several major retailers at their busiest time of the year, meeting demand for important product launches.to support such huge product launches, Damco works with retailers on a global basis to find the ideal routes to market and to discuss the best approach to achieving smooth, on time in full (OTIF) delivery at optimum cost. Collaborative planning enables our customers to switch to lower cost, more environmentally-friendly shipment (sea) mode without reducing product availability in stores. Retailers need to supplement time, cost and environmental benefits with a number of value-added services with a single point of contact. And they need visibility of the entire logistics process from OEM factory in China to the fulfillment facility. This way they can monitor and control costs, lead times, and carbon emissions all critical to achieving a successful launch. Security reinforcement and antipilferage measurement are also important where high-value products manufactured in China have to be shipped through a long end-to-end supply chain. Damco stage and palletize high-value cargo at their own (NTS) air facility before and after airline uplift. Their security enhancements further ensure delivery of 100% of received units. 3. Data Technology and intelligence 3.2 Damco delivers consumer digital technology to meet retail demand Page 134

135 For example, a large 3PL contract awarded to Damco by a major retailer involved shipping electronic tablets from China to the retailer s DC. Full pallets had an iron net and cushioning applied over the pallets with 22 security tabs per ULD. To maintain security the ULD/BUP were not broken down by the airline handlers. Security checklists were used when the destination DC received the full ULDs and the pallets were weighed and recorded at each stage to maintain weight tallies end-to-end. All shipments were cross docked with no holding of product. The result was a secure operation with 100% of received units being delivered. The Damco solution: scaled, customized services that meet demand It is important that services are scaled and customized to customers needs based on market conditions. This includes transportation, handling and processing of high-value electronics, but with the added advantage of collaborative planning from the outset and throughout the launch. Damco s solution provides: Dynamic route management through multiple transit gateways across Europe. Visibility of entire logistics process from OEM factory in China through to DC. Matching speed to market through airfreight on initial launch and changing to sea freight to ensure cost and carbon savings without losing availability. Short turnover time from factory to destination. Value-added services help secure airfreight capacity at busy times To ensure stock availability during a product launch, both in-store and on-line, securing airfreight capacity out of China is key. Especially during the busiest time of the year or in response to a sales boost. This means delivering end-to-end to a tight KPI, including weekends. In one extreme case, Damco handled 7 urgent orders of 63 tons of airfreight from PVG to JFK with just 3 hours advance notice to factory, and arranged 2nd day airline uplift. With Damco, you don t have to compromise 3. Data Technology and intelligence 3.2 Damco delivers consumer digital technology to meet retail demand Page 135

136 Damco s extensive experience of shipping high value electronics has enabled OTIF delivery for major product launches while achieving: Very high security throughout the end-to-end supply chain Strong RISK mitigation through alternative routes to market Collaborative approach between all stakeholders involved in the launch Competitive rates during a period when capacity issues affect airfreight globally. High-value electronic product launches are demanding and Damco delivers Damco offers a tailor-made door-to-door air and sea freight service for high value electronics of all kinds. Our service includes flexible airline selections and hourly GPS track and trace on pickup and delivery to ensure transit time when there is a surge in demand. Cargo is staged, handled and palletized in Damco s own NTS air facility before and after airline uplift, with extra security enhancement. In addition to cost savings and security assurance, Damco reduces carbon emissions through increased utilisation of containers and optimised transport and warehouse networks. By trusting in Damco s value-added services, you will meet and exceed your KPIs. 3. Data Technology and intelligence 3.2 Damco delivers consumer digital technology to meet retail demand Page 136

137 3.3 SUPPLY CHAIN SOFTWARE TECHNOLOGY WORKS, BUT DOES IT DO THE WORK? By: Aaron Baker From a software technology perspective supply chain visibility is not challenging per se. In its rudimentary form supply chain visibility follows a basic procedure of input, process and output. So why is the question where is my stuff? still considered a critical supply chain industry question? To answer this question properly we need to step back and think about it in the context of an enterprise business challenge instead of a tactical question. Specifically, what enterprise challenges can be answered once you get the right balance of people, process and then technology? The change in mind-set is to think of the data that fuels supply chain visibility as something that needs to be managed by dedicated people, similar to how products on a store shelf need to be continuously managed to ensure availability. Imagine if a store shelf was partially stocked and many of the goods were left in the storage room, seemingly unavailable for use. You could not reliably offer products to be sold. To get reliable supply chain visibility, companies need to manage the process on a continuous basis. They need to understand the business benefits of having either in-house or outsourced providers control the process by people with boots on the ground, where the operations takes place. Managing What Matters in the Supply Chain In many industry verticals we see mature organizations shifting from mitigating supply chain costs to creating enterprise value. The fragmented or siloed approach to supply chain management is being re-engineered for optimal end-to-end supply chains that minimize or maximize cross functional KPIs, thereby balancing profitability while meeting unpredictable customer demands. We have seen the business benefit of supply chain data to be a proven enabler for this transition to many of our customers, in areas such as lead time reduction, on-time-in-full (OTIF), gross margin, sustainability and product availability on the shelf as top priorities. These focus areas are what matters for mature organizations. 3. Data Technology and intelligence 3.3 Supply chain software technology works, but does it do the work? Page 137

138 Many companies outsource certain business process management to not only include the functional physical management and movement of shipments between supply chain nodes; they also outsource the creation and fortification of data connectivity across the supply chain from the point of production to the point of consumption (e.g., the creation of an advanced ship notice ASN to be linked to a shipment milestone). Thereby linking the international with the domestic supply chains as well as inducting wholesaler shipments into retail networks. The value is not just getting the data for visibility. The value becomes exponential when you can answer enterprise challenges for holistic end-to-end improvement. It is commonly understood the key to end-to-end process management is managing the digital and physical supply chains with equal focus. This requires an accountable team to manage orders throughout the supply chain. They proactively reach out to vendors and carriers about shipments and applicable status milestones. They go one step further by suggestion actionable alternatives when exceptions arise. The below examples illustrates how end-to-end supply chain management can use reliable data to design and implement tangible value for true company innovation. Designing Operations for Complexity linking the International with Domestic networks Using purchase order (PO) data and inbound milestone events, we were able to merge a large retail company s outbound domestic shipments with their supplier s inbound shipments. The solution required not only the physical infrastructure, but the connectivity to synchronize the two critical flows electronically and have an account team manage this process and provide real-time status events to control the process and exceptions proactively in real-time. This solution allows for the wholesalers to bypass their own network and get paid faster. These programs are managed from end-to-end with full visibility and resulted in a lead time reduction by an average of 13.7 days and reduction of carbon emissions by over 1.8 million kg annually. The critical success factor was to have all electronic information flow through our systems to provide carton level visibility. Fitting a Technology Company into a Fast Fashion Supply Chain Network As a deeply rooted supply chain partner for one of the tech world s largest portfolio providers in the 3. Data Technology and intelligence 3.3 Supply chain software technology works, but does it do the work? Page 138

139 tech industry vertical, our services span global end-to-end activities such as a centralized origin hub with dedicated account teams. These teams continuously interact with vendors and OEM/ODMs to capture data for enhanced visibility in order to detect and act on risks and opportunities more quickly, and to improve supply chain decision-making. Shipment management includes monitoring goods in transit into destination markets globally where a destination team manages high velocity cross-dock and trans-load facilities as well as over the road truck delivery. With reliable supply chain data, we were able to propose a global supply chain improvement project to the Latin American markets. The objective was to consolidate the majority of the Asia to Latin America traffic through direct shipments to subsidiaries and channel partners using full containers and to consolidate factory direct shipments that do not have sufficient volume to complete full container shipments. Using twelve months of actual shipment and customer demand data, were able to identify which orders could be shipped directly into the sixteen Latin American country markets to satisfy actual end customer demand. We then identified the stock keeping units (SKU) that could be held at a central hub and used as a distribution point to meet fluctuating market demand. Through an extensive logistics and distribution analysis we identified that a Panama hub should be used instead of the previous multiple hub distribution points. The calculated savings resulted in an average of a 9 day decrease in lead time and a savings of $9m USD in costs annually. One of the drivers of the savings was the use of product late stage differentiation once an order made for a specific country instead of holding preconfigured products for all countries. So what are the right business questions to ask? Companies with mature supply chains are not asking where s my stuff? Instead, they are asking: Who should manage the data from my supply chain operations and ensure its reliability? What business control can I improve with the information within the supply chain data? How can I use my supply chain data to react to customer demand variability with agility? Once you determine right questions, then you can make the software technology work for you. This article was previously published in CIO Review cid-78.html 3. Data Technology and intelligence 3.3 Supply chain software technology works, but does it do the work? Page 139

140 3.4 WHY DATA DRIVES LOGISTICS OPTIMISATION IN THE PETROCHEMICAL INDUSTRY By: Damco Blog Team Petrochemical companies realise that supply chain and logistics optimisation is neither easy nor cheap. However, for most of them, this area offers the greatest opportunity to significantly reduce costs and impro ve performance. The objectives for each and every effort made to optimise logistics must be quantifiable and measureable, to enable better decisions. Clearly, new ways of automating transaction processing and data capture could make this possible. Responding to industry needs Last month, at the China Petrochemical Supply Chain Summit in Shanghai, logistics professionals gathered to discuss opportunities to optimise the supply chain. One of the key conclusions of the Summit was that it is often hard to get valid data from all the suppliers and vendors in the supply chain. Why is this? Because often, we rely on manual data inputs originating from a number of different sources to get the whole picture. However, by the time an individual or team within the chain receives this data, it may already be out-dated. Sometimes it is incomplete, resulting in an out-dated and incorrect scenario. For a logistics optimisation effort to be successful, it is key that data is accurate, timely and complete, taking variability levels into consideration. Achieving visibility For example, optimising container utilisation requires order data, goods descriptions, handling notes, packaging and availability details. With the right data, higher load utilisation can be realized, which on its turn drives up efficiency and reduces costs and carbon emissions.having the weight of each shipment may not be useful if some loads are limited by the truck s volume. Or, having the UN number of a product is insufficient, if the ability to consolidate also depends on the DG class and packaging group. 3. Data Technology and intelligence 3.4 Why data drives logistics optimisation in the petrochemical industry Page 140

141 Manually entering more than basic data is too time consuming, and too error prone, to support supply chain optimisation. Outsourcing data entry to a 3PL with chemical supply chain development expertise can help save costs by increasing optimisation, through the availability of systems, connections and processes capable of handling it. The result is full end-to-end supply chain management, plus local expertise for customs, regulatory and customer interface requirements in key chemical origin and destination markets. The Damco solution At the summit, the award of Outstanding Petrochemical 3PL of the Year was made to Damco because we offer a suite of Supply Chain Management (SCM) products that are tailored to current industry needs. That includes, for example, postponement solution support, order management, and distribution. Damco has, in fact, been at the forefront of providing end-to-end Logistics & Supply Chain solutions and services to customers in the Chemicals and Dangerous goods sector for the last 30 years. We were named by ICIS as one of the top five logistics partners for the chemical industry in 2010; a recognition that reflects our experience and longstanding relationships with specialty chemicals customers like those in the agro-chemical sector, as well as global petro-chemical producers. Proven solutions A number of our customers, including copolyester, titanium dioxide, and polyethylene producers, have already chosen to outsource their supply chain management for Inbound, basic handling, storage, on-forwarding by ocean and truck and local distribution. They have successfully achieved reduced costs and carbon through CFS Consolidation, helping them to move quicker and optimise routes. Our aim is to build long term partnerships by working as a professional logistics service provider for our customers. Our global chemicals team includes dedicated support teams in the Middle East, Europe, Asia and USA. Our chemical industry experts are ready to design and deliver tailor-made supply chain solutions and services. And in addition to our core transport and supply chain solutions, we offer a range of specific services and solutions to the chemical industry. We are naturally happy to see our progress towards achieving this aim recognised with the Petrochemical 3PL of the Year Award! 3. Data Technology and intelligence 3.4 Why data drives logistics optimisation in the petrochemical industry Page 141

142 3. Data Technology and intelligence 3.4 Why data drives logistics optimisation in the petrochemical industry Page 142

143 3.5 CRYSTAL CLEAR SUPPLY CHAINS: CREATING ONE SHARED VERSION OF THE TRUTH YIELDS MASSIVE BENEFITS By: Josue Alzamora Summary The increasing complexity of today s global supply chains effectively turns them into a series of black boxes. The individual parts can be optimised to satisfy local KPIs, but this does not guarantee maximum efficiency for the supply chain as a whole. Lack of transparency not being able to see everything that is going on in the supply chain, from one location and in real time leads to higher costs, problems with customer service, and vulnerability to risks. Higher costs Lack of transparency Service level degradation and lost sales Interdependency and vulnerability to risks Lack of control The ultimate vision of supply chain transparency is to have one single, shared, workable version of the truth for all involved parties. Until recently, the limitations of the available information technology stood in the way of realising that vision, but with the advent of cloud computing, solutions that come close to ideal have been developed and others are under development. Besides cloud-based software-only solutions, there are several logistics providers that offer 4PL services where they provide the software as well as the supply chain expertise that is required to benefit from it. A majority of companies are still at an earlier stage, using proprietary software, ERP systems, or even spreadsheet solutions. 3. Data Technology and intelligence 3.5 Crystal clear supply chains: Creating one shared version of the truth yields massive benefits Page 143

144 Supply chain transparency is not the only condition for an efficient supply chain, but it is fair to say that without it, it is impossible to be fully efficient. A transparent supply chain can be agile, resilient and robust. Transparency supports better customer service, better procurement and utilisation of resources, better use of inventory and easier compliance with customs and other regulations. It also makes it possible to substantiate claims in the field of emissions footprint reduction and other aspects of sustainability. And last but not least, in a transparent supply chain it becomes possible to close the loop between planning and execution, providing real and reliable feedback on any changes in the supply chain. The road to transparency is challenging but rewarding regardless of a company s starting point. Beyond technical changes, shifting to an attitude of real collaboration and sharing of data that used to be considered confidential may require a fundamental change in the organisational culture. The wide range of potential benefits is guaranteed to justify the effort. Lack of Transparency Undermines Supply Chain Efficiency Over the past few years, supply chains have become increasingly complex, or a version of that statement, is probably the most-used opening sentence for white papers on a wide range of supply chain topics. Although there is no universally accepted metric for supply chain complexity, the truth of the observation is obvious to anybody active in the field. In our experience across industries, a majority of companies are working with more manufacturers in more origin locations than they used to do five years ago, while at the same time reaching into new markets and thus increasing the number of destinations, using more routes and more transport service providers, and more channels to end users. The end result is a complicated and interconnected network that functions much like a modern passenger vehicle: the driver knows how to steer it through traffic but may not have a clue about the complexity of what s going on under the hood. There is, however, one critical difference between cars and supply chains. An automobile is designed and developed by one manufacturer, presumably in such a way that all the parts are optimised to work together. Most supply chains, by contrast, develop over time; and while individuals and departments will attempt to optimise the segment or aspect they are responsible for for example, by negotiating the lowest possible transportation fees there is no guarantee that all local optimisations contribute to 3. Data Technology and intelligence 3.5 Crystal clear supply chains: Creating one shared version of the truth yields massive benefits Page 144

145 a better overall performance. This lack of oversight can have severe consequences that only get bigger as supply chain complexity continues to increase. In supply chain terminology, the word visibility is often used for the ability to determine the location and status of items in the supply chain. The complexity of supply chains makes it difficult to achieve this track-and-trace visibility. But what we are talking about here goes far beyond mere visibility, because it also includes the relevant information about all processes in the supply chain, both internal and external. We will refer to this availability of information as transparency. Most of today s supply chains achieve only a limited degree of transparency and this affects their efficiency in one or more ways, depending on the particular company s situation. Higher costs Because the supply chain is, at best, optimised locally, measures taken in one place to reduce costs may create costs elsewhere. For example, the purchasing department may realise a discount by ordering an item in large quantities, while the additional inventory and warehousing costs created by this smart manoeuvre may far outweigh the benefits. Purchasing meets its targets, but the bottom line suffers. These unintended side-effects are almost inevitable unless we achieve total transparency. Service level degradation and lost sales In a similar way, partial optimisations can negatively affect customer service levels. A small shipment can be put on hold for a few days at origin to wait for an opportunity for consolidation, with the goal being to get a better transport price. That same delay may later result in empty shelves, lost sales, disappointed customers, and a dent in the brand s image. There is a myriad of ways in which actions performed with good intentions may have a negative impact on the overall result. Interdependency and vulnerability to risks Every time a new service provider is added to the supply chain, a factor of dependency is also introduced. A failure to perform by any party can ripple out through the entire supply chain and multiply its initial effect. There may be good ways to contain the incident and minimize its consequences, but without sufficient transparency, it becomes difficult and sometimes impossible to know what these incidents are. 3. Data Technology and intelligence 3.5 Crystal clear supply chains: Creating one shared version of the truth yields massive benefits Page 145

146 The same consideration holds true for the supply chain s robustness against external disruptions, such as strikes, floods, earthquakes, and problems with port capacities. Contingency programs can only be based on what is known about the supply chain, and as long as that knowledge is incomplete, they will of necessity be sub-optimal. Lack of control In a supply chain with limited overall transparency, control can only be fragmented. As most large companies pursue the establishment of standard supply chain KPIs across geographies, what very often arises is an immense set of measurements and reporting based on data sources that provide partial visibility, raising awareness of some trends and pain points, but with limited impact on true overall supply chain control. The Pressure Continues To Grow The consequences listed so far apply to supply chains in general, but there also are some effects that are felt more in some industries than others, and pressure factors that will foreseeably increase in importance in the near future. Consumers demand visibility Consumers, and indeed business customers, have come to expect complete and reliable information about the availability of the items they are looking for, both physically and online. Providing this information is essential to facilitate the sales decision, but it requires a high degree of integration in the supply chain. Reliable information about delivery is another dealmaker. After ordering, the customer wants to be able to follow the delivery process and it is a bonus if they can intervene up to the latest possible moment, for example to change the time and place of delivery. This degree of flexibility, a competitive advantage today, will be commonplace tomorrow. Sustainability rests on transparency Zooming into the environmental aspects of sustainability, reducing the emissions footprint within logistics requires reliable supply chain information. Even more, and more detailed, data is needed to specify the emissions impact of selected product groups or even individual products. This information 3. Data Technology and intelligence 3.5 Crystal clear supply chains: Creating one shared version of the truth yields massive benefits Page 146

147 must be obtained from a variety of sources, including manufacturers and logistics service providers, and acquiring it in a useful form requires a high level of transparency. While sustainability has clearly been a hot topic for consumer industries, growing awareness is starting to make it a key performance parameter for any industry. Recent trends On top of pressures resulting from existing trends there are other and newer trends that are only beginning to take shape. However they turn out, it is already clear that it will take a high level of transparency to deal with them. One of these developments is the blurring distinction between sales channels. Consumers don t want to differentiate between purchasing using a web browser on a computer or an app on their smartphone and expect a related experience in a shop and online. For retailers it is essential to provide a seamless shopping experience across all channels and touch points. Delivery is another area where great changes can be expected. The growing volume of e-commerce sales will increase the number of (near) home deliveries and pick-ups in urban areas, adding to the frequency of congestions and standstills. Bundling deliveries from different retailers to the same address is an option. And then there are still more disruptive innovations on the horizon, including the UberCargo service that has been tested in Hong Kong in 2015, or drone delivery as proposed by Amazon in 2016, and already deployed by others in for example emergency medical supply delivery. Beyond that, new technologies such as 3D printing may have significant consequences to the logistics setting we know today. Each of the requirements listed in the sections above can be satisfied to a degree by modifying selected elements of the supply chain, but by stepping back and looking at the bigger picture, it becomes clear that all these solutions will be sub-optimal at best and that it is not possible to satisfy all of the requirements entirely without full transparency across the supply chain. 3. Data Technology and intelligence 3.5 Crystal clear supply chains: Creating one shared version of the truth yields massive benefits Page 147

148 Transparency Comes In Different Forms and Degrees Due to the huge amount of data involved and the complexity of integrating information from a wide variety of sources, all early attempts in the direction of transparency can be considered as limited. Until a few years ago information technology simply was not up to the task, but today various types of solutions are available that support supply chain transparency in one form or another. Some systems only combine information from internal systems and resources. Others are more extensive and include (some or all) manufacturers, logistics suppliers in various roles, and the distribution network. The ultimate vision of supply chain transparency is to have one single, shared, workable version of the truth for all involved parties. The term control tower is often brought up in this context. Although it can mean a variety of things depending on who uses it, the associated image is powerful: a high place, with a traffic controller who sees everything and has all relevant information, and who in real time directs and optimises the traffic flows under his responsibility. It should be kept in mind that the best approach to transparency for any given company strongly depends on the organisation s ambitions, the industry it is active in, and its current phase of development. To put this into perspective, a local airstrip receiving four Cessnas on a busy day does not need a control tower like that of Atlanta s international airport. Proprietary systems Driven by the need for control and visibility, companies have found or invented their own ways of keeping track of what is going on in their supply chains. This could be based on spreadsheets, or take the form of proprietary software. While this may have worked to some extent in the past, it is now becoming clear that this approach is a dead-end street. Maintaining this type of solution absorbs considerable resources and they lack the economies of scale that third-party solutions benefit from. The global integrated carriers may be an exception to this rule, because their size could justify the effort. Their sophisticated track-and-trace capabilities demonstrate they can provide excellent visibility, but this is only possible because their supply chain basically operates using their own assets. Most global supply chains rely on external parties, such as logistics service providers and transportation service providers, complicating the visibility challenge to a level that is difficult for a proprietary system to handle. 3. Data Technology and intelligence 3.5 Crystal clear supply chains: Creating one shared version of the truth yields massive benefits Page 148

149 ERP-based solutions Some companies have arranged their ERP system to provide supply chain visibility. While this works to a degree, it will not allow the step from visibility to transparency, simply because this would require functionalities that ERP systems are not designed to deliver. As the name suggests, Enterprise Resource Planning is future-looking, over long (monthly, quarterly, annual) time buckets, and works at the aggregated level of the business unit or enterprise. Consequently it takes a long time to run. It is therefore at best cumbersome and at worst impossible to use for the day-to-day control of individual orders and operations. Cloud-based dedicated software With the introduction of cloud computing it has become possible to develop dedicated cloudbased solutions that are being offered through a subscription or Software-as-a-Service (SaaS) model. An attractive aspect of this model is that companies do not have to make any up-front investment because they only pay a monthly fee. A complication can be that the software alone is not the complete solution: the user still needs people with extensive knowledge of supply chains to run it to his advantage. This role can be fulfilled in-house, or else be outsourced to a logistics provider or an IT provider. Supply chain service providers Levering supply chain knowledge and experience, together with the information systems they already have in place to integrate information gleaned from many external sources and built up over time, a number of supply chain service providers have found themselves well-placed to offer transparency solutions as a service to shippers. The essential difference between them and software-only providers is that the logistics provider has a clearer understanding of the business need and can closely operate and manage the supply chain for their customers. THE CORE COMPONENTS of a TRANSPARENT SOLUTION Transparency is more than just visibility. The latter, very necessary, quality could be characterized as the ability to know the position and status of any item in the supply chain at the current point in time. Transparency goes further we have insight into where items have come from and what processes 3. Data Technology and intelligence 3.5 Crystal clear supply chains: Creating one shared version of the truth yields massive benefits Page 149

150 they have been through; and equally we have as far as possible foresight of where they are going next and what will or should happen to them. Visibility: Improvements in visibility are the low-hanging fruit of introducing transparency and the results can be significant. Without dedicated visibility systems, there is no way of knowing what is going on in large sections of the supply chain. Visibility is a good remedy for things falling through the cracks. Control: Knowing in real time what is happening in the supply chain makes it possible to offset local decisions against their overall effects on costs and customer service, and it makes the supply chain more resilient and resistant to disruptions. Transparency also makes it easier to change logistics providers, although this is not as easy as suggested by the term plug-and-play that is often used. Optimisation: Easily accessible and integrated supply chain data allows a company to master the fundamentals and streamline it effectively. An optimisation program can include small agile projects, as well as broader supply chain redesign exercises, leading to for example shutting down or opening new distribution centres, sourcing from different regions, or shifting to different transport alternatives. WHS VISIBILITY CONTROL OPTIMISATION 3. Data Technology and intelligence 3.5 Crystal clear supply chains: Creating one shared version of the truth yields massive benefits Page 150

151 Eleven Benefits Of A Crystal Clear Supply Chain Let s now have a look at a number of specific outcomes that will require transparency. Please keep in mind that realising transparency doesn t automatically yield these benefits; other organisational aspects are also involved. But it will be hard to realise any of them without a transparent view of the landscape. 1. Agility Today s supply chains must be able to respond and adapt quickly to shifts in market demand and changes in business strategies. Consumer preferences are dynamic if not whimsical and the ability to meet them is a competitive advantage. Supply chains must shape-shift to absorb strategic changes, for example a decision to near-shore or re-shore certain product categories. 2. Resilience and robustness Supply chains are exposed to a variety of risks. Some of these, such as weather influences, can be expected with a statistical degree of certainty. Others, such as violent acts and tsunamis, are completely unpredictable. With a complete overview of the supply chain it becomes possible to make a well-founded appraisal of the acceptable level of risk and the required countermeasures. 3. Data Technology and intelligence 3.5 Crystal clear supply chains: Creating one shared version of the truth yields massive benefits Page 151

152 3. Improved customer service It is easy to see that supply chain transparency may have dramatic effects on customer service levels. Some of the most obvious consequences are a reliable insight into product availability and the ability to guarantee delivery at a customer-specified time and place. But because of the wealth of ( big ) data that is available after some time, it becomes possible to discern trends in customer behaviour that in turn support better planning. A company could move inventory from one DC to another to anticipate an expected increase in sales there, before the orders have actually been placed. 4. Improved regulatory compliance The more supply chains become international, involving large numbers of origins and destinations, the more difficult it becomes to comply with customs and other regulations. Often compliance problems are detected at destination but have their roots at origin or with a carrier en route. In a transparent supply chain, it is relatively easy to uncover the causes of these types of problems and take adequate measures, not only on ad hoc basis, but also structurally. 5. Better resource utilisation Transparency helps to reveal resource utilisation levels, enabling a more accurate allocation and dimensioning of those. This may involve warehouse volumes, the capacity of means of transportation, the use of manpower and of other assets. 6. Better procurement With a transparent supply chain all the relevant information becomes available to optimise the procurement process. Organisations can see what they purchase where, how products or services can be combined in one contract, and how the conditions of different suppliers differ. The ability to present more reliable estimates of required quantities and delivery schedules reduces risk for suppliers and should translate into keener pricing. The available information also allows supplier performance benchmarking, which can be a powerful tool for realizing improvements. 7. Better alignment of organisational goals In a transparent supply chain, everybody involved can readily see how their activities contribute to the organisation s strategic goals. However, in organisations that are lacking in transparency, there is often an absence of shared priorities and understanding between purchasing, supply chain, manufacturing/ operations, marketing and other departments even when they sincerely believe they are pursuing the same goals. 3. Data Technology and intelligence 3.5 Crystal clear supply chains: Creating one shared version of the truth yields massive benefits Page 152

153 8. Building trust to encourage collaboration Supply chain transparency requires a shift in attitude from all actors both within the organization and outside (customers, suppliers and others), who must subscribe to the notion that the value of what they do can only be determined from a larger perspective. At the same time it fosters authentic collaboration and responsibility sharing because it makes visible what the effects of local actions really are. It also disarms the natural tendency to keep something up the sleeve. If all the players can be convinced that they are seeing the same truths at the same time, that no-one is keeping back any special insight or privileged information, the conditions exist for collaborative rather than adversarial transactions. It is tempting to think that this aspect only requires changes from external parties, but in large organisations factors like internal compartmentalisation, silos and inappropriate incentives may be an even bigger challenge. Transparency, obviously, is easiest achieved in a relatively stable supply chain but at the same time it also helps to create stability: where all parties are aware of each other s current and future positions, there is less need to shop around for a short term advantage. Preferred suppliers and customers become the norm, not the exception, a business environment in which it becomes more natural to share developments, whether in new product development or new business techniques and opportunities, for mutual advantages. 9. More accurate inventory levels A reliable overview of all inventory enables a better synchronisation of supply and demand, directly translating into better customer service and higher sales. In consumer industries it is also imperative to route returned goods back to the shelves, physical or online, for re-sale as quickly as possible. In supply chains that lack transparency, inventories can easily reach levels well beyond those required to satisfy true demand (through for example the well-known bullwhip effect in demand forecasting), even to the point where many items (especially returns) end up being deeply discounted or not sold at all. 10. More sustainable performance In the area of sustainability much attention goes to reducing emission footprints. Attempts in this direction depend heavily on the availability of complete and correct supply chain data. Moreover a transparent supply chain also supports a cradle-to-grave perspective on products where end-of-life activities, such as re-use and recycling, serve as input parameters for the product design stage. 3. Data Technology and intelligence 3.5 Crystal clear supply chains: Creating one shared version of the truth yields massive benefits Page 153

154 And let s not ignore other aspects of sustainability where transparency is important including those of labour conditions, responsible use of resources, and fair wages. In a completely transparent supply chain it would be possible for the label on a T-shirt to specify in which workshop and by whom it was sewn, and under what circumstances. Transparency in the supply chain will allow organisations to demonstrate easily that they comply with the ISO standard on sustainable procurement. 11. Enhanced continuous improvement cycle Finally, an overarching benefit of transparency is that it allows the supply chain to learn and apply changes quickly, in other words, it closes the loop between planning and execution. Supply chain managers can now make adjustments on any level and get real, factual, timely and reliable feedback about the effects of their intervention in what becomes a faster refinement cycle. The Road To Transparency Regardless of its starting point, the journey to total transparency will be challenging as well as rewarding for any company. It may leave no stone unturned as it touches upon all aspects and dimensions of a supply chain operation. One likely scenario includes external consultancy, be it from dedicated consultancy firms, logistics providers, systems suppliers or others with the necessary knowledge and experience. It is essential to be aware that implementing supply chain transparency is not only a technical issue but equally an operational, organisational and contractual challenge. Sharing data can appear threatening, so all supply chain partners must be made to understand how opening up their books will help them support the supply chain better. And of course they all should earn a fair share for the added value that they now demonstrably deliver. Information sharing is also a technical challenge because data is only useful if it is standardised, clean, delivered automatically in timely fashion, and has the required granularity requirements that apply to internal data (including business intelligence) as much as to data from external sources. Regardless of a company s current place on the road to transparency, there is always room for improvement. In a 2014 survey by the Aberdeen Group, 85% of the respondents indicated that they plan to increase their current level of end-to-end supply chain visibility. The Aberdeen Group makes a 3. Data Technology and intelligence 3.5 Crystal clear supply chains: Creating one shared version of the truth yields massive benefits Page 154

155 distinction between Laggards, Industry Average performers and Best-in-Class companies. For the Laggards, their recommendation is to focus on the highest impact areas first, and to get control over costs. For companies in the Industry Average, the focus should be on data quality improvement and enhancing logistics resiliency. For the Best-in-Class it would be wise to automate their visibility of suppliers projected production plans and to justify the additional investments required to improve visibility or informed decision-making. In Damco s experience in developing and enhancing supply chains in many different industries, we have realized that underneath the apparent short to mid-term needs to reduce cost and lead time, improve inventory levels and cash cycles, etc., there are challenges rooted in what can be considered unnecessary complexities arising from the lack of transparency. These complexities are not just internal to organisations, of course. They are often more critical, yet less obvious, in relation with external partners. The ideal solution to this is hinted at by Gartner, in the 2014 report How to enable end-to-end-supply chain visibility, a call for multienterprise visibility. This goes beyond merely achieving visibility in your own organisation, or indeed the situation whereby a dominant partner enforces certain elements of transparency on its supply chain partners. Multienterprise visibility or transparency would be a partnership of the willing, convinced that achieving a single version of truth across all the many partners in a supply chain has benefits for all. Gartner also warns, sensibly, that there is no single solution out there you can t buy transparency in a prewrapped package Rest assured, significant levels of transparency and its benefits can be achieved through collective perseverance and hard work. As in many cases, the orchestrators of your supply chain, your lead logistics service providers may be a particularly important component in the journey towards a crystal clear supply chain. 3. Data Technology and intelligence 3.5 Crystal clear supply chains: Creating one shared version of the truth yields massive benefits Page 155

156 3.6 WHY IT PAYS TO HANDLE YOUR SHIPPING DOCUMENTS EFFICIENTLY AND DILIGENTLY By: Praful Waghela Poorly organised documentation can seriously impede the smooth movement of goods and significantly increase shipping risks, costs and penalties. That is why it is crucial that all parties ensure their documentation is well managed. Typically, the large shippers have to deal with hundreds of documents needed to clear customs and take delivery of goods from bill of lading, commercial invoice and certificate of origin, to cargo insurance certificate, export licence and packing list. They also need to deal with a wide range of contacts, from trading partners and shipping & logistics companies, to various national and international agencies & authorities. What is more, these documents are often subject to complex and sometimes arcane rules, regulations and procedures that need to be followed closely. Lost, incorrect or tardy documentation critically delays shipments and incur penalties and other direct costs. Or indirect financial impact associated with disgruntled clients and a damaged brand image and reputation if your shipments do not reach your stores on time. Going digital Dealing with all this documentation can be challenging and overwhelming. What is obviously needed is a way to ensure all the required documents are correct and easily accessible, and can be dispatched at a moment s notice. Any efficient and effective solution will certainly involve the use of information and communication technology, where documents (and other shipping-related information) are digitised and subsequently processed and distributed electronically, automatically and in a split second. In this way documents can be validated and distributed speedily and securely, and (seamlessly) processed by computer systems at the receiving end. The reduction or elimination of manual handling and paper documents will not only lower costs, but also limit the risks of delays and resulting penalties. 3. Data Technology and intelligence 3.6 Why it pays to handle your shipping documents efficiently and diligently Page 156

157 One-stop shopping Damco, an international freight forwarder, consolidator and logistics specialist, offers such a solution though the mydamco portal. This web-based toolbox provides customers with integrated supplychain management services, offering them a complete overview of their supply chain activities, as well as access to the data they need to be able to place bookings, generate and manage documentation and extract reports. The document management function in mydamco addresses the complexity of global sourcing in multiple countries and of engaging with counterparts globally. It allows shipping documents, for instance, to be stored and shared electronically with suppliers, customers and brokers worldwide. Documents are easy to upload and access, thanks to the single interface that allows users to move seamlessly between receipt, display, validation and print functions, before finally forwarding the documents in an electronic pouch for customs clearance. In addition, users can deploy the track & trace tool to find, view, sort, save and extract shipping documents for any of their shipments. The people behind the service But mydamco is more than that. Our services and customizations are a direct result of us closely working with leading global companies over the past decades, which is why we can contractually commit to our customer s KPIs. Document information can be exchanged directly between our own systems and the users in-house systems, using electronic data interchange (EDI), for example. This will eliminate, or at least reduce, the risk of documents getting lost, arriving late or being incorrect, and with the resulting benefits. For some of our customers we even (manually or automatically) collect, validate, prepare and process all these documents, ensuring they are received, checked and forwarded to the correct parties and destinations on time and in the proper sequence Data Technology and intelligence 3.6 Why it pays to handle your shipping documents efficiently and diligently Page 157

158 3.7 HOW BENCHMARKING CAN LEAD TO BEST IN CLASS SUPPLY CHAINS By: Stephen Xie The search for logistics efficiencies, often measured in fractions of a per cent, is relentless. Almost any area of a supply chain could be improved, but what is both achievable and affordable? Benchmarking is a powerful tool to discover and analyse the potential for supply chain improvement. Benchmarking means comparing specific aspects of an organisation s performance with that achieved in a peer group. Sometimes this is external and public consumer groups benchmark retail goods. Financial analysts benchmark companies return on investment. Companies themselves often benchmark one business unit against another. Much of this sort of benchmarking uses freely available information. Sourcing the right data However, when it comes to benchmarking operational metrics such as supply chain performance, comparators are harder to find. The sort of detail required is not usually publicly available and indeed many companies may not collect the relevant data, or at least not on a consistent basis. For many supply chains, though, benchmarking can readily be achieved through the services of 3PLs and contract logistics providers. These firms necessarily collect a lot of the relevant data on their customers orders, shipments, and operations for their own purposes. They are gleaning this data from a wide range of customers who nonetheless, because they are using the same provider, are likely to share at least some operational characteristics and challenges. Not just another KPI A benchmark is not the same thing as a KPI (Key Performance Indicator). If a KPI for, say, OTIF (On Time In Full shipments) of 99% has been successfully achieved this may say something about the progress of the company itself, but it says nothing about whether that is world class, or dangerously weak performance. It needs to be compared both with direct competitors and with what is being 3. Data Technology and intelligence 3.7 How benchmarking can lead to best in class supply chains Page 158

159 achieved in supply chains more generally. Importantly, while anyone can pluck a KPI target out of thin air, targets established by benchmarking are already known to be achievable because someone else is already doing it! Benchmarking as a process Benchmarking should be part of a continuing feedback process, such as that offered by Damco s Supply Chain Healthcheck service. Starting from a high-level insight into the company s strategic priorities, we benchmark against our knowledge of other customers who are industry peers and bestin-class in the relevant sector. To do this we look at both operational and financial metrics (there is little virtue in emulating a company whose outstanding supply chain performance is losing them money). This process should produce recommendations, which can be simulated, costed, and, if appropriate, implemented. But in time the benchmarking needs to be repeated, both to establish the effectiveness of the changes and also to see whether the playing field (the competition s performance) has changed. A case in point The sorts of detailed issue that may be thrown up by appropriately targeted benchmarking are shown by work we did recently for a client. Questions arose concerning: the amount of light, or less than container load (LCL), traffic; the appropriate ratio of direct to customer shipments; the potential for consolidation in-country to use one port instead of two; whether the use of 20 foot containers rather than 40 foot was actually advantageous. The answers to these questions may appear obvious: but it is only by comparing with what other companies have done, and the success or failure that they have enjoyed, that truly informed strategic and tactical choices can be made. 3. Data Technology and intelligence 3.7 How benchmarking can lead to best in class supply chains Page 159

160 3.8 IMPROVED INBOUND PLANNING EFFICIENCY FOR A EUROPEAN RETAILER By: Rogier Kwikkers In the past year, one of our retail customers realised that their inbound process could be made much more efficient. Damco was asked to collaborate closely with the customer s team to map and analyse their current process. The goal was to identify, design and implement improvement areas which ultimately should lead to a more effective solution to the inbound planning process. Identification of key roadblocks As with most of our improvement projects, we started with an As Is study, which brought to light a number of sub-optimal areas. These related to the creation of purchase orders, discrepancy reporting, visibility on ETA changes, end-to-end visibility, and document flow throughout the whole process. Taken together, these factors led to a clear opportunity for improvement of inbound planning and execution. Structured project management Each of these factors were addressed separately without losing sight of the overall goal. The solution involved a structured project management approach that was divided into five key areas for improvement: Shipping Window Timetable & ETA Management The objective was to create a controllable supply chain and minimise disruptions through reliable and secure planning on ETA. Actions included differentiating between regular, seasonal and promotional orders; adjusting the shipping window timetable from longest to average transit time; creation of a separate process giving extra focus to large shipments; and updating changes to the LRD in the SAP system. These changes led to the most optimal lead times, flat capacity planning, a reduced workload for the retailer s team, reduced re-planning due to unrealistic shipping windows, no more last-minute prioritisation, and reduced demurrage and detention. 3. Data Technology and intelligence 3.8 Improved inbound planning efficiency for a european retailer Page 160

161 Simplification of inbound planning An on-site employee was given the task of taking over the inbound planning process. It resulted in improved communication, increased visibility, easier consolidation of week planning, early warnings of detention and demurrage charges, and a further reduction in workload for the retailer s employees. Document management It was essential to optimise and speed up the document flow from an in-house sourcing division to make sure that the right documents were landing at the right desk. Implementation of Document Management processes accelerated the clearance process, eliminated dossier creation, and enabled easy access, archiving and retrieval of documents. Advanced Shipping Notification (ASN) Plans were put in progress to create earlier visibility of shipped POs and ETAs by setting up two specific ASN messages: Packing List ASN, to be sent after cargo delivery; and Container ASN, to be sent after ETD. This will enable more efficient order delivery confirmation, automated upload of packing lists in SAP, ship departure confirmation, and simplification of inbound planning. Communications and exceptions Improvement areas identified include a reduction of traffic, easy reference to specific exceptions, and the ability to analyse exception trends, response performance and supplier performance. Implementation of mydamco Communication & Exceptions is planned to solve these issues. For each of these areas, part of the implementation was to guide and coach the employees in the new, changed processes. Ready for the next phase of improvements This structured project management and collaborative approach clearly shows that we were able to understand the retailer s supply chain and improve it with a specific tailor-made solution. We are delighted that the successful implementation of the solution improved inbound planning and was able to help the retailer address its efficiency improvement and cost reduction goals. We are now working on a number of longer-term improvement initiatives to increase overall efficiency still further. The Damco Advantage 3. Data Technology and intelligence 3.8 Improved inbound planning efficiency for a european retailer Page 161

162 This case study is an illustration of how we work with customers to optimise their supply chain through close cooperation. It clearly shows that logistics efficiency strengthens competitiveness, and that we can help you identify key areas of improvement, thus creating a more efficient and cost-effective logistics network. Our Supply Chain Development team has experts located in our regional offices around the world. Backed by extensive experience in supply chain and project management, we use proven methods and analytical tools to implement solutions that help you maximise the value of your supply chain. 3. Data Technology and intelligence 3.8 Improved inbound planning efficiency for a European retailer Page 162

163 3.9 PORT RATIONALISATION AND CONTAINER UTILISATION STUDIES BRING MAJOR SAVINGS IN LOGISTICS COST AND EFFICIENCY By: Stephen Xie Supply networks typically develop over time. Each new supplier or location may add new transport routes and ports of shipment to the network, which grows without any underlying logic. There may be sound reasons for using several ports in a region such as security against industrial action, or to maintain options in areas where infrastructure is undeveloped or unreliable, for instance. But often there is scope for considerable gains in cost and efficiency by analysing the network and concentrating traffic on one or a few ports. Advantages of port rationalization Concentrating on limited shipping ports can offer benefits both to the shipper and the logistics provider. The latter can achieve more efficient utilisation of assets, both physical and human. There are fewer different sets of procedures and partners, from stevedores to Customs officials, to manage and maintain a relationship with. What s more, larger scale may not only attract more favourable rates for shipping and services, but also increased influence that may be important at those times when port capacity is strained! One of the most compelling arguments for rationalising onto limited shipping ports, though, is the opportunity it affords for load consolidation. Often the effect of shipping from different suppliers through different ports is an excessive proportion of shipments in less efficient 20 foot containers, and indeed of less than container load (LCL) shipments. The ability to consolidate a customer s shipments from different suppliers into full 40 foot containerloads can yield very considerable savings. Where to consolidate The choice of port on which to rationalise operations depends on a number of factors. Obviously the port needs to have liner services to the required range of destinations. If time is of the essence, the 3. Data Technology and intelligence 3.9 Port rationalisation and container utilisation studies bring major savings in logistics cost and efficiency Page 163

164 need to use lines with fewer ports of call and faster transit times may be paramount, and confine choice to the largest ports. On the other hand the choice will also be affected by the characteristics of the inland transport from supplier to port, congestion issues, the availability of space in which to carry out consolidation activities, efficiency of port operations, and the relative costs of facilities and services. Often, the largest ports will be the most attractive, but this is not automatically the case. Realising real savings A recent example where an optimisation study has shown that concentration on limited shipping ports could yield very significant savings is that of a major UK-based retailer. This company sources most of its 40,000 products from China, shipping around 255,000 cubic metres a year through a number of Chinese ports. A benchmarking study showed that, compared to its peers, this company was using a high number of ports. Furthermore, a fifth of product was shipping in 20 foot containers, and 7.5% was LCL a level of container utilisation below comparable industry averages. By concentrating the traffic on a single port, in this case Shanghai, the study showed that it would be possible to introduce flexible CFS and CY programmes based on weekly volumes, increase the use of 40 foot rather than 20 foot containers, and significantly reduce LCL traffic as well as increasing shipping options. The estimated saving to the customer will be around $700,000 a year, or almost $3 per cubic metre. Optimisation pays Transport and shipping arrangements tend to develop as an accidental result of supply choices, but there is no reason why shippers should be locked in to historically high costs and inefficiencies. A considered look at asset utilisation and port rationalisation can often reveal scope for truly significant efficiencies and savings. 3. Data Technology and intelligence 3.9 Port rationalisation and container utilisation studies bring major savings in logistics cost and efficiency Page 164

165 4. LOGISTICS IN DEVELOPING REGIONS 4. Logistics in developing regions Page 165

