feb16 the logistics challenge

Copyright © SpringTide 2016 www.SpringTideProcurement.comCopyright © SpringTide 2016

The Logistics Challenge: Driving the Value Chain all the Way to the Customer

Presented by Mike Utting

Copyright © SpringTide 2016

www.dssmith.comPrivate & Confidential | © 2013

www.SpringTideProcurement.com

General Perceptions of Procurement 01

Copyright © SpringTide 2016 3 www.SpringTideProcurement.com

From this…

If me hit hard, me get good price


Through an evolution that has taken time…

3000 BC

Egyptians track

building materials on papyrus rolls

1887

First book on Procurement published by Marshall M.

Kirkman

1964

Procurement advances with MRP being first

used in Black & Decker

1980

Electronic data

interchange &

procurement pooling

1994

Online Catalogues & Framework Agreements

Late 1980’s

Catman & SRM start to

become more

mainstream

2000

SRM starts to evolve

2002

Enterprise Resource Planning

(ERP)

Technological Revolution

Procurement Practices & Behaviours still Evolving


Although, some are stuck in the 1960s

BottleneckOrder placement

Little valueRubber stamping

BureaucracyDefault profession


Transport is a lower spend Priority on the Corporate Agenda

Procurement

Finance

0%

5%

10%15%

20%

25%


Very few see Procurement as being entirely “Strategic”


…but Procurement can move into the 21st Century

Many businesses resist embedding

Procurement as part of their value-chain because it hasn’t passed first base!




Current State of Transport Procurement 02


SalesDrive demandRespond to client performance needsEverything focuses on getting the product to the customer; cost is secondary

Procurement’s role in transport is peripheral

OperationsFulfil demandMeasure own performanceComplianceTrack & report the delivery


The Procurement of Transport is driven by operational needs with commercial needs being a secondary and often relegated priority

Our support for clients in general suggests…

Service

Price Performance


Comments we often hear

We get the best deal as we buy on

spot

Sales just discount to get an order

We don’t know how much we

spend

Service is paramount

Our requirements are special

How can Procurement help? This is too complex

OTIF is 99% - no way will we change

Our remote location

inhibits who we can use


But, when we start to investigate further, we find…

Administratively heavy

Cost drivers not understood

Internal v external debate

Over-reliance on technology

Multiple hauliers

Vast array of contracts Tariff focus

Inconsistent HS&E


To which we often respond…

What technology platforms will be used?

How will you benchmark your current state versus future state?

Are there incentives to take cost out of the operation?

Are you going to strategically bid the 3PL package or just gift the work to Company x?

Do you know what assets you need and the mix of core and 3rd party fleet?

Are you sure this solution works for your entire geographic footprint?

How will you drive price, cost and value beyond year 1?


What do we know about the Procurement of Transport?

Political & Economic

HS&E paramount

Demographics

Tax regimes

Training / qualifications

Technology (engines, trailers, emissions)

Fuel 17–33% vehicle/range

Average profit 16.5%

Within an organisation

Typically Top 5 spend

Largely transactional

Output orientated

Owned by Supply Chain / Logistics

Little Commercial Focus

Client & SLA-driven

Structurally

Market-led solutions: 3PL / 4PL

Thousands of hauliers: top 4 = 17.1%

<4 employees = 81.4%

Primary growth in mid-size & large fleets

HGVs >7–8t in decline v >41t increasing


The 25 largest third-party logistics operators by turnover in the UK

Operator Name Financial Year End Latest Year Turnover (£)

Latest Year Pre-Tax Profit (£)

Number of Employees

Growth in Turnover

1 Royal Mail 30/03/2015 7,757,000,000 470,000,000 143,000 -0.39%2 DHL 31/12/2014 5,078,091,000 115,902,000 44,643 6.36%3 Kuehne + Nagel 31/12/2014 1,364,662,000 35,634,000 8,874 3.73%4 XPO Logistics 31/12/2014 1,084,169,000 22,407,000 14,880 4.90%5 Wincanton 31/03/2015 1,009,800,000 24,900,000 15,600 0.15%6 DPD Group UK 04/01/2015 872,547,000 105,981,000 6,136 26.04%7 UPS 31/12/2014 837,245,000 57,493,000 5,219 10.45%8 TNT UK 31/12/2014 724,921,000 -18,672,000 8,992 -2.42%9 Eddie Stobart Logistics 30/11/2014 591,500,000 9,100,000 4,823 5.69%

