Logistics, retail and regions

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Presentation held at several occasions in Russia : 2006, December 4th, Holiday Inn Lesnaya Hotel, Moscow Conference : ECR Rusbrand 2007, October 11, Novosibirsk Conference : Logistics, warehouse, distribution center / Regional business forum, organized by POS and Khod Konem 2007, June 7th, Moscow Conference : FREIGHT-2007: Logistics and Supply Chain Conference, organized by Seanews

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<ul><li> 1. 1 </li></ul><p> 2. Summary 2 3. Introduction Serge Rivet Conseo 10+ years of experience in logistics in CIS : - 3PL, Supplier logistics, Retail logistics, Logistics Consulting A work with major companies , among them : - FM Logistic, Kuehne + Nagel, Mosmart - Logistics Projects Management Key projects led : - Warehouse management , Warehouse transfers , Co Manufacturing, Cross Docking, Activity Based - Consulting &amp; Strategic support Costing, investment projects, Productivity Management, WMS, Transport Management, Logistics planning- 4PL Involvement in several initiatives : Founder of the Eastern Europe Logistics Community Co-creation and active participation to the ECR logistics working group3 4. Introduction16,995,800 sq km 4 5. A. State of Retail In Russia a quick overview 6. History of Retail in Russia1994 :1998 : 2001 :2004 : First retailRussias coming of 1st Visible Soviet Style chainsDefaultbig foreign Regional Retail appearingRetailers Retail in MoscowExpansion State Monopoly1% Of the Moscow RetailGreat impact onto retail market The Relationship betweenRetails becomes a real economic Recurrent deficit 0% of Russian Retail Re-orientation towardsthe retailers and suppliers sector, with its rules, trends and players Small Great part of imported discounter format turn to retailers advantage Retail becomes a consumption habit on assortmentproducts Re-orientation towardsDid not accelerate the coming federal level No import Expensive Prices National Products of foreign retailers Small FormatsSadko Arkada s(development of foodsMetro, Auchan, Remarks : Specializedmargins = 100 200% product industry)Ramstore, Ikea,The entry ticket to the retail market FormatsAs a result, in 2000, most of theNo Tesco, No gets more and more expensive for new Almost no Self Service Foreign companies take todays big players and formatsCarrefour, No Casino,retailers, as big players has already come over Eastern Europe Retail are already createdNo Ahold, No WalMart and developed infrastructure (Specialists, Market but do not touch Moscow shows mainlyAppearing of local regional Logistics, Regional Network, etc..) Russiasuper and hypermarketoperators (magnit, MDM, The next solutions to enter are mainly : developmentEdelweiss, )Development of new formats, ST Petersburg shows underdeveloped in Russia mainly discountersAcquisition of existing networks (Federal or Regional) Franchising Source : Renaissance Capital 6 7. Main trends in Retail / The expansion time has comeWindows of opportunity Analysis (Based on GRDI ranking for 1995 2006) 7 8. Main trends in Retail / Evolution of formatsOthersConvenience StoreDiscounters Supermarket HypermarketDifferentiation of formatsNet increase of Federal Networks through Net increase of Hypermarkets to expects Regional ExpansionConvenience Stores to growMerger &amp; AcquisitionsAlliancesSource : Renaissance Capital 8 9. Main trends in Retail / Globalizing Market In developing marketIn maturing marketWhat is in the distribution pipe line ? What is in the distribution pipe line ? Consumer focuses onto basic products : consumers begin to spend more on non-food enhancing the bottom of the Maslow Pyramiditems FMCG larger product variety with more outsourcing mainly foods oriented businessfrom overseas The development of overseas flows is of great importance for the future of Logistics as :Russia is a transit zone between Asia and Europe Russia is to enter the WTO 9 10. B. Impacts onto logitics10 11. Impact # 1 : Complexity issuesMultiplicity of Formats involves Complexity of logistics Van deliveries vs rail deliveries Fresh product chain vs dry product chain Different seasonality Pallets pick vs unit pick For instance :The hypermarkets impact: - Massive consolidation of volumes to expect - Explosion of the quantity of SKUs to manageConvenient Stores impact : - Capilarisation of Logistics Small deliveriesNew technologies will be necessary for High mix - High speed and high quality deliveriesmanaging complexity : expected Hardware technologies : Radio Scanners, Rfid, Automatization Software Technologies : Warehouse Management Systems, TMS, EDI 11 12. Impact # 2 : Capacity issuesScaling up openings: Permanent increase of the logistics capacityThe development of a regionalInfrastructure is vital for newregional challenges :WarehousesAir, Road, Rail, Sea, 12 13. Impact # 3 :. Forecast issues Scaling up openings: Companies permanently reevalutingfuture Lack of visibility for futureA New function will be at the heartof Logistics in Russia : DemandPlanning, Capacity Planning,"Prediction is very difficult,Distribution Requirement