166 4.1 CHANGING AFRICA S SUPPLY CHAIN NARRATIVE By: Ivan Thuynsma At the current rate of business growth, infrastructure remains behind the development curve, says Ivan Thuynsma, global head of mining for DAMCO, a global logistics provider. He adds that this is despite logistics infrastructure being well researched in Africa, which means that there are many opportunities that can be identified. Governments, academics and the private sector have clearly identified the importance of infrastructure in fuelling business growth. This is why it is important for governments to work together on infrastructure development and for relevant actions to be co-ordinated and implemented. However, Thuynsma points out that business on the continent is presented with challenges that prevent a smooth logistics operation. These include limited port terminals, port congestion and bureaucratic administration and custom processes. And differences in infrastructure and logistics performance, such as customs and trade facilitation; different countries growing population; civil unrest; corruption; and Africa s terrain, which varies widely from desert to rain forest, translate into real costs for supply chains, according to Deloitte s 2013 Africa gearing up report. The report points out that the global transportation and logistics industry can play a vital role in Africa s efforts to gear up building its infrastructure, enabling supply chains and distribution networks, providing mobility and, ultimately, helping create jobs for its people. For example, the report stated: Long dwell times of import containers are a major problem for most of Africa s ports. When ports work efficiently, containers only face two or three days delay between the time they re unloaded and when they exit the port. The sub-saharan Africa average is 14 days. In fact, Thuynsma adds that the total port traffic in Southern Africa will jump from 92m tonnes in 2009 to 500m tonnes by Logistics in developing regions 4.1 Changing africa s supply chain narrative Page 166

167 Current projects for additional container terminals will most likely only provide adequate container capacity until 2020; planning for further expansion and/or new ports should commence now. Meanwhile, he says that while the main focus for infrastructure has been roads, the railway lines have seen minimal improvement. While it is expected that transit traffic for landlocked SADC countries, which is mainly done by rail, will increase from 13m tonnes in 2009 to 50m tonnes by 2030 and 148m tonnes by 2040, at an average annual growth rate of 8.2%. But, Thuynsma says, while logistics and supported infrastructure planning and development are critical, it is also necessary to accept the reality that supply chains on the continent are complex [as aforementioned]. This is why he advocates for companies and other stakeholders to ensure that they are knowledgeable about supply chain logistics and management and understand the local logistics market conditions. It is necessary to re-assess one s supply chains continuously and engage with logistics partners. Thuynsma sees the necessity for improved collaboration between governments and the private sector. He strongly believes in public-private partnerships (PPPs) to enhance infrastructure development. Many African governments are challenged by not having the required funding to fuel infrastructure projects. It is necessary for all stakeholders to embrace the PPP concept and realise its real value in developing infrastructure on the continent. Africa has often been referred to as the last frontier, while a different narrative makes reference to an Africa rising, which Thuynsma strongly believes should be the narrative for infrastructure. The mismatch offers the opportunity for companies to enter in to an exciting market with tremendous growth potential. It is my strong belief that Africa will rise to the challenge. 4. Logistics in developing regions 4.1 Changing africa s supply chain narrative Page 167

168 This article by Brindaveni Naidoo was originally published in the October 2015 issue of Infrastructure Business Times, South Africa. 4. Logistics in developing regions 4.1 Changing Africa s supply chain narrative Page 168

169 4.2 SERVING LANDLOCKED COUNTRIES AND DEVELOPING TRADE IN WEST AFRICA By: Babafemi Aderounmu According to the United Nations, Landlocked Developing Countries (LLDCs) are nations that typically lack territorial access to the sea and are characterized by their remoteness, isolation from world markets, high transportation costs and slow socio-economic development. Drilling down, the key landlocked countries in West Africa would be Niger, Central Africa Republic, Burkina Faso, Mali and Chad. For trade partners and investors across the globe, facilitating trade with such countries typically presents a different proposition compared to nations with ports of their own as they offer very limited access and high cost implications in clearing/transporting imported goods or commodities bound for export. Irrespective of the evident challenges and high costs, there is still an imperative need to move raw materials, finished products and aid and relief materials in and out of these geographically challenged nations. Damco s extensive network across West Africa With a well-established presence across Nigeria, Cameroon, Benin and Togo, Damco offers a readymade and efficient solution to access the landlocked countries in West Africa. We have a substantial number of staff on the ground in the region (nearly 200 people across the board) and technical expertise to support movement of goods in and out of landlocked territories. Damco has built up a good reputation over the years as a dependable and trusted logistics solution provider, leveraging the capabilities of its presence in transit countries like Nigeria, Cameroon, Benin, Togo and Senegal to effectively cater for the needs of these isolated countries. Through our Nigerian office, we have successfully executed road haulage and customs clearance formalities for clients to Burkina Faso and Niger, while achieving record transit times and providing full 4. Logistics in developing regions 4.2 Serving landlocked countries and developing trade in west africa Page 169

170 visibility to customers throughout the end to end supply chain cycle. The same can be said of our Benin and Togo offices, which serve as gateways in and out of Niger. Our Cameroon office handles shipments in and out of Chad and the Central African Republic, while our Senegal office continues to handle movement of goods along the Mali corridor. One of the in-demand services associated with landlocked territories which we equally offer is the Through Bill of Lading (TBL) solution, usually agreed between consenting 3PL providers and ocean carriers in a bit to guarantee a seamless and successful movement of goods across landlocked borders. To complement our TBL capabilities, extensive warehousing and warehousing management services are also available to customers who wish to temporarily store their goods in our transit hubs while we haul to final destinations. Customers can also turn to Damco for tailor-made end-to-end solutions, benefitting from our presence in over 100+ locations across the globe. 4. Logistics in developing regions 4.3 In west africa, dependable airfreight forwarders are hard to find Page 170

171 4.3 IN WEST AFRICA, DEPENDABLE AIRFREIGHT FORWARDERS ARE HARD TO FIND By: Frank Eshun In emerging economies, air transportation can provide a powerful stimulus for growth in trade volumes and investments, since it opens up new markets and provides reliable connections. Airfreight traffic in West Africa is growing faster than the global average, reflecting the region s economic development, but the availability of reliable airfreight forwarders is lagging behind. Doing business with sub-standard service providers can be risky and may turn out to be a costly mistake. Essential for success Over recent years, trade volumes between sub-saharan Africa and other regions of the world have been growing steadily. Imports include electronics, electrical equipment, automotive spare parts, mining equipment, fast-moving consumer goods and pharmaceuticals. Exports on the other hand mainly consist of perishable goods such as fresh and frozen fruit, vegetables, meat, seafood and plants. For shipping these goods, traders rely on airfreight forwarders: companies that act as a link between them and the airlines or carriers that transport the cargo to its destination. The airfreight forwarder plays a pivotal role in the chain of transportation but not all parties claiming that position actually have what it takes to be successful in an international environment. What to look for? In West Africa, most of the companies offering their services as airfreight forwarders are relatively small and are used to doing business on a local or at best regional scale. They may fall short on one or more of the dimensions that are essential for successful international trade. Compliance and transparency Small local actors are usually not up to speed with the many rules and regulations governing international trade. Failure to comply can result in fines and penalties for importers and exporters. It is 4. Logistics in developing regions 4.3 In west africa, dependable airfreight forwarders are hard to find Page 171

172 not uncommon for local freight forwarders to engage in bribery in order to facilitate processing of the cargo and evade tariffs. While this may be accepted in the region, it can be disastrous for First World brands. Technical skills and know-how Perishable goods and many other categories of cargo demand specialised technical skills to handle them according to the customers requirements. Most freight forwarders in Africa do not have the experienced professionals needed to meet these standards. IT infrastructure Today s shippers require online, real-time access to all relevant data about the location and status of their shipments. This is a service that many African logistics suppliers cannot provide, because they don t have the required platforms and IT skills. International connections Most of the forwarders in the West African area are local companies that don t have an established relationship with international carriers which is a prerequisite for being flexible and providing tailored solutions, for example by securing space for their clients. The alternative: an international logistics partner Without a doubt, things will change over the next decade or so as the West African airfreight providers outgrow their local roots and adapt to international standards. Until that happens, traders who want to be successful internationally may opt to benefit from the services of international logistics service providers with a proven track record. Among those companies, Damco is particularly well positioned to serve the West African market. It has its own offices in Burkina Faso, Ghana, Mali, Mauritania and Senegal and also operates in Ivory Coast and Morocco. Many companies in the region rely on Damco as their main logistics provider. Our local presence is backed by a powerful international organisation with offices in more than 100 countries and contracts with all major airlines, allowing us to achieve economies of scale on all 4. Logistics in developing regions 4.3 In west africa, dependable airfreight forwarders are hard to find Page 172

173 major trade lanes. One example is our cooperation with Air France/KLM Cargo on the connection between Senegal and China, France and the United Arab Emirates. 4. Logistics in developing regions 4.4 Surviving in the new nigerian commercial landscape Page 173

174 4.4 SURVIVING IN THE NEW NIGERIAN COMMERCIAL LANDSCAPE By: Babafemi Aderounmu The outgone year has been a significant one for Nigeria on the political front, as the country ushered in a new president; first of its kind from an opposition party since the democratic dispensation that kicked off in While the new president ran on the precedence of change and tackling corruption, other significant events have helped shape the present socio-economic outlook of the country. One of such events is the global drop in oil prices and its subsequent effect on the labour market. To add further salt to injury, the Naira has depreciated immensely against the dollar and other foreign currencies hence the restriction on Forex transactions for selected commodities and other measures introduced by the Central Bank of Nigeria with the hope of stabilizing the Naira. Since the slash in oil prices, most companies have been on a cost-cutting mission and in process, redundant human resources have been let go in and around the oil and Gas sector. As the bulk of Nigerian income comes from crude oil sales, there has never been a better time to look more closely at the diversification of the Nigerian economy. For an economy that runs predominantly on oil, more jobs have been lost over the past few months, as companies have tried to compensate for the increase in cost of production and reduction in their bottom line. The cash crunch has even extended to the government cadre, as state governments have not been able to generate enough cash to pay their workers. Hence, the bailout fund approved by the Federal Government to cover up for the income deficit experienced by most of the state governments in Nigeria. It s fair to say that both the public and private sector have been affected by the current shake up in Nigeria. Looking ahead, the commercial landscape in Nigeria can only get more competitive and it has become imperative for companies to seek a more strategic and focused approach if they are to excel and meet their respective targets. 4. Logistics in developing regions 4.4 Surviving in the new nigerian commercial landscape Page 174

175 How ambitious and resilient organizations can maintain or grow their Nigerian Market share 1. Drive Proactive Sales: Every customer facing employee of your organization must endeavor to make regular visits to the customer. With a lot of service/product providers fighting for the same target customer as you, it has become imperative to build concrete relationship with the customer. Not only that, considering every potential customer you meet is looking to cut cost, it is only wise to explore strategic partnership opportunities and offer solutions with huge cost saving benefits for the customer. 2. Drive compliance and anti-corruption: Considering the new anti-corruption agenda that is been championed by the new Nigerian President and the potential consequence for defaulters, it is advisable for companies to drive anti-corruption and compliance in all their business dealings. Doing business the right way is the only way to go in Nigeria, and it is cheering to see that the Maersk Group and the respective business units (Maersk Line, Safmarine, APMT and Damco) functioning within Nigeria make conscious effort to drive compliance and anti-corruption at all times. 3. Drive Price Parity/Relativity: Businesses that will survive are those that can offer a better price than the competition at even better or relative product/service levels. It would also be a solid approach to segment your customers and apply a different pricing scale for different categories depending on volume and other relevant indicators. 4. Drive value: Many times, we tend to think that the biggest influencer in the selling process is price, but rather it is the value being added that 99% sways the heart of the customer. The bitterness of poor quality remains long after the sweetness of low price is forgotten Benjamin Franklin. The businesses that would withstand the test of time in Nigeria are the ones that seek to strategically tackle the pain point of their customers by offering services/solution that bring genuine value to the table. At Damco Nigeria, we have kicked off the New Year firing on all four cylinders while maintaining our long standing appetite for success and customer-centered approach to business. We are always looking to partner new businesses and add value to our customers. 4. Logistics in developing regions 4.4 Surviving in the new nigerian commercial landscape Page 175

176 4.5 INBOUND LOGISTICS FOR THE DUTCH MINING INDUSTRY: CIRCUMVENTING THE CHALLENGES By: Ivan Thuynsma Mining operations in Africa, like anywhere else, depend on a steady supply of equipment, spare parts, and other items from suppliers across the globe. But due to the characteristics of the continent s infrastructure, plus the fact that mines tend to be located in remote rural areas, creative thinking is often required to deliver inbound cargo to African mines in a reliable way. Damco always finds a solution that works, using the facilities that are available in the best possible way. A challenging continent for logistics Mining-2To create solutions for the logistical demands of companies in Africa, understanding the unique situation of the continent is essential. A common mistake is to assume that Africa is like Europe, with the African Union as a parallel to the European Union. But while the borders between European countries are open and most countries share one currency, Africa still has national borders, outdated customs regimes and procedures, and only the beginning of international cooperation on the issue of connecting national infrastructures. Customs procedures are laborious, consuming considerable time and resources. Their unpredictable nature may create demurrages in port and makes planning complicated. And a little obstruction can have major consequences: for example, a parcel that misses a vessel to a West African port may have to wait two weeks, if not a full month, for the next sailing. Then, when the cargo arrives late, the transporter may have accepted some other business so that the expected truck is not there. The challenges that logistics providers in Africa deal with on a daily basis are very different from those in other parts of the world. Developing a reliable and well-dimensioned infrastructure (roads, railways and ports) is the task of governments and intergovernmental organisations. Freight forwarders can only make themselves heard and advise about what possibilities they see. Damco actively participates in this discussion, with the support of several other companies of Maersk Group. Door-to-door service to any African mining site 4. Logistics in developing regions 4.5 Inbound logistics for the African mining industry: circumventing the challenges Page 176

177 Infrastructure development obviously is a perspective for the long haul. In the meantime, Damco delivers solutions that circumvent today s challenges. Our dense network of fully-owned local offices (50 offices in 33 African countries, and 300 worldwide) enables us to offer door-to-door service from any location in the world to any mining site in Africa. This may involve transport of full container loads, but also consolidating smaller parcels from suppliers in a particular country into full containers, so that the customer benefits from the resulting efficiency and economies of scale. One good example is a mining company with two sites in Burkina Faso to which we deliver cargo from Europe, the USA, Australia, China and South Africa on a door-to-door basis. But Damco also manages to provide services in difficult and politically unstable places like Niger, where we serve a number of uranium mines by consolidating the cargo in Europe, shipping it by ocean to Benin, and then trucking it to the location in the north of Niger where the mines happen to be. Innovative, individual supply chain solutions The key to success with logistics in Africa is a willingness to look at any situation with fresh eyes. The challenges that we encounter are a given. The best question to ask is: How can we use what is available and provide a solution that may not be perfect to global standards, but that does improve the supply chain efficiency of our customer to some degree? As we prove daily to our customers, there is a way to deliver any cargo to even the remotest mining locations. For more information about Damco s activities in mining, please check our webpage on Damco.com Logistics in developing regions 4.5 Inbound logistics for the African mining industry: circumventing the challenges Page 177

178 4.6 CURRENCY DEAL SHOULD INCREASE WEST AFRICAN TRADE AND LOGISTICS WITH CHINA By: Babafemi Aderounmu The dynamics of international trade has gained a new dimension with the recently agreed currency deal between Nigeria and China. In a quest to internationalize the Yuan, the Chinese currency, (also known as Renminbi) and fully optimize China s interactions with her trade partners, Nigeria will become the West African hub for trading in Yuan. The implication of this is that trade can now be facilitated between both countries in Yuan, in addition to the default USD. An alternative to Dollar denomination It s no news that the US dollar remains the most common currency for foreign trade transactions. For a solely or predominantly oil export driven economy like Nigeria, the drop in oil prices and sustained import culture has created a strain on the national Foreign Exchange (FX) reserve. In essence, the new currency deal will alleviate the excessive demand for USD and further facilitate trade relations with China. For China, the internationalization of the Chinese Yuan is a timely response to the long-time call from trading partners across the globe to make the currency easily accessible and exchangeable. West Africa may attract major Chinese investment The various policies of the Nigerian government to cut demand for FX and minimize the foreign reserve deficit have been relatively effective so far, with the new currency deal potentially a further step in the right direction. However, other concrete policies will need to be put in place to strengthen local production and promote exports. While the new agreement is bound to facilitate trade, there are early concerns that it might promote even more imports. But then again, if imports are geared towards machinery/production lines and not solely finished products, this might yet be another positive move for the Nigerian economy. 4. Logistics in developing regions 4.6 Currency deal should increase West African trade and logistics with China Page 178

179 Another silver lining in the offing is that the new arrangement makes Nigeria an easier proposition and prospect for Chinese establishments looking to invest and should encourage huge foreign direct investments on the long run. With Nigeria and South Africa elected as West and South African hub respectively for the Yuan, one can also expect a surge in Chinese investments across the continent generally. Growing trade lane will boost logistics activity With the new deal and subsequent expected boom in trade relations between China and Nigeria, and Africa in general, there are increasing expectations for the China Africa trade lane to grow even bigger. This will provide significant opportunities for a global logistics service provider like Damco, with the experience and technical and professional capacity to successfully handle the trade volumes to come. With a wide presence and coverage across China and West Africa, Damco offers an interesting proposition for businesses looking for a competitively priced and efficient end-end logistics solutions provider. The new development equally presents positive opportunities for Maersk Line and Safmarine, the flagship shipping companies within the AP Moller Maersk Group as a surge in shipping demand is also expected. 4. Logistics in developing regions 4.6 Currency deal should increase West African trade and logistics with China Page 179

180 4.7 CHINESE COMPANIES IN CENTRAL AFRICA OVERCOME LOGISTICS CHALLENGES By: Greg Guan Over the last several years, Chinese companies have been increasingly active in Central Africa, mostly in the context of large-scale infrastructural projects for the emerging economies in the region. Linguistic and cultural differences frequently make it difficult for these companies to communicate efficiently with their local partners. To solve this problem for our Chinese customers, Damco has added several staff members with local backgrounds to its Africa team. With their support, Chinese project leaders in Africa are now finding it easier to overcome logistics challenges. Fast growth area Our services for Chinese customers in Central Africa began with the receipt of cargoes from China for a major project on behalf of a leading petroleum company from China, in Niger. This was completed in The port of Douala, Cotonou, Lomé and Lagos, serves as the point of entry for projects in the surrounding francophone countries of Chad, Niger, Benin, Togo, Congo, The Central African Republic, and English speaking country of Nigeria. A Chinese Damco team in Douala has been dedicated to developing and expanding business with Chinese customers throughout the area. 4. Logistics in developing regions 4.7 Chinese companies in Central Africa overcome logistics challenges Page 180

181 Leading Chinese multinationals in areas such as technology and energy are engaged in major projects in a number of these African countries, involving imports from China, India, UAE and Europe. The projects range from massive hydroelectric plant construction, to oil & gas exploration and refineries; from civil engineering for local infrastructural development, to large-scale installations for mobile operations. We handled customs clearance, warehousing and the transportation of imported materials and equipment by road and rail from sea port to the work sites. Collaboration based on expectations The key to our rapidly increasing success with Chinese customers in this area is our focus on sustained and reliable customer service, and our excellent operations facilities. We understand that a change of logistics providers is an important step for customers facing perceived risks through difficulties with communication, corruption, and reliability, and we take the time to allow a relationship of trust to develop. The expanding volume of business with existing Chinese customers shows that our China Team in Africa enables us to offer a package of services that is helpful for the day-to-day business of our clients. The language barrier is removed, and our longer-term presence in Africa enables us to offer experience in local laws and regulations. 4. Logistics in developing regions 4.7 Chinese companies in Central Africa overcome logistics challenges Page 181

182 4.8 GETTING YOUR IMPORTS OVER CRITICAL CUSTOMS, INSPECTION AND QUARANTINE HURDLES IN CHINA By: Jose Perez Martorell China is currently the most promising consumer market in the world. However, this country s unwieldy customs and China Commodity Inspection and Quarantine (CIQ) procedures can cause lengthy delays and thus deter many companies from doing business there. What companies really need is a consulting partner like Damco to facilitate their shipments through customs and the CIQ process. This makes good business sense. After all, whatever is not on the shelves will not be sold, as the saying goes. Customs and CIQ bottlenecks can hold up imports CIQ procedures apply to a variety of goods, including apparel and other items requiring a Mandatory CCC (China Compulsory Certification). Most apparel articles (but not footwear, currently) are subject to CIQ control and possible inspection. Unfortunately, customs and CIQ procedures can block shipments entering China for weeks awaiting inspection. And even after going through customs, some of the imported goods could be sampled (spot checked) for CIQ compliance. As a consequence, many shipments are delayed, totally or partially destroyed, or even repatriated. And that is not all. CIQ is clearly a non-tariff trade barrier and China deploys a very peculiar model in which customs authorities compete with each other. Thankfully, there are several ways to speed up customs and CIQ controls and inspection times. An importer can, for instance, send samples to the CIQ authority for compliance pre-testing before the goods are actually imported. Furthermore, an importer can submit such a test report to the local CIQ authority when dealing with a CIQ declaration, or a customs broker can submit the original test report to the CIQ authority to verify compliance. Even more useful is an A Certification assigned to specific goods or companies (employing importers, forwarders or customs brokers), which subsequently enjoy faster clearance lead-times and are subject to fewer controls and spot-checks. 4. Logistics in developing regions 4.8 Getting your imports over critical customs, inspection and quarantine hurdles in China Page 182

183 All of this underscores the need for importers to seek expert advice and specialist (local) knowledge in order to identify possible bottlenecks and risks, and to then find ways around them. Gateway to the Chinese fashion and lifestyle markets In addition to its years of experience in supply chain management, a good track record in legal and regulatory compliance and close collaboration with knowledgeable local partners, Damco can add value in several other ways. Its large presence in China (over 3000 employees and some 30 offices) and many years operating there means it has deep knowledge and understanding of the Chinese culture and business environment. Crucially, Damco is well established at three main ports of entry, Beijing, Shanghai and Shenzhen, where it can provide compliance and procedural expertise thanks to experienced local partners, In fact, using the right partners, Damco can extend this type of support to other ports of entry. Damco also offers such value-added services as delivery and distribution, together with advice on local policy and labelling standards. What is more, its services and support can be tailored to specific customer and industry requirements. Take, for instance, the specially adapted customs and CIQ services Damco has been offering its fashion and lifestyle customers for the last three years. Guanxi makes all the difference when doing business An established leader in services to the retail, fashion and lifestyle sectors, Damco has dramatically shortened customs lead-time and reduced CIQ sampling ratio in these business areas. This of course is extremely important to fast-moving industries where time to market is critical. There are other success stories. In Beijing and North China, where it holds the best inspection ratio and the lowest CIQ fail figures, Damco also achieved the fastest lead time in both customs brokerage and CIQ procedures: a ten-hour customs clearance and a 5-6 day lead time to complete a CIQ procedure referred to as CIQ2. In Shanghai, where Damco recently closed a deal with the top CIQ specialist and subcontractor, it is currently achieving very low (and even zero) inspection ratios. And in Shenzhen, it became the main supplier to a major customer in only eight months. Working closely with its local partner, Fuwei, Damco achieved a 24-hour customs clearance lead time. 4. Logistics in developing regions 4.8 Getting your imports over critical customs, inspection and quarantine hurdles in China Page 183

184 Now, one of Damco s most important assets is guanxi (which means deep trust in Chinese), an essential ingredient in a business relationship. Damco earned this distinction over the years through its loyalty to and long-standing relationships with local players, including customs and CIQ authorities, gaining their trust by achieving an excellent track record and an absolutely clean sheet with regards to legal compliance and adherence to the established procedures. And what is more, guanxi is what makes the difference when doing business in China, more than anything else. 4.8 Getting your imports over critical customs, inspection and quarantine hurdles in China Page 184

185 4.9 AIR-FREIGHTING CRITICAL OIL & GAS EQUIPMENT FROM CHINA TO VENEZUELA By: Rachel Chen Latin American nations, including Venezuela, are continuously upgrading their oilfield equipment and infrastructure to increase oil output and optimize the energy sector. However, the logistics difficulties involved in importing these state-of-the-art equipment s from leading suppliers on the other side of the globe can be daunting. For competitive oil industry companies engaged in petroleum extraction, finding the right logistics partner is critical to success. Far East supplier builds strong brand image in South America A fast-growing developer of engineering solutions is currently expanding their footprint in South America; Venezuela is their biggest market in the region. By 2014, they had sold 45 drilling rigs to Venezuelan clients for oil and natural gas extraction. This supplier is one of the few Chinese firms able to operate in Latin American market even after the logistics difficulties involved in getting massive oilfield equipment to Venezuela from far away China. Winning business in Venezuela With a fast-growing reputation for supplying petroleum equipment, EPC turnkey projects and oilfield services in South America, the client was a natural choice for a major oil and natural gas company when it came to bringing oil and gas technology into Venezuela. But building a successful brand image in emerging markets like Venezuela poses tough logistics challenges. For example, how do you ensure timely and economic delivery of spare parts when you only have a limited number of after-sales facilities? With our experience and skills in the Oil & Gas sector, we were able to help this customer successfully secure new business from oil producers, even where others were failing because of the logistics concerns. 4. Logistics in developing regions 4.9 Air-freighting critical oil & gas equipment from china to venezuela Page 185

186 A growing partnership Our business as 3PL supplier for this customer, which started in 2013, actually doubled in 2014, when we shipped a total of 350 sea containers and 600 tons of airfreight. This included five charter flight shipments for the rapidly expanding company. In 2014, they approached us to arrange the air-freighting of an additional three large consignments of technological petroleum equipment from China to Venezuela. At the core of this was strong collaboration between the various teams and customer, ensuring we were able to deliver the air cargo to the nominated warehouse already one week before the ETD, knowing that everything would run smoothly. Timely deliveries within budget! The final charter in the recent series of three for this Chinese supplier comprised a shipment of 82 tons in February 2015 that was carried by a B The cargo travelled from Xinzheng Airport (CGO) in Zhengzhou, Henan province, China to La Chinita International Airport (MAR) in Maracaibo, Venezuela. Our team s extensive preparations ensured good cost control throughout, resulting in the air-freighted equipment arriving ahead of schedule and within budget greatly pleasing the client! They also expressed their appreciation of Damco s skilful on-site handling, which ensured consistently seamless operations. 4. Logistics in developing regions 4.9 Air-freighting critical oil & gas equipment from china to venezuela Page 186

187 4.10 PREPARING FOR VIETNAM S ANTICIPATED ECONOMIC GROWTH By: Marco Civardi These are exciting times for Vietnam, with the creation of the ASEAN Economic Community and the signing of new trade agreements. Damco is taking the necessary steps to help our customers make the most of the forthcoming economic opportunities, support their sustainable growth and optimize their logistics costs. What s happening in Vietnam? In 2016 and the coming years, three 3-letter acronyms are going to have a major impact on Vietnam and its neighbouring countries. The establishment of the ASEAN Economic Community (AEC) in 2015 is a major milestone in the regional economic integration agenda. It forms the third largest economy in Asia and the seventh largest in the world, offering a huge market of US$ 2.6 trillion and over 622 million people. The Trans-Pacific Partnership (TPP) is one of the most ambitious free trade agreements ever signed. It involves 12 countries: the US, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru. The pact aims to deepen economic ties, slash tariffs, foster trade to boost growth, and streamline economic policies and regulation between the countries. The European Union and Vietnam have signed the final document reinforcing an expansive Free Trade Agreement (FTA) that erases more than 99% of tariffs on goods traded between the two economies over a period of up to seven years. What are the implications for Vietnam? The creation of the AEC, and the signing of the TPP and FTA, will expand access to key global markets and foster economic growth for the nations involved. Vietnam, whose low-wage economy relies on chiefly on exports such as mobile phones, footwear, textiles and agricultural products, is likely to be one of the biggest winners. Over the coming decade, the country s GDP could be boosted by 11%, and exports could increase by 28%. 4. Logistics in developing regions 4.10 Preparing for vietnam s anticipated economic growth Page 187

188 How is Damco Vietnam supporting its customers? We have expanded our warehouse capacity in Vietnam to 73,000 square metres. Most recently this has involved an extension of our Southern Vietnam Logistics Centre in Binh Duong Province and this C-TPAT certified warehouse comprises over 37,000 square metres and 141 loading bays, and incorporates state-of-the-art technologies such as a High Jump CFS management system, RF scanning, a sprinkler system and a digital CCTV system. It also includes a quality control room and an on-site customs office. Not only are we growing our warehousing footprint but we are also able to provide high flexibility to our clients by enabling them to perform value-added activities such as metal detection and CNI (Certificate of No Impediment) checking within our facilities. In view of the increasingly strong sourcing growth in North Vietnam, our bonded license capability in Haiphong is perfectly suited to support our clientele s growth ambitions as our warehousing footprint in Haiphong was also increased from 8,000 square meters to 11,500 square meters last year. Damco is one of the few chosen international 3PLs who has an own managed warehouse at HCM Airport whereby our customer s shipments are palletized by our staff and supervised until being physically loaded into a plane. Our set-up allows customers to benefit from our end to end process control resulting in better transparency and lower pilferages ratio. In addition, our people s mind-set is to seek continuous improvement to optimize our customer s logistics expenditure. How will our customers benefit? All these expansions and improvements in Damco s logistics infrastructure in Vietnam will enable Damco to support the country s projected strong economic growth in the years ahead. They will help our customers take advantage of the opportunities resulting from the creation of the AEC, the forthcoming TPP agreement, and the FTA between Vietnam and the European Union. The upgraded logistics centres in North and South Vietnam not only enable our customers supply chains to become more lean and effective but also ensure that environmental emissions can be reduced due to the locations proximity to the ports of Haiphong and Ho Chi Minh. 4. Logistics in developing regions 4.10 Preparing for vietnam s anticipated economic growth Page 188

189 4.11 HOW TO BENEFIT FROM INDIA S RETAIL POTENTIAL By: Amita Maheshwari Defining the right entry and logistics strategies for a vibrant growth market Management Summary India s economic growth over the past several years, together with the excellent outlook for the next three to five years, makes it an attractive destination for foreign investments. The economic numbers are exceptional: there is no other economy of USD 2 trillion with an expected growth rate of 7.8%. The demographic facts are equally impressive: a youth literacy rate of 90%, a very young population, relatively high consumer confidence and an increasing participation of women in economic activities. The situation in India is particularly favourable for the retail sector. Increasing personal disposable incomes, urbanisation, rising aspirations, the growing number of working women and the population s rapid digitisation each of these developments fuels the demand for basic necessities as well as luxury items. Retailers find a supportive environment with an easing of regulations, emerging markets in Tier 2 and 3 cities, and increasing investments in infrastructure. It is no wonder, then, that many global retail brands have already attempted to create an entry in the Indian market or are considering doing so. Research indicates that footwear, apparel, and home furnishings are the categories with the largest opportunities, and that certain cities or regions will see significantly more growth than others. When developing an entry strategy, a foreign company should be fully up to speed with all applicable national and state laws and be aware that the differences between one state and another may be significant. It is crucial to select the right mode of entry: the available options (wholly owned subsidiaries, joint ventures, brand licensing agreements and franchises) all have their own advantages and disadvantages. 4. Logistics in developing regions 4.11 How to benefit from india s retail potential Page 189

190 Besides the regulatory framework and limitations in available retail space and skilled manpower, retailers entering India will inevitably be faced with a number of challenges to their supply chain and logistics. The transportation network and warehousing facilities do not yet operate at a world-class level and disruptions must be considered a fact of life. There is no integration of domestic and international sourcing, and supply chain visibility is still limited. For a rapid and successful entry it can be very helpful to team up with an experienced and well equipped logistics partner who has the required knowledge about local circumstances and procedures. The way Damco set up an end-to-end supply chain for a North American apparel and footwear brand can serve as an example of the benefits of this approach. Say India, Say Growth India is rapidly qualifying as a premier destination for foreign investors. The single keyword for its increasing attractive force: growth. The facts speak for themselves. Economic indicators in the green India, an economy of USD 2 trillion, currently is the world s ninth largest economy by GDP and, with over 1.3 billion souls, the second largest by population. The country is a federal union of states, comprising 29 states and seven union territories. 4. Logistics in developing regions 4.11 How to benefit from india s retail potential Page 190

191 New Delhi London to Nice LA to Portland 1,400 KM / 870 Miles Ahmedabad 2,000 KM / 1,200 Miles Kolkata Frankfurt to Madrid Boston to Miami Mumbai 1,300 KM / 800 Miles Hyderabad Munich to Barcelona Chicago to Dallas Bangalore Chennai Capital Financial Capital Other Major Cities Figure 1: With a surface area of more than 3.25 million km2 India is the seventh-largest country of the world. While the other BRIC nations are dealing with issues like recession, steep inflation, economic sanctions or rising labour and manufacturing costs, India still displays a growth rate of 7.8%. In January of 2016, the World Bank expected that India will be the fastest growing economy in the world over the timeframe , outpacing China. In this projection, the growth figure for the world economy was 2.9%. This favourable outlook for India is supported by strong investor sentiment and the positive effect on real incomes of the recent fall in oil prices. 4. Logistics in developing regions 4.11 How to benefit from india s retail potential Page 191

192 9 Real GDP CAGR ( ) % Brazil Thailand Russia Chile Argentina India China Malaysia Indonesia 1 Mexico Real GDP CAGR ( )% Figure 2: The Indian economy has been growing fast and is expected to display the world s strongest growth in GDP over the timeframe (source: World Bank). Data about investments reflect the positive sentiments of investors. In 2015, India emerged as the most favoured destination for foreign direct investments (FDI), even before China and the US. The total FDI inflow increased by 24.5% from 2014 to 2015, to a level of USD 44.9 billion. The increase was primarily driven by investments in the infrastructure and services sectors. 34 An attractive demography The potential for investment in a country is determined by more than economic lead indicators. It is also dependent on internal factors such as inflation, purchasing power, literacy levels, employability and so on. 4. Logistics in developing regions 4.11 How to benefit from india s retail potential Page 192

193 The total literacy rate in India is currently 74%, but the youth literacy rate is as high as 90%. By 2020, India will be the home of 12% of the world s graduates - fewer than China, but more than the US. The fact that more than 65% of India s population is below 35 years of age implies that the country s working age population is larger than the dependent part a situation that pays off as a demographic dividend for the economy. It is estimated that the average age in India will be 29 by India s consumer confidence continued to be higher in 2015 than that of many of its peers such as Indonesia, China, Brazil and Thailand. This means that there is a high propensity to buy desired items immediately, rather than postponing their purchase 36. A recent study by the McKinsey Global Institute suggests that if India continues to grow at its current pace, the country will be the world s fifth largest consumer economy by 2025, largely due to the increase in household incomes 37. India is also seeing a big cultural shift in terms of the participation of women in mainstream business, whether corporate or entrepreneurial. More Indian women are living independently, earning for themselves, and travelling the world today than ever before. They control 44% of household spending in India and their digital connectivity is on the rise: while in 2013, 25% of Internet users were female, in 2018 women will represent a third of all Internet users. Human enablers for retail growth While the demographics outlined so far are favourable for economic growth in general, they are particularly beneficial to the retail sector. After all, if there is one industry that is particularly sensitive to changes in human behaviour, it is retail. And right now, the behaviour seems to be just right in India. Personal disposable incomes are expected to rise at a CAGR of 17% by 2018, leading to a substantial change in spending habits. Urbanisation allows consumers to move closer to the centres of economic activity. Towns are growing into large cities and it is estimated that 40% of the total population will live in urban environments by Aspirations rise as a middle class of 75 million households or 300 million individuals develops. A decrease in household size reduces the dependency on one wage earner, fuelling a desire for Logistics in developing regions 4.11 How to benefit from india s retail potential Page 193

194 the best in basic necessities as well as more luxury items. Access to information drives independence and retail demand. Spending on luxury products is no longer exclusive to the upper class and a good number of luxury brands, though treading cautiously, are increasing their presence in India. The increasing number of working women is a driver for growth in many retail categories, such as apparel, footwear and jewellery. Last but not least, India s rapid digitisation is powerfully reshaping customer behavior and expectations. 40% of the population, as many as 550 million people, will be connected to the internet by By 2020, 700 million people will be connected via smartphones. Digitisation strongly supports initiatives for omni-channel retailing: the e-commerce market is estimated to be worth about USD 37 billion in Support for retail growth - the supply side The rise in consumer demand will translate into higher sales, provided retailers are sufficiently enabled to supply the desired merchandise. There are a number of factors at play here, and all of them are developing favourably. While real estate costs and rentals in large cities are skyrocketing, new developments are in progress. Retail still attracts 29% of all investments in real estate. Shopping complexes and mid- to large-sized malls are rapidly expanding across all tiers of cities. A study by Knight Frank 39 points out that the top seven cities will require an additional retail space of 400,000 m2 per year for the next five years Indian retail sector over-view, KPMG, Think India. Think retail. A definitive view on India s retail market, Knight Frank India, Logistics in developing regions 4.11 How to benefit from india s retail potential Page 194

195 Another study by AT Kearney indicates that retail in India is at a stage where consumers are exposed to global brands and start preferring organised formats department stores or concentrations of specialist stores rather than general markets or bazaars. While a high premium is attached to the coveted mall spaces in metropolitan areas, the supply is reasonable in the growing number of Tier 2 and 3 cities. The regulatory environment is improving as the government eases the requirements for establishing new businesses and pivotal changes in policy are being considered. An essential improvement is the recent change in FDI policy for retail, which further opens up the country to foreign brands. Another major step ahead is the countrywide application of one uniform tax rate, the Goods and Service Tax (GST), which will result in immense lead time reductions and cost efficiencies for retail supply chains. The emerging Tier 2 and 3 cities such as Kochi, Jaipur, Indore, Ludhiana, Udaipur and Nagpur are developing as retail hubs, adding to the overall retail growth that includes the top Tier 1 cities. The infrastructure is a focus area for government and private investments, developing connectivity within the country and with international trade routes. Entering India In summary, there is a powerful value proposition based on demand as well as supply factors. In our conversations with industry leaders, three questions emerged that are essential for a retailer wanting to explore a new market: 1. Which are the fastest growing geographies and categories? 2. What is the best mode of entry in this particular country? 3. What are the key challenges and risks to mitigate? We ll take a closer look at each of these questions 4. Logistics in developing regions 4.11 How to benefit from india s retail potential Page 195

196 Where to expect growth? The Indian retail sector as a whole is estimated to grow to USD 1.2 trillion by 2020, almost doubling its 2015 volume of USD 630 billion. However, less than 10% of this is organized retail, compared to 20% in China and 40% in Thailand. Organised retail, totalling USD 60 billion in 2015, will be worth between USD 140 and 160 billion in 2020, while e-tailing will grow from USD 12 billion to USD 50 billion 40 Market break-up Figures in $ billion (est) Total retail market Organized retail market E-commerce Unorganized retail market 1,100-1, Figure 3: The retail sector in India is poised for impressive growth. The cities that will see the largest increases in retail spending over this period are Mumbai, Bengaluru and the National Capital Region, comprising of Delhi and bordering cities. Incidentally, these cities house offices of many multinational companies and Indian business conglomerates. 4. Logistics in developing regions 4.11 How to benefit from india s retail potential Page 196

197 Pune West Pune E Mumbai Mumbai E North East NCR NCR E Kolkata Kolkata E Hyderabad Hyderabad E South Chennai Chennai E Bengaluru Bengaluru E E-Tail Brick and Mortar Retail Figure 4: Modern retail spending and penetration is expected to grow by a factor of 2.7 in the top seven cities of India between 2014 and The greatest increase in spending, in absolute terms, is expected in NCR, Mumbai and Bengaluru Think India. Think retail. A definitive view on India s retail market, Knight Frank India, Logistics in developing regions 4.11 How to benefit from india s retail potential Page 197

198 It is important to note that in India the state governments can play a critical role in attracting investment capital through the policies they implement. Early in 2016, the Maharashtra government released its Retail Trade Policy, which provides for online registration for small enterprises, allows retail outlets to remain open through the year, and supports extended business hours, liberal labour laws, and more. India s youngest state, Telangana, promises a very supportive business environment. It houses the largest fulfilment centre for Amazon and a big fulfilment centre for India s largest e-commerce company, Flipkart. IKEA has made a major commitment to invest in Telangana. In general, a detailed understanding of the regulatory, taxation and labour policies of any state is the first requirement for developing an entry strategy. The central government is also adopting a supportive attitude, whether that is in the form of relaxing the sourcing requirements for foreign companies, or through backing the textile sector under the Make in India scheme which opens investment opportunities across the entire value chain of fabrics and textiles. Promising categories: footwear, apparel, and home furnishings Looking at product categories, food and beverage is dominant and will continue to be so. This should come as no surprise, considering the population and the fact that the unorganised part of the retail sector is still very large. Apparel is the largest product category, with a share of 22% in the occupied modern retail space of the top seven cities. This is followed by department stores and food and beverage, at 14% and 13% respectively. Among these seven cities, the National Capital Region has the largest share of foreign brands in organised retail space. In terms of growth, apparel will continue to dominate while footwear and home furnishings will also see a high growth rate in organised retail formats. It is worth noting that these categories are also the ones with high gross margins Think India. Think retail. A definitive view on India s retail market, Knight Frank India, Entry strategies and challenge A global brand wishing to explore the market in India has different entry modes available. Before discussing these, giving the answer to our second question, we should mention the existing limitations 4. Logistics in developing regions 4.11 How to benefit from india s retail potential Page 198

199 to levels of foreign investment. For a multi-brand retail chain, a foreign direct investment up to 51% is permitted; for the remaining 49% the company would need to have an Indian partner. The government of India made an announcement in the 2016 budget to allow 100% overseas capital in processed food retailing, as long as they are sourced and manufactured in India. In single-brand retailing, a full 100% FDI is allowed. For e-commerce, the regulations are slightly different. Here 100% FDI is allowed only in business-tobusiness trading for multi-brand companies. For single-brand e-commerce retail trading, 100% FDI is permitted if certain conditions are met. Foreign companies can adopt one of the four following formats to sell their products in India. Establishing a wholly owned subsidiary, where 100% foreign direct investment is permitted. Such a subsidiary is subject to Indian laws and regulations, and the company would have full control over its business. Creating a joint venture with an Indian company. There are no separate laws for joint ventures: all laws governing local companies apply to this type of business. The foreign company benefits from the know-how and brand reliability of the Indian partner and can also navigate through the regulatory framework with more ease. Brand licensing is the modality that allows international companies to enter India with minimal investment and gain quick access to the market. When licensing a brand there will of course be limitations to the control one has over the marketing and the image of the brand itself; selecting a proven and reliable partner is critical. Finally, the franchise model is rapidly gaining popularity. Here the Indian partner has access to the company s brand name, marketing material, and business plan in exchange for a share of its turnover. The general preference is to have a master franchise set up for the entire market. It is not uncommon for a brand to enter India under one model and then to shift to another platform. One example is Benetton, which first entered India through a licensee, then transitioned into a joint venture, and finally completely took over the Indian business in In 2006 Benetton decided to adopt the franchising route once again for one of its premium fashion brands, Sisley. 41 Think India. Think retail. A definitive view on India s retail market, Knight Frank India, Logistics in developing regions 4.11 How to benefit from india s retail potential Page 199

200 India is ready for international brands Many foreign companies have already established themselves in India through one of the available modes. Most of them are now in the process of expanding their footprint and some of them are actually quite ambitious. Walmart entered the B2C market through a joint venture with an Indian company, exited the partnership, and now operates its own stores under a B2B model. Its plans are to add 50 cash and carry stores to the existing 20 in the next five years. Amazon s logistics footprint in India grew threefold to over 2,100 cities in The company has plans to invest a further USD 2 billion in India. Metro intends to increase the number of wholesale stores from 19 to 50 by IKEA plans to open 25 stores in the next few years, starting in The Lulu group will invest USD 375 million in two food processing units and a modern shopping mall in Hyderabad. Tesco is present in India through a joint venture with one of the Tata companies, with plans for 200 new stores over a span of four years. H&M opened its first fully owned store in October 2015, which was received very favourably, and now has plans to open 25 stories in the near term. Be aware of the challenges The third question for brands wanting to create a stable foothold in the Indian market revolved about challenges and risks. There are two clusters of challenges to be considered. Industry and regulatory challenges The first group of challenges has its roots in the intricacies of the regulatory system and the specific requirements of the retail industry. The regulatory barriers, including the complicated taxation system, the stringent FDI regulations for multi-brand retail, and the epidemic application of red tape, can be navigated or managed with a proper understanding of the applicable country and state level regulations. In this context it is advisable to engage a professional company for consultation on startup matters, because the laws and regulations vary from state to state and it is critical to understand what is permitted and what isn t. 4. Logistics in developing regions 4.11 How to benefit from india s retail potential Page 200

201 Acquiring the desired retail space, whether in a mall or not, is another critical element that can take considerable time. Modern real estate is still scarce and what is available goes at high rentals. Our advice here is to allow for enough lead time rather than accepting a compromise on where the stores are located. The third limiting factor is the availability of skilled manpower: it is difficult to source, train and retain skilled and specialised staff. Companies will definitely benefit from finding a partner which continually invests in its human capital, because that ultimately is the largest differentiator. Supply chain and logistics challenges The second category of challenges relates to the logistics of retail. Small and mid-sized cities are opening up as retail destinations, but providing them with the right stock at the right time is not so easy. The transportation network in India is quite fragmented and the complicated state tax structures are responsible for considerable inefficiencies. Safety standards are often below international levels and are not always enforced, which is cause for concern for international brands. When it comes to storage and warehousing, companies find that warehousing space meeting global norms and standards is scarce, and the processes are still to a large degree manual rather than automated. Connectivity is inadequate and here, too, there can be a lack of compliance with international safety standards. Disruptions are a fact of life in India, partly man-made in nature (strikes, protests, congestion, labour issues), partly due to weather influences such as the monsoon and fog seasons. Contingency planning is indispensable. There is no integrated platform for domestic and international sourcing: local and international supply chains are designed independently. End-to-end costing is difficult due to hidden costs. Finally, visibility and control are nowhere near what international retail brands have become used to elsewhere. Lack of technology still stands in the way of supply chain transparency. 4. Logistics in developing regions 4.11 How to benefit from india s retail potential Page 201

