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St d di d L i ti O ti St d di d L i ti O ti Standardized Logistics Operation Standardized Logistics Operation & Implementation Forum& Implementation Forum& Implementation Forum& Implementation Forum

How ECR Enables Logistics How ECR Enables Logistics ggStandardization ?Standardization ?

Guangzhou, ChinaGuangzhou, China

21 N b 200921 N b 200921 November, 200921 November, 2009

Presented By : Patrick Chan / Loscam ChinaPresented By : Patrick Chan / Loscam China

LOSCAM ASIA LOSCAM ASIALOSCAM ASIALOSCAM ASIALOSCAM ASIA

y /y /

DeliveringDeliveringCons mer Val eCons mer Val e

REDUCE

Consumer ValueConsumer Value

PALLET POOLINGENSURES GREATER

REDUCEWASTAGE REDUCE

DAMAGES

ENSURES GREATER EFFICIENCY IN MANAGING

SUPPLY CHAIN REDUCE HANDLING

COSTEFFICIENT

DELIVERING COST SAVINGS TO DELIVERING COST SAVINGS TO DELIVERING CONSUMERDELIVERING CONSUMERMANUFACTURERS & RETAILERSMANUFACTURERS & RETAILERS

• Reduce Inventory• Product Damages

L b I t i

VALUEVALUE

FRESHER PRODUCTS• Labour Intensive

• Order Response• Throughputs

Utili ti f W ki C it l

MORE VARIETY

LOWER PRICES


• Utilization of Working Capital

VALUE FOR MONEYVALUE FOR MONEY

VALUEQUALITY

VALUEAVAILABILITY

VARIETYFRESHNESS


Critical Res ltsCritical Res ltsCritical ResultsCritical Results

STANDARDIZATION = COMMON PLATFORM

FASTER TURNAROUND = COST EFFECTIVENESS

HIGHER THROUGHPUT = HIGH PRODUCTIVITY


Case Study by Case Study by y y“ECR Thailand”

in 2000

y y“ECR Thailand”

in 2000in 2000in 2000

Cost saving through Standardized Pallet Cost saving through Standardized Pallet Standardized Pallet Standardized Pallet


ECR ThailandECR ThailandSt dSt d

The overall objective of the project is to assess the costs and benefits of increasing standardize pallet usage in the

StudyStudy

• Assess the costs associated with changing to

and benefits of increasing standardize pallet usage in the consumer products industry in Thailand, specifically to:

• Assess the costs associated with changing to palletised deliveries versus current operational practicespractices

• Assess the benefits associated with the palletised deliveries versus current operational practicesp p

• Identify the barriers to implementing palletised deliveries and how these might be overcome

• Define the most appropriate ‘implementation path’ given the opportunities and constraints of the

l h i i t

LOSCAM ASIA LOSCAM ASIALOSCAM ASIALOSCAM ASIALOSCAM ASIAsupply chain environment


The study was divided into 3 stages with key data

StudyStudy

derived from a questionnaire survey

Develop and issue

Stage 1Stage 1

Analysis

Stage 3Stage 3

Review

Stage 2Stage 2

Develop and issue pallet

questionnaire

Analysis, recommendations and way forward

Review questionnaire



Questionnaires were sent to 33 companies across the consumer goods industry

StudyStudy

35Respondents profile

goods industry.17 companies completed the questionnaire with variable quality of response

253035

ti i

15205 questionnaire

sentquestionnaireresponded

510

• The survey included suppliers, manufacturers, retailers, and transporters• Almost all companies required follow-up phone interviews because of missing information or

0Supplier Manufacturer Retailer Transporter TOTAL


• Almost all companies required follow-up phone interviews because of missing information or inability to give quantitative figures


Overall results show extensive manual handling of goods throughout the supply chain

StudyStudy

100%

% of pallet usage in representative companies (average)

throughout the supply chain

60%

80%

100%Inbound RM

I t l t

20%

40%

60% Internal movementof FG / Inbound FG

Outbound FG

• Results of the survey indicate a high degree of manual handling at most stages of the supply