Planning especially if it's about theNew Software Technologies :future."Statistical tools, advanced, demandplanning, (Manugistics, I2, )Nils Bohr,Nobel laureate in Physics 13 14. Impact # 4 :. Strategic Network Management issues Apparition of network problematic 14 15. New scales of retail / From Logistics Points 15 16. New scales of retail / From Logistics Points to Chains16 17. From Points to Chains / New technologies to set upSupplier Store Supplier Store Supplier Store Supplier Store Supplier Store Supplier Store Supplier StoreSupplier Store SupplierCross-Cross- Store Cross Docking and consolidation Docking Docking center TerminalTerminalSupplier Storegreatly decreases the quantityof transactions betweenSupplier Storesuppliers and storesAllows to ship far smallSupplier StorequantitiesCross-Cross-Supplier Docking Docking Store These techniques became VITAL in TerminalTerminal the westSupplier Store 17 18. Impact # 5 :. New Creative approaches to supply $$$18 19. Impact # 6 :. New Risks : Bullwhip effectsafety stocksafety stock safety stock19 20. Impact # 6 : New Risks : Bullwhip effect Consumer Sales at Retailer Retailer's Orders to Wholesaler1000 1000900900 Consumer demand800800Retailer Order7007006006005005004004003003002002001001000 23 0 2527 2931 3335 3739 41 1315 1719 211357913 1517 1921 2325 2729 3133 3537 3941 1 3 5 7 911 11Wholesaler's Orders to ManufacturerManufacturer's Orders with Supplier10001000Manufacturer Order900 Wholesaler Order 900800800700700600600500500400 400300 300200 200100 1000 0 1315 1719 2123 2527 2931 3335 3739 41135791116 19 222528 31 343740 1013 1 4 7 20 21. Impact # 6 : New Risks : Bullwhip effect Bullwhip effectcustomer demand is rarely perfectly stable, businesses must forecast demand in order to properly position inventory and other resources. Forecasts are based on statistics, and they are rarely perfectly accurate. Because forecast errors are a given, companies often carry an inventory buffer called "safety stock". Moving up the supply chain from end-consumer toraw materials supplier, each supply chainparticipant has greater observed variation indemand and thus greater need for safety stock.In periods of rising demand, down-stream (See Wikipedia) participants will increase their orders.In periods of falling demand, orders will fall or stop in order to reduce inventory. The effect is that variations are amplified the farther you get from the end-consumer.21 22. Impact # 6 : New Risks : Bullwhip effect / The Beer Game The Beer Distribution Game (Beer Game) is a simulation game created by a group of professors at MIT Sloan School of Management in early 1960'sAge range Recommended for graduate students andmembers of the business management community.Setup time 10-20 minutesPlaying time 60-90 minutes plus another 60-90 minutes fordebriefingRules complexity MediumStrategy depth High The Beer GameRandom chance None22 23. Impact # 7 : New Risks : Bigger exposure to external factors Natural disasters. The 1999 earthquake in Taiwan displaced power lines Just-in-time or lean approaches.to the semiconductor fabrication facilities responsible for more than 50 Because manufacturers have whittled inventory to almost zero, disruptions percent of the worldwide supplies of memory chips, circuit boards, can shut down a factory. Similarly, retailers have become increasingly reliant on flat-panel displays and other computer components. Analysts automatic replenishment and vendor-managed inventory: Even brief delays can lead to empty shelves and lost sales. estimate the quake shaved 5 percent off earnings for hardware manufacturers including HP, Dell, Apple, IBM, Gateway and Compaq. Global sourcing involves longer lead times, increased uncertainty and Political : Opponents of Venezuelan President Hugo Chavez began a heightened security concerns. Although suppliers in developing economies aregeneral strike in December 2002. Businesses closed. The government often the lowest-cost producers, goods can pass through as many as 11 froze foreign currency sales. middlemen in transit, greatly increasing the risk of disruption.Multinationals including Ford, General Motors, Bridgestone/ Firestone, Goodyear and Procter &amp; Gamble were forced to shut down Outsourcing : critical operations are managed outside the company for the duration of the strike. and the number of interfaces and potential points of risk increase. At one point, President Chavez sent the National Guard to seize a plant owned by a Coca- Cola bottler and to redistribute truckloads of drinks. Supply consolidation : increases the potential impact of a disruption. Economic : In September 2002, longshoremen on the U.S. West Coast were locked out in a labor dispute for 11 days, forcing the shutdown of Accidents : On December 14, 2002, a collision between two ships sent one29 ports. With more than US$300 billion in goods shipped annually of the ships and the 3,000 U.S.