10 Whistl UK 31/12/2014 590,250,000 -3,707,000 3,156 2.66%11 UK Mail 31/03/2015 485,103,000 20,570,000 2,684 0.77%12 Yodel Distribution 30/06/2014 461,003,000 -73,009,000 5,051 5.00%13 Gist 31/12/2014 405,709,000 42,030,000 4,155 1.15%14 Hermes Parcelnet 28/02/2014 382,314,000 33,554,000 1,695 20.77%15 Ceva Logistics 31/12/2014 366,067,000 18,536,000 4,347 -4.98%16 DX Group 30/06/2015 297,500,000 24,800,000 3,196 -2.20%17 Bibby Supply Chain Services 31/12/2014 242,335,000 -3,648,000 2,429 0.38%18 Turners (Soham) 03/01/2015 237,599,000 22,396,000 2,264 -1.86%19 Clipper Logistics Group 30/04/2015 234,778,000 9,485,000 2,964 16.66%20 FedEx UK 31/05/2014 230,189,000 34,177,000 1,953 4.93%21 Yusen Logistics (UK) 28/03/2015 193,904,000 2,926,000 1,424 -4.07%22 DSV Road 31/12/2014 187,462,000 10,195,000 795 2.12%23 WH Malcolm 31/01/2014 179,704,000 8,851,000 1,809 1.30%24 Harry Yearsley 29/03/2014 172,053,365 3,957,342 1,067 10.38%25 NFT Distribution Operations 31/03/2014 169,414,000 1,736,000 1,947 -0.19%


16.9 billion kilometres, down 2%

Goods lifted:1.9 billion tonnes, up 1%

Goods moved: 136 billion tonne kilometres, down 2%

Goods lifted & distances travelled

HGVs lifted more goods in 2014 than 2013 but travelled shorter distances

Empty running 27% in 200429% in 2014

29 billion tonne kilometres by water

23 billion tonne kilometres by rail

151 billion tonne kilometres by road


Average length of haul for all HGVs


Operating Licences reveal growth in larger fleets

Sole traders hold the largest share of O-licences in use/issued: 42% in 2015. However, they account for just 9% of all vehicles specified to UK O-licences.

Primary growth is coming in mid-size and large fleets.

The average number of vehicles per O-licence in 2015 was 4.54. This has risen from 4.36 in 2014, which in turn rose from 4.18 in 2013. This continued shift in the mean again illustrates the increasing trend towards a high concentration of vehicle ownership by large fleet operators.

Fleet size

Number of Licences Number of Vehicles2013 2014 2015 2013 2014 2015

0 10.47% 10.81% 10.66% 0 0 01 44.09% 43.27% 42% 10.53% 9.95% 9.07%2 to 5 31.68% 31.52% 32% 21.48% 20.67% 19.91%6 to 10 6.83% 7.10% 7.46% 12.28% 12.27% 12.21%11 to 20 3.78% 3.90% 4.17% 13.02% 12.90% 13.08%21 to 50 2.17% 2.30% 2.54% 15.85% 16.27% 17.13%51 plus 0.98% 1.10% 1.14% 26.84% 27.94% 28.58%


Licensed HGVs by weight in Great Britain

Year 3.5 to 7 t > 7 to 8 t > 8 to 18 t > 18 to 31 t > 31 to 41 t > 41 t Total

2010 51,200 134,900 93,100 59,200 49,900 81,800 470,100

2011 51,900 129,900 92,200 58,900 48,100 84,500 465,500

2012 52,800 124,800 91,200 58,200 46,700 86,800 460,600

2013 54,500 121,900 93,300 58,700 47,900 92,700 468,900

2014 56,500 117,400 94,300 59,400 49,000 97,300 473,900


We do still see the Eureka moment…

OK, we know we don’t understand how to buy Transport commercially

So, like many outsourcing deals, let’s ask the market to tell us what to do

Eureka, we are delighted to announce that we are partnering with xyz to deliver a total solution to us!