0%Supplier Manufacturer Retailer TOTAL

Results of the survey indicate a high degree of manual handling at most stages of the supply chain from supplier’s raw materials receiving through to retailer’s delivery to customers. The percentage of pallet usage at different stage is indicated on the chart above where the only stage that pallet is used more than loose case is internal transfers by manufacturers

• This reconfirms tremendous opportunity for increasing and gaining benefits from pallet usage


• This reconfirms tremendous opportunity for increasing and gaining benefits from pallet usage across the entire supply chain


The study confirmed the predominant usage of 1x1.2m pallets in the supply chain

StudyStudy

250,000Type and quantity of pallets being used by sample companies

pallets in the supply chain

150,000

200,000

50,000

100,000

• 81% of pallets being used by the sample companies are 1x1.2m 4-way entry (out of 297K

01x1.24way

1x1.2plastic

1x1.22way

1.1x1.8 1.2x1.2 1x1 1.15x1.15

% p g y p p y y (pallets total). This is the pallet agreed as the industry standard. In the Hong Kong pallet study (1997) 72% were 1x1.2 m 4-way.

• However, there are still many other sizes and types of pallet in circulation as shown• Overall pallets used by sample companies represent about 30% of all pallet used in consumer


• Overall pallets used by sample companies represent about 30% of all pallet used in consumer goods industry (currently around 1 million as estimated by industry source)


The study compared the operational costs of a loose case ti ll t ti d th it l t f h

StudyStudy

operation versus a pallet operation and the capital cost of change, for the sample companies

Cost/BenefitCost/Benefit Comparison

CapitalOperational CapitalOperational

• Handling costs• Transportation costs

• Cost of new pallets• Cost of new or modified

Thi lt th j t d t bt i i d t l l i

Transportation costs• Damage reduction• Cost of additional trips

- warehouse area- machinery- trucks


This result was then projected to obtain industry level savings


Key assumptions which form the basis of the cost-benefit

StudyStudyy p

analysis are:

• Benefit will occur where volumes per delivery are large enough to justify a palletised delivery e.g. modern trade or large traditional trade stores

• All investments with respect to machine and truck modifications are depreciated over a 5 year period and pallets are depreciated over a 2-3 year period

• Cost and benefits are based on estimates given by the respective companies, which participated in the survey. Hence if some companies have not been able to estimate the savings for a particular elements, it has not been considered in this analysis

• Not all companies will be able to delivery 100% on pallets, hence the maximum percentage of pallet usage at each company is taken as the number given for 2005



For the 17 companies in the survey, the net savings are

StudyStudy

THBHandling cost saving 3,900,000

Reduction in material damage saving 8 800 000

as follow:

Reduction in material damage saving 8,800,000

Transportation cost saving (handling) 19,000,000

TOTAL SAVING 31,700,000Additional transport trip (1 600 000)Additional transport trip (1,600,000)

New pallet cost (6,200,000)

Warehouse/machinery modification cost (1,200,000)

Handling cost – savings in man-hr for palletised versus loose load operationsMaterial damage 10% reduction in damage from pallet usage

TOTAL COSTS (9,000,000)NET SAVINGS 22,700,000

Material damage – 10% reduction in damage from pallet usageTransportation cost – handling cost savings for transporterAdditional Transport trip – reduction in trucks loading capacity leads to additional trips requiredNew pallet cost – facilitate pallet operations, this cost is equivalent to pallet rental cost over 2 yearsWarehouse/machinery modification modification related cost to facilitate pallet operations i e


Warehouse/machinery modification – modification related cost to facilitate pallet operations i.e. racking


Furthermore, there are additional non-quantifiable benefits that arise f ll ti d d li i f ll

StudyStudy

• Reduction in truck turn-around time hence more trips are possible

from palletised deliveries as follow

• Reduction in truck turn-around time hence more trips are possible• Improve safety in warehouse operations because of less manual

handling and lifting of heavy productsS t i d ti i l t d tili ti i th • Scope to improve and optimise layout and space utilisation in the warehouse