202 There is broad recognition of the fact that unless infrastructure bottlenecks are addressed, the projected growth for the entire economy and for retail in particular will fail to materialise. We have already mentioned that public investments have been raised. Besides, many public-private projects are underway to develop ports, airports, freight networks and logistics hubs. The national budget proposes the creation of a National Investment in Infrastructure Fund with an initial annual allocation of USD 3.25 billion. It also makes note of the need to reboot the public-private partnership framework in India. Retailers wanting to secure a successful entry may consider enlisting external help with their supply chain. There are a limited number of logistics service providers who are able to provide fully integrated supply chain solutions. Even if it may come at a marginally higher cost, it is essential to work with partners who invest in skilled people and who can provide good facilities. Infrastructure is truly fundamental to any successful retail introduction strategy, in India as in any other market. Case Study: Setting Up An End-To-End Supply Chain To demonstrate how partnering with a logistics service provider can be helpful for companies entering the Indian market we look at a recent case where Damco has supported one of its North American customers. The client, a leading global apparel and footwear brand, had decided to make an entry in India through a joint venture. Starting from scratch, they needed to have an end-to-end supply chain set up to meet the target launch date for the first batch of shop-in-shops. In the preparatory stage Damco s team worked closely with the customer s in-house consultants to ensure that all the permissions and codes were in place. Simultaneously, the geography of the supply chain was determined so that the location for the first Mother DC could be determined (see figure 5). 4. Logistics in developing regions 4.11 How to benefit from india s retail potential Page 202

203 1 Imports into Mumbai 3 Distribution & Delivery WHS 2 Warehousing & Value Added Service New Mumbai Distribution Center Store Locations Figure 5: For a North American company wanting to enter India, Damco designed the supply chain from scratch in a three-phased approach. The supply chain was designed in such a way that overseas origins can send their shipments by sea or air, depending on the product and timelines, and in the case of very small shipments also on the costs, because we reasoned that for very small amounts of cargo the transportation costs by ocean would still exceed the costs of airfreight. Domestic suppliers were put on a simpler and faster lead time matrix. 4. Logistics in developing regions 4.11 How to benefit from india s retail potential Page 203

204 Since for this customer the launch was also a market test, IT and EDI linkages were agreed to be developed to a later, more developed stage. This allowed Damco to receive orders directly to initiate the order management process. At the stage of implementation, a development plan was established. Later developments were to establish a control tower to support visibility and management of all operations, setting up additional satellite DCs based on a diagnostic supply chain. 4. Logistics in developing regions 4.11 How to benefit from india s retail potential Page 204

205 4.12 SHIPPING MOSQUITO NETS TO REMOTE NORTH-INDIAN REGION By: Ajish Babu Damco assists malaria control programme by delivering 7 million mosquito nets to remote region under extreme monsoon weather conditions The Seven Sisters are a group of small States in the far North East of India (Arunchal Pradesh, Assam, Meghalaya, Manipur, Mizoram, Nagaland and Tripura) adjoining the Chinese and Burmese borders. World-renowned for tea production, they are nonetheless difficult to access and malaria is endemic. Connected to the rest of India by a narrow corridor, the region is itself characterised by high ridges separated by sub-tropical river valleys. In the fight against Malaria, Damco has been assisting the Indian Government s National Vector Borne Disease Control Programme to deliver much-needed treated mosquito nets to this remote region, managing the ocean leg, customs clearance, warehousing, transportation and distribution. The project plan The task involved the shipment of 565 TEUs, of mosquito nets supplied by Global Fund Against Aids, Malaria and Tuberculosis (GFATM) through their procurement wing IDA (International Development Assistance) from Haiphong, Vietnam to Kolkata, India and then onwards into the Seven Sisters for free distribution to the people. 565 TEUs equates to around 7.2 million nets, each of which can protect multiple people, so this project should make a significant contribution to malaria control. The plan was to warehouse the consignments in Kolkata and then truck containers to a staging warehouse in Guwahati, Assam, in a controlled flow suitable to the road capacity and transit times. From there they would be forwarded to locations near the different State capitals, where local medical authorities would arrange distribution to the population. Because of the poor state of many roads in the region it would often be necessary to tranship into smaller trucks at Guwahati. 4. Logistics in developing regions 4.12 Shipping mosquito nets to remote north-indian region Page 205

206 As it happened, unusually wet weather at what should have been the end of the monsoon period caused a number of road blockages and total washouts. The ability to recover trucks, drivers and their cargos and bring them to a place of safety and security in Guwahati, and to regulate traffic both from Kolkata and from Guwahati to suit the capacity of remaining routes, proved invaluable. In theory there should have been a flow of ten trucks per day, but in the circumstances this had to be stepped down. Nevertheless, the assistance provided by villagers along the route including the occasional elephant was invaluable. Skills and partners Damco appointed two local logistics partners, both of whom had worked with us before. These operators had extensive experience of much of the area through involvement in the tea industry, and were able to provide appropriate vehicles and experienced drivers for the terrain. The project was jointly managed through Damco s Kolkata and New Delhi offices, and included our logistics experts who had previously worked successfully in similar project teams. This proved invaluable in our ability to work with the right people in the right places at both State and National Government level. Information and communication Arguably the most important factor in the success of the project was the preplanning of the data & communications requirements. Damco set up systems to closely track the progress of vehicles both on the 4-5 day journey from Kolkata to Guwahati, and on similar or longer legs to the final destinations. Checkpoints and milestones were established at which progress was reported back from the transporters to both Damco and the authorities on at least a daily basis, supplemented by regular 4. Logistics in developing regions 4.12 Shipping mosquito nets to remote north-indian region Page 206

207 conference calls. The data requirements turned out to be somewhat more complex than at first expected not least because each State has its own sales tax and road permit requirements, for example. However, prior planning and testing ensured consistent availability of the necessary information, in the right format. Although the physical challenges of the operation provide the best photographs, in truth it was the meticulous preparation of the data, information and communication network that was key to success. Damco took responsibility for pre-advisories to nominated ocean carriers and also for negotiating alternatives that might be required, not just due to natural causes, but also the impact of peak seasonal demand in India s principal festival season. We also appointed internationally accredited surveyors to monitor each stage of operations: container receipt, seal cutting for Customs, loading, despatch, receipt, reloading at the various transport nodes and reporting back any anomalies. Timely management of statutory documents for customs clearance and to meet the requirements of individual states was also crucial to success. Results and lessons Despite some breakdowns and unanticipated road blockages, the operation was successfully completed and many millions of citizens in the Seven Sisters now have better protection against malaria. Success can be attributed to a number of factors: firstly, thorough pre-planning and development within Damco, and with the authorities and the contractors. We spent five to six months in this phase, which turned out to be time well spent. Secondly, the selection of the right people and the right contractors was key. You cannot send just any vendor into challenging terrain like this, whatever their track record in other situations. The experience of our own staff was also invaluable. 4. Logistics in developing regions 4.12 Shipping mosquito nets to remote north-indian region Page 207

208 Third was the ability to gain the confidence of the customer the national and state governments which increased further over the period as we and our partners worked around issues that arose. Perhaps most important of all, however, was the detailed attention we paid to planning and maintaining a comprehensive data and communications network. All logistics operations depend on timely and accurate data, but when the resolution to a problem may be several days away, this is more necessary than ever. Damco is proud to have been able to lend its skills in these areas to a project which will truly improve the lives of millions of people in India. Download infographic 4. Logistics in developing regions 4.12 Shipping mosquito nets to remote north-indian region Page 208

209 4.13 A FAST AND ECONOMIC RAIL SOLUTION BETWEEN CHINA AND EUROPE By: Frank Shao Western companies are increasingly sourcing apparel, automotive parts, electronics, food and other products from China. They are taking advantage of Chinese manufacturers competitiveness when it comes to quality, cost and productivity. But foreign companies doing business with China also have to take into account logistics issues including cost, capacity limitations on air and sea freight during peak periods, environmental impact and most importantly, transit times. Delayed deliveries from Chinese suppliers can lead to costly loss of sales. As a result, Western companies need flexible options for freight forwarding and supply chain management when shipping from China. To meet customer need for direct export from China and reduce capacity pressure on air and shipping routes during peak season, we offer a brand-new international rail link between China and Western Europe that is safe, reliable, economic and fast. Supported by the Chinese government, the China- Europe rail service is part of a national cross-regional New Silk Road. Offering both CFS and CY solutions, the line runs from Zhengzhou directly to Hamburg in Germany and from Chongqing to Hamburg with a consistent transit time of 15 to 16 days a speed expected to accelerate by the end of A growing multi-modal hub Zhengzhou is the largest city in north-central China and is rapidly becoming a full multi-modal hub within 15 hours trucking time of all other major cities in the country. This makes the hub easily accessible by our extensive distribution network in China, including offices in 25 cities, over 30 subcontractors and 6 joint-venture warehouses. Chongqing is the largest city in West China and is geographically well placed to develop its intermodal logistics in the region. Since starting service in 2011, the Yuxinou Block Train offers 96 departures including China s first eastbound train from Europe (from Duisburg to Chongqing). The block train reaches up to 8266 TEU in freight volume and the total value of goods transported amounts to US$3 billion. With the creation of the New Silk Road, major development opportunities will soon be available. 4. Logistics in developing regions 4.13 A fast and economic rail solution between china and europe Page 209

210 A cost-effective solution with added benefits The China-Europe rail service is the shortest transit route from Central China to Western Europe and a cost-effective solution with a transit time acceptable to most mid-market retailers, particularly those using sea and air freight. It costs only a fraction of the price of airfreight and approximately a quarter of the cost of combined sea and airfreight. In addition, rail is considerably more environmentally friendly than air and road transport. What s more, cargo shipped by rail is more secure and less liable to damage compared to ocean and airfreight. We supplement these time, cost and environmental benefits with a number of value-added services with a single point of contact. These include end-toend visibility of shipments across all modes of transport, upgraded security measures based on CTPAT requirements, the option to postpone final delivery and performance management on a daily, weekly or monthly basis. Options enabling a flexible supply chain Rail freight adds another string to the bow in terms of available options to provide a flexible and adaptive supply chain. Typically, missing the critical sea freight FOB date leaves companies with air or sea-air as the only real, available options to get stock to its destination on time. The benefit of being able to default to rail as a fallback plan to meet the scheduled ETA, at a better cost than air or sea-air, allows companies to manage costs and control inventory flow into their secondary network. Rail is expected to become a major means of freight transport between China and Europe in the future. As a result, we are investing heavily to establish a leading position in the region. This involves creating a network of rail collection hubs and main gateways to serve the needs of customers throughout China. 4. Logistics in developing regions 4.13 A fast and economic rail solution between china and europe Page 210

211 4. Logistics in developing regions 4.13 A fast and economic rail solution between china and europe Page 211

212 5. MODES OF TRANSPORT 5. Modes of Transport Page 212

213 5.1 CHINA-RUSSIA RAIL SERVICE A FLEXIBLE BALANCE BETWEEN COST AND TRANSIT TIME By: Grant Tao Damco s rail and intermodal freight transport service already offers a fast solution for direct export from China to Western Europe. Recently, we expanded our China rail solution, with a new service to Russia. A French international retail group is already using it to ship goods to Moscow. Fastest rail transit times to Moscow The China-Russia rail service provides a tailor-made logistics alternative from China, with transit times to Moscow of 12 to 13 days. This makes it the fastest solution in the market and a cost-effective alternative to standard ocean-rail solutions via Yingkou-Manzhouli which take at least 22 days. These fast transit times save customers money and allow them to maximize the interest on their operating capital. A flexible balance between cost and transit time enables customers to seize new business opportunities. Comprehensive logistics solutions for China 5. Modes of Transport 5.1 China-Russia rail service a flexible balance between cost and transit time Page 213

214 The Damco China-Russia rail service is part of a comprehensive set of logistics solutions for shipments from China. The existing China-Europe rail service provides flexible shipping from major gateways. The China-Russia ocean-rail service ships cargo from main ports in China to inland locations in Russia. Damco also offers intermodal shipping from major cities in China to CIS countries. What s more, the Asia Direct Cross-Board Trucking service links main ports in China to Vietnam, Cambodia and Thailand. GPS monitoring For added security along these routes, a multi-variable GPS monitoring solution reports any abnormal conditions in real time. From door to door, it measures humidity, light exposure, shock, motion, speed and atmospheric pressure. As well as ensuring quality control of high-value goods, these readings alert customers to possible theft, goods swapping, arrival at destination and customs examination. This data is available in regions with poor signal coverage as well. Continuous solution development The first Damco customer to use the China-Russia rail solution was a French international retail group. In February, the company shipped three 40-foot containers from Xintai, in Eastern China, to Moscow. This was the first time the customer had used a rail solution for shipments to Russia. Previously, some 90% of its shipments were by ocean with the remainder transported by air. In the coming year, Damco will continue to develop its China rail solutions, which can be combined with its extensive network in Europe and customs clearance service. This will result in faster delivery times compared to ocean freight and cheaper shipment costs compared to airfreight. These savings will help customers improve their working capital turnover ratio and bank interest, increasing their overall financial performance. 5. Modes of Transport 5.1 China-Russia rail service a flexible balance between cost and transit time Page 214

215 5.2 FAST TRAINS REPLACE THE SLOW BOAT TO CHINA By: Lyes Fiouane In an effort to accelerate the economic development of China s western provinces, the Chinese government has invested heavily in long-distance railways that not only connect the western provinces with the coastal zone but also speed up railway transport between China and Europe. The new railway connections create possibilities that any company transporting goods between China and Europe should look into. Railway investments to help the interior provinces catch up To support the economic development of the coastal regions, the Chinese government has modernised the infrastructure in the eastern part of the country over the past two decades. While this has been successful, it has also created an economic divide between the two sides of the country, resulting in massive migration from rural areas to the big cities in the east. To counteract this imbalance, the five-year plans published in 2012 included ambitious initiatives to develop the interior provinces. One spearhead for this development was an extension and upgrading of the rail infrastructure. The government has increased investment in rail transportation year over year since 2011 to a level of almost 809 billion Yuan (approximately USD 123 billion) in So far, three rail links between Europe and China have been brought into service. Besides supporting economic growth in the interior provinces, they also provide an alternative to the sea road via the Suez Canal and help China to enlarge its influence on the ex-ussr satellites along the routes. Benefits for shippers in both directions Companies transporting goods from China to Europe can benefit from the new railway connections in a number of ways. First of all, freight costs are lower. Secondly, the transit times by train are significantly shorter than by sea. Combined, these two factors enable trading new kinds of goods 5. Modes of Transport 5.2 Fast trains replace the slow boat to china Page 215

216 (cargo for which air transport would be too expensive and sea transport too time-consuming). The new situation has already prompted several of our European customers to move their coast-based manufacturing activities inland. Trade volumes from Europe to China are expected to increase as well due to the increase in Chinese appetite for European products, especially cars and food. For perishable goods the shorter transit time is a critical advantage. More information available For more background information on the developments regarding the rail infrastructure in western China you may refer the information document West China Development, New Railways, And The China-Europe Connection Modes of Transport 5.2 Fast trains replace the slow boat to China Page 216

217 5.3 CREATE A COMPETITIVE ADVANTAGE BY MOVING TO RAIL AND ROAD TRANSPORT By: Umair Farooq Over the past few years, the global logistics industry has witnessed a small but unmistakable shift from sea transport towards truck and rail. This of course raises the question what the drivers of this phenomenon are, and if we can expect this trend to continue. It turns out that replacing sea transport by truck and rail may be a smart move in particular situations. Sea transport too slow for many product categories Earlier this year, the International Transport Forum of the OECD (Organisation for Economic Cooperation and Development), published its projections of the growth in global trade by While the paper showed that sea freight will continue to dominate and be the prime mode of transport for global trade, other transport modes will grow at a much faster rate. The projected growth of rail transport was 7% higher compared to sea, road transport increased at a 17% faster pace and the growth of air transport was even 47% faster. The primary reason for this development is the need for speed: as product lifecycles continue to become shorter and shorter and for an increasing number of products companies can no longer afford to lose days or weeks while cargo is en route. Rapid delivery simply is too important as a competitive advantage. While Air Freight will grow inevitably, we do believe companies will continue and seek opportunities where they can strike the right balance between cost and speed. Road transport is on the rise Although 2050 obviously is still far away, we already see a clear drive in the industry to experiment with newer transport options for different markets. While it is not a very novel idea to move freight by road within the European Union, it is still considered too complicated to truck goods from, for example, Vietnam into China. But we do see that more and more companies are now challenged to think out of the box due to a need to turn specific products around faster Modes of Transport 5.3 Create a competitive advantage by moving to rail and road transport Page 217

218 It is true that the road transport industry in general, and particularly in Asia, is still behind in complying with the required safety standards. But the industry is evolving and safety is moving up the agenda. There are already some niche players who capitalise on the needs of the market, offering customers transport options that are much faster and equally reliable. Rail transport from China into Europe gaining traction We see a similar trend for rail transport, more specifically from China into Europe. The early adopter of this move was clearly the automotive industry in Germany that benefited from this much faster transport mode without paying the bills of air freight. Courtesy of the automotive industry, there is now a well-established and already proven rail product from Asia into Europe that is not only faster than sea transport but also rated higher in schedule reliability. We still have not seen companies fully move their transport from sea to rail and that will probably never happen but we have seen companies taking full advantage of this third option, which is faster than sea and cheaper than air. When to use rail or truck instead of sea? Most commonly we see companies using rail or truck options, depending on the market, in the following situations. For products that have a shorter lifecycle To support a new product launch To compensate for production delays And in any case when customers at destination demand quicker access to inventory for specific products. 5. Modes of Transport 5.3 Create a competitive advantage by moving to rail and road transport Page 218

219 Figure above: Between the extremes of sea freight (minimal cost, long transit time) and air freight (high cost, but fast) there is a large space in the market for rail and road transport. Start preparing for the future now We believe this trend of expanding the breadth of transport modes will continue to grow steeply in the coming years, and companies that adopt early will have a strong competitive advantage. 5. Modes of Transport 5.3 Create a competitive advantage by moving to rail and road transport Page 219

220 5.4 WEST CHINA DEVELOPMENT, NEW RAILWAYS, AND THE CHINA-EUROPE CONNECTION By: Lyes Fiouane In recent years the Chinese government has been making efforts to help the western provinces catch up with the economic development of the coastal region. As part of this program, new long-distance railways have been put in place, resulting in faster connections between China and Europe. This is expected to move production activities inland and offers new opportunities for European businesses. Restoring The East-West Balance Over the past 20 years, the Chinese government has modernised the infrastructure in the country s coastal regions to support its export-based economy. This had the desired effect but it also created a disbalance between east and west, with socio-spatial inequalities, mainly between coastal and interior provinces, and between the cities and the countryside. As part of its go west campaign, the five-year plans published in 2012 highlighted the Chinese government s strategy to develop the interior provinces. The objectives are clear: Reduce the wide gap between east and west: The provinces in the south-west (Sichuan, Chongqing, Guizhou, Yunnan, Guangxi) and west (Tibet, Qinghai, Xinjiang, Gansu, Ningxia, Shaanxi) represent 71% of the country s land mass and house 29% of the population, but only contribute 17% of the economic production. Reduce the exodus from the rural western areas to the big cities in the east. Since 1980, between 100 to 150 million people left the western provinces to find work in the eastern coastside cities. Decrease the saturation of the big coastal cities like Shanghai in order to avoid economic overheating. Secure China s position internationally in relation to the surrounding countries. Position the country in a central place in the international cooperation and competition with its neighborhood. Attract new companies to set up in this part of the country. 5. Modes of Transport 5.4 West China development, new railways, and the China-Europe connection Page 220

221 Investing In Transport The government s five-year plans specified that transportation will be a cornerstone for the restructuring of the economy in the western region. And rail was identified specifically as a mode of transport that could offer a strategic link between the eastern and western provinces for encouraging international business cooperation. To this end, three rail links between Europe and China have now been opened: A connection between Chongqing and Duisburg (Germany) was the first to be created, and this went into service in The line from Chengdu in the Sichuan Province to Lodz (Poland) was finished in Another freight rail link was established in July 2013, running from Zhengzhou to Hamburg (Germany). The main difference between this line and the first two is that it serves the northern central region of China, while the other two are mainly serving the western and southern regions of China. The annual investment in railway infrastructure by the Chinese government has increased every year since 2011, reaching almost 809 billion Yuan (approx. USD 123 Billion) in The Minister of Railways intends to involve a diversity of financing channels by encouraging enterprises, local governments and the private sector to take part. Geostrategic Aspects The rail bridges between Europe and China serve three geostrategic objectives: They enable Chinese manufacturers to reach the European markets without having to take the sea road via the Suez Canal. They create the possibility for China to strengthen its grip on all the ex-ussr satellites, all the way to the Black Sea and Turkey. They support the Chinese political ambition to grow the economy of the interior provinces by developing the infrastructure. The numbers are telling here: the train lines from China to Europe can potentially cover 40% of the continent and serve three quarters of the world population. This geostrategic revolution is already underway and China intends to continue with it. 5. Modes of Transport 5.4 West China development, new railways, and the China-Europe connection Page 221

222 Benefits For Shippers The new railway connections offer several interesting advantages for any company transporting goods between China and Europe: Freight costs are lower. Transit times are shorter than by sea (between 13 and 18 days, depending on the link used). It becomes possible to trade new kinds of goods: cargo that would be too expensive to transport by air and for which the sea route transit times are too long. The train links will give a boost to the economy along the routes, possibly creating new sourcing areas and destination markets. Trucking distances will become less because many warehouses that are far removed from the ports are nearer to the railways. These benefits explain why several of Damco s European customers have already decided to shift their business from the Chinese coast to the western part of the country. Transports in the other direction, from Europe to China, are expected to increase due to the growing Chinese demands for cars and European food (especially meat and dairy products). Currently, China imports about USD 7 billion worth of perishable food from Europe and the developing rail infrastructure could be a great opportunity for European companies to target the huge Chinese market. Rabobank, an international bank with a focus on agriculture, expects that rail will claim its share of the 10 million tonnes of perishable goods shipped to China by sea each year. 5. Modes of Transport 5.4 West China development, new railways, and the China-Europe connection Page 222

223 An Example: The Chongqing-Xinjiang-Europe International Railway ROUTES OF THE NEW EAST WEST RAIL CORRIDOR VIA KAZAKHSTAN MOSCOW MAIN EXISTING TRANS-SIBERIAN RAILWAYS ROUTE NEW EAST WEST RAIL CORRIDOR ROUTES VIA KAZAKHSTAN SLAWKOW BREST CHOP DOSTYK ALASHANKOU URUMOI VLADIVOSTOK XIAN CHENGDU CHONGQING SHANGHAI Figure above: The new rail connection between Chongqing and Europe cuts transit times in half at lower costs. (Source: nigelnixon. com) The link from Chongqing to Europe (Duisburg, Germany), part of China s go west initiative, serves to illustrate the effects of the new rail connections. With 28.5 million inhabitants, Chongqing has attracted USD 11 billion in direct foreign investment in Thanks to the development of the new rail infrastructure, the transit time from Chongqing to Duisburg is now 16 days. Previously a manufacturer wanting to ship goods to Europe would first have to move the cargo to a coastal port and then expect a sea voyage of 30 days an alternative that was not only more time-consuming but also more expensive than the current railway offering. Since the new line offers access to about 40 countries alongside or close to the track, it also opens up new markets. This is attracting a growing number of manufacturing companies to Chongqing, especially in the automobile, electronics and garment industries. 5. Modes of Transport 5.4 West China development, new railways, and the China-Europe connection Page 223

224 5.5 AIRFREIGHT FOR RETAILERS: EVERYTHING YOU NEED, INCLUDING A FRESH LOOK AT YOUR SITUATION By: Lars Schmeltzer Retailers apply a mix of modalities for their shipments from origin to destination, in which airfreight tends to play a double role. For trendy fashion items or fast moving items with a short lifespan, air may be the best option to guarantee timely arrival in the store. But often airfreight is used as a contingency measure, to solve problems that occur elsewhere in the supply chain for example due to late delivery by the manufacturer. While Damco will of course help out in those specific situations by flying the cargo to its destination, we are also equipped to have a look at the supply chain and find ways to reduce the need for airfreight and the associated costs. A complete airfreight service offering Damco provides any type of airfreight service a retailer may need. For every customer request we can look for the best available deal from a wide range of different airline carriers, allowing customers to benefit from our, network, alliances with major airlines, and the Blocked Space Agreements we have in place. Depending on the required speed, clients can select a fitting service level (Charter, Priority or Economy), with corresponding airport-to-airport transit times and pricing. If the timeframe allows it, a multimodal solution (sea-air, truck-rail or rail-air) may be an even better alternative, offering the right balance between cost and speed-to-market. Beyond just moving cargo The completeness of our service portfolio is one reason why a growing number of retailers decide to select Damco for their airfreight. Another, and more important reason, is that we are equipped to look at the larger picture and help them to find smarter ways of dealing with airfreight. By investigating data across the entire supply chain, our supply chain experts can highlight abnormalities and possible 5. Modes of Transport 5.5 Airfreight for retailers: Everything you need, including a fresh look at your situation Page 224

225 opportunities for improvement. Next, they will have a dialogue with the customer to explore whether the abnormalities that caught their attention have a valid background or need to be corrected. Usually this approach will identify inefficiencies in the sourcing and the supply chain that can be remedied with relative ease. Examples: Little tweaks, substantial savings A recent assignment, where Damco was invited to review a supply chain with a sizeable amount of airfreight for a US retailer, can serve as an example. A review of the full sourcing chain revealed that the airfreight could be partly routed via sea if certain practices within the customer could be adjusted. By implementing this change the customer saved USD 2 million, while the goods still arrived in the DCs in time. In addition to this financial benefit, CO2 emissions were also reduced significantly. In another example, Damco participated in a tender issued by a leading and fast-growing US department store retailer with more than 1100 locations nationwide. This client used a main international gateway as the port of choice for all their air volume, trucking cargo across the country to a large number of locations. Instead of only submitting an RFQ as requested, we chose a more proactive approach and proposed an alternative that involved working with the customer to redesign their supply chain. Trucking was identified as the main cost driver, and by implementing a few more destination airports and a revised trucking network we realised savings of over USD 8 million for the customer likely a much larger amount than what they would have won based on rate procurement. A strong presence at origin and destination The power of Damco is that we not only identify opportunities for improvement in the supply chain, but also have the capability to implement them. For example, in situations where vendors don t meet the agreed delivery times or quality standards, we can bring them up to speed with a vendor management programme. In all origin locations we have our own people, trained and experienced in vendor management, who can act on behalf of the consignee. Many of our customers see us as their partner who, in a joint effort, can help with industry best practices and optimisations in the supply chain. Besides moving their goods, we also provide them with control and visibility, not only on a pershipment level but also for complete and in-depth reporting providing detailed historical data, which can be used for ongoing improvements to the supply chain. 5. Modes of Transport 5.5 Airfreight for retailers: Everything you need, including a fresh look at your situation Page 225

226 To further explore the hidden potential for optimisation in your own supply chain, please visit our global airfreight webpage on Damco.com Modes of Transport 5.5 Airfreight for retailers: Everything you need, including a fresh look at your situation Page 226

227 5.6 NON-STANDARD AIRFREIGHT SOLUTIONS FOR HIGH-VALUE FASHION ITEM CARGOES By: Eveline Verbeeck The world of fashion often relies on fast, reliable logistics solutions. Transportation of high value luxury clothing always demands special attention, and a steadfast performance from logistic partners. Fast Fashion is all about a high-focus product launch, and for this an on-time delivery is crucial. In time for the new fashion season, our customer needed an individual solution for their distinctive stylish sports apparel. For us, this meant being able to organise reliable airfreight transport from Vietnam to Belgium, in non-standard boxes, and guarantee wrinkle-free delivery, right on time. Airfreighting Garments on Hangers Several important issues made this project challenging. Firstly, the fashion goods needed to be airfreighted from North Vietnam and delivered to Belgium. This meant offering alternative routes, since there is no direct link between Hanoi and Brussels. Additionally, the cargo was to be ready just around the time for Chinese New Year celebrations, when airports in Hanoi and Ho Chi Minh would be closed. Secondly, because the goods were high-value fashion clothing items, they had to be transported on hangers, in crush-proof packaging. Transporting garments on hangers is not unheard of for us, but airfreighting this particular kind of high-value cargo presented specific challenges. The goods could not be permitted to sustain crushing, or even the slightest dent to the cartons. The items had to remain upright, requiring specially made boxes and non-standard palletizing. 5. Modes of Transport 5.6 Non-standard airfreight solutions for high-value fashion item cargoes Page 227

228 Tailored to suit the customer Several routing options and packaging solutions were discussed, and in spite of this being anything but a standard request, we were able to present an optimal packaging solution, and pre-book the flight from Ho Chi Minh airport. However, the bar was raised when a last-minute instruction from the customer brought the delivery date forward, a week before the product launch. Our teams worked together to make it happen. Hanoi collected the goods and prepared them for transport in made-to-measure over-sized boxes, ready for onward trucking right after Chinese New Year. Three Full Container Load trucks delivered the cargo to Ho Chi Minh at the earliest, where it was inspected and palletized before handing it over to the airline. With the help of night-and-day attention, follow-up by the Amsterdam team and preparations made by our warehouse in Brussels, all of the garments were delivered to the customer before the promised date. Non-standard solutions Indeed, our ability to find and implement the right airfreight solutions and non-standard packaging requirements makes it happen for our customers. Above all, it is the cooperation between all of our teams in offices and warehouses in Asia and Europe that enables us to provide Individual Solutions to support our customers success. 5. Modes of Transport 5.6 Non-standard airfreight solutions for high-value fashion item cargoes Page 228

229 5.7 THE LOGISTICS OF MOVING EXCEPTIONAL CARGOS By: Gore Ashutosh Not every cargo fits a standard logistics solution. There are many cases where freight movements require planning and execution as individual projects. The origin or destination may be particularly hard to access, the goods themselves may have particular sensitivities or risks, but most commonly it is the sheer weight or size of the goods that is the factor. There is a range of internationally traded goods from process equipment to mining trucks that cannot readily be loaded into ocean containers. Damco has developed considerable expertise in managing exceptional freight movements that require their own unique solutions. In each case Damco works with our transport partners, and the local authorities, to create a solution that is cost effective for the customer while minimising any disruption caused. Planning the project Typically, Damco will be responsible for the movement from the vendor, through the port of loading (and any transhipment points) to quayside at the port of destination, so there are both land and sea legs of the journey to be planned. For the ocean leg(s) there are essentially three options. We can move the freight as traditional breakbulk on a chartered or part-chartered vessel, but this is generally the most expensive option. On the other hand it can allow for some innovative solutions pictured is a 66 tonne cargo which was moved and shipped on a raft of five 40 foot flat racks. Second, if we can load the cargo onto MAFI or similar rotrailers (essentially a wheeled flatrack) we can use a ro-ro or car carrier type vessel. Amazingly, out of gauge cargos of up to 150 tonnes can be handled this way, while craneage operations, usually the riskiest part of the process, are eliminated. 5. Modes of Transport 5.7 The logistics of moving exceptional cargos Page 229

230 Figure above: A gross wt. of 66 MT moved on 5 40 FR side by side loading Box, box, box Sometimes, in fact, it may be possible, given early consultation between manufacturers and logistics providers, to configure the products so that they will indeed fit into containers or on to flat racks, and a container ship can be used. This is much the cheapest and usually the most flexible option. But even if the goods can be treated as conventional boxes at sea, land transport may still be a special project. Additionally, many ports have limited crane capacity, whether for container or break-bulk a maximum of 70 tonnes is typical and are reluctant to hire in special equipment: it is time-consuming and costly and, if anything goes wrong, either the vessel is detained (with eye-watering penalties to pay) or the cargo may sail on to a completely different port! Nonetheless, we encourage our customers to containerise where possible. It is generally the cheaper option and if, for any reason, the goods are late reaching port, or are rolled over, they can catch next week s sailing without penalty, rather than have a chartered vessel lying idle at $100,000 dollars a week. 5. Modes of Transport 5.7 The logistics of moving exceptional cargos Page 230

231 Port and shipper approvals Whichever the shipping solution, we supply the shipping line, and the various port authorities, with the full technical details of the shipment, which will include weights and dimensions, lifting points, out of balance considerations and all the other relevant factors. The shipping line will need to be satisfied about provision for lashing and securing, and whether requests for under-deck rather than on-deck stowage can be met (often, height is an issue here). The shipping line will issue its own approvals and also get approval from the port authorities who will be considering not just issues like crane capacity but, for example, whether the load will fit through a 6m wide gate. It typically takes 3-7 days for approvals to come through. We are working to streamline the system through blanket approvals, but in reality every project has some open factors, and every port is different. On the road At the same time, Damco will be talking to our immensely experienced road transport contractors. They will survey the intended route often this may be far from direct because of the need to avoid steep gradients, sharp bends, narrow or weak bridges, intruding structures or overhead power lines, as well as trying to minimise disruption to other road users and local residents. Often a 200km journey can become 400km of road. Sometimes it is necessary to arrange for road closures, police escorts, or temporary removal of overhead wires. Our contractors are familiar with the processes and authorities involved, and are trusted, not least to put everything back together afterwards. A recent example Damco has built considerable experience of project logistics, and can manage the full range of options on land and sea, from containers through flat racks and open tops to traditional full or partial vessel charters our India office alone has successfully completed six partial charters in the first half of One recent project involved the movement of 200 tonnes of sugar refinery machinery from India to Venezuela where our customer is building a sugar refinery on a turnkey basis. 5. Modes of Transport 5.7 The logistics of moving exceptional cargos Page 231

232 Figure above: Damco moves 200 MT Sugar Refinery Machinery to Venezuela The plant was disassembled, but the heaviest component was some 32 tonnes and as the pictures show, some parts were of quite irregular shape and size with width upto 490 cms. Most of the service providers has suggested Break Bulk option but Damco was confident of moving this on Containerised vessel. The plan involved road transport from our customer in Pune, on low bed trailers, to Jawaharlal Nehru Port Trust, Mumbai. We arranged customs clearance here, and loaded the machinery onto 13 open tops and flat racks for successful shipment to Venezuela. Despite having not so easy conditions like Port Congestion / Bad Road conditions our India Team successfully managed to load most of the containers on planned vessel and delivered the cargo at destination safely. Damco, along with our selected specialist partners in all major sourcing regions, have developed extensive experience in project logistics, high, wide, heavy or to obscure locations. 5. Modes of Transport 5.7 The logistics of moving exceptional cargos Page 232

233 5.8 OUT-OF-GAUGE ITEM TRUCKED 11,000 KM ACROSS EURASIA By: Nikolay Samokhvalov Providing the best transportation solution for any given set of requirements is the core of what we do at Damco. Sometimes this leads to unorthodox choices, as in the case of an over-sized piece of technical equipment that was trucked from Germany to Kamchatka a total distance of more than 13,800 kilometres. Quite an exceptional assignment! How did it all start? One of our clients asked us to take a decanter from Oelde in Germany to Oktyabrsky in Eastern Russia, where it will be used in the fish industry. It was a shipment in three parts. The first was a large machine, with a length of 3.20 metres, a width of 85 centimetres and a height of 1.65 metres. This piece weighed 2300 kilograms and the other two items were boxes of 200 kilograms each. We received the contract for this assignment early in April and everything had to be at its destination before May 20th. We offered transportation by air to Petropavlovsk-Kamchatsky and transport by truck from there, because sea transportation would take too much time, and we thought that was it. Then what made you decide to truck this cargo all across Russia? Things became interesting when we found out that the length would not fit in any of the airplanes that fly on Petropavlovsk-Kamchatsky. Sea was not an alternative, so we looked at the rail option and found that we would be at least two weeks later than the contract allowed. There is no rail service to Petropavlovsk-Kamchatsky, meaning that the cargo would go to Vladivostok by train and then to Petropavlovsk-Kamchatsky by ship. All of that would just take too long. But we found that trucking would work and that is how we solved it. That is a long truck ride It is over 11,000 kilometres, but actually we had to split that in two. The first part was a 2,000 kilometre trip from Oelde to Moscow, which took four days. After customs clearance in Moscow the cargo was reloaded to a truck of a domestic trucking company for the segment to Vladivostok. The challenge is 5. Modes of Transport 5.8 Out-of-gauge item trucked 11,000 km across eurasia Page 233

234 that there are no highways in this particular part of Russia and the quality of the roads is actually very poor in many places. Combined with the limited timeframe, this put a lot of pressure on the driver. As it turned out, everything went according to plan. The season allowed the driver to drive by daylight in twelve-hour shifts, which made him cover the 9,000 kilometre segment in fifteen days considerably faster than usual. We would contact him by phone every day to hear how he was doing, and fortunately there were no difficulties. And after the truck arrived in Vladivostok? The Damco office in Vladivostok had arranged shipment with a regular container shipping line. The cargo was transhipped into a container and then sailed to Petropavlovsk-Kamchatsky, where it was transhipped again for the last trucking segment to Oktyabrsky. That part took another ten days. At arrival, the cargo was unloaded in good condition and on time. How do you look back at this unusual job? At Damco we claim that we are experts in multimodal transportation and customs clearance, and that we are prepared to take a creative approach to client requests that go beyond the ordinary. This contract was definitely unusual because of the tight timeframe and the out-of-gauge dimensions of the cargo. It is rewarding to be able to prove that we can create solutions for extraordinary problems and deliver them as promised! 5. Modes of Transport 5.8 Out-of-gauge item trucked 11,000 km across eurasia Page 234

235 5. Modes of Transport 6.1 Using network optimisation to increase revenues and cut costs Page 235

236 6. DISTRIBUTION AND CONSOLIDATION 6. Distribution and consolidation Page 236

237 6.1 USING NETWORK OPTIMISATION TO INCREASE REVENUES AND CUT COSTS By: Stephen Xie When looking to increase sales, all parts of your business have to contribute to your growth ambitions, including your logistics network. There are several reasons why you should give serious attention to carrying out an optimisation exercise on your logistics network. For example, it will give your company complete visibility of the current supply chain, including cost, lead-time and service levels. As a result, gaps and improvement areas will be more easily identified and understood, as will factors that could contribute to future growth of the network. And performing simulations of what-if scenarios will then help you to understand the supply chain trade-offs. 6. Distribution and consolidation 6.1 Using network optimisation to increase revenues and cut costs Page 237

238 Take a professional approach to network optimisation It pays to use a professional service to conduct logistics network optimisation, one that can offer an objective viewpoint. At Damco the process starts with looking at how the product flow can be optimised and the assets rationalised. It extends to greenfield (Centre of Gravity) analysis, cost analysis and multi-period analysis. And it concludes with scenario modelling. In all these areas, Damco use advanced supply chain modelling software to support the analyses in the most efficient and costeffective way. Here s how the process is conducted in more detail. Start with a thorough analysis Conducting a detailed analysis of a customer s existing logistics network involves analysing data relating to shipping, warehousing and inventory, to give a clear understanding of the current logistics set-up. The analysis helps identify a number of logistics issues. For example, there might be a mismatch between the location of regional distribution centres and local demand, multiple distribution centres in relatively close proximity, stock transfers between distribution centres and high inventory levels. The analysis might also highlight a lack of cost-effective and environmentally friendly transportation. Redesign the network Based on these findings, Damco s network redesign study team will recommend a number of ways to optimise transport flows, reduce logistics complexity, rationalise the distribution centre network, improve service levels to regional distribution centres, increase visibility and control, and save money. Enjoy the benefits Once these recommendations are implemented, the benefits will immediately become obvious. These could include a reduction in the number of central and regional distribution centres, which would lead to significant savings of warehousing space. The introduction of more environmentally friendly transportation methods will cut costs and help to reduce a company s carbon footprint. By shipping low-frequency orders direct to customers rather than transporting them from a central distribution centre to a regional distribution centre first will reduce pressure on warehousing and save money. The knock-on effect will be an ability to serve more customers faster than before. 6. Distribution and consolidation 6.1 Using network optimisation to increase revenues and cut costs Page 238

239 An actual example Recently, a customer active in the agri-business approached Damco to help improve their logistics network and increase revenues. The company wanted to double its sales revenue in China in the next five years. However, its existing supply chain was unable to support this speed of growth. Having conducted extensive network optimisation, a simulation was run to show how the customer s existing logistics network would cope with increased sales activity over the next five years. This simulation showed that by optimising its logistics network in China, the logistics costs would reduce by around 16% ($8 million) a year. 6. Distribution and consolidation 6.1 Using network optimisation to increase revenues and cut costs Page 239

240 6.2 DO YOU KNOW HOW MUCH YOUR INVENTORY COSTS YOU? (AND WHAT TO DO ABOUT IT?) By: Richard Hill Inventory management is a continuous, delicate balancing act between avoiding empty places on your shelves and tying up more working capital than is absolutely necessary. Inaccurate forecasting, suboptimal reordering decisions and high minimum order quantities (MOQs) may cause stock-outs or excessive costs. The Stock-to-Serve Optimisation tool, recognised by BIFA with a Management Award, enables Damco to identify and visualise the issues and to start a conversation about possible solutions. Our experience shows that the benefits can be significant. Logical decisions with sub-optimal consequences While stock management has always been a topic of attention for companies, the changing economic climate has caused a marked shift in priorities. Before 2010 availability was king; today most organisations have KPIs relating to reductions in working capital and inventory levels. But these KPIs may not be in alignment with, for example, the targets of a buyer who can get a better price on Christmas articles by purchasing them out of season, without considering the costs of keeping these goods in stock for nine months. The only way to resolve this type of issue and find the optimal stocking policy for any item is to establish a dialogue between all involved parties. And that is exactly what Stock-to-Serve Optimisation (STSO) was developed to do. The key: visualising stock flows In the beginning of the STSO process, Damco s supply chain specialists, together with the customer, will identify the scope of their research. This could be one product group or department, but also a selection of Stock Keeping Units (SKUs) that appear to be problematic. The number of SKUs under scrutiny can be large: for one British online retailer we looked at 1600 SKUs. Obviously the volume of data involved, including historical stock and sales levels, can become immense. Dedicated visualisation functions in the STSO tool make it possible to present the overall picture at any level and to drill down as far as is needed. Figure 1, for example, is a department-level analysis of the issues found; figure 2 shows what is going on for one particular SKU. 6. Distribution and consolidation 6.2 Do you know how much your inventory costs you? (And what to do about it?) Page 240

241 Figure 1: Shows an overview of inventory issues may yield very different results for different departments. The amounts given represent potential savings. Figure 2 This one-year inventory profile of a SKU shows a period of stock-outs, followed by dramatic overstocking. The suggested remedy here was changing the buying behaviour, as well as improving safety stock calculations and tracking forecasting accuracy. 6. Distribution and consolidation 6.2 Do you know how much your inventory costs you? (And what to do about it?) Page 241

242 A workshop to identify root causes In our analysis we can see what went on, and by simulating alternative scenarios we can identify possible solutions and quantify the associated potential savings. The next step is finding and resolving the underlying reasons for the problems. This takes place in a workshop setting with not only warehouse and logistics staff, but also commercial team members like buyers and merchandisers. The Damco specialists don t present a final solution their goal is to make the inventory process transparent to the customer, so that they can make their own optimal decisions. The result of a STSO workshop will be a roadmap with a number of different initiatives that can be the responsibility of the client, Damco or a third party. Improving the forecasting system, for example, would be a task for the customer and possibly an ERP supplier. But if stock levels of a particular SKU are too high because the buyer, rather than purchasing the 900 units needed, buys 1000 to fill up a container from China, Damco can step in and consolidate their cargo with freight from other vendors. And if over-stocking is caused by historical MOQs, it may be time to engage in negotiations about new contract terms. During the workshop the model allows us to discuss impact on warehousing in terms of stock holding space, operational costs etc. The analysis allows us to see the impact on average DC stock and max/ min DC stock and during the workshop discuss these elements in further detail. Savings not quantified in the model but as part of the workshop and further projects would be the impact on detention and demurrage, external storage, requirements for new DC s, requirements for a reduction in DC s. Significant benefits Depending on the initial situation, an STSO project may yield a reduction of inventory levels, releasing the associated cash; increased levels of customer service; and an optimisation of transportation costs. For Shop Direct, the savings of improving the inventory for the SKU presented in figure 2 were significant. Or, in the words of their Sourcing & Quality Assurance Director: The Stock-to-Serve Optimisation project carried out by Damco has provided us with a great insight into the key drivers of excess inventory in our supply chain. We are continuing to use their model as a diagnostic tool to prevent future excesses. 6. Distribution and consolidation 6.2 Do you know how much your inventory costs you? (And what to do about it?) Page 242