Like most outsourcing we wonder whether the facts were known…

Map showing all delivery

locations, and heat map by

volume of deliveries

Top 4 customers = 50% of

loads

Majority of

delivery points

in Central

England area

Most deliveries

near to site


Order Value Number of transactions Total spend in category Percent Transax % Percent Spend %£0 - £10 4405 25,823.04£ 12.1% 0.1%

£10 - £50 6889 196,194.16£ 18.9% 1.0%£50 - £100 4834 367,698.82£ 13.2% 1.8%

£100 - £200 5046 703,042.01£ 13.8% 3.5%£200 - £300 2174 549,193.34£ 6.0% 2.7%£300 - £400 2305 811,979.74£ 6.3% 4.0%£400 - £500 1632 728,443.37£ 4.5% 3.6%£500 - £600 1228 675,481.90£ 3.4% 3.3%£600 - £700 552 357,181.49£ 1.5% 1.8%£700 - £800 461 344,369.45£ 1.3% 1.7%£800 - £900 555 476,349.50£ 1.5% 2.4%

£900 - £1000 565 536,221.62£ 1.5% 2.6%£1000 - £2000 3353 4,784,608.18£ 9.2% 23.6%£2000 - £3000 1179 2,838,276.57£ 3.2% 14.0%£3000 - £4000 721 2,490,739.59£ 2.0% 12.3%£4000 - £5000 231 1,017,544.01£ 0.6% 5.0%£5000 - £6000 120 647,641.51£ 0.3% 3.2%£6000 - £7000 61 391,459.05£ 0.2% 1.9%£7000 - £8000 55 411,752.59£ 0.2% 2.0%£8000 - £9000 29 246,655.51£ 0.1% 1.2%

£9000 - £10000 15 143,821.90£ 0.0% 0.7%£10000 - £20000 71 1,013,719.36£ 0.2% 5.0%£20000 - £30000 10 218,997.61£ 0.0% 1.1%

£30000 - £40000 1 34,328.27£ 0.0% 0.2%£40000 - £50000 4 168,425.08£ 0.0% 0.8%

£50000+ 1 76,415.14£ 0.0% 0.4%TOTAL 36497 20,256,362.81£ 100% 100%

Did you understand your profile… even at a basic level?

Further spike @

£1000 for highest

value spend

Loads up by 20% on Thurs

Sept-Dec sharp

increase, drops

by 50% in Jan

Low value orders generate

highest number of transactions


Did you understand the cost drivers?

The industry has a low level of concentration and the four largest companies are estimated to control 17.1% of the market in 2015–16.

Companies by employment size (2014)

Employees Share of total

0-4 81.4%

5-9 8.7%

10-19 5.2%

20-49 3.0%

50-99 1.1%

100-249 0.4%

250+ 0.2%

“Other” expenses include subcontracting expenses, administration costs, insurance, legal expenditure, licensing and advertising. These other costs are expected to combine to constitute 14.5% of revenue in 2015–16.


Were alternative technologies even considered?Dec 2014 July 2015 Trial target = 1,800 LSTs

Trial Take Up1,439 (80%) 1,641 (91%) LSTs registered on Vehicle Special Orders (VSOs) (% of trial target of 1,800 trailers)

1,194 (66%) 1,323 (74%) LSTs on the road and submitted trial data

114 123 Number of operators with trailers on the road

Safety incidents involving LSTsCollisions resulting in

injury Casualties Collisions / Casualties on public highways or public access areas

7 7 Personal injury incidents involving an LST (2012–2014, public highway or public place)

To date, the experience from LSTs in the trial is that, on a per kilometre basis, they have been involved in around 60% fewer injury collisions and 70% fewer casualties, in comparison to the average for standard articulated HGVs. There have been no fatal LST incidents and no vulnerable road users injured.

Utilisation and km saved0.93m 1.18m Journey legs travelled by LSTs during the trial

108m 137m km travelled by LSTs during the trial

4.2 – 5.2m Vehicle km ‘saved’ by LST operations

Journeys saved Estimates of equivalent ‘standard trailer' journeys saved across trial period and all operators

1 in 22 Average saving across all operators

1 in 9 Highest saving achieved by individual operators


How did Industry benchmarks shape the commercial outcome?