• Other companies not using pallets (not suitable palletize) can also b fit f th d d i ti f th i d li ibenefit from the reduced queuing time for their deliveries

• Reduce man-hours associated with inventory checking and monitoring of loading/unloading operations

• Reduce return trips for damage product



From the savings of the sample companies, we can make an industry le el projection ith the follo ing basis:

StudyStudy

level projection with the following basis:• Current size of Thailand consumer goods industry ~ 500 billion* • Total revenues of sample companies = 127 billionTotal revenues of sample companies 127 billion

With the sample companies representing about 25% of the industry, current savings can be projected to be roughly 25% of industry wide savings and therefore total savings to the industry would be:therefore total savings to the industry would be:

THBN t i f l 22 700 000

*source: previous ECR Thailand study

Net savings for sample companies

22,700,000

% of industry covered by 25%sample companies

Saving to the total industry= 22 7 M / 25% 90 800 000


= 22.7 M / 25% 90,800,000


Growth in pallet usage is expected to come about from:

StudyStudy

• Overall volume growth in the consumer goods companies and a reduction inthe number of delivery points

• Growth in modern trade channel and corresponding decline in traditionaltrade. Current split between modern and traditional trade is 45-55%* with modern trade expected to exceed traditional trade by 2002

• As retailers set up their own distribution centers e.g., Carrefour, leading to higher aggregate volume per order it increases potential for pallet deliveries

• Expansion of modern trade stores to rural areasIncreasing c stomer demand for deli er on pallets for faster nloading• Increasing customer demand for delivery on pallets for faster unloading,reduced queuing delays, and less product damage

• Many companies aim to cut costs by placing more emphasis on supply chain optimizationoptimization

• Introduction of pallet pooling business in Thailand and recognition of benefits

*source: previous ECR Thailand study


source: previous ECR Thailand study


However there are still some barriers to pallet usage as follow:

StudyStudy

• Modern trade concentration in Bangkok with retailers still too small to require palletsq p

• Lack of dock facility at warehouses and retail outlets, and space to keep empty pallets

• Labor cost is cheap compared to capital investment for material h dli i t d f iliti i ll ti l di d k handling equipment and facilities i.e. palletizer, loading dock, open sided truck

• Some products are not suitable i.e. bulky, hi-value low volume• Standard wooden pallets are not strong enough for some operations Standard wooden pallets are not strong enough for some operations

involving heavy products• Cartons not designed to fit standard pallet size• Many types of trucks exist that are not suitable for loading pallets• Inconsistent quality of pallets



This study has indicated the benefits of using palletised deliveries in Thailand Whilst trends in the consumer goods industry are leading to

StudyStudy

Thailand. Whilst trends in the consumer goods industry are leading to an increase in pallet usage, there are some proactive steps that can be taken to increase pallet usage:

• Publicise the pallet guidelines which have been agreed by ECR Thailand these include: - Technical standards – dimensions, etc.

Pallet usage standards stacking heights weights etc- Pallet usage standards – stacking heights, weights, etc.- Operational standards – pallet loading, carton stacking, layer patterns, etc.

• Communicate costs and benefits of using to companies both inside and outside • Communicate costs and benefits of using to companies both inside and outside ECR Thailand board – possible medium could be newsletters, seminar, or information sharing events

• ECR board to collaborate with other industry associations to deliver the benefits • ECR board to collaborate with other industry associations to deliver the benefits of pallet usage e.g. Federation of Thai Industry (FTI)


How ECR China EnablesHow ECR China EnablesLogistics Standardi ation ?Logistics Standardi ation ?

ObjectivesLogistics Standardization ?Logistics Standardization ?

