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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
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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
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Although, some are stuck in the 1960s
BottleneckOrder placement
Little valueRubber stamping
BureaucracyDefault profession
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Transport is a lower spend Priority on the Corporate Agenda
Procurement
Finance
0%
5%
10%15%
20%
25%
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Very few see Procurement as being entirely “Strategic”
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…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!
Copyright © SpringTide 2016
www.dssmith.comPrivate & Confidential | © 2013
www.SpringTideProcurement.com
Current State of Transport Procurement 02
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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
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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
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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
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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
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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?
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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
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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%
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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
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Average length of haul for all HGVs
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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%
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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
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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!
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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
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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
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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.
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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
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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
Copyright © SpringTide 2016
www.dssmith.comPrivate & Confidential | © 2013
www.SpringTideProcurement.com
Vision & Strategy 03
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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
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Opportunity Analysis helps as a driver to prioritize activity
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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
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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.
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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
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Percentage change in freight transport fuel costs
Diesel
Gas OilMarine Bunker Fuel
Jet Kerosene
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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
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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
Copyright © SpringTide 2016
www.dssmith.comPrivate & Confidential | © 2013
www.SpringTideProcurement.com
About SpringTide 04
Copyright © SpringTide 2016 37 www.SpringTideProcurement.com
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.
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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
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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
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Since 2008, we have worked to support businesses of all shapes and sizes…
…with solutions being wide and varied
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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
Copyright © SpringTide 2016
www.dssmith.comPrivate & Confidential | © 2013
www.SpringTideProcurement.com
Thank you for your time
Any questions or comments?
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Any questions now?… or get in touch later
SpringTide Procurement SpringTide Procurement
SpringTide Procurement@SpringTide_News
Mike UttingManaging DirectorMobile: +44 (0) 7973 [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