243 6.3 REGIONAL HUB ALLOCATION: HOW WELL PLACED ARE YOUR WAREHOUSES? By: Dan Jellesmark For many international companies, it was long thought logical to place a central warehouse close to HQ, where administrative and general management functions could oversee its functionality. Increasing decentralisation has seen a shift in thinking over the years. With customers as the central focus point, and the need for more transparency of complex supply chains, more thought is now going into regional hub allocation. The results of a situation analysis can reveal very positive potential gains for Damco customers. Initial evaluation One Damco customer, a well-known global network hardware producer, approached us for support in allocating their European distribution centre. The company was looking for an optimal distribution centre (DC) location that would enable them to reduce distribution costs, without jeopardising the level of service to their customers. Initially, all inbound flow from Asia went into a European DC in Denmark, for distribution to customers throughout Europe. The operating costs of the DC were high, mainly due to high Danish labour costs. Following the acquisition of a factory in Germany, a feasibility study was carried out to assess the advantages of converting the factory buildings to an alternative European DC. Additionally, the company wanted to review the need for high safety stock levels necessitated by inbound routing via Copenhagen. The Damco solution At Damco, our Supply Chain Development (SCD) people take a holistic approach to customers situations. In addition to a make or buy analysis of warehousing needs, we analyse demand flows per distribution site. With our Supply Chain Guru network optimisation analysis tool, we can simulate different scenarios. And of course we include the soft aspects of logistics, such as ocean and air connectivity, transit times, transportation costs, warehouse operating costs, and our customers business needs. 6. Distribution and consolidation 6.3 Regional hub allocation: how well placed are your warehouses? Page 243

244 Made to measure Our main focus in the case of our network hardware customer was their need to assess the relative advantages of distribution hub locations. We provided them with a standard Request for Quote (RFQ) template to simplify theprocess of comparing suppliers total logistic costs per package. Analysis of this kind also serves to support logistic management in obtaining senior management decisions in the process of implementing a new solution. Our analysis allowed us to identify the centre of gravity within the complex goods flows between Asia and Europe, and assess the feasibility of using the customers new German site. By providing simulated alternatives, we could also show the customer impact from future possible outbound demand flows from the warehouse to end customers. The result of insourced and outsourced logistics analysis enables customers to assess the savings obtainable using the outsource model. This makes it possible to identify annual logistic cost savings as a result of outsourced warehousing, as well as realize immediately obtainable savings on inventory costs and more efficient transportation and routing. To view the complete case study on the above subject, check the link below Distribution and consolidation 6.3 Regional hub allocation: how well placed are your warehouses? Page 244

245 6.4 NETWORK OPTIMISATION HELPS CLEANING UP THE PATCHWORK By: Joris Ploemen Most of today s successful organisations have a strong focus on growth. They expand into new regions or countries, often by acquiring local companies, and add the required elements to their supply chain as they go. While every single step of this process may be logical at the time, the result after a few decades is usually a patchwork of transportation solutions and distribution centres that is far from optimal. If you find yourself in that situation, it is worthwhile to take a step back, look at the overall picture, and re-design your distribution network. Starting with a baseline With a tested and well-proven network optimisation process, Damco s Supply Chain Development team helps customers to optimise their end-to end network so that it fulfils their requirements in the most efficient way. Our consultants and analysts explore a wide range of scenarios and evaluate them against the customer s goals and requirements in a highly interactive process, based on our network optimisation methodology (see diagram). After jointly reviewing and agreeing on the scope and estimated duration, a project begins with 6. Distribution and consolidation 6.4 Network optimisation helps cleaning up the patchwork Page 245

246 understanding the customer s marketplace and strategic supply chain priorities. This is followed by a comprehensive description of the baseline situation that includes such details as how the product flows to the market and what the associated costs and lead times as well as carbon emissions are. Exploring possibilities Using a distinctive set of supply chain mapping and design tools, the Supply Chain Development team generates a range of possible supply networks. By adjusting key network parameters and variables, the different options are compared and fine-tuned through various iterations, and optimisation algorithms are run. Within the boundaries of mutually agreed preconditions, the supply chain consultants, supported by leading software, will recommend the alternatives that best meet the customer s underlying objectives. With access to over 30 years of boots on the ground experience in operating and managing global supply chains, our specialists ensure our recommendations are not only producing demonstrable benefits, but are also practical and executable. Selecting and fine-tuning All scenarios are evaluated particularly in terms of costs, lead times and carbon emissions. The optimal network configuration is usually a trade-off between those three: a large number of DCs will yield short lead times but high inventory and handling costs and possibly lead to additional emissions, while one DC for an entire region would reduce the inventory costs, but can often result in inefficient distribution patterns, higher transport costs, and an inability to manage lead times. The client s requirements (for example, 90% of all shipments must have lead times shorter than 36 hours ) serve as a filter to reduce the number of scenarios. Because there also are parameters that are important but not easy to quantify, Damco uses a specific soft centre of gravity tool. This tool takes into account qualitative considerations like the quality of the infrastructure in different countries, their political stability, the frequency of strikes and the efficiency of, for instance, customs clearance procedures. 6. Distribution and consolidation 6.4 Network optimisation helps cleaning up the patchwork Page 246

247 The entire network optimisation process is an on-going dialogue with the client in which the possibilities are narrowed down and fine-tuned and will usually take 3 to 6 months, depending on the scope. The result is a clear, complete and practical advice that is ready for implementation. Substantial benefits The results of network optimisation are usually impressive. In a recent assignment where we analysed the European network of a sports and lifestyle brand, the recommended configuration reduced their yearly costs by 9 million euros and their carbon emissions by 25%, while delivery lead times stayed within the requested range. This scale of improvement is by no means uncommon: a network that has grown over decades to meet the needs of the moment, without an overall plan, usually hides more inefficiencies than one would suspect. 6. Distribution and consolidation 6.4 Network optimisation helps cleaning up the patchwork Page 247

248 6.5 BYPASS YOUR DESTINATION WAREHOUSE WITH DIRECT TO STORE By: Jens Romer Sode If you are working in the retail or sports & lifestyle industry, your organisation has probably made considerable efforts to optimise its supply chains. Also, it is more than likely that in spite of all that work you still struggle to handle the volume of shipments flowing through your warehouses during seasonal peaks. And even off-peak, warehouse space and labour at destination create costs. How would it be to skip the warehouse and have your goods shipped from origin straight to their final destination? The Damco Direct to Store programme does exactly that. Skip the DC Based on many years of experience with leading retailers and lifestyle brands, Direct to Store uses powerful IT platforms to combine a number of Damco s key capabilities. At origin, our vendor management programme ensures that your vendors deliver according to plan. At a consolidation warehouse close to the vendors, Damco sorts your cargo based on purchase order, store and delivery date. Creating store-ready packages at origin, with the appropriate bar codes, labels, price tags and packaging, eliminates the need to re-handle the cargo at destination. We assemble all items into container loads or airfreight shipments and arrange transportation to destination, either using your carriers of choice or a carrier contracted by us. At destination the cargo is deconsolidated and checked in a Damco deconsolidation facility. After that, it can be delivered directly to your customer s DC or store, held for later delivery, or transported to your DC. Reduced costs, lead times and carbon footprint The Direct to Store approach may completely relieve the pressure of seasonal peaks that you may have come to see as unavoidable and will allow you to optimise your lead times. It will reduce your supply chain costs in a number of ways: by reducing the costs of having warehouses at destination; by moving processing costs to origin, where they are lower; by reducing your overall transportation costs; 6. Distribution and consolidation 6.5 Bypass your destination warehouse with direct to store Page 248

249 and by reducing your cost of capital because of the increase in product velocity. The reduction in transport will of course also reduce your carbon footprint. For a global jeans retailer, Direct to Store recently resulted in a 10 percent reduction in supply chain costs, a saving of 15 days on lead times in the supply chain, a CO2 reduction of 70 percent and a significant reduction in inventory as a consequence of the shorter lead times. A solution made to measure The Direct to Store programme is very flexible and will be configured differently for different customers. By scanning all shipments through the entire supply chain, we can provide end-to-end visibility of your products not only to you, but also to your customer. MyDamco Track and Trace will tell you exactly where your shipments or specific products are on their way from factory to store. It offers search functionality at numerous levels, such as by purchase order or SKU, and has a reporting function providing consolidated reporting of cargo flows and history. On request a number of additional services can be added to your Direct to Store solution to meet your company s particular needs, including postponement and cargo storage; kitting, based on agreed rules; vendor quality checks; and inland consolidation pre-cfs. We can further enhance it with vendor compliance programmes and custom-made dashboards. Explore the possibilities If your warehouse is a bottleneck in the peak season or you would like to reduce your supply chain costs, lead times and carbon footprint, it will definitely be worthwhile for you to explore the possibilities of the Direct to Store program. Watch a short video on Direct to Store from the link below Distribution and consolidation 6.5 Bypass your destination warehouse with direct to store Page 249

250 6.6 CUSTOMIZED DISTRIBUTION SOLUTION KEEPS CHINESE CONSUMERS FASHIONABLY DRESSED By: Stephen Xie In the fast-paced world of fashion retail, speed is critical. Consumers see the latest styles on the runway, in magazines or on the red carpet and want to be able to buy the clothes in stores immediately. As a result, the more a fashion company can reduce its lead time required to design, manufacture and distribute merchandise, the greater its competitive edge. With this in mind, a leading global fashion group is using Damco s customized logistics solution to support distribution to its stores in China. 24-hour delivery required One of our customers, a leading fashion groups dealing in designing, manufacturing and distributing its clothes, was looking for a cost-effective solution to support distribution to its 90+ existing stores in Northern China as well as added 30+ stores planned for the future. For this, the company wanted a reliable, flexible and stable logistics service that delivered merchandise within 24 hours from the receipt of orders. Cost-efficient multimodal solution Due to our long standing partnership, this customer requested us to help them design a customized distribution solution. Working closely with our local offices in China, we developed a logistics solution that included combined domestic airfreight and trucking by using 1,000 vehicles by reaching out to local contractors. Optimized transportation route An optimized transportation route was designed for trucking based on store locations, opening hours and stores merchandise requirements. This route also took into account restrictions on delivery times at shopping malls and districts. To give the customer extra flexibility, the solution also included direct Distribution and consolidation 6.6 Customized distribution solution keeps Chinese consumers fashionably dressed Page 250

251 delivery to individual stores and milk runs by using consolidated shipments to multiple locations. To implement this solution, a dedicated customer support team was assigned to manage import and distribution for the customer. The team set up an online transportation management system. The customer also used our visibility platform in mydamco called track and trace that enables online order management and provides real-time visibility of the status of each shipment. We also out in place a single point of contact at Damco to improve operational efficiency and simplify communication with the customer. KPIs for continuous improvement To ensure stable service and continuous improvement, the customer support team set up various KPIs including on-time delivery and a daily report on the condition of goods. With this customized distribution solution, we helped our customer to get its merchandise to stores in the least possible time and thus helped to streamline its delivery process. The customer now gains maximum value of its inventory and is also meeting consumer demands for the latest fashions. 6. Distribution and consolidation 6.6 Customized distribution solution keeps Chinese consumers fashionably dressed Page 251

252 6.7 HONG KONG FULFILMENT CENTRE SERVES ASIA S FASHIONABLE EXPECTATIONS By: Tony Mullen Ever-increasing demand cross Asia for branded apparel and other lifestyle goods poses significant logistics challenges for brand owners. A purpose-built Fulfilment Centre (FC) in Hong Kong supports brands in serving consumers who not only want premium goods, but expect levels of customer service approaching those enjoyed in developed markets cash rich, time poor is as familiar in Shanghai as in London. Asia is no longer just a source: it is a destination The Asian market for lifestyle goods is changing rapidly, both as a source and a destination. From the increasing high costs of coastal China, manufacturing is dispersing across the country, and to countries such as Vietnam, Cambodia, and Myanmar. At the same time, an Asian middle class, already some 525 million people, is forecast to grow to 3.2 billion by With Western economies stagnant, Asia represents the major source of growth for many brands. The old model of shipping Asian production to Europe or the US, and fulfilling a relatively small Asian demand from there, is no longer valid, but holding inventory in distribution centres at individual country level is not cost-effective. This is why high-end lifestyle brands have turned to Damco s Hong Kong fulfilment capability. Flexible space to match flexible channels Damco s new FC, opened in 2014, is a purpose-built 14,000 m² structure. It has been planned and equipped to specialise in, not only apparel, footwear and accessories but also other small high-end products such as electronics and jewellery. Brands typically need to support different channels and flows, ranging from the push of new season stock into retailers on a quarterly basis, through regular replenishment against actual or forecast sales at a weekly or monthly level, to the direct fulfilment of 6. Distribution and consolidation 6.7 Hong kong fulfilment centre serves asia s fashionable expectations Page 252

253 online orders day by day with a typical delivery target of three to five days. The balance of these needs can change rapidly, and the new facility can be easily reorganised to meet a wide spectrum of requirements in the current configuration there are 2,000 pallet positions and 7,520 shelving locations serving 15 loading bays. Adding visibility and value Goods are received from manufacturers across Asia and beyond. In addition to global re-distribution, there is increasing focus on moving volumes more local across mainland China, Taiwan, South East Asia and as far as Australia. The FC receives and manages customer inventory according to customer requirements. It cross-docks, consolidates and picks as appropriate to create consistent deliveries of multiple products from multiple vendors to single customers, forwarded using Damco s sea and airfreight capabilities and trusted local carriers. Based on the complete visibility provided by Damco, customers can mix and match full loads shipped direct from manufacturers or shipments consolidated into full loads at the FC, down to the level of individually picked cases or items. The operating service is 100% focused on meeting the customers critical in-store dates. The FC can also offer a variety of value-added services. These range from reticketing and tagging to placing on customer-specific hangers or in poly bags and dustbags, and pick-and-pack operations for online orders. In its first year the FC has performed nearly 7 million reticketing operations into destination country requirements. The FC team expect to handle over 20 million units a year, around 20 per cent of this volume is represented by the rapidly growing E-commerce sector. Serving a culturally diverse geography, the FC can cope with multiple peak events, from Christmas and Chinese New Year to Singles Day in China a peak said to be worth three times America s notorious Cyber Monday. Ready to evolve with our customers The first year of operation has seen a 53% increase in units handled compared with the previous demand. The key customers who Damco initially migrated to the new facility are now enjoying a far superior operating platform including more flexible response to fast-moving market demands supported by a 24 hour operation. Further investment is still being planned not only in increased facility 6. Distribution and consolidation 6.7 Hong kong fulfilment centre serves asia s fashionable expectations Page 253

254 capacity but also improved inventory and order visibility. Markets will continue to evolve it may, for example, only be a matter of time before companies in the region achieve their own regional or even global lifestyle status and Damco in Hong Kong is well positioned to support its customers wherever the markets take them. 6. Distribution and consolidation 6.7 Hong kong fulfilment centre serves asia s fashionable expectations Page 254

255 6.8 PANAMA HUB HELPS GLOBAL BRANDS TO PENETRATE LATIN AMERICAN MARKETS By: Damco Panama Team For global brands distributing into Latin America, establishing a regional distribution centre (RDC) in Panama has advantages to help them meet demand without incurring heavy costs. Damco s dedicated 3PL operation at their new Panama Hub enables their clients to scale space, labour and transportation according to needs. This means that they can respond to fluctuations in demand, having the ability to utilize more space and resources when needed. Two well-known global brands that are now successfully penetrating into Latin American markets by basing their RDC operation at Damco s Panama Hub eliminating barriers to expansion while seamlessly supporting growth through a network of resources. Damco supports a global technology company s supply chain into Latin America and Miami With approximately 64% of this company s overall net revenue coming from products sold outside the USA, having visibility and control of the end-to-end supply chain when distributing to emerging markets like Latin America is a major factor in achieving on-target performance. When the multinational needed to change its Latin America hub and distribution structure, Damco proved that investment in the new Panama Hub would cut transit times and costs, supporting their supply chain into Latin America and Miami. Previously, the majority of their products destined for Central or South America had to move into Mexico or through Miami before being distributed. Through the use of the Panama Hub, their end-toend transit times has substantially improved, and at the same time reducing their carbon emissions and costs. The company directly benefits from Panama s low/zero taxes in its free trade zones and economic development areas while being able to reduce costly inventory by closing in-country warehouses. The Panama Hub is also helping to meet the targets set in their sustainability program, which aims to 6. Distribution and consolidation 6.8 Panama hub helps global brands to penetrate latin american markets Page 255

256 cut carbon emissions in their supply chain by two million metric tons of CO2 by So far, Damco s Panama Hub team have been able to reduce emissions by up to 40% while still managing to bring order lead-times and shipping costs to Latin America down! Appliance manufacturer establishes RDC in Panama to expand their portfolio of clients Damco s Panama Hub has also enabled a multinational appliance manufacturer to eliminate the need to invest in warehouse space, technology, transportation and staff to execute the logistics process. They now have a logistical network to penetrate markets in South America with lower risk and higher return. They have also made operational and transactional time and cost savings by using Damco to handle the paperwork, customs documentation, billing, audits, staffing, etc., that is required. Damco s Panama Hub has state-of-the-art software for supply chain visibility, transportation management, inventory control, etc. Outsourcing their logistics to a reliable, seasoned 3PL has allowed to focus on core competencies while leaving the rest to the experts. Since Central America and the Caribbean are very small markets, minimum size restrictions on orders from factories in Asia have made it difficult for brands to penetrate these markets. Thanks to their RDC at Damco s Panama Hub, there is no lower limit on order sizes. There is also a far greater degree of flexibility in daily dispatches to countries in the region: orders can be quickly reassigned and shipped to the markets where products are needed. Previously this customer experienced a massive four month lead time before manufactured products could be delivered to customers in Latin America, giving the company only three opportunities a year to place their orders a severe limitation. Now, thanks to Damco s 3PL solutions combined with the infrastructure advantages of the Panama Hub, when an order is received in Asia, it takes only three days before the products are shipped to their destination. 6. Distribution and consolidation 6.8 Panama hub helps global brands to penetrate latin american markets Page 256

257 Damco s Panama Hub provides global brands with flexible, scalable resources The Panama Hub has all the necessary resources at hand to provide a flexible and scalable service that meets the changing needs of global brands. By setting up their RDCs in Panama, Damco s 3PL clients are able to utilize the latest and most effective logistics systems to ensure that products ordered from manufacturers in Asia arrive in excellent condition, at the right location, at the right time, and in the right quantity. 6. Distribution and consolidation 6.8 Panama hub helps global brands to penetrate latin american markets Page 257

258 6.9 THE LONGER THE SPOKE, THE MORE EFFECTIVE THE HUB By: Lars Schmeltzer Moving partly loaded trucks or containers shipping air creates many supply chain inefficiencies. In domestic markets it is common to address this problem by organising a milk run whereby trucks tour a succession of suppliers to build up full loads for delivery. What may be less appreciated is how this approach can, in appropriate circumstances, be applied to supplies originating from a much wider geography. At Damco, we call this Multi Country Consolidation (MCC). From a location, such as Damco s MCC hub in Malaysia, it can be very beneficial to consolidate small shipments, not just from the local area, but from suppliers as far away as the Eastern side of India and Sri Lanka, or in the other direction the Philippines, Republic of China or Japan. That may appear to be taking goods some way out of their natural route even in the wrong direction; but if the principal transport element is a long deep sea voyage to the Americas, or Australia, as examples, it can be extremely cost effective. Besides minimising outbound handling and shipping charges for handling and shipping, there are major savings to be made by reducing the number of individual shipments to be handled at the destination in clearance charges, trucking costs and in simplifying the supply chain management process. Beyond the standard model of MCC That is what might be termed the standard model for MCC, but it is possible to realise further benefits. For example, one of our customers has hitherto been shipping to several new stores in Australia through Sydney. Onward transit to Perth can cost a considerable amount. Clever use of MCC (or ITC as this customer terms it) requires the programme to find the optimal way of moving freight from 6. Distribution and consolidation 6.9 The longer the spoke, the more effective the hub Page 258

259 origin to the distribution hub. This generates the critical mass to efficiently support individual markets on the leg to final destination. In this case it has made it economic to deliver in full container loads direct to Perth, with significant savings in cost and time. An additional benefit for the retailer s franchise partners is that they do not have the burden of organising and co-ordinating multiple carriers from multiple sources. If their supply is consolidated through a Damco MCC, they only need to be dealing with a single carrier or forwarder. In fact, there are many potential twists that can be put on the MCC approach, and Damco works actively with clients to find the best versions of the model for their particular needs at their current stage of evolution. MCC operates over a wide geography Our customer uses Damco s Malaysian MCC hub to bring goods in from manufacturers to consolidate loads for single destinations such as Mexico, the UK, the Middle East, the Philippines and Australia. Whether MCC is viable for a particular flow depends on a number of issues shipping costs, clearance costs and times at destinations, the desired lead times. It may make little sense to ship goods from the East side of India to Malaysia for consolidation, if the shipment is only going to sail past its origin to the Middle East. If, on the other hand, the destination is Australia or the Mexico, the economics can become very favourable. The alternative would be to hold stocks, at the supplier or elsewhere, until there is a full container load for a particular destination. But for many of the 100,000 SKUs, even aggregating several months demand might not fill a box, while incurring inventory, warehousing, degradation, obsolescence and other costs. The judgement on where to use MCC really is on a case by case basis. 6. Distribution and consolidation 6.9 The longer the spoke, the more effective the hub Page 259

260 6.10 WHY MULTI-COUNTRY CONSOLIDATION HELPS YOU FILL UP YOUR CONTAINERS By: Joris Ploemen In a number of industries, for example sports and lifestyle, relatively small volumes of goods will typically be sourced from many different vendors in several countries and shipped by ocean in lessthan-container-load (LCL) volumes. Under certain conditions it may be possible to modify such a supply chain so that full container loads (FCL) can be used. This multi-country consolidation (MCC) can make a serious difference in costs and carbon emissions. LCL versus FCL The benefits of multi-country consolidation become clear when we consider the difference in efficiency between shipping LCL and FCL. In the LCL situation, the logistics provider will combine freight of several customers at origin to fill up a container. At destination, the container load is then deconsolidated, so that the cargo of every customer can be moved to its final destination. Compared to an FCL situation, where at origin a container is filled with cargo for one particular customer only, it is evident that shipping partial container loads is less efficient and will result in larger emissions per m3 transported and lead to higher costs. More handling is required both at origin and destination, customs clearance is more complicated at both sides, and trucking several shipments for the final leg will be more expensive and less sustainable than just having one truck transporting one container. And as far as labour is concerned, MCC shifts the centre of gravity from destination to origin, where it is generally less expensive. MCC Advantages In order to benefit from this potential advantage, the shipments need to have particular characteristics. One requirement is that the goods come from a large number of origins. There has to be some room for re-handling: because not all the partial loads needed to fill up a container arrive in the MCC hub at the same time, a part of the cargo may have to wait several days before the container is moved. 6. Distribution and consolidation 6.10 Why multi-country consolidation helps you fill up your containers Page 260

261 Also the total volume of the customer from the origin region needs to be large enough that containers can be filled up within a reasonable period of time. Because there is a segment of companies for which multi-country consolidation can be attractive, Damco has set up dedicated MCC hubs in Malaysia, Hong Kong and Panama. Our container freight station facilities in these locations have been approved by C-TPAT and are fully certified. Savings in the range of 30-40% But how large are the benefits we are talking about? We have recently seen that new subsidiaries of one of the sport and lifestyle brands that Damco has been working with for many years have moved their business from a logistics provider that did not offer an MCC program to Damco. In this case, replacing a traditional LCL program with MCC through our Malaysian hub, they realised cost savings of 40% and a CO2 emission that was reduced by 30%. Even considering that MCC may only be applicable for a small fraction of the total volume shipped by the entire company, this was an improvement that this client did not want to miss. 6. Distribution and consolidation 6.10 Why multi-country consolidation helps you fill up your containers Page 261

262 6.11 CONSOLIDATION HUB IN SOUTH VIETNAM ACCELERATES DOMESTIC OCEAN DELIVERIES TO THE NORTH By: Thach Chuong Tong The Vietnamese economy is growing, and that s boosting demand for construction materials and other products like fast moving consumer goods and industrial cargoes between the regions in the South and North. Since the entire country has access to the sea, domestic ocean freight has become an economic and fast alternative to road and rail transport. This is especially the case for the transportation of large, lower value goods from the South to the North of Vietnam. This South-North route however created an extremely inefficient transportation system around Ho Chi Minh City and Cai Mep: trucks had to pick up empty containers from Ho Chi Minh City port and were then dispatched to dozens of factories around Cai Mep or within the Southern Focal Economic Zone. Fully loaded containers were then brought back to Ho Chi Minh City port, some kilometres away and deep inside the city area. Here the containers are loaded onto vessels bound for Hai Phong. On their journey, they again passed by Cai Mep! This situation resulted in high trucking costs and lengthier delivery times, not to mention the associated environmental burden and the increased traffic congestion. A new consolidation hub for domestic transportation In a constant drive to optimise its supply chains, our Vietnam team started project Hinterland, which included setting up a special consolidation hub at Cai Mep and a domestic ocean container transportation service to Hai Phong in the North. From here, the cargoes are delivered to destinations in Hanoi and the surrounding area. 6. Distribution and consolidation 6.11 Consolidation hub in South Vietnam accelerates domestic ocean deliveries to the North Page 262

263 It s a solution that many customers have been anticipating for years, and is available to the hundreds of factories located within 30 kilometres of the Cai Mep terminal. It avoids heavy overloading of Vietnam s national roads, thereby reducing CO2 emissions in line with the government s go-green initiatives. And it enables a wide range of products to be delivered to the internal market in the North of the country in a significantly shorter time than was previously possible. Damco was the only company able to connect all of the parties involved: the many manufacturers in the Cai Mep area as well as the shipping lines and port operator. Further streamlining Since starting the consolidation hub and in order to optimise operations even further Damco now offers weekly sailings from Cai Mep to Hai Phong. The shipping line has seven vessels, four of which sail directly to Hai Phong. The other three vessels make halfway stops at Da Nang, at another consolidation hub established by Damco. Here they unload containers destined for central Vietnam, and take on board containers bound for Hai Phong. With the economy in Vietnam growing continually, we expect domestic ocean transport volume to double next year. 6. Distribution and consolidation 6.11 Consolidation hub in South Vietnam accelerates domestic ocean deliveries to the North Page 263

264 Benefits for all Customers: Reduced transportation costs, quick turnaround time, and reduced CO2 Shipping lines: Incremental volumes, more efficient utilisation of vessels, and greater international cooperation. Port operators: More vessels calling, incremental volume throughput and promotion of domestic transport or hinterland services. Forwarders: More customers, and environmentally friendly solution. About Damco Vietnam The Cai Mep consolidation hub that is also well known as Project Hinterland, is an extremely timely solution, but is only one of the unique and flexible solutions we offer in this region. Damco is a pioneer in the logistics sector in Vietnam with more than 850 employees in three offices, and 65,200 m2 of warehouse space including Bonded, CFS, Chemical and general warehouse facilities with C-TPAT certification. The company has been operating and investing in the country for over 20 years. 6. Distribution and consolidation 6.11 Consolidation hub in South Vietnam accelerates domestic ocean deliveries to the North Page 264

265 7. LOGISTIC SOLUTIONS 7. Logistic solutions Page 265

266 7.1 DIRECT SOURCING OF PERISHABLE FOODS GAINS GROUND By: Damco Blog Team The international fresh food marketplace is in transition. During meetings with retailers and producers at the recent Fruit Logistica in Berlin I heard much talk of the continuing shift to direct sourcing of overseas perishable food products. What s driving this? Clearly, the global food market and retail landscape is evolving and this is changing the way retailers are buying perishable food. We see demand for quality fresh food is increasing, driven by fast growing, non-traditional consumption areas such as Asia, India and Latin America. However, overseas producers are not able to keep up this growth pace. As a result, the traditional North American and European retailers are finding that the days of an everlower price strategy, driven by an abundance of product, are over. To assure supplies and keep shelves stocked with quality product in the future, western retailers need to work on developing closer relationships with producers including paying better prices. To remain competitive means taking a fresh look at the logistics process from farm to store. Damco s global network ensures supply Taking control of the supply chain for perishable products can bring several advantages: it reduces costs; it increases the freshness of the products on the shelves; it provides more assurance of food safety; and it helps to guarantee supplies. All these elements are key to being successful for these destination categories in food retail. 7. Logistic solutions 7.1 Direct sourcing of perishable foods gains ground Page 266

267 At Damco we have a unique strength in Refrigerated Logistics; an own global network of local Fresh specialists, connected by common IT systems. They follow the same clear business principles (for instance regarding compliance) and are supported by a worldwide organization. This makes Damco a preferred logistics partner for many global retailers and larger producers. As the fresh food market evolves, we will continue to combine local care with global reach through our teams of specialized logistics experts. Our aim is to optimize supply chains and ensure that fresh and other perishables are transported under optimal conditions. Erik Osinga was the Global Head of Fresh (Refrigerated Logistics), supporting Damco s Retail Vertical. 7. Logistic solutions 7.1 Direct sourcing of perishable foods gains ground Page 267

268 7.2 TAILORED LOGISTICS SOLUTIONS IN SOUTHEAST ASIA By: Marco Civardi In recent years, Cambodia has become an increasingly important manufacturing source for textile, garment and footwear brands who value the relatively low costs and increasingly high quality levels available. As Cambodia s largest logistics services provider, Damco provides supply chain management services to a growing number of prestigious international brands in the fast-moving retail fashion industry. Supporting Cambodia s largest export industry While agriculture remains the cornerstone of the rural economy, and tourism is an important foreign currency earner, textile, garments and footwear producers form the backbone of Cambodia s manufacturing industry. Accounting for 80% of the country s physical exports, the industry is the main driver of growing logistics investment and activity. Although Cambodia is at some comparative disadvantage in terms of infrastructure by comparison with neighbours such as Thailand and Vietnam, the industry continues to perform well, with a record 640 factories operating in 2015 selling into US, EU and Asian retail markets. While recent increases in the minimum wage, and the impending Trans Pacific Partnership (of which Cambodia is not currently a signatory) may erode the country s low cost advantage, Cambodia s textile, garment and footwear industries will continue to be of major importance both to the country itself and to retail brand buyers, but only if the export supply chain functions well. Successful alternatives Fashion industries are time-critical. Not surprisingly then, air freight is seen as a vital part of the logistics mix. The two main international airports of Siem Reap and Phnom Penh are the only available international airways. With only 5 air-bridge terminals in Phnom Penh Internal Airport and 10 aircraft 7. Logistic solutions 7.2 Tailored logistics solutions in southeast asia Page 268

269 stands in Siem Reap International Airport, the capacity is limited although the government is putting efforts to modernize airport facilities aiming to expand capacity in anticipation of demand s increase. Currently most of air-cargo is uplifted via passenger aircrafts hence costs are relatively high. Where slower but cheaper sea freight is appropriate, timely shipment is often the issue. In Cambodia s Sihanouk Ville Port, container traffic is often held up as there is only one vessel departure per week. To address these challenges, Damco offices in Cambodia have collaborated with colleagues in Thailand and Vietnam to create innovative land-air solutions. For example, cargo is now trucked to either Bangkok airport or the recently enlarged Ho Chi Minh City airport, giving access to routes that offer greater freight capacity and more frequent flights. This alternative has seen strong volume growth in 2016, offering Damco s customers a timely and more reliable service at acceptable overall cost. Looking to the future, there is also potential to create land-sea links to exploit capacity at the developing Cai Mep container terminal in Vietnam. Cambodia s new transport minister is committed to addressing logistics constraints on growth. There are active plans for capacity investment at the airports and, further ahead, improvements to the road network (and, just possibly, rail links) in Thailand Cambodia Vietnam corridor. As Cambodia s largest logistics service provider with 270 employees in the country Damco will be actively encouraging and be at the forefront of these developments. 7. Logistic solutions 7.2 Tailored logistics solutions in southeast asia Page 269

270 7.3 NEW OPPORTUNITIES IN VIETNAM AND CAMBODIA By: Marco Civardi The changing nature of the Chinese manufacturing is more an opportunity than a threat for businesses in Vietnam and Cambodia. Whilst Vietnam is already the fourth-largest exporter of apparel globally, and the garment industry accounts for 80% of Cambodia s exports, such emerging markets do not offer only low labour costs advantages for traditional low-end manufacturing items. In fact, many technology companies from China, Taiwan, Japan and elsewhere are progressively investing to expand production facilities also in anticipation of the raft of Free Trade Agreements that are soon coming in to play. In addition, both countries have a young and energetic workforce who is eager to achieve fast-track careers both domestically and via employment opportunities overseas in order to upgrade their skills set. Last but not least, both countries governments are very much pro-business and their macroeconomic policy has the necessary dynamism to create strong partnership with counterparts overseas. As a result, we can confidently consider Vietnam and Cambodia as growth tigers within the Asia s regional context. Based on such investments which include the deployment of latest production technologies and business practices, certainly the spill-over effect lies in creating tangible opportunities for domestic firms too, provided they can be active part of the global supply chain market by constantly nurturing their workforce via specialized training. Greater production, and more and better remunerated jobs, will both increase exports and stimulate imports from the EU and US. Over the longer period, supply chains will have to become more selfsufficient (i.e. sourcing in-country or from other countries within the relevant FTA areas). From a macro-economic perspective, Intra-Asia trade already accounts for 55% of airfreight and 66% 7. Logistic solutions 7.3 New opportunities in vietnam and cambodia Page 270

271 of ocean freight in Vietnam and the TPP s implementation can only further foster trade level increases within the region. In order to tap into such high-growth opportunities as the Intra-Asia trade lanes, Damco already has dedicated teams to focus on intra-regional trade with a special emphasis on China, Taiwan, Japan and Korea as key commercial partners for Vietnam and Cambodia. In addition, the trade lanes to Europe and across the Pacific are strategic ones as typically manufacturers, with factories mostly owned by Asian investors, export their biggest volumes to such long-haul destinations. The essence of our trade lane approach lies in one word partnership which ties together different and complementary components of Damco s overseas network. Infrastructure improving but more to be done If these growth and investment opportunities are to be taken, the logistics industry serving Vietnam and Cambodia must meet a number of challenges. At up to 25% of GDP, logistics costs are quite high, disadvantaging the country relative to its neighbours in spite of the fact that Vietnam/Cambodia occupies a prime geographic position. Infrastructure in the two countries can be problematic. Road connections are improving although not at the pace logistics operators would desire. There are major issues with air freight as it s quite complex to procure allotments on direct passenger flights from Phnom Penh (i.e. only a few freighters are available from selected airlines) therefore a considerable part of our freight is trucked to Bangkok and uplifted to long-haul destinations due to better schedule frequency and overall capacity. So much freight is trucked to airports in Thailand. In relation to Vietnam, flights frequency from from Hanoi have greatly improved however similar investment has yet to be made at Ho Chi Minh Airport whereby it is expected that, would current growth rate continue, almost by 2017 the airport will be at full capacity for both passengers and cargo. To comply with new international standards necessary after TPP and FTA implementations, both countries can face issues around product quality, intellectual property, and fighting corruption. These needs to be addressed by local authorities the soonest to the satisfaction of external buyers. 7. Logistic solutions 7.3 New opportunities in vietnam and cambodia Page 271

272 Damco s strategic response Damco is flexible in the way it interacts with customers and the logistics options it offers, seeking out savings and continuous improvement in processes, workflows and in the way we engage the broader stakeholder s community. Damco continuously invests in the training and development of our staff while at the same time we engage with our local business partners to foster long-term partnerships. The recent upgrades of Damco s logistics centres in Vietnam testify our commitment to the local market making it clear to our stakeholders that we are here for the long-haul! In order to enhance our pricing competitiveness, we relentlessly focus on keeping a lean operational set-up while ensuring fast response time to our customers inquiries. As we aim to grow much faster than the local market s pace, promoting our international air and ocean services is of the utmost importance. Responding to the increasingly crowded competitive environment in South East Asia, Damco has motivated multi-cultural teams and state of the art facilities in the most economically relevant locations to help our customers capitalize on the growth opportunities. 7. Logistic solutions 7.3 New opportunities in vietnam and cambodia Page 272

273 7.4 WHY DAMCO IS LEADING THE WAY IN MYANMAR By: Damco Blog Team Since international sanctions were lifted in 2012, Myanmar has established itself as a new frontier market, with enormous potential to become a major sourcing country and consumer market for our customers in the near future. The country s strategic location between three drivers of global economic growth China, India and Southeast Asia makes it one of the most unique emerging markets in Asia. Initial growth has been gradual, but is now picking up and the pace is expected to further accelerate in the near future. Currently, the telecommunications industry and businesses related to building/ construction and infrastructure development are booming. Garment export and the import of consumer products are also on the rise. After acquiring an operating license in 2013 and opening a new office in Yangon, we have now strengthened our position in Myanmar by being the first international logistics company to start offering own-operated CFS/ warehousing services. A few weeks ago this brand-new worldclass 4,000 square metre C-TPAT compliant facility was opened, strategically located within 15 kilometres from Yangon ports and other major industrial locations. It is suitable for all kind of import/export activities and enables us to provide superior service to our customers through direct control and management of the entire operation and service delivery process. 7. Logistic solutions 7.4 Why damco is leading the way in myanmar Page 273

274 Emerging markets have always been one of our focus areas and core strengths, with many of our key customers sourcing their products from or operating in these markets. These customers can now rely on us as their logistics partner in Myanmar, benefiting from the same service quality for cargo shipped out of Myanmar as any other country in which we operate. In addition, we have proved again that we are one step ahead of the competition by proactively establishing this CFS operation in Myanmar! 7. Logistic solutions 7.5 Offsetting market forces in china by optimising logistics Page 274

275 7.5 OFFSETTING MARKET FORCES IN CHINA BY OPTIMISING LOGISTICS By: James Savagar For decades China has been the preferred manufacturing country for Western companies. As a result, foreign multinationals manufacturing or sourcing products in China have driven the country s exportfocused growth. The manufacturing sector represents some 50% of the country s GDP, and although China aims to reduce its export dependency, manufacturing will remain an important sector. Rising wage levels One of China s biggest challenges is to maintain its competitive edge over other low-cost manufacturing countries as wage levels rise. Since the mid-2000s, minimum wages in China have increased by 10% per year, faster than other low-cost countries. Wage increases will affect manufacturing costs, but the impact will vary across industries and product categories. Companies can offset the impact on margins by outsourcing their logistics to 3PLs like Damco to improve their supply chain processes. Offsetting with supply chain optimisation To understand how much supply chain optimisation can offset wage increases, in 2011 Accenture conducted an analysis of the impact on three industries in China: footwear, heavy machinery and personal computers. Assuming a minimum wage increase of 30%, the study found that the cost of footwear sold would increase by 1.2%. This would require a 0.7% increase in retail prices. 3PL services can typically reduce logistics costs by 15% on average (Capgemini and Langley, 2012). Assuming that logistics costs account for 6% of multinational footwear goods, a 15% reduction in logistics costs can fully offset a 30% wage increase. Labour costs amount to 4% of the cost of heavy machinery sold and 20% for personal computers. Assuming once again that logistics costs account for 6% or more in these sectors, a 15% reduction in 7. Logistic solutions 7.5 Offsetting market forces in china by optimising logistics Page 275

276 logistics costs would partly offset a 30% wage increase. More details can be found in appendix B of the report A leading trade nation (Maersk, 2014). Improving domestic supply chains 3PLs can also improve domestic supply chains in China. The Chinese consumer market is expected to become the world s second largest by To seize this growth potential, more than half of the world s top 50 retailers have entered the Chinese retail market. However, high inventory, storage and transport costs pose challenges to domestic supply chains. Inventory and storage costs amount to 35% of China s total logistics costs, and transportation costs to more than 50%. 3PLs like Damco can achieve approximately 25% reduction in inventory and storage costs in China, and a 14% reduction in domestic transport costs. Increasing competitiveness and growth By reducing transport costs and optimising inventory levels, companies active in China can increase their competitiveness and growth. This in turn would provide Chinese consumers with a greater range of purchasing options and create an increasingly competitive environment for companies. It would also contribute further to imports of consumer goods, and the government s strategy to increase domestic spending. More information can be found in our blogs How 3PLs can help improve logistics in China & Optimising export supply chains from China produces significant savings [refer pages 251 & 218 respectively of this document]. You can also refer Maersk Technical Report A leading trade nation from the link below Logistic solutions 7.5 Offsetting market forces in china by optimising logistics Page 276

277 7.6 OPTIMISING EXPORT SUPPLY CHAINS FROM CHINA PRODUCES SIGNIFICANT SAVINGS By: William Lee China is a key manufacturing and sourcing market for many global companies. It is also becoming an increasingly attractive domestic sales market. The challenge in sourcing from China is the long distance and lead times to main markets. This results in higher transport costs and possible higher inventory levels compared to sourcing hubs like Mexico and Eastern Europe which are closer to the US and Central Europe. Shipping costs alone can represent 8% to 10% of the total cost of sourcing from China. Three optimisation solutions Damco has a strong global position providing integrated supply chain management services to multinationals and China represents a large part of its business. In 2011, the company moved 27% of total containers for the consumer and retail segment in Trans-Pacific trade and 13% in the China- Europe trade. In these operations, Damco offers three different solutions that can help optimise Chinese supply chains: 1. Process flow optimisation including consolidation of shipments and port rationalization. 2. Transport and warehouse network optimisation. 3. Inventory optimisation. The benefits that customers gain from these solutions depend on their operations and criteria for business success. These can include cost savings, reduced time to market, lower carbon emissions and preferred carrier mode. 7. Logistic solutions 7.6 Optimising export supply chains from China produces significant savings Page 277

278 Significant cost savings On average, Damco delivers 15% cost savings for its customers. Savings vary according to the customer s supply chain characteristics and the optimisation solution applied. Process optimisation typically reduces costs by 9%, transport and warehouse network optimisation by 21% and inventory optimisation by 26%. Damco achieves these savings while maintaining the same level of service in terms of time to market. Savings on key logistics items Freight transport and inventory are two of the largest logistics cost items in export supply chains from China. As a result, these are the areas where significant cost savings can be made. Customers that include ocean or air transport in their supply chains can achieve average cost savings of 12%, while customers focusing on inventory levels can make average cost savings of 26%. Reducing customers carbon footprints In addition to cost savings, Damco reduces carbon emissions through increased utilisation of containers and optimised transport and warehouse networks. For process flow optimisation projects, carbon emissions can be reduced by approximately 10% in ocean transport alone. For network optimisation, carbon emissions can be reduced by up to 27% in domestic transport. Large savings potential for less mature supply chains These cost savings and carbon reductions have been achieved for large global customers with mature supply chains. For companies with less mature supply chains, the savings can be even bigger. These savings illustrate the importance of 3PLs like Damco in optimising Chinese supply chains, reducing client and vendor logistics costs and improving competitiveness. 7. Logistic solutions 7.6 Optimising export supply chains from China produces significant savings Page 278

279 7.7 RELIABLE SOURCING IN INDIA FOR RETAIL AND APPAREL CUSTOMERS By: Damco Blog Team Speed and agility the key to getting fashion products out of India on time India is rapidly becoming one of the world s most important centres for sourcing apparel, accessories and other fashion products. Many big name brands are already producing here. Due to the large number of garment export factories that can comply with international standards nowadays, the country has seen a steady growth of its apparel exports. However, issues such as poor infrastructure, climatic conditions, social instability and irregular government practices can negate many of the advantages of sourcing in India. For fashion products, time to market is critical: a delay of two weeks can make an item worthless for retailers. Speed and agility are therefore essential for successful sourcing in India. Monsoons, strikes and inadequate infrastructure Infrastructural developments in India, in particular around ports and the surrounding regions, have not kept pace with the rapid growth of trade they are required to handle. The resulting congestion at these key locations can be extremely severe especially in the monsoon season, which unfortunately happens to be the peak season for retail and apparel customers. On top of that, the transport market is unorganised, transportation is frequently affected by strikes, and the legal framework for customs clearance as well local customs practices can be complicated. Establishing and managing a fast and reliable supply chain out of India may prove to be a real challenge for businesses trying to go it alone. The Damco solution Damco has an established presence in India, with currently over 500 logistics experts spread across an extensive office network throughout the sub-continent. Our specialists understand the way Indian 7. Logistic solutions 7.7 Reliable sourcing in india for retail and apparel customers Page 279

280 suppliers work and can anticipate most of the issues that may arise. Next to this, we have engaged in strategic partnerships with private rail operators to reduce our dependency on Indian Railways and formed close connections with international ocean and air carriers. We have also built strong relationships with local vendors, particularly for trucking, warehousing and customs handling. Our long experience in India has enabled us to create exhaustive business continuity plans to deal with regular issues (strikes, monsoons, congestion or suspension of transportation) as well as other types of disruption. Furthermore, we have alternates to the standard supply chain in place to be able to guarantee maximal agility and speed. Together, our widespread office network and the many alliances we have formed enable us to deal effectively with just about any issue, without affecting the time to delivery. New consolidation points for apparel, accessories and retail cargo Ensuring business continuity for customers depends not only on our knowledge, plans and partnerships, but also on having a reliable physical infrastructure. Damco has been present for many years in consolidation markets such as Delhi, Mumbai, Chennai and Tuticorin, and is by far the largest third party logistics provider here. To be able to handle the steadily increasing volume of shipments, Damco has recently invested in a number of new consolidation points, for example in Bangalore and at Tirupur. These locations are closer to manufacturing hubs and have access to multiple gateways, thus eliminating the risk of depending on a single port. All CFSs are well equipped to manage goods that need special handling, such as home furnishings, apparel, shoes, accessories and other fashion merchandise. Each location is fully equipped to provide multi-modal solutions so that, even when subject to external influences outside our control, speed to market is affected as little as possible. At different origins in India, Damco has dedicated teams of customs specialists who know everything about clearing apparel, home furnishings and accessories. They also provide in-house services for document audit for factories and customers who want to make use of our local expertise. In 2013, Damco India managed 2.2 million CBM of cargo exports from India. Of this, 700,000 CBM was moved via our CFSs, and the rest was transported directly from the factories. 7. Logistic solutions 7.7 Reliable sourcing in india for retail and apparel customers Page 280