The overall objective of the project is to assess the costs andbenefits of increasing Standardization pallet usage in the consumer products industry in China specifically to:products industry in China, specifically to:

• Assess the costs associated with changing to palletised deliveries versus current operational practicescurrent operational practices

• Assess the benefits associated with the palletised deliveries versus current operational practices

• Identify the barriers to implementing palletised deliveries and how these • Identify the barriers to implementing palletised deliveries and how these might be overcome

• Define the most appropriate ‘implementation path’ given the opportunities and constraints of the supply chain environmentopportunities and constraints of the supply chain environment



Approach - was divided into 3 stagesLogistics Standardization ?Logistics Standardization ?

Develop and issue pallet

Stage 1Stage 1 Stage 1 was to develop a questionnaire to learn about the current supply chain operational realities in Chinap

questionnairep

Stage 2Stage 2 Stage 2 is to ensure that the questionnaires

Review questionnaire

Stage 2Stage 2 Stage 2 is to ensure that the questionnaires have been completed accurately and to confirm our understanding of the information

Stage 3Stage 3 Stage 3 is to analysis questionnaire responses t d t i th t d b fit f

Analysis, recommendation

s and way forward

to determine the costs and benefits of increased standardize operations and the barriers and opportunities to increase pallet


forward usage.


ApproachLogistics Standardization ?Logistics Standardization ?

Key success factors of the study depended on:

• Comprehensive questionnaire that allow the full impact of standardization usage in China to be exploredS l ti f ti i t th t t ti • Selection of survey participants that represent a cross section of consumer industry players, manufacturers, retailers, transporters, and different size companies

• Quality responses to questionnaire survey from all participants• Understanding of overall industry size, trends, and growth



China Supply Chain EnvironmentLogistics Standardization ?Logistics Standardization ?

• Questionnaires sent to ?? companies across the consumer goods industry. ??companies completed the questionnaire with variable quality of response.

• Overall results show extensive manual handling of goods throughout the supply chain.

A t d j it f f t d li i t t diti l t d t• As expected majority of manufacturer deliveries to traditional trade storesare still carried out as loose case

• The study confirmed the predominant usage of what is the size of pallets in • The study confirmed the predominant usage of what is the size of pallets in the supply chain

101520253035

Respondents profile

questionnairesentquestionnaireresponded

40%

60%

80%

100%

% of pallet usage in representative companies (average)

Inbound RM

Internal movementof FG / Inbound FG

% of pallet usage by manufacturers for traditional/modern trade channel

20%30%40%50%60%70%

Traditional trade

Modern trade

100,000

150,000

200,000

250,000Type and quantity of pallets being used by sample companies

LOSCAM ASIA LOSCAM ASIALOSCAM ASIALOSCAM ASIALOSCAM ASIA05

Supplier Manufacturer Retailer Transporter TOTAL0%

20%

Supplier Manufacturer Retailer TOTAL

Outbound FG

0%10%20%

Manufacturer deliveries0

50,000

1x1.24way

1x1.2plastic

1x1.22way

1.1x1.8 1.2x1.2 1x1 1.15x1.15


Costs / Benefits AnalysisLogistics Standardization ?Logistics Standardization ?

The study compared the operational costs of a loose case operation versus a pallet operation and the capital cost of change, for the sample companies for the sample companies

Cost/Benefit Comparison

CapitalOperational pp

• Handling costs• Transportation costs

D d ti

• Cost of new pallets• Cost of new or modified

- warehouse area• Damage reduction• Cost of additional trips

warehouse area- machinery- truck

LOSCAM ASIA LOSCAM ASIALOSCAM ASIALOSCAM ASIALOSCAM ASIAThis result was then projected to obtain industry level savings


Costs / Benefits Analysis – Handling CostsLogistics Standardization ?Logistics Standardization ?