The average profit margin in the industry is estimated to be 16.5% in 2015–16 …which is higher than for the overall transport sector for three main reasons:

1. Need for capital reinvestment2. Smaller operators reinvest heavily, taking out less in remuneration3. Less competition in rural areas where smaller operators dominate

Wage costs are ~22% of revenue in 2015–16 and have dropped as a proportion of revenue since 2010–11, but this is likely to change

1. Employee numbers have fallen for last 5 years due to technology efficiencies2. Fewer empty trucks = less in overtime payments3. Wage growth is expected, with demand since 2013/14 exceeding supply4. The workforce is also ageing; the majority of UK lorry drivers are over 40, the oldest

preferring to exit than undertake new qualifications




Vision & Strategy 03


Evolution NOT Revolution is the key to the Procurement of Transport as it is inherently complex and takes years not months to resolve!

Price Drift

Competitive and opportunistic

Market Driven using competition

Some notion of % Transport represents

Unknown concept

Minimal professional sourcing strategy / process

Tactical techniques used – price

deconstruction for leverage

categories

Strategic techniques – key cost

drivers, cost modelling

Continuous Improvement / VA/VE /

Supply Chain Modelling

Overall Cost Model

Deployment of Category Management

Tactical Control Strategic Control

Relationship with supply chains

Pricing mechanics / tools used

Implementation of Procurement Change Process

Procurement Strategy


Opportunity Analysis helps as a driver to prioritize activity


Fuel – it will recover!

Finance – interest rates likely to move within 12 months

Non-compliance – increasing all the time

Taxes – we all know they won’t go down!

Space – land for warehouses

CapEx – manufacturing costs do increase

Labour – shortages and training overheads

With some certainty, we know cost drivers will go up


Fuel as a % of Total Operating CostsVehicle type Low mileage

(miles p.a.)

Average mileage

(miles p.a.)

High mileage

(miles p.a.)

7.5 tonnes rigid 30,000 40,000 50,000

10-12 tonnes rigid 42,500 50,000 60,000

12-14 tonnes rigid 35,000 40,000 50,000

16-18 tonnes rigid 50,000 60,000 70,000

26 tonnes rigid 50,000 60,000 70,000

32 tonnes rigid 50,000 55,000 65,000

33 tonnes (2+2) artic 60,000 75,000 85,000

38 tonnes (2+3) artic 65,000 75,000 85,000

38 tonnes (3+2) artic 50,000 70,000 85,000

32 tonnes drawbar 45,000 60,000 80,000

40 tonnes (2+3) artic 50,000 70,000 80,000

44 tonnes (3+3) artic 70,000 85,000 100,000

The percentage is calculated by taking the annual fuel costs and dividing that by the annual total costs for low, average and high mileage for each type of HGV shown.The annual fuel costs are based on a weighted average combination of bulk and forecourt prices using a matrix of 80 per cent bulk prices and 20 per cent forecourt prices and exclude VAT.The annual total costs include the standing costs, running costs, the employment cost of the driver and the overheads costs.


Short-term bulk diesel forecast to Q4 2016

incl. Fuel Duty & Delivery Margin (ppl)

Rotterdam DieselSpot Price($/tonne)

Sterling/USDExchange Rate

($)

DieselCommodity Price

excl. Fuel Duty(ppl)

Bulk Diesel Priceincl. Fuel Duty

& Delivery Margin (ppl)

Q1 2015 550.60 1.51 30.24 90.07Q2 2015 597.12 1.52 32.68 93.00Q3 2015 587.91 1.50 32.61 92.92Q4 2015 589.52 1.50 32.70 93.04Q1 2016 593.02 1.50 32.89 93.24Q2 2016 592.67 1.50 32.87 93.19Q3 2016 597.26 1.50 33.13 93.44Q4 2016 598.89 1.50 33.22 93.56

Note:

• Fuel duty for Ultra Low Sulphur Diesel (ULSD) currently 57.95 pence per litre (ppl)

• Main fuel duty rates will not rise until September 2016 per Budget March 2015 (may be revised in July 2015 Budget)