281 Sourcing In India is reliable with Damco India has many high quality suppliers and manufacturers capable of creating a wide range of products rapidly and according to the latest fashion trends and market needs. Vendors and retailers of apparel and other fashion merchandise can benefit greatly from this manufacturing potential, but only if they can rely on a solid supply chain in particular, one that is robust to disruptions that would potentially affect time to market. The dependable and agile supply chain solutions that Damco provides can be the missing link that opens up these advantages to customers all over the world. 7. Logistic solutions 7.7 Reliable sourcing in india for retail and apparel customers Page 281

282 7.8 INDIA - A SOURCING REGION ON THE RISE By: John Fedorchak Management Summary Due to rising labour and energy costs, traditional sourcing regions are no longer automatically the perfect production locations they once were. Looking for regions with lower total manufacturing costs, our clients are weighing the possibilities of countries like Thailand, Indonesia, Vietnam and India. Of these four, India merits some study because of the important changes that have taken place there in recent years. In many respects, today s India is not the country it was ten years ago. Judging by labour costs alone, India definitely qualifies as a potential sourcing region. What is more, it has an abundance of skilled labour as well as raw materials. The problem with India has always been the secondary factors: the overall business environment, ease of doing business, logistics performance and corruption. It is exactly in these areas that the Indian government has stepped up to start a process of fundamental changes. The Make in India initiative, launched in 2014, is a dedicated package of measures aimed at making the country more attractive as a production location for international companies. To support their ambitious plans, successive Indian governments have invested in upgrading the country s infrastructure. The total port capacity is projected to increase by 55% over five years, a Dedicated Freight Corridor has been created that consists of 3300 km of railways to be used exclusively by freight trains, and the Golden Quadrilateral, part of the National Highways Development Project, links the four corners of the country with almost 6000 km of four- and six-lane express highways. The result of these efforts is not only material. Foreigners visiting India with a business perspective are bound to sense the overall mood of development and progress. India is an up-and-coming sourcing area that is definitely worth investigating. 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 282

283 The Search For New Sourcing Regions Over the past decade, sourcing from traditional production locations has lost some of its original glory. We see a growing number of our clients exploring the possible advantages of moving their production to other sourcing areas, due to increasing labour costs and energy prices in for example China (see Figure 1). Source: US Economic Census; BLS; BEA; ILO; Euromonitor; EIU; BCG analysis. Note: No difference assumed in other costs (e.g. raw material inputs, machine and tool depreciation); cost structure calculated as a weighted average across all industries. Figure 1: The costs related to labour and energy has risen dramatically in China between 2004 and Factors to consider Several factors will play a role while evaluating the pros and cons of possible sourcing areas. The following are the most important. 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 283

284 Total manufacturing cost: This is of course a key factor, and the one that can most easily be quantified. This variable consists mostly of labour costs and raw material costs. There is usually not a large difference in raw material costs between regions, but labour costs may vary significantly. Rising wages and energy costs: In addition to the current situation one should also look at expected developments. If large increases in wages and energy costs are foreseen, the benefit of moving to a cheaper sourcing area may be short-lived. Overall business environment: A stifling bureaucracy, difficulties in obtaining permits and licenses, limitations on investments and partnerships, financial restrictions, or a general attitude that makes it difficult to come to agreements and have them executed are some of the potential handicaps for successfully doing business. Logistics performance: Ports should be in good condition, well managed and well operated. This includes dependable and fast customs clearance procedures. Corruption: Fraud, bribery and facilitation payments are a persistent problem in many countries that may cause serious compliance issues. Weather and climate: As global weather conditions are becoming more extreme, storms, typhoons and floods can be even more damaging to global supply chains than they were before. A country cannot be held responsible for the weather, but it can take precautions to minimise its impact. Infrastructure: The quality and coverage of the existing railways, roads and airports determine how easy it is to ship products from the region to their destination. An opportunity for low-cost countries in Asia While labour costs are not the only factor determining the attractiveness of a sourcing region, they definitely are a major one. Figure 2 shows how the average wages of unskilled factory production workers in Shanghai have increased more than four-fold in a period of 14 years: an average annual growth of 12%! 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 284

285 Source: China Statistics Bureau; China Labour Statistics Yearbook; EIU; A.T. Kearney analysis. 1 Factory unskilled assembly worker, Shanghai Figure 2: Since 2000, industrial wages in Shanghai have increased at an average rate of 12% per year. It is no wonder, then, that companies are looking for more affordable options elsewhere. The average wages for a number of countries that come into consideration are listed in figure 3. Thailand, Indonesia, Vietnam and India are all significantly cheaper. This eguide takes a closer look at India because, although its wages are not the very lowest, it offers a range of other advantages that make it an interesting candidate for any buyer looking for a new sourcing region. 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 285

286 Source: China Statistics Bureau; China Labour Statistics Yearbook; EIU A.T. Kearney analysis. 1 Factory Unskilled Assembly Worker, Shanghai. Figure 3: Several new sourcing regions, including India, have significantly lower average wages than China. Opportunities And Challenges In India Although there are still challenges to be overcome, there are many good reasons why India should appear on the radar of anyone looking for an alternative sourcing region. Its sheer size is one argument: by 2030 India will be the world s third largest economy. India is a young country, with more than half of its population younger than 25. This demographic is a driving force for a growing consumer market, which is expected to be the fifth largest globally by Today it is the 10th largest importer in the world. Looking at manufacturing and export, we see that the country at this point is the 19thlargest exporter globally. It has the ninth largest aviation market in the world and is the seventh largest vehicle- 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 286

287 producing nation. Textile manufacturing is the second largest source of employment, after agriculture. It has an impressive infrastructure: it hosts both the world s largest railway network, comprising 115,000 km and 7172 stations, and the world s second largest road network, covering more than 4.7 million kilometres. With a nominal Gross Domestic Product of currently USD 1,800 billion, which is expected to double to USD 3,600 billion by 2020 at an unprecedented annual growth rate of 9%, India is clearly a force to be reckoned with. Figure 4 presents an overview of the sourcing opportunities that India offers. This map should serve to give an impression of the country s potential. It can offer a wide range of commodities at competitive manufacturing costs, and in fact many experienced suppliers in India are already serving several global multinational companies. New DelhiAuto ancillary & Steel, garments, towels, home furnishings Ludhiana- Woolen knitwear Moradabad- Brassware Assam- Tea Karachi JodhpurHandicrafts & Furniture Chittagong Agra - Shoes Dhaka Kolkata AhmedabadPharmaceutical Jaipur- Textile, printing, granite & marble MumbaiGarments, Steel, Chemicals India is a land of opportunities KolkataLeather, Jute Coimbatore Pune- Food Processing, Auto Bangalore - Garments, Coffee Cochin- Spices, Seafood, Cashew, Coir Chennai-Leather products, Auto Wide range of commodities at competitive manufacturing costs Experienced suppliers already supplying to several global MNC s Tirupur- Garments and Textiles Figure 4: Many Indian regions have their own particular focus. Generally speaking, soft goods are supplied from the South and durables from the North. 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 287

288 Challenged by secondary factors While India has strong cards in terms of infrastructure, raw materials and labour, its growth as a sourcing region could still be limited by the fact that it is not competitive enough in the area of secondary, non-cost factors. Figure 5 quantifies the problem. The five countries used for comparison all have higher direct costs, but they rank significantly better on all of the other variables. The only exception is Thailand, which is perceived as slightly more corrupt than India. Source: US Economic Census; BLS; BEA; ILO; Euromonitor; EIU; BCG analysis. 1. Includes a selection of economies ranked from 1 to 25 on total export size. 2. EIU ranking based on ten separate criteria or categories covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy toward foreign investment, foreign trade and exchange controls, taxes, financing, the labor market and infrastructure. 3. World Bank ease of doing business index. 4. World Bank logistics performance index. 5. Transparency international 2013 corruption perception index. Figure 5: A comparison of India with some other countries shows that India performs poorly on secondary factors that affect international competitiveness. The dashed positions in the table indicate a ranking that is not in the top 50 for that particular variable. 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 288

289 To improve the overall business environment and the ease of doing business, radical labour reforms will be needed. Also, simpler licensing procedures, easier access to formal credit, and a less complicated tax structure are long awaited. A better ranking on logistics performance will only be achieved by fixing the country s poor infrastructure through investments in ports, highways and power plants. Corruption, with a global 94th ranking, has been a plague in India. An extreme example is the well-known case of Satyendra Dubey, a project director for a highway project in Bihar, who in August 2003 advised the government of the many serious fraudulent activities he had witnessed. Even though he was transferred to another region he was found murdered in November of the same year. Fortunately, in recent years the Indian government has decided to focus on turning the situation around. The recently launched Make in India initiative is a promising attempt to address these challenges. The Make In India Initiative On 25 September 2014, Prime Minister Narendra Modi announced the Make in India initiative, intended to encourage foreign companies to manufacture their products in India. Its ultimate goal is to increase GDP growth and tax revenues by increasing the volumes of manufacturing, imports and exports, and by improving the level of employment. The initiative also pays attention to high quality standards and minimising the impact on the environment. It is expected to facilitate foreign technological investments in the country. Figure 6: The logo of the Make in India initiative. The Make in India programme will enable India to benefit from the abundance of labour and the wealth of raw materials that it has available. Sectors that will especially benefit from the initiative are: Textiles and apparel. India has been in the Top 3 of textile and apparel exporting nations for the last three years. It is the world s largest producer of cotton, with a harvest of 6.5 million metric 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 289

290 tons in 2014/2015, and has a large production capacity of polyester and synthetic fibres. Automobile and auto ancillary. This sector benefits from the abundance of steel, plastic and labour. Chemicals. Relevant here is the strong demand for dyes, agrochemicals and pharmaceuticals. Defence and aerospace. This involves guns, ships, tanks, high-precision equipment and avionics for passenger aircraft. Furniture. The sector will benefit from India s advantages in terms of raw materials and labour. Make in India is still in the second year of the five years covered by the initial plan, and has clearly created an overall mood of development and progress. Focused impulses for manufacturing The Make in India initiative has identified a number of areas in need of improvement, largely coinciding with the problem areas described above: infrastructure, labour reform, tax incentives and political stability. More than half of the initiative s budget was allotted to these four areas alone, as visualised in figure 7. Source: CII-BCG Manufacturing Leadership Survey Figure 7: Make in India focuses on the major problem areas. 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 290

291 Upgrading India s Infrastructure It is worthwhile taking a closer look at the way the Indian government is tackling the current infrastructural problems, because they are a real bottleneck from a logistics point of view. Figure 8 shows the relative investments in various segments of the infrastructure. The planned increase in investments over the coming years is nothing less than impressive. Source: June 2014 High Level Committee Report on financing infrastructure Note: Includes central, states and private, INR in prices. 1 Mass Rapid Transit System. Figure 8: Infrastructural investments focus heavily on electricity, roads and bridges, telecommunications, and railways. Port infrastructure India has a large number of ports along its coastline of 7,517 km, with a total capacity (2013) of 18 million TEU (figure 9). The government is investing aggressively in the nation s ports and the projected capacity for 2018 is 28 million TEU - an increase of 55% in no more than five years. 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 291

292 MUNDRA KANDLA KOLKATA /HALDIA PIPAVAV HAZIRA MBPT JNPT DHARMA PARADIP VISHAKAPATNAM GANGAVARAM MORMARGAO MANGALORE KRISHNAPATNAM KATTUPALLI ENNORE CHENNAI KOCHI /VALLARPADAM TUTICORIN Figure 9: India has ports all along its coastline, with a total capacity of 18 million TEU. The Dedicated Freight Corridor Under India s Eleventh Five Year Plan ( ), the Ministry of Railways undertook the construction of a Dedicated Freight Corridor (DFC) with a total length of approximately 3300 km, consisting of an Eastern and a Western Corridor, interlinked at Khurja in Uttar Pradesh (see figure 10). The DFC was realised relatively fast by building dedicated freight lines alongside existing passenger railways, thus taking pressure off the existing routes and increasing operational efficiency. It was backed by loans from the World Bank and the Japanese government. 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 292

293 Figure 10: With 3300 km of dedicated freight railway, the DFC represents a major improvement in India s rail infrastructure. The Dedicated Freight Corridor has contributed to a reduction in port congestion. Compared to the existing solution that used combined lines, the new straight-line transit reduces delays caused by transit breaks. The upgrade of the railway infrastructure also allows for an increase in the length of trains and larger axle loads, as well as double-stacking, and supports a huband- spoke model of operation. The Golden Quadrilateral To alleviate the infrastructural problems related to road transportation, India started a National Highways Development Project in the early 1990s. The first phase of this project is the Golden Quadrilateral (GQ), a highway network connecting many of the major industrial, agricultural and cultural centres of India. The name was derived from the fact that it links the four major metropolitan cities of Delhi, Mumbai, Chennai and Kolkata, located roughly in the four corners of the country, but it also 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 293

294 connects a number of other large industrial hubs. The GQ project consisted of building 5846 kilometres of four-and six-lane express highways, at a cost of USD 9.5 billion, which was fully operational by January In the meantime, the decision has been made to ultimately convert the entire Golden Quadrilateral into six-lane highways. * Launched in 1998, The entire length was operational by January 2012 Figure 11: The Golden Quadrilateral, connecting for major cities, is the backbone of India s road infrastructure. The importance of road transport for the Indian economy becomes clear when one realizes that over 60% of all goods and 85% of all passenger transport is done by road. India has the second largest road network in the world, with a staggering total length of 4.7 million kilometres. Investments in the road sector are rising year by year, while the private sector is emerging as a key player in the development of the road infrastructure. The total length of national highways, currently 71,772 km, will reach 85,000 km by the end of the 12th Five Year Plan. A significant benefit of the Golden Quadrilateral and of the entire National Highways Development Project is that they help improve the utilisation of India s ports. While the total port capacity was 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 294

295 18 million TEU, as mentioned before, only 10 million TEU of freight were actually handled. The only reason for this under-utilisation is the limitations in the road infrastructure, and the intended enlargement of the port capacity will only be useful when the road infrastructure comes up to par. A New India Taking a step back from the details and looking at the bigger picture, one sees the contours of a new India emerging - an India that qualifies as an attractive sourcing location. In addition to an infrastructure that will soon be adequate, India can also draw benefit from a large pool of well-skilled labour, a stable political climate, an improved atmosphere for doing business, and an abundance of raw materials. This combination of characteristics makes it better suited for manufacturing specific categories of products than its low-cost competitors Vietnam, Thailand and Indonesia. Damco knows the way It has always been a cornerstone of Damco s strategy to invest in areas that we expect will grow and develop. This is why we have been present in India since Today we have 22 fully-owned offices distributed across the country (see figure 12), with a total employee headcount of over 520. Damco is the Indian market leader in cargo consolidation, managing 162,788 TEU of ocean freight, air-freighting 9035 tons, and handling 2.1 million cbm in supply chain management volume (2013 figures). 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 295

296 India Cluster Ludhiana Jaipur New Delhi Jodhpur Mumbai (Region HO) Ahmedabad Kandla Rajkot Veraval Indore Vadodara Indore Kolkata Bhubaneswar Visakhapatnam Pune Mangalore Bangalore Cochin Chennai Tuticorin CFS Warehouse Figure 12: With 22 fully-owned offices, Damco has a strong presence across all of India. Thanks to our long-standing presence and the fact that a majority of our staff has a local background, we know our way about the legal system and relevant local procedures, for example those relating to customs clearance. Using this expertise, we have helped several of our clients over the past few years to establish a local sourcing operation that has allowed them to benefit from the advantages that India currently offers. 7. Logistic solutions 7.8 India - a sourcing region on the rise Page 296

297 7.9 SUPPORTING INTERNATIONAL EXPANSION INTO AFRICA AND THE MIDDLE EAST WITH A TAILORED SOURCING INFRASTRUCTURE By: Jason Webster Large retail organisations want to be able to grab all opportunities for growth that present themselves. An obvious way to grow is by expanding their physical presence: adding new stores to an established market or entering new countries. Another option is adding new products to their existing offering, preferably under a house brand. The success of both routes will depend heavily on a reliable, efficient and cost-effective sourcing infrastructure. Sourcing hub in Yantian One of Damco s clients provides a good case in point when considering the optimisation of sourcing to support growth and international expansion. This is a retail organisation, currently focused in a dozen countries in the Middle East and growing there at a steady pace of one or more shops per month. The company has decided to expand into several countries of the Commonwealth of Independent States and also intends to move further south on the African continent. The centre of gravity of their sourcing lies in Asia, with sourcing offices in Thailand and Hong Kong. To optimise their supply chain, they decided to establish a sourcing hub in Yantian, China. A complete range of services A characteristic that differentiated Damco from the competition in the tender selection process was our extensive experience with global brands in the retail vertical. Based on this experience, we provide this client with a complete range of services in the Yantian hub: consolidation services, warehousing operations, order management and freight export handling, completing the supply chain by providing ocean freight services to their stores in (currently) twelve countries. Not all the products sourced from Asia go through the Yantian hub; from other Asian countries like Thailand, Indonesia and Malaysia freight is moved directly from the suppliers to the stores. 7. Logistic solutions 7.9 Supporting international expansion into Africa and the Middle East with a tailored sourcing infrastructure Page 297

298 As a way of optimising its revenue, this retail chain also wants to increase the volume of goods sold under its in-house brand. To facilitate the procurement of these products closer to destination, they are currently in the process of setting up a third sourcing office in Turkey. Given the success of the Yantian hub, Damco was asked to replicate this with a similar set-up in Turkey, where we will provide the same services. The next step: entering Africa Our client has already expanded its footprint beyond the Middle East by opening a number of stores in several CIS countries, with more to follow. The next step in the ambitious growth scenario of this retailer will be to create a presence on the African continent south of the Middle East, starting with a first store in Nairobi, Kenya, in Their relationship with Damco will make it easier for them to establish themselves in Kenya or any other African country. Thanks to our presence in all major ports and centres of trade, we have specialists everywhere with detailed knowledge of all local procedures a body of experience collected over many years. For clients like this retailer, all of this knowledge is available to make the international expansion of their business go as smoothly as possible. 7. Logistic solutions 7.9 Supporting international expansion into Africa and the Middle East with a tailored sourcing infrastructure Page 298

299 7.10 NEAR SHORING IN EUROPE: OPENING UP NEW SOURCING REGIONS By: Damco Blog Team Now that super slow sailing has become the rule on the Asia-Europe route, the long transit times from China present a serious problem for customers who depend on short times-to-market. The increasing number of void sailings makes things even worse. As an alternative, sourcing in countries closer to Europe ( near shoring ) appears to be promising, but due to the state of development of both the vendors and the local infrastructures there it may be difficult to realise the desired short transit times in a reliable way. Inexperienced vendors, unreliable infrastructures Over the past years, most if not all large retail chains have been exploring the sourcing potential of countries like Turkey, Egypt, Algeria and Morocco, mainly for apparel. Poland and Bulgaria have been appearing on the list too, for furniture and similar items. The required production capacity and craftsmanship are available essentially, but many vendors lack the required experience: they are not used to the strict quality standards and tight delivery deadlines that are critical for western customers. On top of that, the infrastructure in these countries is often unreliable, because it was never designed for this purpose. Complete order and vendor management Broadly speaking, the situation in these near shoring regions is reminiscent of how, decades ago, sourcing started in China and other countries that we now consider to be traditional sourcing regions. And the solutions that worked then can also be applied now. Since managing a large number of local suppliers is not the core business of large retail chains, we have developed a complete service package for order and vendor management at origin. After the manufacturing order has been placed, Damco takes responsibility for the entire process up to and including the delivery of the product at its final destination. This includes coaching and managing vendors: explaining and enforcing quality standards, managing time milestones, and responding when threatening delays come to our attention. 7. Logistic solutions 7.10 Near shoring in europe: opening up new sourcing regions Page 299

300 Over the past years, this legacy of skills and experience has been put to work in countries around the Mediterranean, such as Turkey, Israel, Egypt, Algeria, Tunisia and Morocco. The reliable logistic chains that are now available from this region give large retailers the freedom to have time-critical fashion items produced close to their destination. We see that today, all major retail brands rely on near shoring for part of their overall production, and it is evident that the volume will continue to increase. Investing in infrastructure The answer to the lack of expertise and experience in these locations was a combination of coaching, training and process management. But there was one other barrier to successful sourcing in this region: the lack of an adequate infrastructure. For this reason, Damco has invested in establishing consolidation points in Turkey and Morocco, with plans for a station in Egypt well under way. In these consolidation points, product streams from multiple vendors are combined for our clients, so that their container space is used optimally and freight costs are kept to a minimum. Near shoring is here to stay In near shoring countries, as in the traditional sourcing regions, the key to reliable sourcing lies in management of the complete supply chain, combined with a good control of the infrastructure. This enables our clients to source their time-critical apparel and fashion items in countries closer to Northern Europe. In terms of wages and production costs, the region was already competitive with sourcing in Asia. With reliable transit times of five to seven days (over water), or even two days (from Turkey, by truck), near shoring offers large retail chains a degree of adaptability to changing market demands that is hard to realise in any other way. 7. Logistic solutions 7.10 Near shoring in europe: opening up new sourcing regions Page 300

301 7.11 WHY MORE AND MORE ELECTRONICS MANUFACTURERS ARE NEAR SOURCING PRODUCTION IN MEXICO By: Fernando Villar With life cycles of electronic products getting increasingly shorter and consumers demanding devices with more functions at lower cost, original equipment manufacturers (OEMs) are under pressure to reduce production costs and streamline manufacturing. As a result, they are outsourcing manufacturing to specialized companies providing electronic manufacturing services (EMS). Mexico is particularly competitive in consumer electronics manufacturing and has an established base of OEMs and EMS. Mexico is the leading exporter of domestic appliances in Latin America and the sixth largest in the world. In 2013, exports of products like flat screen televisions, computers and mobile phones amounted to some US$ 75.4 billion. Several major OEMs and manufacturers of semiconductors and electronics components have a presence in the country. These include Samsung, Panasonic, LG, Toshiba, Foxconn, Flextronics and Intel. In addition, nine of the ten major transnational EMS companies are located in the country. In recent years, electronics production in the US has grown steadily. This year it is expected to reach US$ 4.2 billion and with year-on-year growth of 1.06%, it will reach US$ 5.3 billion by The consumption of domestic appliances in the US, Canada and Latin America currently exceeds production and this trend is expected to continue through 2020, representing huge export opportunities for EMS companies in Mexico. Outsourcing to EMS suppliers in Mexico allows OEMs to access state of-the-art technology and production processes. In addition, by shifting the burden of unexpected changes in demand to contracted companies, they can reduce working capital, increase production flexibility and consolidate purchasing. OEMs are then able to focus on more strategic activities like sales, logistics, marketing, engineering, design and R&D. 7. Logistic solutions 7.11 Why more and more electronics manufacturers are near sourcing production in Mexico Page 301

302 Cost savings and technical talent KPMG reports that Mexico offers 11.9% savings in manufacturing costs of electronic equipment and components compared to the US. The country also has a large pool of technical talent. According to the National Association of Universities and Institutions of Higher Education, 101,700 engineering and technology students graduated from Mexican institutions in Furthermore, Mexico has 18% more graduates in manufacturing, engineering and construction per capita than the US. Excellent transport infrastructure As well as manufacturing capacity and technical expertise, Mexico has an excellent transport infrastructure. Its road network and railroad system link the country s interior with its northern and southern borders, offering connections to the US and South America. Mexico also has seaports on the Pacific Ocean, the Gulf of Mexico and the Caribbean Sea, providing easy access to the wider world. There are also many internal distribution terminals or dry ports linked to main sea ports, helping to reduce costs and expediting transportation of goods. Developing supply chains OEM and EMS operations in Mexico require large imports of electronic components since there is little or no domestic supply. To meet this demand and boost exports, Mexico is taking a number of measures to develop supply chains. These include linking Mexican suppliers to the supply chains of transnational companies, attracting foreign investment and encouraging reinvestment by transnational companies with a presence in Mexico. To support business with foreign countries, Mexico has several trade agreements with the US, EU, Japan and Columbia amongst others. These agreements help simplify procedures, minimize border delays and reduce business risk. As near sourcing from Mexico continues to grow, OEMs are looking for cost reductions, improved speed and consistency through pro-active vendor management, increased flexibility through multiple flow options and integrated end-to-end control. 7. Logistic solutions 7.11 Why more and more electronics manufacturers are near sourcing production in Mexico Page 302

303 Download infographic 7. Logistic solutions 7.11 Why more and more electronics manufacturers are near sourcing production in Mexico Page 303

304 7.12 NEAR SOURCING FROM MEXICO: MANAGING THE GOOD, THE BAD, AND THE UGLY By: Fernando Villar Reversing the trend of several decades, many companies are either pulling production back from distant offshore locations, or setting up production closer to home or to their markets. This is visible worldwide, but especially in the US Mexico relationship. Near sourcing implies relocating production to the destination/market country. Subtly different, near shoring is the location of production in a country with a shored, or very close, border. In both cases, the aim is not just to capture low input costs, specifically labour, but to retain or create logistical advantages. Bringing it (closer to) home The drivers for near sourcing/shoring include lower labour costs (according to the HSBC banking group, Mexican labour is now cheaper than that in much of China). But also, there is potential for shorter transit times and faster stock replenishment, greater supply chain control because times and distances are shorter, and potentially fewer language and cultural barriers to efficient operation English and Spanish are widely spoken together in both Mexico and much of the US. Agreements such as NAFTA (North American Free Trade Agreement) have increased and simplified trade between the US and Mexico. Mexico accounts for 13.2% of total US trade and the US supplies over 40% of Mexico s foreign direct investment. Much, though by no means all, of this is through the Maquiladora programme, whereby materials can be imported to Mexico duty free for assembly, processing or manufacture, and re-exported on similar tax-free terms. US companies can reap many benefits from Mexican production apart from labour cost. Similar time zones assist co-ordination. Closer proximity allows face to face meetings and a higher level of control at reasonable cost. Transport and logistics infrastructure, road and rail, is already well-developed across much of the country and the Mexican government is promoting direct connections to the US. 7. Logistic solutions 7.12 Near sourcing from mexico: managing the good, the bad, and the ugly Page 304

305 Near shore is still a foreign country However, near sourcing/shoring is not without its challenges. Shorter distances do not necessarily translate to faster demand responses, or indeed to proportionately faster transit times. Capacity, in terms of production, skilled labour, and infrastructure, may be seriously constrained in popular areas. Supply chain visibility, and vendor compliance with logistics requirements, may not be any easier to enforce, even though these locations are closer to home. Often, the vendor base is widely distributed within the host country. Safety, security and compliance with in their eyes foreign regulations may be patchy. And of course the host is indeed a foreign country and will have its own laws, regulations and procedures. Compliance is not a one-way street. Doing the math on cost and service Near shoring is then not quite as simple as it looks and the assistance of an experienced partner can be invaluable. Damco offers a benefit analysis based on five variables: lead time, FOB price, minimum order quantities, transportation costs, and safety stocks. Our analysis not only converts these metrics into physical quantities such as cubic metres of storage required, but also identifies the pay-offs and trade-offs in terms of inventory reduction and cash conversion. Damco has for the last 70 years been developing its experience in managing customers supply chain. We offer tailor-made solutions to each customer giving them visibility at the PO, SKU, item level. Currently no one in Mexico, except Damco, is offering PO/Vendor Management. Whatever solutions we have established in Asia, our customers in Mexico receive the benefits at the origin. Additionally, we can offer a full range of logistics services in-country, based on offices in four major cities and operations at seven border crossings. We can manage carriers, documents, LTL, FTL, special cargos and customs brokerage. Long term partnerships with overland and cross-border carriers ensure these comply with security, licensing, training and C-TPAT requirements and certifications. 7. Logistic solutions 7.12 Near sourcing from mexico: managing the good, the bad, and the ugly Page 305

306 We can also offer our own, secure, high specification warehousing throughout Mexico in locations strategic to ports. And we have container freight stations both at Querataro, in the manufacturing area south of Mexico City, and at Laredo, on the border within the triangle where the main industrial exporters to the US are located. Near shoring and near sourcing offer exciting opportunities for manufacturers to benefit from lower costs without losing control of their supply chain and customer service commitments. But care and insight is needed, of the sort that long-established in-country partners like Damco can offer. 7. Logistic solutions 7.12 Near sourcing from mexico: managing the good, the bad, and the ugly Page 306

307 8. LOGISTICS SERVICE PROVIDERS 8. Logistics Service providers Page 307

308 8.1 WHAT TO LOOK FOR WHEN SELECTING A 3PL By: Jens Rømer Sode Six criteria for a successful long-term partnership Management Summary This eguide is primarily intended for people in all sorts of companies who need a partner for their international logistics. Whether you work for a manufacturing or retail organisation, in consumer goods, lifestyle or electronics: goods will have to be moved from one place to another to reach their final destination, the end customer. Today, third-party logistics providers play an important role in this process. The number of organisations deciding to take care of their transportation needs themselves is shrinking, because in most cases contracting specialised suppliers has significant advantages. Usually these suppliers work for the same client for several years, enabling them to adapt their services to exactly what the customer needs. This makes it crucial that you select the right provider: one that will grow and develop with you and your needs. It turns out that there are a number of specific criteria that any prospective client of a 3PL should look for, although their relative weight will be different in different cases. These criteria are: End-to-end operational excellence IT integration Product innovation Key account management Legal compliance Ethics and environmental awareness After a general introduction into the world of international logistics, we will discuss each of these in some depth. 8. Logistics Service providers 8.1 What to look for when selecting a 3pl Page 308

309 What exactly is a 3PL? Before addressing the criteria involved in selecting a third-party logistics provider, it will be helpful to have an overview of some of the terms and concepts used in supply chain management. If you are familiar with the field, you can easily skip this section and continue by reading the next chapter. According to the Council of Supply Chain Management (CSCM), a third-party logistics provider or 3PL can be defined as: a firm that provides multiple logistics services for use by customers. These services are integrated, or bundled together, by the provider. Second-party logistics providers or 2PLs include trucking companies, shipping companies and airlines providing freight service. An international supply chain: a co-operation of many parties The basic logistics setup for an end-to-end supply chain is illustrated in figure 1. INTERNATIONAL B2B DOMESTIC B2B Factory CUSTOMS 2PL CUSTOMS DC 2PL SHOP ecommerce 2PL 2PL 2PL 2PL 2PL Consolidate Customs De-consolidate 2PL CUSTOMER Figure 1: End-to-end supply chain To explain the flow of goods through the supply chain we follow a pair of shoes on its journey from the factory to the end consumer. A shoe and sportswear company places an order with a factory; let us assume this is Trinh s Shoe Manufacturing, located in a suburb of Ho Chi Minh City, Vietnam. The shoe company has contracted a 3PL for the transport from Trinh s factory to a distribution centre (DC) in the US. The shoes are picked up by truck at Trinh s factory and transported to a local warehouse. At the warehouse the shoes are consolidated with other goods, for example jeans manufactured in other Vietnam locations, to optimise the fill rate of the container used for shipping the goods. This will lower the transportation costs. The container is then transported to the port (or airport), where customs handling and paperwork processing are done before loading onto the ship (or plane). Next, the container is sailed (or flown) to its destination port in the USA, for example Los Angeles. Prior to further 8. Logistics Service providers 8.1 What to look for when selecting a 3pl Page 309

310 transportation to the local warehouse the import customs paperwork is processed. At the local destination warehouse the deconsolidation of the goods takes place. The shoes are taken out and transported by truck to a US distribution centre in Memphis, while the jeans undergo a similar process and are transported to San Francisco. The distribution centre is the place where the service of international 3PLs most often ends and local transportation takes over, delivering the goods to the final shop or consumer. Incoterms: standards for transactions The terms used for international transactions and procurement processes have been standardised by the International Chamber of Commerce and are known as Incoterms 47 (International Commercial Terms). The shoe company may buy the shoes from Trinh as Free On Board (FOB) or Free Carrier (FCA) Incoterms. These terms help the shoe company control the shipping costs from origin through the destination port or distribution centre and enable it to dictate Trinh s use of 3PL. Other advantages of these Incoterms include full visibility throughout the supply chain for the shoe company and the ability to consolidate cargo flow across several different factories, which will further help reduce cost in the supply chain. The shoe company could also buy the shoes from Trinh s on Deliver Duty Paid (DDP) terms. In this case they would have much less control of the cost up to delivery at destination point, but could save some inventory days, since the shoes only become part of the shoe company s inventory once the goods have been delivered at destination instead of at the agreed FOB point or time. In either case, managing the whole supply chain is the business of 3PLs. Because of their scale they can leverage the consolidated volumes for actual transportation as well as consolidation, deconsolidation and the associated documents handling. 3PL Services: Freight Forwarding And Supply Chain Management The services offered by 3PLs fall into two main categories: Freight forwarding services (FF) and Supply chain management (SCM) We will look at both in more detail to describe the specific services that you as a client may purchase from a typical 3PL. 47 International Chamber of Commerce Incoterms definitions on 8. Logistics Service providers 8.1 What to look for when selecting a 3pl Page 310

311 Freight Forwarding services Freight forwarding services can be classified in two evident subcategories, Air and Ocean, depending on the means of transportation that is involved. The product that you as a client would purchase here is the complete management of the transportation process, including the contracting process with the actual transportation provider, the 2PL. In Air FF this could result in the 3PL picking up products on behalf of the shoe company in Ho Chi Minh City and contracting with a courier company or airline company to fly the container to Los Angeles. There the goods would then be handed back to the shoe company. The 3PL services for Air include cargo pick up at factory and customs clearance. In Ocean FF this could be the 3PL picking up a container on behalf of the shoe company in Shanghai and contracting with an ocean carrier for sailing the container to Los Angeles, where the goods are then handed back to the shoe company. The customer can outsource this FF to 3PLs or they can contract themselves directly with the 2PL. Many customers do both. The split between direct and outsourced in 2010, according to analysis by Nomura 48, was: Air: 90% outsourced Ocean: 35% outsourced The high percentage of Air FF outsourced to 3PLs is caused by the airlines inability to service the customers end-to-end. Also, a 3PL has the opportunity to consolidate cargo across many customers, which will result in better rates than an individual customer can achieve directly with the airlines. Supply Chain Management services Supply chain management goes one significant step beyond freight forwarding by considering the supply chain as a whole and managing it from that perspective remember the earlier description of how a 3PL could manage the supply chain all the way from a factory in Vietnam to a distribution centre in the US. This makes it possible to optimise the supply chain for the specific needs of the client organisation. Modern supply chain solutions provide end-to-end visibility across all supply chain elements. In practical terms this means that the customer has access to detailed, real-time information about his 48 Nomura Equity Research (2013). Trends in Transport, 21 January Logistics Service providers 8.1 What to look for when selecting a 3pl Page 311

312 supply chain, enabling him to identify the parts where performance is not optimal. Depending on the situation, these problems may be resolved; but they could also be eliminated altogether by redesigning the supply chain. Many organisations use SCM as a foundation for an ongoing supply chain optimisation process. Understanding the complete supply chain also creates the possibility to identify weak spots, even when it functions well under standard conditions. What would be the consequences of a natural disaster, or a strike in a major port? How easy or difficult is it to accommodate a sudden change in product demand? All of these scenarios can be tested and evaluated until the supply chain has the required degrees of robustness and flexibility. Obviously there is always a trade-off: measures to eliminate risks and increase flexibility come at a price. Every organisation has its own particular desired level of reliability and agility and the ideal supply chain is always custom-made. An increasingly important aspect of supply chain management is that, with the right instruments, it makes it possible to quantify the environmental impact of various alternatives. With complete information about the supply chain, including distances and transport modalities used, it is easy to calculate the carbon footprint of a product s journey from origin to destination. Reducing it is beneficial for the environment but also financially advantageous: a lower carbon dioxide emission goes hand in hand with lower fuel consumption and lower costs. While this description focuses on management of the complete supply chain, there are also hybrid situations where a 3PL provides a subsection of these services to the customer, who would then manage the remaining parts himself. What To Request From Your 3PL In the market of 3PL services, two trends have become visible recently. On the one hand, companies are expanding their usage of 3PLs; on the other hand, companies also try to consolidate their business to the smallest possible number of providers. If you have fewer providers, you also have fewer interfaces and simpler internal processes. In general, companies aim for the minimum number of providers that will still ensure a healthy level of competition between them. 8. Logistics Service providers 8.1 What to look for when selecting a 3pl Page 312

313 In a recent study Morgan Stanley 49 concludes: Three in five are reducing or consolidating the number of 3PLs they use and 65% of shippers increase their usage of 3PLs where shippers is synonymous with 3PL customer. Contracts between clients and 3PLs usually cover several years. The relationship between the two parties is not so much that between a customer and a supplier; it will generally have many characteristics of a partnership. Selecting the right 3PL is therefore a critical process with far-reaching consequences, especially since it is virtually impossible to make a rapid switch to another 3PL if things do not work out as intended. Research based on data from the major 3PL companies, research houses and interviews has identified a number of key criteria used by prospective clients to evaluate their possible 3PL partners. End-to-end operational excellence It is evident that you may expect that a 3PL is able to operate cost-efficiently across the globe. According to Gartner 50 3PL Leaders offer a broader set of integrated services across significant global regions. The same point was stressed in a client interview: Delivering products In Full On Time is the most critical KPI for our global supply chain and maintaining focus on cost control and lots can do this on paper but cannot execute in reality. Along the same lines another company concludes: The 3PL must be able to integrate fast and accurately A third company said, referring to operational excellence and global coverage: These are basics today and taken for granted we often choose only two or three 3PLs..which are big enough and have the infrastructure to service a big customer like us. For clients with global supply chains, the global reach of their 3PL is a key success factor. Operational excellence is indispensable in all cases. IT integration From the complexity of the supply chain illustrated in figure 1 it is apparent that IT plays a significant role. There are a number of different companies that handle the products before they reach the end 49 Morgan Stanley. Transport Freight Forwarding grapples for growth in 2013, 6 February Gartner. Magic Quadrant for Global Third-Party Logistics Providers, G , 14 March Logistics Service providers 8.1 What to look for when selecting a 3pl Page 313

314 customer. The IT systems of these companies must be integrated to give you continuous visibility and tracking capability, and to enable further optimisation of the processes. Gartner concludes: Increasingly, 3PL Leaders have been extending their services to increase their value. Their usage of IT solutions as an enabler is a key differentiator to their success. The logistics vice president of a popular global lifestyle fast Fashion Company explains: We have chosen GTNexus as our IT integrator and visibility platform across our supply chain. All 3PL partners must be certified by a party like GTNexus in order to be a business partner and Gartner adds: Emergence of demand driven supply chain requires advanced software and system to system integration. The logistics vice president quoted before adds: IT quality is a real differentiator. In a recent extensive study sponsored by Cap Gemini 51 they state that: 94% of customers agree that IT is a necessary element of 3PL capability but only 54% indicating they are currently satisfied with 3PL IT capabilities. Clearly, global IT integration is another key selection criterion. Product innovation 3PL services are not a commodity. Due to the complexity of today s global supply chains, together with the collaborative and strategic partnership that should develop between you and your 3PL, it is essential that a 3PL can come up with new solutions for the challenges of its particular clients. The Cap Gemini study finds that customers and 3PLs agree on innovation being a top requirement. It is certain that the world will change in unexpected ways during the time period covered by a contract with a newly-selected 3PL. You want to be able to pro-actively adapt your supply chain to those changes. Therefore you need to make sure from the beginning that your 3PL has a proven innovative attitude, supported by the required processes and resources. 51 Cap Gemini with Langley, J Third-Party Logistics Study the State of Logistics Outsourcing, Logistics Service providers 8.1 What to look for when selecting a 3pl Page 314

315 Key account management If you represent a large organisation, the fact that your relationship with a 3PL is a long-term partnership needs to be reflected in the internal organisation of the 3PL. One instrument that appears to be particularly successful is key account management (KAM). The term refers to a situation where the 3PL has one or more dedicated account managers. The key account manager, or the KAM team, is responsible for all aspects of the business with you as his customer and is the central point for all coordination and communication with your company. The ongoing dialogue between the key account management team and the client is a platform for new ideas as well as for fine-tuning day-to-day processes. Two quotes from 3PL clients illustrate why they attach great value to this: Key account management is important when the scope is big enough. Strong account management is measured by how much influence they have in their own organisation. You need someone who can represent you strongly. Key account management is crucial to create the right integration like IT, sales and operations planning and new solutions innovation. Legal compliance It may appear too obvious to spend much time on, but for companies selecting a 3PL it is essential to raise the issue of regulatory and legal compliance. International supply chains are complicated and are touched by such a wide range of different country legislations that strong corporate compliance standards and enforcement are indispensable. In both Europe and the US prominent 3PLs have incurred serious fines for cartel formation 52 and fraud Logistics Service providers 8.1 What to look for when selecting a 3pl Page 315

316 This is obviously very serious, not only for the 3PL but also for any other company that is associated with such an affair. Doing business with the wrong 3PL can have a very negative impact on your company brand. Ethics and environmental awareness Like legal compliance, corporate social responsibility (including good citizenship, minimum environmental impact and attention for a reduced carbon footprint) are must-haves for 3PLs wanting to serve their customers according to today s standards. How important this is for a particular client organisation will depend on their corporate strategies. In general, consumer brands tend to be more and more aware of these values. A 3PL can support its clients in the area of sustainability with tools and dashboards that not only show what the current carbon footprint of (part of) the supply chain is, but also how this can be reduced. One final recommendation The six criteria listed above are the ones we found most strongly supported by clients and research companies, but of course they will not be the only parameters in your 3PL selection process. Depending on the particular characteristics of your organisation, additional criteria will apply and may even be more important for your final decision. It cannot be stressed enough that partnering with the right 3PL is a critical success factor for the logistics side of any business. If you are involved in, or responsible for, selecting a 3PL, a final recommendation would be to ensure enough corporate time, attention and resources for the selection process. 8. Logistics Service providers 8.1 What to look for when selecting a 3pl Page 316

317 8.2 HOW 3PLS CAN HELP IMPROVE LOGISTICS IN CHINA By: Richard Morgan China s logistics market is currently in its infancy with thousands of low-margin subcontractors operating in the country. As a result, the sector is highly fragmented with low penetration of sophisticated services like 3PLs. This lack of integration and coordination of services across the supply chain results in lower efficiency and higher logistics costs. No logistics operator has nationwide coverage and domestic operators often provide sub-standard service. Costly, inefficient logistics For companies without in-house logistics, this makes transporting goods around China a slow, costly process requiring multiple transfers between numerous operators. It also makes it hard for companies to keep track of shipments and control waste from theft, breakage or negligence. 3PLs deliver significant benefits With their logistics expertise, infrastructure and global network coverage, 3PLs can address many of China s logistics challenges and provide the required consistency and reliability. According to one of the largest global annual logistics surveys, companies can gain significant benefits by outsourcing to 3PLs. These include substantial reductions in logistics costs, inventory costs and fixed assets as well as better quality service, improved order accuracy and higher order fill rate. The advantages of specialisation 3PLs deliver these benefits because they can reduce logistics and inventory costs through economies of scale, bundled services and specialisation. In addition, companies can reduce their fixed assets by outsourcing warehousing and trucking to 3PLs. This transforms fixed costs into variable costs that increase return on investment. Finally, 3PLs can achieve higher service quality through specialisation in equipment, tools and human resources. With their added-value knowledge they can also innovate existing processes and develop new business areas. 8. Logistics Service providers 8.2 How 3pls can help improve logistics in china Page 317

318 Huge growth potential Despite the low market penetration of 3PLs, China s logistics market is currently valued at US$ 88.4 billion, making it the world s second largest 3PL market. It is expected to grow to US$ 182 billion by 2016 by which time it will be the world s largest 3PL market. 8. Logistics Service providers 8.2 How 3pls can help improve logistics in china Page 318