-bound BMWs, Saabs and Volvos it was through these ports, the strike caused an estimated US$11 to $22 billion carrying to the bottom of the English Channel.in lost sales, cost of additional air freight, spoiled perishable goods and underutilized capacity. the New United Motor Manufacturing plant (a Toyota-GM joint venture) was forced to close its Fremont truck-making plant because it ran out of parts.IT infrastructure : In January 2003, in just 10 minutes, a computer worm spread to hundreds of thousands of computers. It created so much volume that at the height of the attack, half of all internet signals could not reach their destination. It caused nearly US$1 billion in damage by overloading the network. Bank of Americas ATM system shut down, telephone systems from Korea to Finland were disrupted and Continental Airlines was forced to delay flights.The frequency of natural disasters has increased by a factor of three since the 1960s, but their cost has increased by a factor of 10.23 24. Impact # 8 :. The New Border in Retail Logistics / Logistics enters the store Retail discovers a lot of logistics process inside the stores Source : Migros Source : Roland Berger Up to 50% of time worked in stores is pure logistics or logistics-like process ! 24 25. Impact # 8 : The New Border in Retail Logistics/ Logistics enters the store Retail discovers the impact of Out Of Stores Out of Shelve requires mainly efforts in: Replenishment Merchandising issues Clear Vision of Stock Ordering systemsWhich are mainly Logistics Issues !!! 25 26. Impact # 8 : The New Border in Retail Logistics / Logistics enters the store Buys brandReturns later elsewhere 17%21%30 % lost 46% lost opportunities opportunitiesfor Retailer for Manufacturer Doesn't buy Buys different sizeanything9% The issue is real for16% Russian BusinessBuys a different brand 37% Source: Roland Berger / ECR Europe 26 27. Impact # 8 : The New Border in Retail Logistics / Logistics enters the storeAs a consequence, Logistics enters the storesTherefore Logistics is less an executing function, but a strategic function coordinating : Business Development strategiesPlanning strategiesBuying strategiesIn-Store Processes concepts Production strategiesOOS 42%+ 20% ofIn 7 monthsProductivity(Nov 05 Jun 06)expectedMercury Project 27 28. Impact # 8 : The New Border in Retail Logistics / Logistics goes out from the store cost breakdown in retailer / supplier relationship model Price= 100Price= 100 Price= 96RetailerRetailer Retailer Interface costs: 17Interface costs : 13 SupplierSupplier Supplier TurnoverTurnover Turnover 28 29. Impact # 8 : The New Border in Retail Logistics / Logistics goes out from the storeLogistics integrates suppliers processes as well / Load Carriers Pooling Pooling Load Carriers with suppliers,can generate high gains Replenishment time decreased by 75%Truck filling + 35% Traditional ProcessThis solution is being tested inRussia (Polymer Logistics)One Touch PackagingPooling can as well apply simplyto wooden pallets as well (Chepscheme)29 30. Impact # 8 : The New Border in Retail Logistics / Logistics goes out from the store Logistics integrates suppliers processes as well / Transport Pooling30 31. Learning form Retail &amp; Logistics review The new shape of Logistics The Russian Logistics is no more only : Storing products ensuring the delivery of products. Logistics become a competitiveness and profitability driverThe terrific development of Retail impactsLogistics will become more and more logistics in the following way :technological, Developing new technologies The shape of logistics change Developing new principles from points to networks New Logistics Scheme exposes the company Logistics goes deeper into store, to new risks touching every process Stretched flows and low stocks maybe a weakness Logistics goes far away from stores, Outsourcing may be risky integrating suppliers strategy (planning, The exposure is global pooling) Sourcing and shipping globallyLogistics becomes flexible and creative It has to move with the market31 32. Learning form Retail &amp; Logistics review (2/2) Logistics will be flexible Changing but unstable Supply chains become more dynamic,- reflecting the unstable but highly promising market.- fulfilling increasing customer requirements,- Companies supply chain will develop only over time in Russia Supply chains become local- as different distribution strategies are chosen for different regions. The market has till 10 years of maturation at least 32 33. 33 34. C. State of Logistics in Russia 34 35. History of LogisticsIT RevolutionModernMilitaryRetail WW II IndustryGlobalizationLogisticsOperationalRevolution Revolution Researches Caesar -&gt; 19391939 -&gt; 1945 1945 -&gt; 1970 1960 -&gt; 1980 1980 - 2000Future MRPManagingDistribution Global Planning thousands ofcenter NetworksSKUsOutsourcingSupply Chain Supply lines Just in TimeGlobalization of ManagementSpeed of supply Warehouses TQM flowsReverse(transport, cross positioningCross DockingLogisticsdocking)) First E-commerceLogistics Preparation LogisticiansRole of ITStandardization(pallets, jerrycans) See :See : See : See :See : Van CreveldOverlordForrester (MIT) : M. Ohno worksECRIndustrialDynamics (1962)35 36. History of Logistics in RussiaITRevolutionModernIndustryOperational RevolutionResearches 60 years era...</p>