• Delivery margin is estimated at 2.38 ppl based on bulk diesel prices supplied by EnergyQuote JHA


Percentage change in freight transport fuel costs

Diesel

Gas OilMarine Bunker Fuel

Jet Kerosene


So to commercially succeed we must buy Transport differently

Efficient movement

Harness software (S2P; P2P)

Collaboration (internal & external)

Deeper data modelling

Greater intelligence

TechnologyMake transport a priority


Consequences of getting it wrong

Loss of business

Hauliers not prequalified

Warehouses in wrong locations

Supply chain not optimised

Fleet under-utilised

Assets misaligned

Excessive miles and CO²

Loss of business

Increase in incidents

Loss of competitive advantage




About SpringTide 04


How do we deliver sustainable solutions for our Clients?

Our business is structured to support all expenditure (direct/indirect/capex), with experts in:

Project Management

Analysis and Modelling

Market Intelligence

Implementation and support

Supply chain management

Supplier and stakeholder relationship management

Procurement

Logistics

Typically, many of our team have worked at senior levels across both public and private sectors, this helps us to recommend solutions that fit both culturally and commercially.

Our team has extensive industry experience from both client and supplier perspectives: we understand constraints, opportunities and best-fit models and know how everything works on a practical level.

We recognise no single approach is the same: only through deep understanding can solutions be implemented and sustainable benefits realised.


We offer a Spectrum of Solutions

Strategic Sourcing

Strategic Direction

(In)Direct Category Support

Models & Templates

Tendering support

Hands-on delivery of savings

Transformation/ Change

Management

Current State Analysis

Project & Change Plans

Resource Profiling

Restructuring

Team Creation

Policies and Procedures

Team Support

Interim Resources

Competency Profiling

1-2-1 Support

Surgeries / Intervention

Sourcing Guides

Transport Procurement

Tactical & Strategic Tendering

Modelling & Diagnostics

Optimisation Initiatives

Contract Review

Strategy

Technology Platforms

Evaluation of Providers

Benchmarking

Diagnostics

Driving Optimisation

Training & Adoption


Solutions developed with our clients have been nationally recognised

Winner of the Supply Chain Best Practice Category

2015

Runner-up for the Best Procurement Consultancy Project

2014

Winner of the Professional & Financial Services Category2nd fastest growing company in Wales

2014

Winner of the Professional & Financial Services CategoryRunner-up for Export Category8th fastest growing company in Wales

2015

Winner for leadership in Supply Chain & Procurement Consultancy

2015

Short-listed for Supply Chain Best Practice Category

2015


Since 2008, we have worked to support businesses of all shapes and sizes…

…with solutions being wide and varied


How do we deliver sustainable solutions for our Clients?

PeopleWe are IiP AccreditedTraining is constantWe are practitioners and enjoy ‘hands-on’ activityAcademically and professionally strongLearning curves are constantly accelerating

ProcessOur processes, guides and plans are used and deployed nationally and globallyInternally, governance is achieved via our Project Management OfficeEverything we do is structured, methodical with sign-off at each stageWaste is eliminated as we are a lean organisation

TechnologyWe utilise a range of platformsExtensive analysis and modellingWe understand how to get the best from technology




Thank you for your time

Any questions or comments?


Any questions now?… or get in touch later

SpringTide Procurement SpringTide Procurement

SpringTide Procurement@SpringTide_News

Mike UttingManaging DirectorMobile: +44 (0) 7973 [email protected]

[email protected]

David WightmanBusiness Development DirectorMobile: +44 (0) 7495 468 [email protected]

Acknowledgements & SourcesWaxDigital Resource – CPO Viewpoint – FinanceTexaco Report 2015Statista Road Haulage report

Department for Transport • Domestic Road Freight Statistics• Evaluation of the Longer Semi-Trailer Trial Annual Report

Freight Transport Association Information ServiceIBIS World Freight Road Transport in UKIcons made by Freepik from www.flaticon.com

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https://www.youtube.com/channel/UCMSX_1AJq8ge4iEfMUWNe1A

https://www.facebook.com/SpringTideProcurement

https://twitter.com/SpringTide_News


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feb16 the logistics challenge

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