319 8.3 WHY LOGISTICS SERVICE PROVIDERS NEED TO OFFER MORE THAN JUST IMPORT/EXPORT OPERATIONAL SERVICES By: Umair Farooq As supply chains have grown more complex over the years, the role of logistics service providers (LSPs) has also significantly evolved. More and more companies are now investing in developing strategic partnerships with their LSPs and signing ever-green contracts to ensure success. This post provides a perspective on key emerging trends and requirements in a customer-lsp partnership. Service beyond flawless execution Typically, customers (shippers) focus on key performance indicators (KPIs), such as 99% delivery in full and on time (DIFOT), lead-time reduction; electronic data interchange (EDI) accuracy, and the like. With the evolution of the logistics industry, however, these measures are no longer considered differentiators. Customers now look for LSPs who can deliver added value in three key areas. Capability in supply-chain development and engineering Firstly, the presence of supply chain experts and engineers at an LSP can ensure that you optimize your supply chain and make improvements beyond the traditional means. LSPs can use real data from their systems to optimize the network, based on identified shipping patterns the potential of these savings is immense, and in some cases can amount to thousands of dollars. Industry and market expertise for benchmarking Secondly, by investing in providing industry-specific services to customers, LSPs (run by specialists in a particular vertical business or industry) are in an advantageous, central position to provide industryspecific insights into sourcing trends, network changes, customer-buying patterns and the like. LSPs can often perform industry benchmarking, using data from their system to compare different customers data (anonymously) with your own. This will determine exactly how your business compares with the industry norm, and which areas can be improved. In a recent survey carried out by 8. Logistics Service providers 8.3 Why Logistics Service Providers need to offer more than just import/ export operational services Page 319

320 eft (eye for transport), a business intelligence provider, service quality and sector expertise were rated more important by customers when choosing an LSP. (For an example of how we helped to improve a global apparel company s business in several areas, check out this case-study summary) Finally, with retailers wielding more power and becoming more demanding by the day, it can be extremely helpful if your LSP already has a working relationship with your end-customers. From RFQs to RFPs Now, you also find customer trends and preferences in other areas. While most customers still opt for request for quotations (RFQs) when they buy freight, (whether OCE or AIR), they do prefer request for proposals (RFPs) for their overall supply chain management (SCM) solution. This makes sense, especially given that LSPs are now engaged in strategic supply-chain issues, such as building capacity for future needs, planning network changes, recommending sourcing changes and reducing carbon footprints. As explained previously, these strategic changes can provide significant savings and optimization, and therefore outweigh the marginal price differences that RFQs can provide on a transactional basis. Short-term versus longer-term contracts Furthermore, since most contracts today are based on RFPs and not RFQs, they do require significant preparation. According to research by eft, more than 50% of third-party logistics providers (3PLs) start contract preparation at least six months in advance; and over 30% of these invest more than 12 months. Surprisingly, when customers were asked what percentage of their 3PL contracts were renewed with same partners, their answers were extremely positive. This is perhaps one of the key reasons why most customers and 3PLs today look for longer contract durations and a relatively simple contract renewal process. 8. Logistics Service providers 8.3 Why Logistics Service Providers need to offer more than just import/ export operational services Page 320

321 Know your customer In a nutshell, industry expertise, supply-chain-development capability and a good working relationship with end-customers are three major benefits customers consider when selecting an LSP. We also see a trend of increased on RFPs for SCM solutions, while customers continue to prefer RFQs for more commodity-type products (freight and NVOCC, for example). Furthermore, due to the significant effort involved in RFPs, customers and LSPs are increasingly signing ever-green contracts. It is obvious that LSPs cannot rely anymore on just providing import/export operational services. Our key messages is that customer priorities, preferences and requirements we just described should also be taken seriously and therefore form a key part of what LSPs now offer their customers. To find out more about our supply chain development capabilities, please visit our supply chain and optimization 54, retail 55 and lifestyle 56 pages on Damco.com Logistics Service providers 8.3 Why Logistics Service Providers need to offer more than just import/ export operational services Page 321

322 8.4 OPERATIONAL EXCELLENCE: DON T EXPECT ANYTHING LESS FROM YOUR LOGISTICS PARTNER By: Dmitriy Galper Over the past years, the rules of the game have changed for many Damco customers, be they large Western retailers or manufacturing companies with facilities in Asia or Africa. Many players are expanding globally these days to leverage their brand value. When doing so, optimizing the sales channel strategy as well as the manufacturing base across multiple markets and aligning the underlying logistics infrastructure to support this strategy can be a complex task. Logistics service providers need to support these expansions with a consistent and ever-improving level of logistics services around the globe. Robust global services Damco recognizes that customers increasingly need globally aligned agile, demand-driven and robust supply chain services. We are doing a number of things to help our customers to face these global logistics needs. Our ongoing Operational Excellence program is one of those measures. Initiated a couple of years ago, it gathers customer insights and uses these to optimize our processes, so helping us to provide fast and high-quality customer service. The program is based on the Lean Management methodology, which was pioneered in manufacturing by Toyota and has been accepted widely as an effective optimisation and continuous improvement approach. At Damco, the program focuses on five key areas: Voice of the Customer 8. Logistics Service providers 8.4 Operational Excellence: Don t expect anything less from your logistics partner Page 322

323 Based on an in-depth understanding of customer expectations, we continuously strive to design our operations and our customer service in such a way that we deliver the most value to our customers. Process Efficiency & Effectiveness Customer needs are fulfilled via continuously optimized processes and lead times. To assure robust services, we standardize key global processes where possible, while allowing room for flexibility and tailored adjustments. Performance Management By measuring and monitoring our performance on multiple dimensions, we are able to identify opportunities for continuous improvement. Damco s Key Performance Indicators for Operational Excellence are developed around four dimensions: 1. Customer Satisfaction 2. Quality 3. Employee Satisfaction 4. Process Effectiveness From these four dimensions, we derive measures and targets to create significant and sustainable impact. Organisation & Skills A high degree of cross-functional expertise and flexibility within our teams enables Damco to respond swiftly and effectively to changes in customer demand. Mindset & Behaviour Our customers and our people are put at the centre of our business. 8. Logistics Service providers 8.4 Operational Excellence: Don t expect anything less from your logistics partner Page 323

324 Overall, our efforts in these five areas let us better serve Damco customers by being proactive and flexible, making sure we have the right people focusing on the right issues, and are designing our processes around customer requirements rather than internal policies. A continuous journey The goal of the Lean Management methodology for Damco is to provide ongoing optimised service levels for our customers. Our ever increasing Net Promoter Scores suggest that customers notice and appreciate our continuous improvement. Providing top-quality customer service levels is a never-ending journey for Damco. With our efforts around Lean Management and Operational Excellence we aim to achieve our ambitious corporate vision to become the most recommended logistics company in the world! 8. Logistics Service providers 8.4 Operational Excellence: Don t expect anything less from your logistics partner Page 324

325 8.5 WHY WORKING WITH A REPUTABLE 3PL IN NIGERIA MAKES SENSE By: Babafemi Aderounmu With growth of over 6% in 2014, Nigeria has overtaken South Africa as the largest economy in Sub- Saharan Africa. What s more, a large and increasing middle class along with growing imports are good incentives to enter this emerging market. But Nigeria has limited inland transportation solutions and a lingering reputation for corruption. That s why using a reputable 3PL who knows the market makes good business sense. Oil-driven economy with growing agriculture and manufacturing The Nigerian economy is driven by the oil industry followed by the transport sector. The country also has good farmland in the centre-north. Although this land is underused, resulting in limited production and exports, there are growing efforts to develop the agricultural sector. Recently the government has placed restrictions on some agricultural imports in an effort to boost domestic farming and strengthen the economy. It has also promoted fertilizer distribution and encouraged banks to offer low-interest loans to farmers. The manufacturing sector is also increasing, with both domestic and multinational players serving a national and international customer base. As a result, the country needs advanced logistics solutions with global connections. Increasing trade with Asia Nigeria s largest trading partners in terms of container volumes are China at 39%, Europe at 17%, and then India and North America at 8% each. Trade with China and India is growing rapidly while Europe is losing ground due to import bans on certain goods and the recent economic crisis. This trade translated into 904,000 TEUs in imports and 70,000 TEUs in exports in However, these volumes are currently under pressure due to the instability resulting from the recent national elections along with concerns arising from the Boko Haram insurgency. The low price of crude oil, which has resulted in currency devaluation, has also had an impact. 8. Logistics Service providers 8.5 Why working with a reputable 3pl in nigeria makes sense Page 325

326 Developing Nigerian port facilities Although Abuja is the capital of Nigeria, Lagos is the country s largest city with some 20 million inhabitants. Lagos is also a main port along with Onne in the east of the country. To facilitate growing international trade, new port developments are planned in Badagry and Lekki to the west and east of Lagos respectively. Demand for supply chain compliance, transparency and efficiency These market conditions could make Nigeria attractive to international companies, but working with a 3PL who understands the business landscape is essential. Inland transportation is mainly by truck and the market is dominated by local trucking companies that do not always comply with transport regulations. In addition, operational costs in Nigeria are high. Bad road infrastructure increases transit times, fuel consumption and in turn, transportation costs. Stakeholders also expect facilitation payments in order for services to be carried out in a timely manner. As a result, both the government and international business are driving increasing demands for compliance, transparency and efficiency in the supply chain. Damco operations in Nigeria Damco has been active in Nigeria since We currently have offices in Lagos and Abuja, and will shortly open an office in Port Harcourt to improve support for the oil and gas industry. Our operations in the country mainly consist of import by ocean freight and inland trucking. We handle customs clearance and inland distribution services for major customers like UNICEF, Nigerian Bottling Company, British American Tobacco, amongst others. We also act as a shipping hub for landlocked countries in Africa. Serving a wide range of vertical markets We work with most of the top fast-moving consumer goods (FMCG) companies in Nigeria, exporting shipments to other African countries. Along with FMCG, our main markets include retail, lifestyle and other verticals. For a major international aid and relief organisation we are able to move freight in compliance with international standards required by the customer. We are also establishing ourselves 8. Logistics Service providers 8.5 Why working with a reputable 3pl in nigeria makes sense Page 326

327 as a logistics partner for the chemicals industry with large sea freight volumes from China and India to Nigeria. Developing inland distribution and storage options In addition to transportation services, there is increasing demand for warehousing in Nigeria. That s why we are investing in warehouse and off-dock storage facilities to serve existing customers and new players in the Nigerian market. In order to increase domestic distribution options, in collaboration with the Maersk Group, we are evaluating a rail service along the main inland corridor from Lagos to Ibadan and Kano. We are also expanding airfreight solutions and have obtained an operational licence for Abuja airport. With the increasing development of 3PL services in Nigeria, international companies will be able to take full advantage of the business opportunities offered by this emerging market. 8. Logistics Service providers 8.5 Why working with a reputable 3pl in nigeria makes sense Page 327

328 8.6 DAMCO ORIGIN WORKSHOPS ASSURE CLOSE ALIGNMENT OF CUSTOMER GOALS AND SUPPLY CHAIN SOLUTIONS By: Steve Cheung To continuously refine supply chain alignment with a client s business strategy, Damco organizes Origin Workshops with internationally operating customers. At these workshops, key representatives from both the customer and Damco come together to discuss specific logistics solutions, share experiences, identify opportunities for continuous improvement and enhance overall cooperation. Damco Origin Workshops can last multiple days and are typically held at a shipment origin where the customer s goods are manufactured or sourced. Clear workshop focus The logistics workshops concentrate on specific pre-defined objectives, depending on the customer s business and supply chain focus. Typical questions addressed include: What information is needed to identify opportunities for further optimization? What operational/logistics improvements can be identified? Which ones should be prioritized and explored further? Post transition, what will be the new planning and receiving process? What challenges and risks are associated with the change? What are the benefits or opportunities? These questions are explored in a lively mixture of presentations, brainstorming sessions, group discussions, role-play exercises, Q&A sessions and warehouse visits. The workshops often include social elements like a group dinner. 8. Logistics Service providers 8.6 Damco origin workshops assure close alignment of customer goals and supply chain solutions Page 328

329 Alignment on the customer s strategic priorities At an Origin Workshop in November 2014 in Shenzhen, China, a Damco team met with a major American footwear manufacturer to discuss its strategy for the coming year. The theme of this workshop was Think like the customer. During the workshop sessions, Damco origin teams from China, Vietnam and Indonesia were encouraged to put themselves in the shoes of the customer s logistics manager, imagine what keeps him up at night and come up with strategic solutions. This expanded the origin teams view on the customers supply chain and business development. Identifying solutions together Key agenda items were the customer s strategic priorities for the coming year, and one of them was to improve speed to market. They wanted to ship cargo faster to key destinations in Europe and the US in order to capture sales. The workshop identified opportunities to accelerate origin activities through improved planning & operations and to implement smart planning tools. Sharing best practices Besides from improving alignment of Damco services with the customer s business, the workshops also provide an opportunity for origin teams to share best practices. In the case of the above mentioned footwear manufacturer account, origin teams handling smaller shipment volumes were able to learn from their colleagues dealing with larger shipments so that service is consistent across all origins. To learn more, read our Origin Workshop Case Study from the link below Logistics Service providers 8.6 Damco origin workshops assure close alignment of customer goals and supply chain solutions Page 329

330 9. TRENDS IN LOGISTICS 9. Trends in Logistics Page 330

331 9.1 TRENDS THAT ARE SHAPING THE FUTURE OF LOGISTICS By: Han Nabben Moving towards a New Normal in supply chain management Introduction World exports as a percentage of global GDP showed a continuous growth trend from the mideighties of the last century, until Since then the growth stopped. Another indicator for trade, global capital flows between countries, achieved its highest point already seven years ago. But times are changing. Growth will still be there, if you know where to find it. According to McKinsey, approximately 600 cities are likely to realize 65% of the global GDP growth by the mid-twenties. By then, the growing cities are predicted to add up to USD 30 trillion to the world economy. Incomes in developing economies never rose faster or at a greater scale in history, and about a billion people are becoming part of consuming classes in roughly ten years time. Macro-economic changes and shifts in trade patterns have their impact on global supply chains. They provide opportunities as well as challenges. This eguides addresses the key trends that are shaping the future of logistics and provides insights on how to prepare for the new normal in logistics. The content of this eguide has been published previously on the Damco Blog. Twelve Trends That Are Shaping The Future Of Logistics Let s have a look at some of the developments in logistics that are directly or indirectly caused by changes in trade patterns, in GDP growth or in customer behaviour. Growth patterns Growth in the logistics industry is no longer driven by exports from Asia to North America and from Asia to Europe. It will come from elsewhere, and will be more fragmented, more unpredictable and more volatile. Economic and population growth will be increasingly centred in cities. Infrastructure is becoming a major determinant for growth. 9. Trends in Logistics 9.1 Trends that are shaping the future of logistics Page 331

332 Flexibility Meeting consumer s requirements at multiple locations with multiple transport modes at different times requires a flexible supply chain that can adapt easily to unexpected changes and circumstances. Globalisation International, mature and emerging markets have become a part of the overall business growth strategy for many companies. Going international has become the standard and logistic solution providers need to enable that trend. Near shoring As labour costs in Asia and transportation costs rise, increasing amounts of manufacturing are being brought closer to the end user. Multi-channel sourcing End-consumers increasingly source via multiple channels, ranging from brick & mortar shops to e-commerce. The logistics industry needs to support multi-channel strategies of their customers. Information technology The growing complexity and dynamism of supply chains requires increasingly advanced Information Technology solutions. Continuity To be able to secure speed to market and to reduce risk of delays, alternative transport modes and routes are required to support the continuing trend of outsourcing of logistics services. Sustainability Customers increasingly prefer products that are made and sourced in the right way ; minimizing business social, economic and environmental impact on society and enhancing positive effects. Compliance Anti-bribery and corruption legislation is having an increasing impact on supply chains, since multinational companies demand that no facilitation payments are made during the export of their goods, yet still seek to source from low cost countries, which are often also at the bottom of Transparency International s global corruption index. 9. Trends in Logistics 9.1 Trends that are shaping the future of logistics Page 332

333 Partnerships Manufacturers continuously search for supply chain innovations and gains through partnerships with logistic service providers. End-to-end visibility Complete visibility of the entire supply chain aspires to achieve true demand-driven planning, allowing efficient response to changes in sourcing, supply, capacity and demand. Complexity Supply chains are becoming increasingly complex and dynamic with sourcing locations being changed increasingly quickly and purchase orders becoming smaller and more frequent. These developments will have their effect on day-to-day logistics, and companies will need to prepare for the new normal in supply chain management. With all these changes, staying up-to-date on the latest trends in logistics is more important than ever. Twelve trends are shaping the future of global logistics How To Prepare For The New Normal In Logistics Chapter 2 touched upon 12 trends that are shaping the future of logistics. It was argued that macroeconomic changes and shifts in trade patterns have and will have significant impact on global supply chains. The conclusion was that companies need to prepare for the new normal in supply chain management. 9. Trends in Logistics 9.1 Trends that are shaping the future of logistics Page 333

334 According to McKinsey, 600 cities will realize 65% of the global GDP growth by the mid-twenties But how to prepare? Well, a good start would be to do a quick-scan on how future-proof your logistics service provider currently is. The answers to below 5 questions to your logistics partner should give a good first impression. 1. What s your global spread - and notably your presence in developing countries? A global spread of logistics operations is of the essence for globally operating companies who want to be where the (future) action is. That action won t be coming from where it came from. Economic- and population growth will increasingly be centred around cities, and with about 600 cities realizing 65% of global GDP growth in a decade time, the standard trade from Asia to North America and Asia to Europe will be replaced by more fragmented, scattered and less predictable trade patterns. Simultaneously, manufacturing is being brought closer to the end-user now labour costs in Asia and transportation costs are rising. You ll want your logistics partner to continuously optimize their network, being able to adapt quickly to shifting global trade patterns. The article on Network Optimization [refer to page 192 of this document] provides more insights about how global distribution networks can be optimized. 9. Trends in Logistics 9.1 Trends that are shaping the future of logistics Page 334

335 2. Are you using a global IT system for managing shipments? With supply chains becoming more complex and dynamic, sourcing locations being changed increasingly quickly and purchase orders becoming smaller and more frequent, the growing complexity of supply chains requires dynamic and advanced Information Technology solutions. They need to offer instant global visibility of the entire supply chain and allow for demand-driven planning & response to changes in trade, capacity and demand if needed across multiple companies that are handling the products. The article titled Supply chain software technology works, but does it do the work? addresses in detail why the question where is my stuff? is considered a critical supply chain industry question. Furthermore, check out our recent blog post on Control Towers for more information on how these centralized hubs can improve supply chain decision making. Where is my stuff? is considered a critical supply chain industry question 3. How do you support - and assure - a socially responsible supply chain? Society in general increasingly asks for products that are sourced in a responsible way, with minimum negative social, economic and environmental impact on society. In one of our posts, we mentioned that Sustainable Logistics is more than just getting the numbers right. It will become the standard for every step of the supply chain including transparency about how this behaviour is monitored and realized. Furthermore, with global supply chains crossing a wide range of countries - all with different country legislations - legal compliance to e.g. anti-bribery and corruption legislation is having an increasing impact on supply chains. 3PLs need to be able to cope with this on a global scale. 9. Trends in Logistics 9.1 Trends that are shaping the future of logistics Page 335

336 4. To what extent do you support multi-channel and dynamic sourcing? Future-proof supply chains need to support sourcing via multiple channels, from brick & mortar to e-commerce, on multiple locations with multiple transport modes at different times. To be able to do so, a highly flexible supply chain that easily adapts to last-minute changes is needed to secure speed-to-market and reduce the impact of unexpected hick-ups. The recorded webinar on how to turn your supply chain from static to dynamic 58 dives deeper into the topic. Typical elements of dynamic and automated logistics planning 5. How do you realize continuous supply chain optimization? As argued, the logistics world will likely change in unexpected ways. In their report The shifting economics of global manufacturing 59 the Boston Consulting Group indicated that years of steady change in wages, productivity, energy costs, currency values, and other factors are quietly but dramatically redrawing the map of global manufacturing cost competitiveness : Trends in Logistics 9.1 Trends that are shaping the future of logistics Page 336

337 Brazil has become one of the highest-cost countries for manufacturing; Mexico is cheaper than China; the UK is the lowest-cost manufacturer in Western Europe, and costs in Russia and Eastern Europa have risen to near parity with the US. So yes indeed, the world is changing. And Charles Darwin already taught us that it is not the strongest or the most intelligent who will survive, but those who can best manage change. The DNA of a 3PL should contain a good dose of change to be able to support their customers in their continuous efforts to optimize their logistics operations. Do the future-proof-check: 5 questions to ask your logistics partner 59 manufacturing/ 9. Trends in Logistics 9.1 Trends that are shaping the future of logistics Page 337

338 Further Reading With growing complexity and an increasing need for flexibility entering global supply chains, a partnership with the right logistics service provider - who understands your industry, your supply chain and who has the capabilities to act swiftly and globally to new developments and insights - will offer a serious competitive advantage over those who approach their supply chain in more traditional ways. The eguide on what to look for when selecting a 3PL might be of help in your search for the right, fit & flexible 3PL partner. A partnership with the right logistics service provider offers a serious competitive advantage 9. Trends in Logistics 9.1 Trends that are shaping the future of logistics Page 338

339 9.2 HOW THE INTERNET OF THINGS WILL CHANGE LOGISTICS By: Leonie Weber Introduction The term Internet of Things is supposed to have been first coined in Now, IoT is rapidly becoming a reality, and we may not be too far from a tipping point after which IoT becomes universal. But what is this Internet of Things, and what, in particular, are the implications for supply chains and the logistics industries that support them? The concept At first glance, IoT appears to be merely the further extension of established technologies such as RFID tagging, remote monitoring, GPS tracking, and telematics generally. Although there will be many further developments, the necessary technologies already exist. What IoT promises is the ability to share and process much more data from an almost infinite number of sources, to adapt the sources and uses of data to changing circumstances, and all without significant investment at the company or supply chain level. Under IoT, the sources of data, the forms in which data is presented, and the ways in which data can be processed, simultaneously, in many different systems, are almost infinitely flexible. This is achieved because every source is Internet-addressable. Every IoT device has in effect its own Internet address it can not only upload data to other IP devices and systems, but also download new instructions and parameters: for example, the rules for a process such as temperature control. IoT devices are not confined to physical discrete items, cartons, pallets, trucks, ships the objects we currently tag with barcodes or RFID. IoT can include sensors, monitors, recorders and also completely intangible objects such as systems and processes. A pallet of goods can interact with an accounting 9. Trends in Logistics 9.2 How the internet of things will change logistics Page 339

340 package, and a human resources package, and warehouse and transport management systems, in a simultaneous and coordinated fashion. Even human operations could, through wearable technology, be part of the traffic. We face a near future in which almost unimaginable quantities of data are being generated by, and shared with, equally unimaginable numbers of devices and processes. Increasingly, entire systems will become autonomous: that is, they (at least within defined parameters) will make their own decisions, initiate their own actions, account for their own operations, and perhaps act heuristically (they seek out almost optimal solutions to problems that are not analytically soluble, and for which humans typically rely on experience and intuition). Cautious forecasts by Gartner suggest the world will be using 6.4 bn Internet-connected devices by 2016 (up 30% from 2014) and 26 bn by 2020; Cisco have placed a marker of 50 bn by that date: other analysts have bid as high as 1.5 trillion by These are unimaginable numbers, but a 2015 study by Dimensional Research for Jabil suggests that already 53% of electronics equipment manufacturing companies have, either in production or development, IoT enabled equipment. This is serious investment IoT is past the hype stage of the technological cycle, and is rapidly becoming a reality. How does this work in the real world? The smart domestic fridge is the example often used in the media. This would monitor groceries in and out, along with sell-by dates, its own refrigerating performance, rates of use (accounting if required for peaks like weekends or holidays and learning typical usage patterns). It will advise disposal of expired products; it will predict reorder times and quantities, perhaps negotiate with shops and on-line retailers on price and availability, arrange delivery to the householder s destination of choice, liaising with the householder s electronic diary. The vendors are enabled to preposition goods with (because there are many, many users in that area on the system) very high confidence so that fulfilment can be in minutes rather than hours. Simultaneously, real demand signals are sent back up the supply chain to carriers, wholesalers, manufacturers and so on. (All this is technically feasible - the fundamental problem is that, beyond certain basics and staples, people don t necessarily want to eat next week what they ate this week and the week before). 9. Trends in Logistics 9.2 How the internet of things will change logistics Page 340

341 In healthcare, there is great interest in IoT monitoring chronic conditions, and varying formulations, dispensing and despatching them, in accordance with the monitored signs, which would create a more orderly supply chain out of, at present, random presentations to a doctor s surgery, with the time lags and (dare it be said) human errors involved. This could also reduce the wastage of expensive but time-limited drugs. Aero-engine manufacturers are committed to the long term support of their engines (that is actually where they make most of their money). Aeroplanes already have a multiplicity of condition sensors and recorders. It is a relatively simple step to extend this to alerting the system that a part or component, while still safe, is beginning to deteriorate, or is due for planned replacement. With IoT, the engine can interact with the airline s plane and crew scheduling systems, arranging in advance to land at a base where the parts and labour required have already been pre-booked. Motor cars could do the same thing monitoring their mileage and condition, setting those against scheduled service intervals, interacting with one or several service centres to book a slot that is costeffective, convenient to the vehicle owner s diary and location, with parts and labour, and the courtesy car, pre-booked. Generally, any area that requires constant response to a large number of factors and conditions is an obvious candidate for IoT, and so many of the benefits of IoT are likely to appear first in logistics and the supply chain, rather than in a direct consumer experience. (McKinsey predicts that only a third of IoT applications will be directly consumer-oriented). Supply Chain Benefits IoT shouldn t be just another set of islands of automation it really does have the potential to link the primary manufacturer with the end user, and with every link in the chain in between, and that very linkage will have profound effects on supply chain operations. IoT shouldn t be just another set of islands of automation it really does have the potential to link the primary manufacturer with the end user, and with every link in the chain in between. And that very linkage will have profound effects on many aspects of supply chain operations. Security Simply as an extension of current practices such as RFID tagging and track and trace technologies, 9. Trends in Logistics 9.2 How the internet of things will change logistics Page 341

342 there is potential for improving the security of items in store or in transit against theft, malicious tampering, and diversion of goods onto the grey market or through smuggling. This also suggests stronger protection against counterfeiting. Simpler, faster and more robust Customs and clearance procedures also become possible. It is relatively easy to fake a bar code or other item-level ID it is much harder to create a complete history for a product right back to original manufacturers and component/material/ingredient suppliers. Safety and condition Currently, many goods in store or in transit generate records of condition and experience temperature, shock loads etc., but typically these are downloaded at fixed points. IoT offers the opportunity for continuous monitoring so that remedial action can be taken before the shipment has to be scrapped, rejected, or discounted. Shipping lines are already introducing vessels equipped to monitor their cargos continuously. Asset utilisation If every asset from reusable transit packaging, pallets, roll cages, up to containers, trucks, ships, is IoT enabled, operators have a real-time view of where these assets are, what they are doing (if anything), what is available to move to a point of greater need, and so on. In the case of road transport, in particular, the combination of on-board IoT with IoT deployed across road networks may allow more efficient operation. The IoT system might optimise for best transit time, or for lowest carbon emissions, or for avoiding built up areas in hours of darkness, or other criteria, while automatically negotiating a delivery slot if it is running late. Inventory and warehousing IoT can automatically respond to stocking events and generate appropriate actions such as re-order, replenishment, picking, scrapping, or identifying faster and slower moving lines, reconfiguring warehousing, and directing the trucks or automation accordingly. Procedures for effective handling of returns could particularly benefit managing an unscheduled event with multiple actions such as unpacking, assessment, refurbishment, repacking, put-away and adding to active stock files, plus financial reconciliations, all of which have to be done in quick sequence if the value of a fast-moving, short life cycle product is to be maintained. 9. Trends in Logistics 9.2 How the internet of things will change logistics Page 342

343 Autonomous operations Consider the self-delivering package. The item has been ordered, perhaps by an IoT device, this information generates a manufacturing instruction along with other actions such as materials orders or replenishment instructions, booking necessary labour in assembly, packaging, despatch and so on. In highly automated warehouses, the package may control its own put-away and picking by talking to automated systems such as smart trucks or shelving. The package could then book its own transport routes, searching for the optimal solution either on its own, or as part of a consolidation which involves many packages talking to each other even in a sense voting. Final mile delivery will be booked in by interrogating the customer s diary. The delivery vehicle itself may be autonomous even if a human is required to install the item, or to access difficult locations, he or she doesn t necessarily have to be a trained driver Note that IoT does not demand greater hard automation, although this may be appropriate. Also, IoT does not necessarily replace a human workforce it is perfectly possible to manage human beings as IoT objects. But IoT can offer ways to reconcile competing demands and resource constraints at a level of detail with which mere human minds, whatever their IT support, cannot cope with consistently or reliably. There are clearly great possibilities to drive efficiencies, improve economics, and enhance the customer experience by the deployment of IoT in logistics and supply chain. But progress is unlikely to be quite that straightforward. 9. Trends in Logistics 9.2 How the internet of things will change logistics Page 343

344 INVENTORY ASSET UTILISATION SECURITY SUPPLY CHAIN BENEFITS AUTONOMOUS OPERATIONS WHS WAREHOUSING SAFETY & CONDITIONS Barriers To Progress The factors that may constrain the the full-scale adoption of IoT are various some are technical in nature, but social and cultural concerns may be more influential. We will look at these in turn. 9. Trends in Logistics 9.2 How the internet of things will change logistics Page 344

345 Physical and technological These are few. At the device level, many technologies already exist which are IoT compatible or are actively being made so. In terms of physical hardware, one of the joys of IoT is that it is not dependent on major fixed investments. There is of course a huge investment in servers and the like but as with the rest of the Internet this will not generally be at the level of the individual company. Individual devices can be as crude or as complex as the information they are required to deal in. In terms of hardware spending, consumer applications will amount to $546 billion in 2016, while the use of connected things in the enterprise will drive $868 billion in 2016 (see Table 2). Table 2: Internet of Things Endpoint Spending by Category (Billions of Dollars) Category Consumer ,534 Business: Cross-Industry Business: Vertical-Specific Grand Total 939 1,183 1,414 3,010 Source: Gartner (November 2015) Source: Gartner (November 2015) Overall system architecture is an issue that is being thrashed out clearly it is important that a standard approach is adopted, given that many companies participate in multiple supply chains across several sectors or verticals. This is being addressed as is the development of appropriate middleware. (This is the software that recognises what an IP message is and how it is supposed to be handled). It is quite likely that different industrial sectors will adopt slightly different approaches. There are currently several consortia proposing standards in the commercial and industrial field, All Seen Alliance and the Open Interconnection Consortium are just two, and there are several others vying to become de facto standards for consumer applications. EDI (Electronic Data Interchange) went through a similar evolutionary process some decades ago, so the issues are well understood. In general, there are few technical barriers and, because much of the physical equipment already exists, pricing is already reasonably low. 9. Trends in Logistics 9.2 How the internet of things will change logistics Page 345

346 Social Greater barriers to the widespread adoption of IoT may arise from societal pressures. Firstly, there is a fear that many jobs could disappear. In November 2015 Andy Haldane, chief economist at the Bank of England, suggested that over the next 20 years 15M UK jobs could disappear as a result of increasingly creative, smart machines which clearly includes IoT. (That is almost half of the 33.7M jobs currently in the UK. In the US he reckoned up to 80M jobs are at risk ). Operatives may resent being instructed by a machine. This is seen already sometimes with technologies such as pick by voice although that can also be enthusiastically adopted by others, and is no more machine control than is picking to a printed, but machine-generated, pick list. Cyber-security is a big issue. In theory, every additional Internet device is a new potential avenue for accidental corruption or deliberate malicious hacking. Proper precautions and firewalls, and a degree of human oversight should be built in, but will they be? The need to retain significant human intervention even in the scenario of autonomous operations may be fundamental because business is essentially about human interactions satisfying human wants and needs. As an example, IoT systems, using predictive analytics, heuristics and other clever stuff, may devise and implement a response to a problem that maximises the benefit or minimises the pain across the greatest number of customers. But, if amongst those customers is one who is negotiating a significant contract renewal, but won t be too badly affected, as against several dozen who will be hit harder but whose accounts may be less significant, should that not be a human decision? There are also many unanswered questions in the legal sphere. Where does the responsibility lie if an autonomous system goes wrong and damages or even kills someone? Who is liable - the system owner or user, builder, programmer or any of the many suppliers of data? In the automotive example above, if the driver ignores the IoT-generated service summons, will that invalidate warranties and insurance? Similarly there are questions about who owns the data in what is largely a collaborative cloud? New and international legal frameworks will be needed but, inevitably, that will take time and lag the situation on the ground. 9. Trends in Logistics 9.2 How the internet of things will change logistics Page 346

347 Where does this lead? The last major technological change in supply chain was probably the widespread adoption of RFID. This was ultimately driven into popular use by the likes of Walmart and other retailers. It is not clear that retailers, who already have a wealth of epos data, have a great deal more to gain from being early adopters of IoT. Government and public services may be more likely candidates. Health provision has already been mentioned; traffic management is another, which offer potentially great benefits from relatively modest investment and has evident supply chain benefits. For logistics operators themselves, IoT offers the possibility of complete and seamless thirdparty service of needs and assets. An Internet-enabled data rich environment can be exploited by multicustomer (and therefore even more data-rich) 3PLs and 4PLs to maximise efficiencies and eliminate waste throughout supply chains. There is also the idea that in the near future assets, from consumer durables to industrial machinery and medical equipment, will increasingly be acquired and managed on a lease, maintain, update model rather than of outright purchase. IoT would enable the asset providers continually to monitor condition, to measure usage, to determine service or replacement intervals predictively. This could be seen as a natural business expansion route for logistics service providers. Alternatively, and perhaps also, IoT may enable some manufacturers and/or brand owners to reclaim added value that currently goes to third parties. If a manufacturer, for example, can capture all the relevant data for themselves, and develop the systems to exploit this, models involving a more direct relationship between manufacturer and end user may become more viable, and this would be to the detriment, presumably, of 3PLs. There is therefore much to play for, for logistics service providers and their customers. But where to start? 9. Trends in Logistics 9.2 How the internet of things will change logistics Page 347

348 The Way Forward Should the logistics companies, who see most of the benefits even if they don t reap them, be driving the process? Or is it down to individual companies, or collaborations of firms in similar supply chains, to force the pace? Within the warehouse or transport operation there are some obvious benefits to be had. Although it is unlikely that cans of baked beans will bear the cost of IoT at an item level any time soon, on the other hand, many high-end and fashion goods already carry RFID tagging and tracing, and a small initial investment to tackle even immediate issues (such as counterfeiting) could show an immediate ROI. A key question will be what the revenue model is that any party can leverage. In theory, IoT comes almost free of investment cost to the user, but that presupposes that firms actually understand and have made investment in the systems they need to make full use of the data that IoT will offer. How is this wealth of data embedded in their digital business strategies if at all? One role for 3/4PLs will be to leverage this further. Identifying the short-term gains and lowhanging fruit does make several assumptions about existing capabilities in IT infrastructure and firms abilities to manage even current volumes of data effectively. How many retailers, for example, currently make all the use they could of their epos data? Nonetheless, early gains should be achievable especially in the areas of transport planning and routing (both inland and international), and in inbound, warehouse, and outbound operations. Opportunities are also clear in the areas of compliance and security. IoT should make it easier to monitor and measure trusted and approved smart devices can self-report without expensive intervention from labour. Whether regulations and authorities will be up to speed in the short term is questionable law always lags technology but it is quite conceivable that in a few years this sort of machine-based monitoring, reporting and verification will in fact become a requirement at some levels. Logistics service providers have to see how mature individual customers are in terms of IT structure and business strategy, and what they want and expect in applying IoT to their operations. 3/4PLs 9. Trends in Logistics 9.2 How the internet of things will change logistics Page 348

349 certainly have a role as IT integrators between different parties in the supply chain, but merely enabling data to flow, connecting ports, containers, items, destinations, will not be enough. What more can logistics providers do with the data to add value? Already we see that 3/4PLs are gaining some of their success from taking responsibility for data management and use that pure IT integrators do not. The value in the supply chain ecosystem will lie largely in the ability to predict to prevent, and to steer the supply chain in a different direction. But, where is the added value from IoT in the supply chain? For some users the supply chain is a real differentiator: for others not so much. Transport/logistics costs are typically an element to be squeezed down: where is the balance between using IoT to drive out cost, and using IoT to optimise for customer expectations? Indeed, if logistics users have, and know how to use, all this smart technology themselves, are 3/4PLs perhaps redundant? IoT presents both opportunities and threats for the current business models of logistics users and suppliers all parties have to prepare for whatever impact it may have. 9. Trends in Logistics 9.2 How the internet of things will change logistics Page 349

350 9.3 HOW TO DEAL WITH NEW TRENDS IN RETAIL LOGISTICS By: Hans Elmegaard Best practices for thriving in a rapidly changing environment Management Summary All over the world retailers, large and small, local and international, must adapt to rapidly changing environments. Many of the changes they encounter are driven by shifts in consumer behaviour, while others are caused by new technological developments. Today s retail landscape is not what it was ten years ago and it is certain that the scene will again be quite different five years from now. In our work with retail clients we see how difficult it is for them to distinguish fleeting trends from lasting shifts, and how to respond to what appears to be significant. There can be no doubt that changing customer expectations make it necessary to rethink the role of physical stores and their relation to the online channel; this has profound effects on the supply chain and its supporting IT systems. A second cluster of changes is related to increased volatility due to the capriciousness of modern consumers and because of vulnerability to external influences. Globalisation, both on the sourcing and destination ends of the supply chain, is another major area where things are moving in new directions. Technological developments are an influence that should be mentioned, because they not only drive changes but also enable new solutions. And of course this list could be much longer. Obviously there is not a single strategy that will help every retailer survive and flourish. However, we can identify some necessary elements for a successful strategy and a number of requirements that will help a retailer s supply chain support that strategy. In our observation, a key differentiator between successful and struggling retailers is the willingness to concentrate on well-defined customer segments rather than trying to serve everybody. Agility is an essential quality for modern supply chains, which depends on end-to-end visibility and the right degree of control. 9. Trends in Logistics 9.3 How to deal with new trends in retail logistics Page 350

351 To conclude, here are four core key ingredients that should be a part of every global retailer s mind-set: Collaboration - working closely together in genuine partnerships with other parties brings about the best in everybody. Strategic cost saving initiatives - in many cases, serious money can be saved by looking at supply chains from a broader, long-term view that includes working capital and inventory. Focus - targeting specific customer segments is a way to liberate oneself from competitive pressure and increase margins. Aligning internal objectives - in large organisations, but not only there, lack of alignment between various departments is a major cause of supply chain ineffectiveness. The Changing Retail Landscape If one were challenged to name one type of business where the effects of changes in society and of new technological possibilities coincide and reinforce each other, retail would be a good candidate. Retailers are forced to re-draw the maps of the landscape they find themselves in on an almost daily basis. Most of the changes they have to deal with are driven by changes in customer behaviour: in many ways, today s consumer is a very different species than his predecessors of five or 10 years ago. And there can be no doubt that the consumer of 2020 will again be very different from whom she is now, although it is impossible to predict in exactly which ways. The changes in customer behaviour that impact retailers worldwide result from three major developments. Of course there are large local variations in the way these developments manifest, but identifying them helps us create a perspective on what we see happening around us. 9. Trends in Logistics 9.3 How to deal with new trends in retail logistics Page 351

352 Hectic work/ home schedules Two working parents Commuting Busy lifestyles Increasing single person households Smartphone/tablet penetration Tech-savvy generations becoming key consumers Urban dwelling Changing demographics Increasing access to technology Shoppers becoming more informed Ageing population Home access to the internet Figure 1: The most important changes in consumer behaviour that affect global retailers Changing demographics The traditional core family, consisting of two parents and a number of children, is losing its dominance as a model for living. Due to a variety of sociological reasons the number of single-person households grows. All over the world the average lifespan increases and today s vital and often relatively affluent senior citizens have become an attractive new market segment. For the first time in history more people now live in urban environments than in rural circumstances. Together, these demographic changes lead to significant changes in the type of products consumers need in order to live their lives. Busy lifestyles Time is the commodity that is most scarce for today s consumer. In two-parent families more often than not both of those parents will have jobs. The associated commutes are an additional timeconsuming element. And then, in a modern experience-driven culture, there are festivals, theatres, 9. Trends in Logistics 9.3 How to deal with new trends in retail logistics Page 352

353 restaurants and friends to visit, classes to be taken, journeys to be made. The work and home schedules that people live by to juggle their priorities have consequences for the way they want to deal with suppliers. For example, in many countries it is unthinkable that someone would stay home to accept a parcel that will be delivered at an unspecified moment during the day. Increasing access to technology The penetration of internet into the home was the beginning of a fundamental change for the retail game. Suddenly consumers had an almost complete overview of the market and the competition, enabling them to shop for the lowest price or the most favourable delivery and returns conditions. Initially this was limited to a small group of tech-savvy people who knew their way on the internet, but increasing computer literacy and large improvements in website design have now turned every consumer into a potential online shopper. In recent years the increasing use of mobile devices, such as smartphones and tablets, has led to new and unforeseen consumer behaviour. Changes in demographics and lifestyles are powerful but can be predicted to a large extent and take time to manifest fully. Technological changes represent the area where changes occur most rapidly and unpredictably. A new social media killer app can be used by millions of people within a year of its introduction and have a large impact on consumer behaviour, forcing retailers to respond. The Supply Chain Becomes A Critical Factor Changes in customer behaviour account for significant changes in the environment in which retailers find themselves operating, but they are certainly not the only factor at play. In our work with global, regional and national retail clients we see a number of developments showing up over and over again. It is useful to identify the major ones and to make more explicit how they influence our customers supply chains - Damco s area of expertise. Customer expectations and demands In the previous chapter we outlined how and why the behaviour of today s consumers is different from what retailers have been used to. Their expectations and demands are impossible to fulfil with a traditional supply chain model. Increasingly, consumers expect a seamless brand experience across different channels. The concept of the store must be reflected in the design and user experience of the 9. Trends in Logistics 9.3 How to deal with new trends in retail logistics Page 353

354 website, both on a computer screen and on a smartphone. Store size and location are affected as well. There definitely still is a need for brick-and-mortar stores, but their function is different and in many cases they only remotely resemble what we used to think of as a store in 2005 or even It is evident that the changing role of physical stores affects the supply chain and its supporting IT systems. The same is true for what some people tend to label as the capriciousness of modern consumers. Trends in fashion and lifestyle no longer follow the season but sometimes change from week to week, requiring a supply chain that can adapt with the same speed. Other factors, very important in the fashion and lifestyle industries but not limited to those two, are sustainability and responsibility. With rising environmental and social concern among consumers, brands want and need to position themselves as green and/or responsible. They can only do this if they can vouch for what is going on in their supply chain. Volatility The days that retailers derived a feeling of security from a well-stocked warehouse lie far behind us. Modern inventory management keeps stocks at a minimum and relies on an efficiently organised supply chain to be able to deliver articles when needed. This introduces vulnerabilities: port congestion, a strike, heavy rainfall or a natural disaster will rapidly result in empty shelves if no precautions have been taken. In a recent survey of global retailers, failure of distribution or supply chain was ranked as the sixth important risk they identified. In a similar survey five years earlier, supply chain failure would have never made it to the top-10. To protect themselves against the risks of volatility, retailers need to pro-actively analyse their supply chains, identify weak spots and put safeguards in place. These could take the form of contingency plans, fall-back scenarios and sleeping contracts with alternative carriers. Global destinations, sourced globally The world is becoming a village in more than one sense. Globalisation used to refer to the expansion of brands originating from mature markets into developing markets, such as China and other Far East countries. Today we also see North American retailers entering European markets and vice versa, in search for new revenue streams outside of their saturated home markets. E-commerce and omnichannel marketing lowered the threshold for these attempts by making it possible to test a new market without high up-front investments. 9. Trends in Logistics 9.3 How to deal with new trends in retail logistics Page 354

355 On the sourcing side of global retail supply chains things are moving as well. The rising price level of Chinese suppliers, particularly on the east coast, has moved the sourcing area for many types of products inland, creating serious logistical challenges because of the less developed infrastructure there. The increased pressure on rapid delivery of consumer products has also driven a shift to nearsourcing from countries around the Mediterranean (for Europe) and from Mexico (for North America). Retailers are willing to pay a premium for sourcing in those countries because it enables them to deliver faster, which is a key asset in certain demanding market segments. Technology, both the problem and the solution Every trend or development identified so far is tightly connected with technology. Consumers can be exacting because the internet shows them what is available in terms of products and options for delivery and returns. By catering for consumers desires, retailers raise the expectations and create a new normal. But it is technology that enables them to create new shopping experiences, both online and off-line. It is because of technology that personalised fashion items can be sourced from suppliers thousands of kilometres away. And only with advanced technology can suppliers report reliably what the environmental footprint of their actions is. The role of technology in running an integrated supply chain is large and it will only continue to increase. Finding The Right Strategy So far we have considered the most important trends that we see impacting all of our retail clients, large and small. Together they paint a complicated picture, but the reality of individual retailers is even more complicated. There are local or regional developments that go against the global trends, there are events that appear to be important but don t really have an impact, and - especially in the world of social media - small events can become significant in no time at all. Creating a sound retail strategy is not an easy task and there is certainly not one answer that fits all problems. Figure 2 identifies the major elements that should be part of a retailer s strategic mind-set, with a focus on global supply chains. 9. Trends in Logistics 9.3 How to deal with new trends in retail logistics Page 355