Handling cost is calculated at each stage of the supply chain where there is a load / unload operations:

retailer DCSupplierWarehouse

Modern Tradestores

SupplierFactory

Manufacturer ConsumersManufacturer

Traditional tradestores

Incoming raw materials

Warehouse storesFactory Factory rWarehouse

Modern Traderetailer

Supplier ManufacturerRetailer

Indicates operations that involve raw materials or sub-materials receivingInternal movement of FG / Inbound finished productsIndicates operations that involve transporting finished products from factory to storage facility i e warehouse This also represents finished products

Retailer

to storage facility i.e. warehouse. This also represents finished products receiving for the retailersOutbound finished productsIndicates operations that involve transporting finished products out from a


Indicates operations that involve transporting finished products out from a warehouse or store


Cost / Benefits Analysis - Transportation CostsLogistics Standardization ?Logistics Standardization ?

Discussion with transportation companies led to the following insights and assumptions that effect transportation costs:

Cost will increase as less products can be fit into a truck (estimated - Cost will increase as less products can be fit into a truck (estimated by transport company) and hence more trips are required

- Cost will decrease as no transporter helpers are required when loading/unloading are done using pallets However some of this cost loading/unloading are done using pallets. However, some of this cost will be offset by requirement of forklift operator at receiving sites. Transporter indicates wage rate of ??? RMB/hour

- Cost will decrease as reduction in truck turnaround time can reduce Cost will decrease as reduction in truck turnaround time can reduce number of trucks required

Possible savings in transportation costs are considered part of the total supply chain savings even though all these savings may not be pp y g g g ydirectly passed on to companies

* ??% capacity loss is based on usage of existing trucks. As more trucks are converted to

LOSCAM ASIA LOSCAM ASIALOSCAM ASIALOSCAM ASIALOSCAM ASIAstandard that can be used with pallet, actual capacity loss will be significantly reduced


Costs / Benefits Analysis – Capital CostsLogistics Standardization ?Logistics Standardization ?

Capital investment associated with pallet usage involves preparation of facility and equipment to handle pallet operations

This will include:• Cost of new pallets (purchased or hired)• Facility adjustment i e racking loading dock• Facility adjustment i.e. racking, loading dock• Material handling equipment i.e. palletiser, forklift, hand lift

These costs will be depreciated over their operating life according to our earlier assumptions and treated as operational costs to obtain net cost benefit per annum from pallet usage



Cost / Benefits Analysis – Qualitative SavingLogistics Standardization ?Logistics Standardization ?

Furthermore, there are additional non-quantifiable benefits that arise from palletised deliveries as follow:

• Reduction in truck turn-around time hence more trips are possible• Improve safety in warehouse operations because of less manual

handling and lifting of heavy products• Reduce man-hours associated with inventory checking and monitoring

of loading/unloading operations• Reduce return trips for damage product• Etc……



Overcoming the barriersLogistics Standardization ?Logistics Standardization ?

Difficulty and Impact of overcoming these barriers:1. Lack of dock facility at branches and space to keep empty pallets2. Labor cost is cheap compared to capital investment p p p3. Not suitable for small volume orders4. Standard wooden pallet is not strong enough for some operations5. Standard wooden pallet does not fit all products well 6. Inconsistent quality of pallet7. Possibility of mold and termite for wooden pallets 8. Many types of trucks exist Difficulty of

overcomingbarriers

High1 22

3 45

6

8

7

BenefitsLow

Low High

6


Low g


RecommendationsLogistics Standardization ?Logistics Standardization ?

This study has indicated the benefits of logistics standardization in China. Whilst trends in the consumer goods industry are leading to an increase in the standardization, there are some proactive steps , p pthat can be taken to increase pallet usage:

• The standardization guidelines which have been agreed by ECR China these The standardization guidelines which have been agreed by ECR China these include: - Technical standards – dimensions, etc.

- Pallet usage standards – stacking heights, weights, etc.- Operational standards – pallet loading, carton stacking, layer patterns, etc.

• Communicate costs and benefits of using to companies both inside and outside ECR China board – could be newsletters, seminar, or information sharing events

• ECR board to collaborate with other industry associations to deliver the benefits of logistics standardization

• Identify standards


y

Thank you for your attentionThank you for your attention


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