356 New sourcing geographies Cost To Serve Outsource non core activities Holidays, seasonal, promo New markets and new products Figure 2: Elements of a global retailer s strategic mindset New markets and new products: innovation and expansion, both geographically and in terms of product offering, fuel growth and keep consumers engaged. Holidays and seasons are opportunities to benefit from consumers willingness to spend money on particular items. Optimising this benefit requires an intimate knowledge of local circumstances and customer preferences. New sourcing geographies, mentioned earlier, may be needed to add flexibility and speed to the supply chain. Cost-to-serve is an important consideration: retailers are becoming increasingly aware of the costs associated with their inventories and the gains that can be realised by optimising them. Outsourcing non-core activities will enable a retailer to focus on his strength. Implementing this part of a strategy requires finding the right partners and working closely together with them. 9. Trends in Logistics 9.3 How to deal with new trends in retail logistics Page 356

357 When implementing this or any type of strategy, retailers should verify that their global supply chain is up to the task of supporting it. When performing such an assessment for a client, Damco s supply chain specialists typically look at the following five dimensions: Reliability: How consistently does the supply chain deliver on time, in full (OTIF)? Variability: How does it deal with peaks that happen for seasonal or other reasons? The possible benefits of seasonal promotions turn into losses when the supply chain cannot deliver peak volumes during a holiday season. Flexibility: Can the supply chain absorb disruptions of any kind by re-routing transports or by switching to alternative carriers or transport modes? Scalability: Was the supply chain designed with future growth in mind or does it require a radical overhaul if volumes increase? Cost: It is possible to realise a near-to-ideal supply chain, but there always has to be a trade-off between functionality and costs. Know Your Customer A key requirement - if not the key requirement - for developing and implementing a successful retail strategy is being extremely clear about who the customer is one wants to serve. The single most outstanding differentiator between retailers who struggle in today s market and retailers who thrive is that the former group desperately tries to do and be everything for everyone, while the latter has the courage to identify specific groups of consumers and target those at the exclusion of others. Retailers who know which customers they want to serve are in a good position to create a strategic roadmap, to develop a value proposition and a brand experience tailored to the target audience, and to eliminate all elements from the mix that disturb their proposition. Among the retailers we work with, 9. Trends in Logistics 9.3 How to deal with new trends in retail logistics Page 357

358 LOYALTY Convenience, Loyalty, Experience, Value they are the ones who are consistently ahead of the game. EXPERIENCE CONVINENCE VALUE Source: Kantar Retail Analysis Figure 3: Four dimensions for describing the changing consumer mindset: convenience, loyalty, experience and value. Once one has identified the customers, there still is the task to fine-tune one s strategy to reach out and meet them. Retailers who want to win the business of potential customers should address four dimensions: Convenience: The consumer wants a specific item and he wants it now. This dimension affects the experience of ordering online, options for personalisation, speed and flexibility in delivery (and returns!). We see leading retailers re-inventing convenience by offering their customers new choices that simplify and facilitate the buying experience. Loyalty: More than ever before, an item s brand is an integral part of the product experience. Consumers will stick with a brand because it aligns with their lifestyle or taste, as long as it continues to fulfil its promise. Experience is at the heart of consumers demands. A visit to a store, be it digital or brick-andmortar, will have to touch them in a certain way to leave an impression. This opens up great 9. Trends in Logistics 9.3 How to deal with new trends in retail logistics Page 358

359 opportunities for differentiation, provided the starting point (consumer segment and value proposition) is clear. Value: Every particular customer segment requires its own value proposition. In recent years, sustainability and responsible manufacturing have become essential ingredients of the value complex for many brands, but the value can also be composed of many other things. Visibility And Control For An Agile Supply Chain It is tempting to speak of a global supply chain as if it were one identifiable object, while in fact supply chains are complicated phenomena, consisting of many elements. Some of these elements are part of a retailer s own organisation while many others are sourced from independent suppliers. To be able to manage this type of complex structure, end-to-end visibility is essential: one needs to know in real time what is going on in any part of the chain. Figure 4: Managing a global supply chain requires end-to-end visibility 9. Trends in Logistics 9.3 How to deal with new trends in retail logistics Page 359

360 On the technical side IT plays an important role here to collect and aggregate the available data and present it in a meaningful way. But organisational aspects such as collaboration and transparency are equally important. It is mandatory that all elements of the supply chain subscribe to the same objectives and support each other in order to reach the same goal, but what we see with many large retailers, and some of the smaller ones for that matter, is that the effort of the internal divisions are not necessarily as aligned as they should be. Combining visibility with the right level of control will result in the type of agile supply chain that retailers need, to be able to adjust to changing trends and circumstances. Best Practices For Global Retailers While the strategic answers to the challenges faced by retailers will vary from case to case, as they should, there are four core ingredients that should be part of every global retailer s mind-set. They represent the best practices we observe in our work with retail clients; paying attention to these focus areas is not only effective today but will be beneficial in the years ahead of us. Work with trusted partners Retailers should acknowledge that they cannot do everything themselves. Forging strong and lasting collaborative relationships with partners who can do certain things better will ultimately contribute to the positive experience of the consumer segment one wants to conquer. This is about genuine partnerships that go far beyond the traditional client-supplier relationship and are not defined by commercial and merchandising terms. At Damco we see every day how successful this type of collaboration can be, because many of our clients involve us in their strategic planning processes. This enables us to really understand their objectives and to contribute our expertise. Engage in strategic cost saving initiatives Many of the retailers we work with initially don t have a clear picture of what determines the total cost associated with their supply chain. They know what they pay for the warehouse and transportation services they purchase and try to negotiate the best rates, but the potential for cost saving in the supply chain goes much broader than that. Significant benefits come from a strategic and long-term view that includes working capital and inventory management. A well-managed supply chain enables retailers to reduce inventory to the exact level that is optimal for dealing with fluctuations in demand, without over-stocking. 9. Trends in Logistics 9.3 How to deal with new trends in retail logistics Page 360

361 Go niche We already mentioned the importance of focusing on well-defined customer segments, rather than attempting to serve an amorphous crowd without real focus. A brief stroll in any shopping area is enough to demonstrate the strength of finding, or even creating, market niches. It is a way to differentiate from the competition and because niche products are unique, the margins are significantly higher than for generic products. It appears that even in times of economic low tide, consumers are willing and even eager to pay a premium for items they perceive as uniquely for them. Also, it is different for consumers to compare prices on the internet for items with a unique label. Align internal objectives For large retailers, several divisions will be involved in the supply chain. The degree to which these divisions are able to work together proves to be a major determining factor for the company s success. Once the sourcing department, the retail department, the IT department and the sustainability department really start talking together, it becomes possible to reap the full benefit of an overall supply chain solution. For larger organisations, that tend to be divided into rather autonomous divisions, this will involve a change in culture and maybe modifications to the overall management structure. We have seen significant improvements in the results of both European and North American retail companies that implemented this type of change. For example, one company had a sourcing department that was responsible for the supply chain from the source to the distribution centre, and a destination department responsible for, among other things, e-commerce from the DC to the consumer. Aligning their objectives enabled this client to make a major leap forward. Additional Resources If you are working in retail and feel that optimising your supply chain may help you deal better with the ongoing changes in your environment, Damco s specialists will be happy to explore the possibilities with you. For retailers who want a reliable source for current retail news, Damco provides daily updates on For weekly news and a broad variety of publications about supply chain topics in general, you may refer to the Damco blog at 9. Trends in Logistics 9.4 Trends in raw materials sourcing for the lifestyle industry Page 361

362 9.4 TRENDS IN RAW MATERIALS SOURCING FOR THE LIFESTYLE INDUSTRY By: Stephen Xie Management Summary The lifestyle industry depends on affordable sources of its main raw material, textile, and on reliable supply chains that bring it to the locations where the final product is manufactured. In recent years, lifestyle brands have been exploring alternatives to the traditional fabric sourcing and garment manufacturing regions, driven by two main objectives: responding to rising labour costs and reducing time to market. The export of fabric from China is growing every year, but China is not the only low-cost country where economic developments are creating an upward pressure on wages: the trend is visible in all major sourcing regions. When selecting a sourcing region for textile, cost is not the only parameter to consider. Lifestyle brands are increasingly sensitive to a broad range of issues associated with compliance that can endanger their brand reputation, such as labour conditions and worker safety, social and gender inequalities, corruption, freedom of association, and child labour. Choosing the right sourcing area often involves a delicate and complicated trade-off. The same is true for the choice of manufacturing locations. For fashion sensitive items, near sourcing and reshoring has manifested as a significant trend. Turkey has surpassed Bangladesh as a supplier of lifestyle items for European markets while Mexico is increasingly serving North-America. The net result of all these developments is that the supply chains in the lifestyle vertical are becoming increasingly global and increasingly complicated, if only because more origins and manufacturing locations are involved. A close look at the current practices of lifestyle brands with manufacturing locations in lowcost 9. Trends in Logistics 9.4 Trends in raw materials sourcing for the lifestyle industry Page 362

363 countries reveals that there is ample opportunity for cost reduction and supply chain efficiency improvement. Damco proved this with the project Bangladesh Import Logistics that realised significant benefits for a global lifestyle customer. Raw Materials For The Lifestyle Vertical Before we can look at the current challenges for supply chains of raw materials in the lifestyle industry, it will be helpful to define the playing field. What raw materials are we talking about, how important are they, and where do they come from and go to? The warp and weft of the lifestyle industry The lifestyle vertical is based on textile more than anything else. But the textiles and fabrics that end up in the store as dresses and T-shirts are themselves the end result of a complicated manufacturing process. It all begins with some sort of fibre, either of natural origin or made in a chemical process, typically using an oil or gas based feedstock. Examples of the first category are cotton, silk, jute and wool. In the second category we find nylon, polyester, polypropylene, acrylics, and many other manmade fibres, each with its own characteristics. There may also be more specialised materials such as leather and suede (natural or PVC synthetic) or cloths such as Scottish tweed that can only originate from certain suppliers. The fibres are processed in a variety of ways to make them durable and suited for the following steps in the production process, using chemicals and auxiliaries. Dyeing is another important process step colour is an essential element of fashion. In the final assembly of the garment, use is also made of thread and of plastic and metal hardware, for example for buttons and zippers. This overview leads to the following grouping of raw material for the lifestyle industry: Fibre Chemicals and auxiliaries Fabric Dyestuff Thread, plastic and metal hardware 9. Trends in Logistics 9.4 Trends in raw materials sourcing for the lifestyle industry Page 363

364 Figure 1 is a schematic overview of the flow of goods that turns these raw materials into a finished garment WOOL DYE THREAD COTTON FIBER MAIN RAW MATERIAL FABRIC/ TEXTILE FINISHED PRODUCTS SILK POLYESTER CHEMICAL & AUXILLIARIES PLASTIC & METAL HARDWARE Figure 1: Multiple raw materials are combined in several steps, resulting in the final product. As would be expected, fabric/textile is the most important category, accounting for 60% of the costs in clothing. By volume, 85% of the raw material is fabric. Because consequently the lion s share of logistics spending in raw material sourcing is related to fabric/textile, including transportation and storage, that is where we will focus our attention in this eguide. The larger picture: fabric in world trade Fabric is an important commodity in global commerce. In 2014, the value of the fabric traded worldwide was USD 649 billion 55% more than in 2005 (see figure 2). 9. Trends in Logistics 9.4 Trends in raw materials sourcing for the lifestyle industry Page 364

365 400 IMPORT EXPORT Figure 2 Year-by-year value of global fabric import and export (source: WTO, ). In 2014, only 10 countries together exported around 73% by value of all fabric exported worldwide, with China (35%) as the largest player. On the import side, China was the second biggest import country (6.04%), closely behind the US (8.43%). The figures show that a relatively small number of countries export fabric to a significantly larger number of destinations. The top 10 import countries accounted for around 37% of global imports. East and south-east Asia, with 24% of the total import value, are the most significant import regions (see figure 3). EXPORT IMPORT US China China Germany Rest of World Vietnam India Rest of World Hong Kong Italy Japan Germany Pakistan France US Hong Kong UK Italy Turkey Korea Taiwan Turkey Figure 3 Origins and destinations of fabric by country: China has a dominant position as an exporter (source: WTO, 2014) 9. Trends in Logistics 9.4 Trends in raw materials sourcing for the lifestyle industry Page 365

366 Two major challenges for fabric sourcing In our conversations with global lifestyle brands, we find that they all share two major concerns when it comes to sourcing of fabric. The first is the rising cost of labour, in China as well as in other Asian countries, and the second is the growing need to ensure compliance through the entire supply chain. Wages rise in China and low-cost countries China initially won its position as the dominant supplier of fabric/textile largely because of the availability of cheap labour. Over the past decades it has strengthened its offering with mature supply chains, skilled workers and a growing domestic consumption. The downside of its economic development was a rise in labour costs that has forced many manufacturers to look into other sourcing possibilities Bangladesh India Sri Lanka Vietnam Pakistan Cambodia Indonesia Myanmar Mexico China Malaysia Colombia Turkey Hong Kong Figure 4 Monthly minimum wages in the lifestyle vertical in 2013, in EUR: the level in China is twice that of Bangladesh (where actual payments often fail to meet the official minimum level). (Source: ILO Regional Office for Asia and the Pacific) 9. Trends in Logistics 9.4 Trends in raw materials sourcing for the lifestyle industry Page 366

367 A recent McKinsey report 60 mentions that many players have already shifted significant parts of their sourcing to other regions. According to the report, almost three out of every four buyers are considering moving parts of their current sourcing activities from China to lowercost countries. But there is no straightforward answer to the question of where to go, because wages appear to be rising everywhere in south-east Asia. Several developing countries have seen factory workers revolt and successfully claim better wages. The most striking example is Bangladesh, which announced a 77% increase in its minimum wage in In Cambodia a rise of 25% was agreed; other countries have followed with less dramatic increases, or are expected to follow soon. Details aside, the overall picture is clear. Wages in low-cost manufacturing countries are rising and in the lowest-cost countries production can be disrupted by strikes and other actions of labourers in search of fair wages. The resulting uncertainty about manufacturing reliability and the level of cost puts pressure on the supply chains for fabric/textile. Compliance, a critical factor for lifestyle brands For lifestyle companies, their brand reputation is an invaluable asset. They are becoming increasingly aware that media attention to social issues, underpayment, violations of safety standards and unhealthy working conditions can do great damage to their brand. NGOs, representative bodies and politicians, spurred by the general public, are adding to the pressure by scrutinising the behaviour of global companies in their sourcing regions. One example is the UK s Modern Slavery Act which from April 2016 requires companies with a turnover of over GBP 36 million to report annually on their efforts to eliminate slave and child labour from their supply chains. 9. Trends in Logistics 9.4 Trends in raw materials sourcing for the lifestyle industry Page 367

368 Child and/or forced labor 4% Freedom of association 4% Other 4% Low wages 24% General work condition and labor rights 41% Safety 23% Figure 5 Social issues with suppliers. (Source: Société Générale Cross Asset Research, 2014) Consequently, manufacturers don t only look at wage levels when considering whether to move their production to new locations, but also evaluate the potential social risk that working in a particular country may expose them to. This involves a wide range of issues, including social and gender inequalities, a comparison of minimum wage and cost of living, corruption, freedom of association, and child labour and this list is far from exhaustive. Industry Trends Lead To Complicated Supply Chains Lifestyle companies attempt to respond to the sourcing challenges they face by changing their sourcing strategies, and by improving the efficiency of their supply chains and optimizing their cost structures while mitigating the risks they identify. But in the lifestyle vertical there is another factor to be taken into account: speed to market. Brands decrease the response times to market changes by near shoring: moving the manufacturing of finished goods closer to their final destination. The combination of near shoring and sourcing fabric/textile from new locations complicates the supply chains of the lifestyle industry. 60 The global sourcing map balancing cost, compliance, and capacity, McKinsey s Apparel CPO survey Trends in Logistics 9.4 Trends in raw materials sourcing for the lifestyle industry Page 368

369 Near sourcing and reshoring for speed to market A large share of the lifestyle vertical is fashion driven. Demanding consumers want the latest design, and they want it now today s hot T-shirt is next week s cleaning rag. Lifestyle brands are responding by shifting manufacturing activities to locations closer to the market: Turkey and North Africa for Europe, Mexico and Latin America for the US and Canada. Turkey has rapidly become the secondlargest supplier of lifestyle goods for Europe, after China (see figure 6). Cambodia, 4% Others, 4% Tunisia, 2% Pakistan, 2% Morocco, 2% Sri Lanka, 2% Portugal, 4% China, 39% India, 6% Bangladesh, 17% Figure 6 Top lifestyle sourcing countries for the European market: Turkey has surpassed Bangladesh. (Source: Eurostat 2014) One has to keep in mind that near shoring is not a one size fits all solution; it is most relevant for specific product categories that require short and controllable lead times. Sourcing closer to the destination market will increase efficiency and speed, but this will probably come at the expense of higher labour costs. And while near shoring shortens the downstream part of the supply chain, it increases the distance between the origin of the fabric/textile and the manufacturing location, adding pressure to the management of the upstream segment. 9. Trends in Logistics 9.4 Trends in raw materials sourcing for the lifestyle industry Page 369

370 A shortlist of fabric origins In our experience, a few countries deserve the special attention of retailers in the lifestyle segment looking to optimise their fabric supply chain. Cambodia, with a growth of 132% over the past five years, has become a key country for fabric sourcing. China is still the most important country for fabric production and export. Vietnam realised a double-digit year-on-year growth in the past three years. Its import of fabric ranked fourth in the world. Bangladesh is globally the 11th largest country in fabric import. The country s import of fabric grew 179% in the last 10 years. Indonesia grew 669% in the last decade and only recently shows signs of slowing down. It is a key country for fabric import in south-east Asia. Turkey, playing a key role in European near sourcing strategies, is becoming more and more important for apparel production, and fabric import volumes into the country are growing. More complexity in the supply chain The factors we mentioned logistics cost, lead time, efficiency and others, such as inventory optimisation and visibility, are bound to make it difficult to decide on the optimal supply chain strategy. Some retailers have policies in place allowing no more than a given percentage of goods to be sourced from very high risk countries. For companies that have their centre of gravity in basic products, less sensitive to fashion, it is easier to shift production to lower cost countries than for their fashion driven counterparts. In some countries the disadvantage of higher wages may be offset by improvements in infrastructure that increase manufacturing mobility. Examples are the deep water shipping capacity that is being added across southeast Asia and the improved railway infrastructure that is opening up the western regions of China. Regardless how the many trade-offs involved work out in any particular case, it is evident that they will 9. Trends in Logistics 9.4 Trends in raw materials sourcing for the lifestyle industry Page 370

371 make the lifestyle companies supply chains themselves more global and more complicated by introducing more origins and manufacturing locations (see figure 7). TODAY Supplier (fabric/textile) Manufacturer (finished goods) ORIGIN fabric/ textile PRODUCTION finished goods DISTRIBUTION finished goods CENTER STORE fabric/ textile PRODUCTION finished goods TOMORROW ORIGIN New Production Location fabric/ textile PRODUCTION finished goods DISTRIBUTION finished goods CENTER Near sourcing STORE fabric/ textile finished goods Figure 7 Introducing new production locations and near shoring into the supply chain introduces significant additional complexity. An Example: Importing Raw Materials Into Bangladesh Most of the garment manufacturers in Bangladesh the third largest clothing exporter worldwide need to import the bulk of their raw materials. On average, imports constitute approximately 75% of the total volume, and most of this originates from China. Fragmented logistics offer room for improvement When looking more closely into the situation, we found many opportunities for improvement. Manufacturers have individual arrangements with large numbers of suppliers, making consolidation and optimisation extremely complicated. Dealing with multiple local forwarders at both ends of the supply chain requires much communication and many touch points where things can go wrong, 9. Trends in Logistics 9.4 Trends in raw materials sourcing for the lifestyle industry Page 371

372 for example because of a lack of communication between parties at origin and destination. We also found other things that could be improved in the areas of documentation, visibility, monitoring, control, reporting and tracking. Furthermore, significant improvements could be made by reducing delays and transit times. Improvements realised for a global lifestyle chain To test our ideas we launched a project, Bangladesh Import Logistics, and approached one of our customers to see what improvements we could realise in their supply chain. This customer is a top global lifestyle brand importing over 80,000 TEUs of garment raw materials yearly, both FCL and LCL. They told us that timely delivery of raw materials, with no uncertainties, is a key factor for their supply chain and consequently for their commercial success, because the production of fashion sensitive requirements is run to predetermined production and shipment plans. Producers of garments in Bangladesh are usually obliged to buy their fabrics and yarn from suppliers that are nominated by their customer. The customer also has the authority to request that these nominated suppliers use Damco as the freight forwarder for their raw materials imports from China. By doing so they enabled us to deliver a range of benefits: One single point of contact for everything between origin and destination One single desk in charge of consolidation and optimisation Correct documentation (allowing faster release of cargo) Enhanced visibility, proper monitoring, effective control Adequate information, reporting, and notifications Eliminating delays by using direct services with fixed transits Minimal use of sea/air and air Lead time cut by one week Proactively managing contingencies 9. Trends in Logistics 9.4 Trends in raw materials sourcing for the lifestyle industry Page 372

373 Damco Is Ready To Support New Sourcing Trends Finding ways to optimise the sourcing part of supply chains is one of the things Damco does on a daily basis. We have gained a thorough understanding of the challenges of the lifestyle industry from working with leading lifestyle companies Damco is providing supply chain management and freight forwarding services for Nike, Adidas, Inditex, H&M, Fast Retailing and many other companies in this vertical. We can leverage our existing relationship with these lifestyle retailers to approach their finished goods manufacturers and even their raw material suppliers. Damco is experienced in partnering with lifestyle retailers to launch logistics programs that support and improve their business. These activities are backed by a network of more than 50 commercial offices and 13 customer service offices providing business development and operational support in east and southeast Asia (see figure 8) and elsewhere. CO LOCATIONS CSO LOCATIONS CO & CSO LOCATIONS Figure 8 With offices in all significant locations, Damco supports intra-asian business as well as developments in global sourcing. 9. Trends in Logistics 9.4 Trends in raw materials sourcing for the lifestyle industry Page 373

374 Significant improvements in sourcing can be realised by taking an integrated look at the supply chain, going beyond a simple comparison of rates when selecting suppliers. To this end, Damco offers a complete range of supply chain development services that can help our customers to identify improvement areas in the supply chain that, when implemented, not only lower the costs but also improve its efficiency and reliability. 9. Trends in Logistics 9.4 Trends in raw materials sourcing for the lifestyle industry Page 374

375 9.5 ADAPTING TO THE RAPIDLY CHANGING RETAIL INDUSTRY By: Damco Blog Team Doing Business in the Fast Lane The retail industry has always been a complex industry. However, as the global economy develops, it is becoming even more complex in comparison with other industries such as automotive, technology, pharmaceutical and chemicals. Each one has specific requirements that apply only each industry. In retail, however, many of these aspects specific to other industries must be brought into consideration. One of other challenges in retail is that while selling similar to identical products, the competition to gain attention and connect with customers in the retail industry is fierce. With the growing use of mobile computing devices, retailers have utilized e-commerce to their own benefit. At the same time, logistics providers have to adapt and keep pace with such development as retailers look for new ways to do business and new markets to enter. In this story, we explore the direction of the retail industry s development and try to see which areas will be the next hot spot in the near future. Merging Retail and Technology There is currently a trend for large retailers to expand into the global market. North American retailers are moving into European and Asian markets, and the Europeans are doing the same. The stores they are opening, unlike large stores in their mother land, are typically smaller satellite stores. Therefore, inventory management has become a much more critical aspect than before and alternative solutions are necessary. The increase in competition from new players introduced into the market also pushes retailers into coming up with more creative ways to connect with their customers, and that is where e-commerce comes in. There s a part of e-commerce integrated into the practice of Omni-Channel. Omni-Channel is a method of developing different channels to reach the customer at all times. Customers can get information, read reviews and order a delivery of products online or by scanning a QR Code from the computer screen, printed advertisements, on an advertising board on the street or even on public transport, 9. Trends in Logistics 9.5 Adapting to the rapidly changing retail industry Page 375

376 Mr. Hans Elmegaard Global Head of Retail Vertical Damco Corp. HQ, The Hague, The Netherlands explained. One of the bigger hurdles is the return goods or the reverse logistics. Depending on the product, some products are relatively cheap and the cost of returning will make it difficult to make a profit margin on the products. In the UK, all the retail industry players encounter very fierce competition, and it is currently the most mature country in the world on this issue. Some operators are delivering to the consumer 3-5 times a day. So we see some of the stores are now used for returning goods or just e-commerce delivery and they gain an advantage in reaching consumers more frequently and reducing the cost of returning goods because the returned goods go back to a nearby store. Satellite stores in new markets also have an advantage of being in close proximity to customers, so consumers can easily reach the stores in a local environment and receive expert advice from store assistants. Customers can also buy from the shop and get the goods delivered afterwards if they decide to. They can order online, and the delivery and return of goods are often offered for free, for a certain amount of purchase. Retailers are offering different services depending on their local presence. As it comes to this way of reaching the consumer, it puts a lot of pressure on the supply chain. Every time the retailers try to get to the customer faster, smarter or more frequently, those kinds of challenges directly impact the supply chain. And that s where we, amongst others, are trying to come in and assist the retailers. For our retail clients to become more successful in e-commerce, it requires close collaboration, expertise and visibility tools, which correspondingly needs a lot of investment in time, money and resources from our side. Close Relationships, Better Results As retailers are growing in different directions than before, they need to increase their collaboration with partners to be successful, and that includes suppliers and logistics operators. When retailers are going into new countries they prefer to do business with global logistics providers, who already have a strong network and local platform, and expertise with operations ready to accommodate the expansion of their partners into a new territory. According to Mr. Elmegaard, this is an important way in which a 9. Trends in Logistics 9.5 Adapting to the rapidly changing retail industry Page 376

377 global logistics provider will support retailers to succeed in new markets. Namely, it s about the way they try to better serve and reach their customers in a new territory. The logistics in the background is getting more complex. To be able to provide enhanced services, they need the right expertise, resources, established infrastructure and knowledge of network management. This is where logistics providers with a global approach know best about the business. It is about collaborating and building networks and we are achieving that through partnership, open discussions and conversations. What we mean by that is we have the necessary know-how to approach these requirements better and we have the proper resources to support our customers with their needs. This also means if it requires an investment from our side. The most important part of this is to be close to the customers and to be aware of the needs and strategies going forward, to be able to help them. It s a lot more hard work than it was in the past and less transactional. The new model means the opportunity arises that every requirement will become more complex. We are coping with more methods, more destinations and more products involved. That is why it s important to build closer relationships and get more involved with customers if you want to succeed in retail. The key is you have to be innovative and stay close to your customer s heart and listen to what their plans and challenges are. It s also easier for us to act when we know what the challenges are. Based on our position in the industry, we believe that we have the expertise within this field, including from the regional side. We are able to get in local people from the industry to build up our staff. Dealing with retailers is not just about freight forwarding. It s a variety of different kinds of people who create a successful team because they have a different kind of expertise to achieve that. Seizing Opportunities in Asia One of the emerging markets that many retailers are looking to enter is Asia, and in particular, Southeast Asia. While things are not progressing in Europe, America is recovering and BRIC countries are slowing down, many eyes are on the emergence of a new economic community, the AEC, to drive the global economy with a growing group of middle-class consumers. On the other hand, Dr. Kelvin K 9. Trends in Logistics 9.5 Adapting to the rapidly changing retail industry Page 377

378 Y Leung, CEO Asia Pacific DHL Global Forwarding still has faith in China as he believes that China is not actually losing its dynamic with its recent one-digit national growth, but is in a transition toward sustaining maturity. The past two decades was a long period of solid development where infrastructure was developed in China and we cannot expect it to continue forever. Looking at the size of the economy, while the US growth of 3% is considered a good year, China s growth of 5-7% is considered a sizable one. He continued, China is under new leadership and they are reforming the quality of the growth so it is not only about GDP figure, but environment, health care, distribution of wealth and corruption. In the course of rectifying these issues, there will be a transition periods and I think that is where the Chinese stand. While trade between member countries within NAFTA accounts for 70 percent of total community trade volume, and the EU posts similar figures of percent, trade within ASEAN currently accounts for a mere percent. The establishment of the ASEAN Economic Community will provide an environment of hundreds of million consumers where any retailer can thrive by tapping into the right spot of the market. ASEAN sees the need for negotiating as a single block for free trade agreements with other economies like Japan, China and India. As trades grow, governments will move to support the trade, and then logistics will become a key part of it. That is why I am expecting the development on logistics and customs to streamline and smooth out trade progress. While the western investors keep their keen eyes on ASEAN as an opportunity, they have also been cautious about the emergence of the AEC. There are chances that strong local players will extend into the AEC and grow into regional powerhouses or even beyond that. During the last three decades we have witnessed Japanese companies become global, then Korean, Chinese and Indian companies. Local players who have an edge in local knowledge and networks will suddenly gain access to a market of 600 million consumers in AEC. That will be a game changer for any business operating in 9. Trends in Logistics 9.5 Adapting to the rapidly changing retail industry Page 378

379 Southeast Asia. We have always believed in the potential of local corporations to become global. We helped them reach the global market with the strength of our established global network and knowhow. For them to reach out for global expansion is where we can be beneficial and grow along with them, Mr. Leung stated. With the global economic slowdown, retailers have tried harder to connect with their customers and expand their reach into different regions. As the methodology of reaching retail customers becomes more complicated, retailers are welcoming the expertise of logistics operators and all the involved parties need to work closely together. One prime market full of potential is still Asia, where China is transiting toward maturity and ASEAN is transforming into another large consumer market. 9. Trends in Logistics 9.5 Adapting to the rapidly changing retail industry Page 379

380 9.6 OFFSHORING E-COMMERCE FULFILMENT: THE NEXT STEP By: Hans Elmegaard Physical stores, with their supply chains, existed long before e-commerce developed. This explains why retailers tend to see e-commerce fulfilment as an added option in the last mile. After all, besides the ordering procedure, isn t the only logistical difference between the two channels that items are either transported from the distribution centre to a shop or directly delivered to the consumer? Not true the experience at Damco shows that this model is a serious barrier to the potential of e-commerce. Retailers will realise significant benefits by re-thinking the entire supply chain and moving order-specific fulfilment activities to origin. Complete visibility: an end to the nightmare The greatest nightmare of every retailer is that they will not have the products that consumers ask for, either in the shop or online. In today s markets, not being able to deliver is fatal the competition is only a few mouse clicks away. A well-stocked distribution centre at destination gives a feeling of security and control. But at the same time, it ties working capital, creates costs, and reduces flexibility. The alternative starts with a dependable IT-based solution that yields complete visibility across the entire supply chain, from origin to destination. This will give the required security and control, but at the same time opens up the possibility to optimise the entire supply chain by locating every activity in the place where it fits best. Offshoring in Australia In many cases a full analysis of the supply chain points to the advantages of moving e-commerce fulfilment to the regions of origin as much as possible. Over the past years, Damco has demonstrated this for a number of retail clients in Australia. Goods from multiple suppliers in the South-East Asia region are collected, packed and labelled in our distribution centre in Hong Kong. From there they are flown to Melbourne overnight, using Damco s combined freighting service, where they are distributed to our local delivery organisation or another carrier for transport to their final destination. This 9. Trends in Logistics 9.6 Offshoring e-commerce fulfilment: the next step Page 380

381 arrangement reduces costs in a number of ways. Warehouses at destination are required to carry only a narrow range of products, while the full range is kept close to origin, and consolidation with other parties reduces the cost of airfreight. The optimum configuration will be specific for a particular market, product group, and consumer segment. In a very mature market like the UK, consumers are used to extremely short delivery times for their web orders, combined with a wide diversity in pick-up and return options. But in other market regions, like continental Europe and North America, 24-hour delivery is completely acceptable for many items, while for specialties and individualised items 72 hours still matches the customer s expectations. A better web shop, fewer returns, higher margins The importance of managing expectations brings another critical factor into play. It is common knowledge that free delivery and return increase online sales volumes, but the cost of free returns can cut deep into the final margin. We have seen that the volume of returns can be reduced dramatically by personalising the customer s experience of the web shop. With free delivery and return, a fashionsensitive young girl does not hesitate to order one dress in four colours to pick the best one at home. But if the web shop has her portrait and measurements, and renders her personally in 3-D with each of the four dresses, this will allow her to make her choice online. The next step for European and North American e-commerce The key to optimal e-commerce fulfilment is a shift in mindset and the willingness to look at the entire supply chain with fresh eyes. Damco has the expertise and the tools to help its clients achieve maximum results from this exploration. From what we see, moving e-commerce fulfilment to origin can be a major improvement for companies that serve the European and North American markets. 9. Trends in Logistics 9.6 Offshoring e-commerce fulfilment: the next step Page 381

382 9.7 KEY LOGISTIC TRENDS IN THE CHEMICAL INDUSTRY By: Anthony Elwine Current developments and their effect on global supply chains Management Summary In our conversations with clients in the chemical industry, a number of issues keep consistently coming up. Among these are the impact of external influences on their supply chains, changes happening upstream in their business processes, the effects of changing feedstock availability, and the consequences of centralisation and globalisation within their companies. Although the specifics will be different for different sub-segments, there are a number of developments in the global chemical industry that have an impact on the supply chains of producing companies. While the market is still expanding, China has now replaced Europe and the NAFTA area as the global growth engine. Europe has also lost its competitive edge as a production region, while North America benefits from low feedstock costs due to its shale gas. The resulting changes in trade volumes and trade lanes will necessitate a variety of adaptations in the industry s supply chains. Some of the responses to these developments that we have observed in working with our clients include a larger emphasis on collaboration, increasing investments in S&OP processes to manage external risks, and a tendency to differentiate their service offering. IT platforms and resources are used more and more to integrate the processes of multiple parties in the supply chain. Sustainability, high on today s corporate agendas, fuels a drive towards greener supply chains. Based on customer interviews and surveys, we can say a few things about the future. The share of sales through partners or agents appears to remain stable, while the use of regional hubs is expected to grow significantly. Also, there is a clear push away from small to larger packages and bulk transport. Most companies are aware that optimal lead times will be a powerful differentiator; regional hubs are an instrument for keeping inventory low while offering good customer responsiveness. The industry expects that overall supply chain costs will remain stable or increase. 9. Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 382

383 In our work with clients in the chemical industry we have identified a variety of opportunities for supply chain optimisation in all phases of the supply chain process. For order fulfilment, transport planning, and transport execution the common theme is that the further one goes back in the order raising process, the more opportunity this offers to optimise the flow of goods. Outsourcing these functions may be advantageous but can also create risks. Having good analytics available may have significant impacts on supply chain performance. The Main Issues In Today s Chemical Industry Damco has long-standing relationships with many of its clients, and as part of our interaction we have regular conversations about the issues they are facing. While many of these issues are specific to particular sub-segments a consequence of the fact that the chemical industry is highly segmented there also are several challenges that we see larger numbers of our customers grappling with. External influences impacting supply chains Aggregating a variety of topics, the issue that we probably hear most often from our customers is that external factors affect the performance of their supply chains. While the exact nature of these factors may vary from case to case, the result is always that companies feel a need for increased flexibility to be able to service their end markets consistently, mitigating or containing the impact of external disturbances. Changes happening upstream Clients often report that changes are happening upstream in their business processes, directed at increasing their company s responsiveness to customer needs and supporting customer segmentation, which may counteract the need to closely manage their order-to-cash cycles. This may result in a complicated balancing act between these two objectives. Changes in feedstock availability Another theme that tends to come up regularly is the effect of global changes in feedstock availability, of which the growing importance of shale gas is the major one. The question here is how those changes will affect the growth of the market, both as a whole and in particular regions. 9. Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 383

384 Internal globalisation and centralisation A final challenge that is often mentioned is that many organisations tend to become more globalised and centralised in their operations and procedures, with the consequence that regional autonomous operating units must adopt more global and harmonised approaches. Many of our customers are not ready for such a truly global approach and seek to optimize their supply chains within their regional span of control. The Context: Trends In The Global Market Before addressing specific issues and challenges, it will be helpful to sketch a high-level picture of what is currently going on between supply and demand in the global chemical industry. Consumption: a large market with a healthy growth With a value estimated at over 3 trillion euros, the market for the global chemical industry is significant. Sales growth from 2013 to 2014 was nearly 4%, but looking at a 10-year period the growth of the industry has been in excess of 10% per annum. The main driver for this growth has of course been Asia, and more specifically China. From 2012 to 2014, China sales grew 25% and the Chinese market is now double the size of Europe (see figure 1) Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 384

385 Figure 1 - Market values by region, 2014, in bn. The Chinese market is almost twice as big as that of Europe. A comparison of the European Union with the NAFTA region shows that they are roughly the same size in terms of sales. It is important to note that over the 10-year period ending in 2013, Europe lost its crown as sales fell by 14.5 percentage points (from 31% to 16.5%). The NAFTA contribution to global sales also saw a decline not as dramatic as Europe, but still a fall by some 9.2 percentage points. This does not mean that the industry is not growing in Europe and North America; it is just that it is not growing as fast as the rest of the world. China, with an 8.7% share in 2003, in 2013 claimed over four times as much. This shift can be attributed to a number of different reasons, including lower labour costs in the emerging economies, regulatory changes in the marketplace, and the effects of taxes and high energy costs. It is safe to predict that this trend will continue. Production: Europe loses its competitive edge Changing our orientation from the sales element to the production landscape, again we find that the three most important regions are NAFTA, Europe and Asia, where Asia includes China and Japan (see figure 2). 9. Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 385

386 Figure 2 - Chemical exports by region: Europe is (still) the largest exporting region. 62 Although Europe was the largest exporter in 2013, it has clearly lost its competitive edge. Energy and feedstock prices have been and are Europe s Achilles heel. Emerging markets have been able to take advantage of lower energy prices and low-cost feedstock a development that we now also see starting to happen in the US. Feedstock: lower costs have large effects Much has already been written about the rise of shale gas and its implications to the North American economy. Shale gas also has a downward effect on global oil prices. In a logistics context it is relevant to look at the challenges created by this type of change. What we see is that generally, as with any significant industrial change, the local and wider government landscape tends not to be able to keep pace with developments. Consequently, challenges in the infrastructure that are either caused or not rapidly addressed by governments tend to delay the possibility to optimise supply chains from those emerging markets. A similar observation can be made for the commercial sector, which also poses challenges that may slow down the potential growth in the North American market. Is there sufficient trucking capacity in the destination markets? Are the ports ready to handle the volume of products that can be expected? Any challenge can be overcome, of course, but the question is: at what cost? How does this affect logistics? The global market trends that we identified affect the way the chemical industry runs its logistics. Trade patterns are shifting and we see increasing competition between producers, especially in North Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 386

387 America, to seize market share as their growing production comes into the market. We also see, as mentioned earlier, that new destination markets start playing a role. It is not yet clear whether the growth in Asia will continue or whether it will be replaced by other key destination markets such as Latin America and Africa. More collaboration, but not globally One of the changes we have noticed in the way the chemical Industry approaches its logistics is that a growing number of chemical producers are collaborating much more with their logistics service providers than they used to do. This seems to have happened naturally: a number of the producers already had very country-specific or region-specific supply chains, and as their businesses have expanded they have taken those local or regional relationships to a global platform. However, we do not see many logistics providers catering to the needs of the chemical industry on a global basis, and especially not in the new and emerging markets. Managing external risk factors with S&OP There is a growing awareness of the risks created by external factors, which was even increased further by the recent incident in Tianjin. These days everybody is aware that unfortunate occurrences in emerging markets can have a significant impact on share values. The recommended way to deal with these factors is by implementing Sales and Operations Planning (S&OP) principles, integrating the sourcing of materials, their movements and their delivery into one process. Differentiation in service offering A growing number of companies are attempting to differentiate their service offering, for example by segmenting their products and establishing different lead times for customer delivery per segment. All of this falls under the umbrella of being able to optimise the flow of goods within the supply chain, ensuring that the cost-to-serve is kept within given parameters while delivering the products in a timely manner. Using IT for process integration One way we see the industry approaching these challenges is by using IT resources and platforms to connect and integrate processes of multiple parties in the supply chain. Companies are reaching out to 9. Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 387

388 either cloud providers or logistics providers for what has become known as control tower solutions. The general difference between the two routes is that cloudbased service providers only deliver dedicated software, while logistics providers may also make their expertise available to support clients on their journey within the supply chain. More focus on sustainability and risk management Due to increasing environmental awareness, especially in consumer markets, sustainability claims a high place on the agenda of many producers. When optimising their supply chain, more companies are trying to harvest the benefits of changing modes of transportation (most importantly, replacing airfreight by other modalities) and offering greener solutions. Greening the supply chain is a two-edged sword: as a rule, 1% reduction in carbon footprint corresponds with 1% lower costs. Similarly, the risk element in supply chains is receiving growing attention. Future Developments In The Supply Chain Damco regularly conducts surveys among its clients to spot trends and take inventory of their expectations of the future. This enables us to adapt our service portfolio and infrastructure, so that we are ready to respond when new demands arise. In a recent survey of the chemical industry a number of observations stood out that will be relevant to share in the context of this eguide. Sales through partners to remain stable Sales in growth markets is generally being handled through partners rather than by the producing companies themselves. Our customer interviews indicate that there is no intent in the industry to significantly change that approach (see figure 3). This observation is relevant for supply chain managers because the involvement of partners affects the way they can manage costs and can benefit from procurement leverage when offering different Incoterms to their customers. 9. Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 388

389 Figure 3- Our survey indicates there will be no significant change in the distribution of sales between producers and agents. Destination hubs on the rise Supply chains today are not as stable and simple as they once were. The geographical expansion of destination markets, combined with the expected development of new origins and the reality of continued volatility and disruptions, dictates that increased flexibility will need to be built into the supply chains. As a response, we have seen several of our customers position products in physical warehouses in destination markets. The advantage is of course that it reduces the lead time for serving customers, but the drawback is that it is a costly exercise. Therefore more and more companies are now investigating where to hub products from a region or a number of regional distribution points, to give them increased flexibility to ship their products to market in a cost-effective and timely way (see figure 4). 9. Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 389

390 Figure 4- The industry expects a significant increase in distribution via regional hubs. A push towards bulk packaging Another interesting snapshot in the customer interviews has been the question how organisations will package their products to get them into the final consumer markets. While there was a belief that emerging markets would prefer to receive goods in more of a bulk scenario, that change has been manifesting slower than was expected. This means that the chemical industry still has a significant push towards converting more products to bulk, rather than shipping in more and smaller consignment orders (see figure 5) Figure 5- The share of small packages will drop in favour of larger units and bulk packaging. 9. Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 390

391 Determining optimum lead time The question always comes up what lead time to offer. As before, different commodities or different products will be associated with different parameters. In figure 6 we have generalized the data somewhat, which enables us to see that the midpoint between the first quartile and average is where most companies are looking to target their responsiveness. The third quartile segment obviously equates to customers receiving the product directly from plant. In this situation the lead time will be the obstacle; cost-to-serve is optimal, but customers are generally not willing to wait too long before receiving their goods. In a competitive environment, a combination of low cost-to-serve and short lead times will be a powerful differentiator. Figure 6- Lead time (in days) Optimising inventory Inventory levels represent another variable that our customers seek to optimise. We have aggregated the responses (see figure 7) to draw some conclusions. Overall we see that the market is quite good in terms of managing inventory, with variations between different subsegments. The key understanding is that retaining more product closer to the destination market raises inventory levels and creates more costs. Optimising the flow of goods then again comes back to withdrawing products from those destination markets and creating more flexible regional hubs that can serve several destination markets, rather than having inventory sitting in the final markets based on a Sales & Order Planning process. 9. Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 391

392 Figure 7- Inventory levels (the number of days finished products are stored in a company warehouse). Costs will not go down The central question for any optimisation effort is where the money is being spent in the supply chain. The answers to this question can vary considerably, not only because the actual cost distribution may be different for different organisations, but probably even more because of differences in the way they allocate those costs within the business. This explains why organisations report that logistics costs contribute anywhere in the range of 4% to 25% of total costs, with an average of 10%. Figure 8 shows the breakdown of that average. A majority of customers are telling us that they expect that, due to expansion and servicing customers on a more global basis, the cost base of their supply chain will either remain at the same level or increase. Figure 8- Sea transport contributes more than 60% to total logistics spending. (Total cost of delivery includes all direct and indirect cost related to land/sea transportation and warehouse operations.) 9. Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 392

393 The costs associated with ocean freight should be mentioned separately here because the current situation is exceptional. The ocean market business is healthy from the viewpoint of shippers, but not from the perspective of ocean carriers. Yes, there will be procurement opportunities, but they are driven by market supply and demand, not by sustainable actions that could be implemented by the chemical producers. Identifying Opportunities For Optimisation Against the background of this chemical logistics landscape, the logical next question is in what ways today s supply chains can be optimised. Based on our experience of working with customers in the chemical industry we have identified the major opportunities for various aspects of the supply chain. Sourcing and category management We already touched upon the topic of sourcing and category management in our description of the ocean freight market, where we see that the larger companies have the required leverage to negotiate directly with the ocean carriers. Smaller companies are trying to level the playing field by tapping into the capabilities of non-vessel-owning common carriers (NVOCCs) with the aim of benefiting from their procurement power. In this construction, they may or may not work with the carriers directly. Damco has coached small and mid-sized companies who have used NVOCCs but never got around to working with carriers directly on their journey to convert some, part or all of their volumes into direct carrier contracts. 9. Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 393

394 A topic that tends to come up in our conversations with ocean carriers and trucking companies is the relationship between the industry and its service providers. While words like partnership and collaboration are often used, the reality is usually that producers have a group of selected vendors to whom they talk more often than others, without there really being a true spirit of collaboration between the producer and their service provider. We believe that creating truly collaborative relationships can open up significant advantages for the industry. Order fulfilment We find that in some organisations the order fulfilment (also designated as order management or customer fulfilment) teams are part of the supply chain, while other clients place it elsewhere in the organisation. This reflects the widespread question where order fulfilment should reside. Another, and related, observation is that within the industry we see supply chain management moving further upstream in their processes, making order management or order fulfilment a critical point to start optimising the supply chain. One of the potential short-term arguments for moving further upstream is that it makes it possible to either outsource or offshore the order management process. Typically this decision is based on differences in labour costs, but it introduces the challenge that in lower-cost economies people tend to move around quite frequently. This can be remedied with robust SOPs and efforts to keep the pipeline of talent filled. In companies that we have worked with on integrating the order management function, we have seen that this offers a better opportunity to optimise the orders placed to the supply chain organisation. In some cases we have witnessed the amount of less-than-full truck or container loads decreasing or almost disappearing because the organisations were able to optimise how these orders are being processed into the supply chain. Transport planning Once an order has been raised, the opportunity to postpone it has diminished, but there is still an opportunity to combine it with other orders and optimise the flow of goods within the supply chain. Of course your teams should also be thinking about how to optimise their orders as part of their daily 9. Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 394

395 routine, and it pays to create time for that on a structural basis. Typically we see them working to their maximum, solving current operational challenges, unable to commit any time to planning efficiency. Transport execution At the transport execution layer, even more than in planning, we usually see the people so busy dealing with the current day-to-day activities and managing their supplies that there is no capacity left to optimise their approach. The common theme in order fulfilment, transport planning, and transport execution is that the further one goes back in the order raising process, the more opportunity there is to optimise the flow of goods. There has been a trend to outsource transport execution, but outsourcing these skills creates a potential knowledge gap. What we see as a key to success here is ensuring that all knowhow is extremely well-documented. This can then be used effectively to address internal and external inefficiencies and to ensure transparency in task ownership and responsibilities. Freight auditing and invoicing Freight audit and invoicing is not a particularly exciting subject for many people, but it certainly absorbs time, energy, and cost. Here again, we see the effectiveness of organisations increase when the expertise of handling this type of activity can be automated and optimised. This allows the organisations to focus more on how they manage their business rather than dealing with invoices that are sent incorrectly. Performance analytics The ability to manage the performance of any supply chain depends on the availability of reliable data. As mentioned earlier, cloud providers have made a very clear business case based on aggregating information that is not readily available from the various existing IT systems or that is incomparable because of formatting issues. Having usable data from multiple sources allows strategic plans to be put in place, followed by tactical execution to look at further optimisation of the supply chain. We have seen this having significant impacts across organisations that have limited visibility internally (from ERP systems) or externally (from forwarder platforms or cloud type environments). 9. Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 395

396 Implementing Supply Chain Improvements How can producers benefit from all these insights to optimise their supply chain? Although the details will always be customer-specific, it will be illustrative to present a recent case in which Damco worked with a fairly typical client in the chemical industry. This customer moves a considerable amount of products by ocean and is also shipping less-than-full container loads. They are moving bulk in the form of ISO tank containers and, like many of their competitors, they rely on airfreight for more shipments than they would like. Figure 9 - Supply chain improvement for a global chemical producer rests on the pillars of standardisation, scalability and optimisation. Damco started the journey with this client, who felt the need to look at how they could improve their current way of thinking, by engaging from a regional perspective (see figure 9). The first step was standardising processes that are very different across the different countries in Asia. Once this was achieved, we were able to digitise the information. This then allowed us to begin taking actions to influence the movement of goods within their supply chain. 9. Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 396

397 The second step was to go beyond the region and to look at how we could help them further optimise the flow of goods around the globe. We did this by implementing a similar solution for their business in Europe. This made it possible to take cost out of their flows in both directions, from Asia to Europe as well as from Europe to Asia. The third and final element was to create scalability to the solution. The answer here consisted of standard ways of working, and connecting the dots through a digitised supply chain. By incorporating the principles on a more global basis this client could then begin to drive efficiencies not just through procurement, but also through optimisation. Explore the possibilities If you recognised elements in this eguide that apply to you, you may wonder what potential for optimisation is hiding in your current supply chain. Our industry specialists will be happy to investigate your situation and identify the potential quick wins and longer-term gains. 9. Trends in Logistics 9.7 Key logistic trends in the chemical industry Page 397

398 10. SUSTAINABILITY IN LOGISTICS 10. Sustainability in Logistics Page 398

399 10.1 HOW TO INTEGRATE SUSTAINABILITY INTO YOUR SUPPLY CHAIN By: Anders Holbech Improve performance and cut logistics costs by reducing your carbon footprint Management Summary In the world of today, companies can no longer afford to ignore the sustainability aspects of their operations for reasons of good global corporate citizenship and because of the importance of sustainability for a business risk exposure, public image and, ultimately, brand value. This includes the sustainability of their supply chains, and Damco offers tools and processes that help customers achieve real improvements in this area. In our work with clients we often run up against the misconception that sustainability, especially when it comes to supply chains, will only cost money and create large amounts of additional work. Our clients are often surprised to find out that improving logistics sustainability invariably results in lower costs and improved operational efficiency. As a rule of thumb, in logistics 1% reduction in carbon emission equals 1% less costs. A very wide range of interventions is available and it depends strongly on the situation which one will yield the best results. One may think of modal shifts (especially from air to sea), a more efficient organisation of the supply chain (for example by adopting the DC Bypass model), optimisation of packaging, the choice of equipment, the efficiency of equipment use, selection of suppliers based on their sustainability performance, and many more. Besides good corporate citizenship and supply chain efficiency there also are external drivers for sustainability: carbon regulations that are set by governments or transnational organisations like the EU, and guidelines or targets provided by industry initiatives. The various modalities each have their 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 399

400 own way of approaching this. Industry initiatives also play a significant role in achieving reliable methodologies for calculating carbon emissions. Once an organisation decides to implement sustainability in its supply chain, Damco will guide them using a tested three-step process of data collection, analysis and CO2 calculations that can provide the foundation for strategic decisions and KPI selection. And when the basics have been covered there are always options available for expanding and fine-tuning: the journey of sustainability can be continued indefinitely. The Global Context: Sustainability Is No Longer Optional Regardless of whether you are a shipper, a carrier or a logistics service provider, and what your position or job is, you do not operate in a vacuum. Besides the direct contacts and influences from clients and colleagues there is a global scale on which developments take place that affect every single one of us, personally and professionally. The world population is growing and will continue to do so for several decades. Due to the economic growth in countries like China and India, at least 150 million people will be entering the middle class each year until This will bring almost 60% of the world s population into a middle-income bracket. Over the same period, the global energy demand is projected to increase by 40%, while the water demand is expected to outstrip the available supplies by 40%. Looking further ahead, by 2050 we will need the resources of 2.5 planets Earth to support a population of 9 billion people. Obviously, we have only exactly 1.0 Earth available, meaning that we will have to find ways to do things smarter and more efficiently, and to waste fewer resources, so that future generations will at least have the same opportunities that we have. Sustainability is no longer a hobby for idealists but a business reality, as exemplified in a recent statement by Paul Polman, CEO of Unilever: How to grow sustainably is the biggest challenge facing companies everywhere. Damco And Sustainability This eguide is intended to help you integrate sustainability into your logistics operations. But before we get into the what and how of that process, it may be useful to take a brief look at the role sustainability 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 400

401 plays at Damco. On the one hand, our ambitions and targets in this field are derived from the Global Sustainability Strategy of our mother company, the Maersk Group. On the other hand we are driven by our clients requests for support in helping them make their supply chains more sustainable as well the specific conditions relevant for the logistics industry.. In line with the Maersk Sustainability Strategy, Damco s sustainability priorities for the timeframe include economic, social, and environmental topics. Figure 1 specifies the targets that have been set for Anti-corruption; Local community engagement and Diversity; Environment, Health, Safety and Security; and last but not least, Sustainable logistics. It is the latter area that affects our work with clients most and that is the topic of this eguide. Damco Sustainability Priorities: Priority area Anti-corruption Local community engagement and Diversity Environment, Health, Safety and Security Sustainable Logistics What? Zero tolerance for bribery and annual targets for reduction of facilitation payments. Engage in local communities to enhance education and work proactively with Diversity. Professional and systematic management of Health, Safety, Security and Environment. Enabling emissions transparency and working towards enabling customers to make greener choices. Level of Ambition Among the best in the industry. Among the best in the industry. Comply with industry and regulatory standards. Among the best in the industry. Target 25% annual reduction of facilitation payments. Sustainability Employee Engagement Indicators >90%. Externally certifiable HSSE Management by Recognised as a leader in Sustainable Logistics. Figure 1 Damco s sustainability priorities, based on the Maersk Sustainability Strategy. The solutions we offer our clients as part of our Sustainable Logistics products can be subdivided into two groups. The first group focuses on end-to-end visibility by providing tools that enable customers to make an exact assessment of the carbon performance of their supply chain, so that they can identify trends over time, pinpoint carbon inefficiencies, and make informed decisions, knowing how their 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 401

402 business decisions affect their sustainability performance. Damco s SupplyChain CarbonCheck and SupplyChain CarbonDashboard were developed specifically for this purpose. Customers can also view the carbon impact of their shipments in their private mydamco area on the Damco website. The second segment of Damco s Sustainable logistics offering comprises services that support shippers to embed sustainability into their logistics operations. Here we help customers with strategy and KPI development, and with realising improvements in their logistics efficiency based on these choices. All of this will be covered in more detail in later chapters of this eguide. Logistics sustainability equals efficiency. The carbon impact associated with various transport modes is very different. As shown in Figure 2, the carbon intensity of airfreight is about 90 times that of ocean. Many people in the logistics industry, however, fail to realise exactly how this knowledge can be used to make decisions that are in line with their business s goals and support supply chain sustainability. And while the choice of transport mode may be the major one, especially if airfreight can be traded in for one of the other modes, there are many other factors to be considered. One may think of carrier selection, the choice of packaging, the choice of equipment, the efficiency of using equipment, the effectiveness of the transport network usage, and many more. The interesting thing is that each of these variables directly relates to carbon usage, and that carbon usage in turn has a one-on-one relationship with costs. In general, a 1% reduction in carbon emission equals a 1% saving on logistics costs. In logistics, sustainability equals efficiency. 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 402

403 Carbon per transport mode (g/ton-km) Air 560 Truck 47 Barge 25 Rail 16 Ocean 6 Optimization levers Figure 2 Carbon emissions vary widely between transport modes, with airfreight being the most energyintensive by far. The equivalence of carbon and costs is demonstrated clearly in a case study on Distribution Centre (DC) Bypass (see Figure 3). DC Bypass refers to an increasingly popular model of supply chain optimisation where the supply chain of a retailer no longer includes the supplier s distribution centre. In this particular case, four major steps in the end-to-end supply chain (cross-country intermodal trucking, the supplier s DC, trucking, and the retailer s consolidation centre) are replaced by just one (Damco s facilities in Carson and Newark). Damco can consolidate the supplier s merchandise with other merchandise destined for the retailer and send full truck loads directly to the retailer s DCs or even directly to its stores. 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 403

404 Case Study: DC Bypass As-Is Logistics Network Discharge Port Intermodal Trucking (> 500 Miles) Supplier DC LTL Trucking Consolidation Center FTL Trucking Retailer DC To-Be Logistics Network Discharge Port Intermodal Trucking (> 500 Miles) Damco Cross-Dock FTL Trucking Retailer DC Operational Impact: Reduced lead times by 13.7 days Cost Impact: $10.6 million identified cost savings Carbon impact: 1,800 ton reduction in CO 2 Increased flexibility Reduced capital requirements Figure 3 The DC Bypass model eliminates several steps from a retailer s logistics network, making it more efficient and reducing carbon emissions in the process. In this situation, adopting the DC Bypass model offered a number of advantages: Lead time was reduced by an average of 13.7 days, with all the associated benefits (products get to market quicker, the supply chain becomes more reliable, inventory and working capital costs go down). The supply chain became more flexible and responsive, enabling the retailer to make buying and distribution decisions closer to the point of demand. The carbon footprint was reduced by 1,800 tonnes of CO2 (besides the environmental benefit itself, this supports good corporate citizenship and is positive material for marketing and PR). It represents a competitive advantage (as long as the retailer s competitors do not react by cutting time and costs from their supply chains). It lowers capital investments in company-owned assets (DCs, trucks, etc.) and staff. 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 404

405 In this particular case, a total amount of USD 10.6 million in cost savings was identified. A second example is a case study on CFS consolidation (see Figure 4). Like the previous one, this project was not executed for sustainability reasons alone but with the intention to achieve operational efficiencies and cost reductions; nevertheless, it resulted in a significant carbon reduction. In this case, Damco reduced the number of 20DRY equipment that was required by converting light container yard loads to full containers and improving the container utilisation levels. The container split was improved by choosing the right container size for the available volume of cargo. Case Study: CFS Consolidation As-Is CFS Utilisation To-Be CFS Utilisation ,266 1,514 1,504 1,121 1,578 Operational Impact: 15% reduction in container shipments Carbon impact: 583 ton reduction in CO 2 Figure 4 Optimising container usage impacts the costs as well as carbon emissions. The main advantages were: The number of containers shipped was reduced by 15%, with a 15% increase in CFS usage. Container utilisation improved. Operational efficiency improved. Carbon emissions were reduced by 583 tons of CO2. A total amount of USD 852,000 in cost savings was identified, resulting from reductions in ocean 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 405

406 freight, destination terminal handling charges, destination haulage, origin terminal handling charges, and the number of containers shipped. Both of these examples illustrate that carbon reduction goes hand-in-hand with cost reduction. A lower fuel consumption means that the logistics network and its resources are used more efficiently, which results in lower costs. Did you know? 57% Heavy-duty trucks account for the dominant share of all logistics-related greenhouse gas (GHG) emissions. AIR FREIGHT BUILDINGS (252 Mega tonnes CO 2 ) (308 Mega tonnes CO 2 ) 57% 17% 9% 6% 11% ROAD FREIGHT (1,596 Mega tonnes CO 2 ) OCEAN FREIGHT (476 Mega tonnes CO 2 ) RAIL FREIGHT (168 Mega tonnes CO 2 ) Figure 5 Because of the large volumes transported by road, trucking is responsible for the largest contribution of greenhouse gases, even while airfreight is relatively much more carbon-intensive. Although, as mentioned, airfreight is by far the most energy-intensive mode of transport, this doesn t mean that it is responsible for most of the greenhouse gas emissions in the logistics sector. Figure 5 shows that in international supply chains the trucking part, mostly at destination, is responsible for 57% of the burden. To put all of this in perspective: with a 17% contribution, the global carbon footprint of ocean freight equals that of Germany, which is the sixth largest carbon emitter in the world. Drivers For Sustainability In our work with clients, we see that their sustainability efforts are driven by regulatory influences and business considerations, both pointing in the same direction. A recent survey (Figure 6) indicates that sustainability continues to be high on the executive agenda for logistics: most CEOs say that sustainability is either extremely important or significantly important to them. 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 406

407 How Important is Supply Chain Sustainability? % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Extremely Important Significantly Important Important Slightly Important Not At All Important Figure 6 A majority of CEOs say that sustainability is extremely or significantly important. What are the Biggest Barriers to Sustainability? 2.7% 13.7% Implementation costs 20.9% Not important to customers 10.0% Not important to the management board Poor ROI 13.6% 13.6% Lack of knowledge Lack of shared values 15.5% 10.0% Lack of resoruces Not important to suppliers Source: : Eye for Transport, 2015 Chief Supply Chain Officer Forum Figure 7 CEOs identify a variety of barriers to pursuing and implementing sustainability in their organisations. 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 407

408 The survey also asked which barriers caused these executives not to pursue sustainability more aggressively than they currently are (Figure 7). Implementation costs is the largest category here, followed by Lack of knowledge. An alternative that was missing in the questionnaire, but that we encounter on a daily basis, is a specific lack of understanding: understanding that sustainability is not some kind of a black box that is added onto managers jobs, making their lives more complicated by giving them extra things to do. In reality, sustainability is a way to gauge the operational excellence of supply chains; a way of innovating and finding new ways to reduce waste and costs. It is just a different perspective on what logistics managers are doing every day anyway: running their supply chains in the most efficient way possible. Consumer-facing brands are leading the way Eliminate 20 million metric tons of GHG emissions from Walmart's global supply chain by the end of 2015 Reduce 2 million metric tons of CO 2 across the multi-tier supply chain by 2020 Achieve a 30% reduction in supply chain carbon emissions by 2020 Reduce CO 2 25% by Environmental Profit &Loss Account found that 61% of impact comes from Scope 3 logistics, valued at 29 million Reduce CO 2 footprint 10% by 2015 (30% from owned operations) Reduce operational CO 2 emissions by 35% and make operations carbon neutral Figure 8 All leading global consumer brands have published ambitious sustainability targets. 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 408

409 Figure 8 lists the sustainability ambitions and targets of a number of global brands that directly serve consumers. Marks & Spencer launched its Plan A, with the goal of becoming the first carbon-neutral retailer in the world, as early as HP was the first global IT company to set greenhouse gas emission reduction targets across the entire value chain. Walmart, Nike, Puma, Adidas and many other brands have publicly committed themselves to ambitious sustainability targets, always including reductions in carbon emissions from their supply chains. While these initiatives may have been spurred partly by concerns about their brand images (no one wants to be seen with sneakers that trigger associations with slavery or environmental pollution), these companies are very aware that pursuing sustainability comes with the nontrivial benefit of reducing costs. Carbon regulations and industry initiatives In conjunction with the aforementioned business drivers, carbon regulations and industry initiatives are driving the sustainability agenda from a different angle. Every mode of transport has its own way of addressing the issue. Ocean The EU has set a target to reduce CO2 by 20% by This is supported by the Measurement, Reporting, Verification (MRV) regulation: beginning 1 January 2018, all ships over 5,000 GWT, regardless of flag, must report CO2 emissions on voyages to, from, and between EU ports. The International Maritime Organisation (IMO) has issued MARPOL Annex VI, enabling adoption of a global CO2 management scheme for shipping. The Clean Cargo Working Group (CCWG) is a joint industry initiative by carriers, shippers and 3PLs to quantify and reduce environmental impacts from global container shipping. Air The EU Emission Trading Scheme (ETS), targeting CO2 emissions from all flights in and out of EU airports, was strongly challenged by the international community and the aviation industry. Its implementation was delayed indefinitely. IATA is creating a body similar to the CCWG to improve the accuracy and transparency of airfreight CO2 emission factors. 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 409

410 Trucking and rail The number of regional initiatives for trucking and rail reflects that these industries are not so much global but rather regional in nature. The SmartWay initiative, initiated by the US Environmental Protection Agency, is an annual reporting scheme that allows for a comparison between trucking carriers within North America. Green Freight Europe, by contrast, is led by the industry. After its debut in Europe it is now being expanded into Asia, Latin America and India, and will hopefully at some point cover all trucking operations worldwide. The quest for a reliable methodology In order to be able to reduce carbon emissions, all of the initiatives we mentioned rely heavily on the methodology they use for calculating those emissions. The basic calculation itself is very straightforward: Carbon emitted = Cargo weight * Distance travelled * Emission factor The emission factors are supplied by initiatives such as the CCWG. But there are many ways to determine the weight of cargo, and lack of information about the routes that are actually used can have a big impact on the outcome. Initiatives like the Smart Freight Centre are trying to bring together these different ways of calculating the impact of all operations in a complete supply chain, with the aim of providing a set of best practices that will enable shippers to perform these calculations. The European CEN Standard EN was also developed for this purpose. Implementing Sustainability In The Supply Chain: The Process With all this information available, and having set ambitious targets, how does a shipper actually integrate sustainability into the supply chain? When a company is ready to address the sustainability of its supply chain, it usually already has a strong sustainability programme in place. Based on the misconception mentioned earlier, the process is often expected to be more or less difficult, which is seen as a valid reason to postpone work on the supply chain to the later stages of a company-wide sustainability project. By the time one gets underway, it usually turns out to be much easier than was thought. 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 410

411 When coaching clients on their sustainability journey, we find that it is helpful to distinguish three phases (see Figure 9). Phase 1 Data Collection Phase 2 Analysis Phase 3 CO 2 Calculations Operational data, including: Volumes Transport modes Carriers Business units/brands Data cleansing and integration Mapping of volumes and flows Network and operational modeling Customised CO2 reporting Identification of efficiency improvements Figure 9 From raw numbers to useful KPI s in three steps Phase 1: Data collection Every project starts with decisions about scope. What part of the supply chain would be most relevant to investigate? What type of data is meaningful? Getting the necessary numbers together may appear quite simple. After all, you know how much you shipped from A to B, using what mode. But because shippers use many different service providers, it can still be a challenge to align all the information to make it useful. A large part of our work here is to help streamline data management, to make sure that all the necessary data is actually being reported in a usable format. 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 411

412 Phase 2: Analysis Having the figures available allows us to create a model of your supply chain. Because small differences can have big impacts on the outcome, it is important to verify the model and ensure that the modelling and simulation are reflecting what is happening on the ground as accurately as possible. Phase 3: CO2 calculations The available data can be aggregated and reported in many different ways, but this can easily result in information overkill. We usually recommend that clients select the top five variables that they can use to base decisions on, such as their mode split, the performance of different carriers, and differences between origins and destinations. The intention is to report in a way that enables an organisation to set KPIs based on what is found. More is not always better; we only want the kind of information that helps our clients identify efficiency improvements. Client Examples Of Sustainability Projects A few case studies will help to demonstrate how this type of analysis may lead to a variety of business decisions and large or small operational changes, resulting in lower carbon emissions as well as improved operational efficiency and lower costs. Marks & Spencer global SupplyChain CarbonDashboard Figure 10 is a very high-level overview from the SupplyChain CarbonDashboard that we implemented for Marks & Spencer as part of the logistics branch of their Plan A initiative. With this tool, M&S is able to see on a half-yearly basis what their carbon intensity was in relation to the volume of goods that were moved. This can be used as an evaluation of the results of different operational initiatives, such as reducing air freight volumes. 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 412

413 Case Study: Marks & Spencer Global SupplyChain CarbonDashboard Volume (m3) C02 Kg/m ,000 Emission (CO2 Kg/m3) , , , , ,000 Volume (m3) - Q1/Q Q3/Q Q1/Q Q3/Q Q1/Q Q3/Q Q1/Q Q3/Q Q1/Q Carbon Intensity Shipments Emissions 37.4%* kg CO 2 /m % 3 % Reduced air freight volumes Increased origin consolidation New routes to market Overseas network development Figure 10 A high-level overview from Marks & Spencer s Global SupplyChain CarbonDashboard. A modal shift from air to sea-air After analysing the supply chain from a sustainability point of view, based on the available data, operational changes can be implemented. In practice, this will usually be done as a logistics project rather than a sustainability project but the results will be the same. Figure 11 illustrates a case study involving a modal shift between the origin in Peru and the destination in North America. Originally, the goods were to be shipped by sea, but because the vendor was missing their deadline this would not get the products to the stores in time. The only solution the customer saw was shifting to airfreight. Working with this customer we arrived at a twofold solution. The first part was a temporary re-routing to sea-air: the goods were flown to Panama and travelled by sea from there. [Or was it the other way around: sea to Panama, air to US??] This way they arrived in time, while still having had a journey that was largely by ocean. 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 413

414 Modal Shift: Air to Sea-Air Air Ocean Operational Impact: modal shift from 100% air to 50% air / 50% ocean Cost Impact: 50% savings potential identified Carbon impact: 69% reduction in CO 2 Figure 11 Shifting from air to sea-air results in significant savings, both in costs and carbon. For a more structural solution to the problem we worked with the vendor and the customer to implement a vendor management programme that helped the vendor to actually meet the agreedupon delivery date. This allowed for the original plan, all-ocean from Peru to North America, to be followed from there on. It is interesting to see in this case how the carbon impact (a 69% reduction) exceeded the cost savings (50%), because of the very high energy intensity of airfreight. Introducing sustainability in your procurement processes Once you understand how your operations impact your carbon footprint and have implemented operational efficiencies based on that understanding, the next step can be to look at your procurement processes and supplier assessment from a sustainability point of view. Figure 12 shows an example for sea transport, a mode where one can make use of data collected by the Clean Cargo Working Group. 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 414

415 Procurement and Supplier Assessment Procurement and Supplier Assessment CCWG Industry Average Supplier A Supplier B Supplier C CO 2 Emission Factor CO 2 Emission Factor CO 2 Emission Factor CO 2 Emission Factor Supplier A CCWG Trade Lane Performance CO 2 Emission Factor (g/teu -km) % change Asia North Europe % Asia North America EC (4.0%) Europe Latin America (1.5%) Figure 12 Based on CCWG data, shippers can compare the environmental performance of carriers and evaluate their improvement over time. The CCWG, one of the industry initiatives mentioned before, collects and aggregates carbon emission data from ocean carriers on a per-fleet and per-trade-lane basis. This means that a shipper can compare carriers, not only on their overall performance but also for a particular trade lane. The comparison can even be taken one step further by evaluating how a carrier is improving over time. All of this enables a shipper that wants to take their sustainability seriously to engage in a conversation with their suppliers, clarifying what they would need to do to help the shipper meet their goals. This will of course only work in a partnership, but it helps shippers to deepen their approach to sustainability and get the most out of their supplier network. 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 415

416 An Eye On The Future While the processes described here will keep most organisations busy for years to come, there is already much more going on in the field. A number of companies are exploring innovative approaches to taking sustainability to the next level. It is too early to say that all of these experiments will be the standard of the future, but they can definitely serve as sources of inspiration. Food waste into LNG The installation in Figure 13 is an anaerobic food waste digester that was developed for the US food retail chain Kroger and is situated at its Ralphs/Food4Less distribution centre in Compton, California. The system processes 150 tons of food waste from grocery stores in California and Nevada every day, generating biogas that helps power the DC s operations. Besides the yield in fuel, this system also eliminates about 800,000 km in truck transportation of the waste to external disposal sites. Figure 13 Kroger s anaerobic food waste digester processes 150 t/day of food waste. 10. Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 416

417 Wind power and access for barges The Nike Laakdal (Belgium) wind park (Figure 14) is comprised of six wind turbines with a rotor diameter of 77 m, mounted on steel lattice towers that stand metres tall, providing power to the Nike DC there. The distribution centre was purposefully located next to a canal, allowing cargo to be delivered on the doorstep by barge - the least energy-intensive transport mode. Figure 14 The Nike DC at Laakdal, Belgium, uses wind energy and is accessible by barge. Aiming at doubling fleet efficiency The futuristic vehicle in Figure 15 is Walmart s Advanced Vehicle Experience concept truck, a prototype for testing several technological innovations. The trailer is propelled by microturbine hybrid electric engines and is constructed almost exclusively out of carbon fibre, saving about 1800 kg, which can then be used to carry more freight at the same level of fuel consumption. Walmart is aiming to double their fleet efficiency compared to 2005 by the end of Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 417

418 Figure 15 Advanced Vehicle Experience concept truck, a prototype for innovations in transport by road. Damco s Experience Is Available For You If this document makes you question if and how you can improve the sustainability of your logistics operations, you may want to call in our extensive experience. You will discover that the sustainability angle is not a constraining factor that will make your operations more complicated and more expensive, but that it can actually make your supply chain run smoother at lower costs, while at the same time contributing to a better and healthier planet. Over the past years Damco s supply chain and sustainability specialists have gained considerable knowledge with sustainability improvements in a wide range of supply chains under a broad variety of circumstances. If you are interested to explore what would be the next logical step for integrating sustainability into your particular supply chain we will be happy to make our expertise available to you. You can find more information about sustainability and logistics on Damco website Sustainability in Logistics 10.1 How to integrate sustainability into your supply chain Page 418

419 10.2 SUSTAINABLE LOGISTICS IS MORE THAN GETTING THE NUMBERS RIGHT By: Sarah Flagg Within the logistics industry, sustainability is often still perceived from the narrow perspective of just reducing carbon dioxide emissions. In that view, the role of a logistics provider is limited to providing accurate data about these emissions. Realising the power of an integrated view of the supply chain in its context, Damco takes another approach. By engaging in strategic partnerships with shippers, this enables us to support changes that are meaningful from both a business and environmental perspective. Publishing the numbers is only the beginning Over the past decades, sustainability has established itself as an item on the agenda of every major corporation. Depending on the industry they are in, companies will take initiatives to recycle materials, improve labour circumstances, use solar energy, replace air travel by video conferencing, and so on: the list of potential actions is endless. Reducing the carbon dioxide emission from transporting goods be it merchandise, raw materials or waste products is one of the obvious measures that can be taken. In that context, corporations publish their transport-related CO2 emissions in their annual sustainability reports, usually based on numbers delivered to them by their logistics providers. As long as they see their logistics provider as just another supplier, that is all they can do; but this leaves unused the wealth of information that the logistics party avails of. A strategic partnership for sustainable logistics The way retailer Marks & Spencer has worked with Damco as part of their Plan A programme provides an excellent example of how shippers can take their sustainability initiatives to a new level by engaging in a strategic partnership with their logistics providers. Plan A, first announced in 2007, supports the objective of M&S to become the world s most sustainable retailer by The programme covers a very broad spectrum of goals, covering areas such as customer awareness; employee diversity; 10. Sustainability in Logistics 10.2 Sustainable logistics is more than getting the numbers right Page 419

420 sustainable products, raw materials and manufacturing; effective reporting; circular economy; and zero-carbon operations. Obviously, this puts sustainable logistics in a much larger context one that is essential in their, and our, view. From numbers to brainstorms In the first years of Plan A, Damco helped Marks & Spencer to get a complete picture of the sustainability aspect of their supply chain by providing a Global Supply Chain Carbon Dashboard, presenting meaningful data they could steer on. One of the many initiatives from this project was a routing analysis developed by Damco to study routes-to-market from Portugal, resulting in an alternative that could reduce the carbon impact of this route by over 50 percent. But to Marks & Spencer, that sort of results alone is not enough: an important element of Plan A is spreading the vision and engaging other shippers. Supporting this objective, Damco hosted a workshop in London with M&S, a number of other retailers and a few British universities, to identify the sustainability challenges that retailers face as well as the available opportunities. This workshop served to demonstrate the power of joining forces and the importance of understanding the processes that form the context for interpreting and acting on the available data. On-going dialogue At Damco we see that more and more clients realise that we can better help them achieve their business goals, in the area of sustainability and otherwise, if we can work with them as partners, each contributing our own expertise, knowledge and information. The success of Marks & Spencer s Plan A demonstrates that doing business in a sustainable way goes far beyond keeping an eye on carbon emission levels: an on-going dialogue with all parties involved is the key to lasting results. 10. Sustainability in Logistics 10.2 Sustainable logistics is more than getting the numbers right Page 420

421 10.3 NEW DAMCO SUSTAINABILITY STRATEGY FOCUSES ON HELPING CUSTOMERS TO BRING LOGISTICS ONTO THEIR SUSTAINABILITY AGENDAS By: Anders Holbech As the result of a thorough process that started already in 2014, Damco has recently announced a review of its sustainability strategy. The new strategy will ensure that we can meet the current and future demands from customers and regulators around the world in a wide range of areas, from carbon footprint reduction to anti-corruption policy. Furthermore, the strategy aims to help us attract the best local talent wherever we operate. It focuses on four sustainability priorities and defines specific sustainability targets for the coming years. Four priorities Damco s Global Leadership Team has been actively involved in developing the new strategy indicating the importance Damco attaches to sustainability. The leadership identified four areas as Sustainability Priorities for 2015/2016: Sustainable Logistics Anti-Corruption Local Community Engagement & Diversity Health, Safety, Security & Environment (HSSE) Within those, Damco aims to stand out from its industry rivals in the fields of reducing carbon emissions, anti-corruption and community engagement & diversity. Another six chemicals, security, health and safety, environmental compliance, employment conditions and responsible procurement were identified as areas to be managed professionally, meeting industry standards and regulations. The responsibility for improving Damco s performance in each of these areas has been assigned to members of the leadership team. 10. Sustainability in Logistics 10.3 New Damco sustainability strategy focuses on helping customers to bring logistics onto their sustainability agendas Page 421

422 Sustainable logistics The first of the four strategic priorities, Sustainable Logistics, is about supporting our customers to make greener choices by making the carbon impact of their end-to-end logistics operations visible. Damco has been a pioneer in this field by providing Carbon Dashboards; a next step is offering support for reducing other pollutants besides CO2. We have been actively involved in major industry initiatives such as the Clean Cargo Working Group, IATA and the Smart Freight Centre. The target here is to be recognised as a leader in sustainable logistics. Anti-corruption Corruption is a threat to every sustainability initiative and Damco enforces zero tolerance for bribery. We will continue to strive to reduce and eliminate facilitation payments, in close cooperation with our customers. Over the past year Damco has put considerable effort into raising internal awareness of the issue and improving reporting: 2799 employees completed our anti-corruption training during The target is a 25% reduction of facilitation payments annually. Local community engagement and diversity The third priority, engaging with communities around the world and building a more diverse workforce, is another key part of Damco s strategy. Damco needs to recruit, nurture and retain the best people locally because they will help the company to create new business, since local people have the best understanding of their own communities and culture. The target for this priority is a measured employee engagement of more than 90%. Health, safety, security and environment (HSSE) The fourth and final priority concerns the professional and systematic management of HSSE aspects: decisions that affect the working conditions of Damco s employees as well as those of our suppliers, for example trucking companies, and the environmental effects of our operations. Our ambition in this field is to comply with industry and regulatory standards. The target is to have externally certifiable HSSE management systems up and running by Sustainability in Logistics 10.3 New Damco sustainability strategy focuses on helping customers to bring logistics onto their sustainability agendas Page 422

423 Good for the world and necessary for business At Damco we believe that focusing on sustainability is not at odds with being successful as a business. Quite the contrary: while making our business more sustainable will definitely benefit the planet and its people, it is also essential for the future success of the company. For example, a large part of Damco s business consists of shipping clothing from producers in Asia to consumers in Europe. Our customers, which include large multinational brands, set increasingly higher employment, health and safety standards on their manufacturers. Damco intends to add logistics to their sustainability agendas, whether that is reducing carbon emissions or tackling corruption. By offering our clients the tools to monitor and improve their performance, we help them reach their goals which is an excellent way to improve our market position. The new strategy will deliver an essential contribution to the way Damco moves forward. In the words of Hanne B. Sorensen, Damco s CEO: We want to position Damco in a place where we can build partnerships with our customers helping them to bring logistics onto their sustainability agendas. If you are interested to learn more about Damco s approach to sustainability, please download our folder Our Sustainability Priorities from the link below Sustainability in Logistics 10.3 New Damco sustainability strategy focuses on helping customers to bring logistics onto their sustainability agendas Page 423

424 10.4 WHY ASIA PLAYS A KEY ROLE IN DAMCO S SUSTAINABILITY GOALS By: Damco Blog Team Damco released in May its Sustainability Progress Report 2013, outlining the company s performance and challenges in areas such as anti-corruption, responsible procurement, health and safety, environment, and diversity. Many of Damco s sustainability focus areas are key challenges in our operations in Asia, the origin for many of our customers, particularly companies in the retail and lifestyle industry vertical, which identify sustainability as part of their core values. Natalia Olynec, Global Head of Sustainability and based in Singapore, believes that our commitment to sustainability demonstrates we are planning for growth with the care and due diligence needed to secure long-term success. A number of our customers are increasing pressure to create more transparency and accountability for responsible business practices throughout the supply chain. Some of our key initiatives in Asia include: With challenges related to corruption, health and safety and supplier transparency, rolling out our Responsible Procurement program is a key priority. We are making extra efforts, especially in new high risk markets such as Myanmar, where we have conducted supplier and staff training on our Third Party Code of Conduct and human and labour rights risks China is home to some of our largest offices and warehouses, key contributors to the company s carbon footprint. We have conducted energy audits in several facilities with the intention of implementing measures to reduce our consumption. Warehouses in Asia Pacific are also switching from diesel to electric forklifts to improve the health and safety conditions for our staff and reduce energy consumption. Damco is inherently a people-driven business. The sustainability report highlights a unique initiative in China, which focuses on supporting employees, especially women, through various 10. Sustainability in Logistics 10.4 Why asia plays a key role in damco s sustainability goals Page 424

425 stages in their careers. This focus on diversity helps Damco build a robust pipeline of talent and a healthy mix of talents and views to contribute to the strength of our business. Damco is also an active member of the Logistics Emergency Teams (LET), Maersk Group s partnership with the humanitarian Logistics Cluster, led by the UN World Food Program (WFP). In 2013, the LET was deployed in response to Typhoon Haiyan in the Philippines where Damco offered pro bono logistics services and expertise. We are very proud of the efforts of all our colleagues who contributed their logistics skills to accelerate the delivery of aid to those displaced by the disaster in our region. Read more at Sustainability in Logistics 10.4 Why asia plays a key role in damco s sustainability goals Page 425

426 10.5 JOINING SHIPPERS, CARRIERS AND LOGISTICS PROVIDERS, THE CCWG HELPS TO REDUCE CARBON FOOTPRINTS By: Sarah Flagg Earlier today I was on stage as one of the presenters of the case study session Green supply chains Improving your carbon footprint, a part of the 15th Annual TPM Conference in Long Beach, California. In the session, which focused on the ways in which the Clean Cargo Work Group (CCWG) facilitates a reduction of carbon emissions from global container shipping, I represented the perspective and contribution of the logistics service providers. Damco supports the Clean Cargo Work Group Efforts to improve the environmental performance of global supply chains will only succeed if they are based on collaboration between shippers, carriers and logistics providers. BSR, a global non-profit network of currently more than 250 member companies, launched the CCWG from this vision more 10. Sustainability in Logistics 10.5 Joining shippers, carriers and logistics providers, the CCWG helps TO reduce carbon footprints Page 426

427 than ten years ago. The TPM session reflected the structure of the CCWG: chaired by Nate Springer of BSR, the panel consisted of Blair Chikasuye for HP (shipper), Lee Kindberg for Maersk (carrier) and myself for Damco (logistics service provider). Damco joined the CCWG in 2010, when membership was opened up to logistics companies. We actively participate in and support the work of the organisation because we see that, when approached properly, reducing carbon emissions serves both the global environment and our customers: there is a one-on-one relation between carbon emissions and transportation costs. Besides representing Damco, I am also a member of the CCWG Steering Committee. Reliable data for analysis and decision-making A key part of the mission of the CCWG is to create and offer practical tools for measuring, evaluating and reporting the environmental impact of global goods transportation. Every year, all the Clean Cargo carriers calculate and report their emissions, fleet-wide as well as specified for each of the 25 global trade lanes that the Group has identified. Based on this data, each carrier receives a standardised scorecard that helps them to track their performance over time and to report to customers. The CCWG also publishes global averages which can serve as a benchmark for the carriers. Shippers can use these scorecards to review and compare the environmental performance of carriers, so that they can include this as a factor in their buying decisions. Three perspectives combined A presentation by HP, the first technology company to put out a logistics carbon- reduction target, highlighted some of the ways they use to realise their CO₂ reduction goals. HP is an important customer of Damco and we work intensively with them in this area. Then it was my turn to share some key insights about how logistics operations impact carbon emissions. In each of the five domains I identified (network optimisation, equipment utilisation, transport mode, carrier selection and packaging) there is usually room for improvement which one to address first is strongly dependent on a particular customer s situation. I shared two examples based on actual client cases to illustrate that the results of more sustainable logistics can be significant. The first quantifies the effects of improved utilisation of containers: a 15% reduction in container volume yields a potential 14% reduction in cost and lowers the carbon impact by 16%. 10. Sustainability in Logistics 10.5 Joining shippers, carriers and logistics providers, the CCWG helps TO reduce carbon footprints Page 427

428 In the second example, we helped a shipper transition from 100% airfreight on a particular supply route to a combination of 50% air and 50% ocean freight. This could halve the associated costs while reducing the carbon impact by an impressive 69%. A shift from airfreight to any other modality will usually have dramatic improvements as a result. 10. Sustainability in Logistics 10.5 Joining shippers, carriers and logistics providers, the CCWG helps TO reduce carbon footprints Page 428

429 In the last presentation before the panel discussion, Maersk Line emphasised the importance of transparency and underscored how they benefit from the CCWG methods and data to strengthen their internal metrics and reach their sustainability goals. Green supply chains gain traction The fact that the TPM Conference programme included a well-attended session on green supply chains shows that the topic, and especially the work of the CCWG, is gaining traction. Judging from the questions from the audience, the environmental impact of transportation solutions is becoming increasingly important to shippers, helped by the fact that a lower carbon emission tends to go handin-hand with lower costs. Damco is strongly committed to supporting this movement by cooperating with shippers and carriers in the context of the CCWG. 10. Sustainability in Logistics 10.5 Joining shippers, carriers and logistics providers, the CCWG helps TO reduce carbon footprints Page 429

430 10.6 SUPPORTING HIGH-LEVEL HSSE STANDARDS IN THE CHEMICAL INDUSTRY By: David Fielder When customers products are managed by Damco, they need assurance that warehousing is compatible with both Corporate and local Health, Safety, Security & Environment (HSSE) requirements. Within the Chemical industry, HSSE standards are of primary concern, where proper handling and storing is crucial at all stages given the risks of spillage and incompatible storage. It is essential that all our customers can rely on our HSSE expertise to help prevent accidents and protect cargoes, people and the environment. One of our most valued customers from the chemical industry recently accredited us with A-Level services, indicating Well Controlled dangerous goods warehousing facilities. We helped provide this high level of HSSE services to this customer by safe warehousing and handling of their DG material throughout the logistics process. Warehousing: So much more than just storage space As a top global logistics provider servicing the Chemical industry, it is crucial for us to provide the best service in all matters pertaining to cargo handling and the environment. Handling of Dangerous Goods calls for full compliance in managing warehousing and transportation safety, which required customization of our HSSE practices to meet the customer s special expectations in order to pass their strict assessment. Going beyond expectations Our philosophy is to always protect people and avert any negative impact on the environment. We therefore ensured the steps below were taken: Continuous implementation of rigorous standards Expertise regarding regulations and requirements as they evolve 10. Sustainability in Logistics 10.6 Supporting high-level hsse standards in the chemical industry Page 430

431 Prompt rectification of any issues, and Clear planning, monitoring and documentation of HSSE-related actions. In accordance with Damco Global HSSE management programs, our warehousing team set up an action plan to investigate each finding, the measures to be taken, and timelines for review and completion. Consolidated action was taken for cleanliness, including clearing away packing material, ensuring that pallets are undamaged, putting oversized cargoes into good order, and keeping floors clear and free of oil or water. Monthly inspections ensured the improved cleanliness standards were upheld. A Material Safety Data Sheet, containing information regarding the properties of specific substances, is made available in all permanent and temporary storage areas. Finally, emphasis was given to the importance of the mobile barriers used as safeguards in the warehouse, to avoid any accidents that could be caused by moving trucks during loading and unloading during operations. A-Okay! The customer s Distribution Safety Executive carried out an assessment of our DG warehouse, announcing an A-Level accreditation for Damco. With our implementation process in place, we helped our customer to maintain their performance in relation to HSSE as a business-critical priority; a particularly important factor when it comes to the Chemical Industry, and our Dangerous Goods handling capabilities. This is just one of a series of high quality initiatives Damco has been implementing in accordance with our Global HSSE Management Program and Policy. It all helps to further support our sustainable business growth. And above all, it makes our customers feel A-Okay! 10. Sustainability in Logistics 10.6 Supporting high-level hsse standards in the chemical industry Page 431

432 AUTHOR DETAILS Author details Page 432

433 AUTHOR DETAILS Articles in this book are written by Damco employees. All authors were employed by Damco at the time of writing their article. Aaron Baker Amita Maheshwari Ashutosh Gore Ajish Babu Anders Holbech Babafemi Aderounmu Ambarish Singh Anthony Elwine Chris Deng Author details Page 433

434 Dan Jellesmark Fernando Villar Greg Guan David Fielder Frank Eshun Han Nabben Dmitriy Galper Frank Shao Hans Elmegaard Eveline Verbeeck Grant Tao Heino Kempers Author details Page 434

435 Ivan Thuynsma Jens Romer Sode Josue Alzamora James Savagar John Fedorchak Kasper Krog Jason Webster Joris Ploemen Lachlan Philp Jasper Verburg Jose Perez-Martorell Lars Schmeltzer Author details Page 435

436 Leonie Weber Neil Wheeldon Rachel Chen Lyes Fiouane Nikolay Samokhvalov Richard Hill Marco Civardi Nirmal Thakkar Richard Morgan Mark Pycroft Praful Waghela Rogier Kwikkers Author details Page 436

437 Sarah Flagg Thach Chuong Tong Simone Kraal Tony Mullen Stephen Xie Umair Farooq Steve Cheung William Lee Author details Page 437