Latest Trends & Developments in Logistics for 2017 Agaton Teodoro O. Uvero 2Q GMM, PHILEXPORT New World Hotel, Manila September 19, 2017

Presentation Outline Introduction – Logistics Now Drivers to Change How ‘Logistics’ will Change Conclusion

Logistics Now synergies in mergers and acquisitions integrated supply chain (including reverse logistics) Vendor-Managed Inventory (VMI) / distributor-managed inventory door-to-door / DAP and DDP terms of trade “supply chain” alliances value added services

Value Added Services consolidation centers warehousing and inventory management vendor hubs /supplier parks customs and trade advisory services transport management kitting, packaging and bundling

Drivers to Change

Drivers to Change shift in Big Business Mindset (paradigm shift in deriving profit) evolution of Supply Chain Model (just-in-time, order first before manufacture, etc.) related Party Transactions (approx. 60% of global trade) “regionalization” of MNCs developments in ICT / Bilateral and Regional Free Trade Agreements (FTAs)

Shift in Big Business Mindset paradigm shift in deriving profit logistics costs make up about 20 – 30% of total purchase cost of an item management of logistics will require change in cost accounting system

Shift in Big Business Mindset Traditional View Selling Price = Cost + Profit New View Profit = Selling Price - Cost Pass higher costs on to clients by increasing prices, because of “tied” markets & limits to customers’ ability to switch Address inefficiencies to reduce costs to keep up profit levels in the context of internationally set market prices $$$ You believe customers will pay for your inefficiency!? Preserve and grow your market share Source: IPSM, International Trade Centre (UNCTAD/WTO)

Shift in Big Business Mindset TOTAL UNIT COST Unit purchase price Logistics costs (transportation, storage and handling) Deterioration and write-offs = + Cost of capital (% interest x amount) from date of supply invoice payment until date of sales cash receipt

Evolution of Supply Chain Model From the BHMHS model to the S3 Model Buy Hold Make Hold Sell based on company’s design or previous requirements full capacity forecast based on historical demand pay supplies upon receipt title custody risk title custody risk Source: IPSM, International Trade Centre (UNCTAD/WTO)

Evolution of Supply Chain Model From the BHMHS model to the S3 Model Sell Source Ship delivery date promise E-commerce collaboration & supply chain integration forecast demand vendor managed and distributor managed inventories automatic order placement on sales order direct shipment pay on shipment supplier competitiveness minimum inventory Source: IPSM, International Trade Centre (UNCTAD/WTO)

Related Party Transactions 80-20 rule (80% of customs collection coming from approximately 20% of all importers) related party transactions (estimated at more than 60% of global trade) MNCs have driven global trade

Regionalization of MNCs Old Structure company operate within national geographic limitations company responsible for all aspect of business (manufacturing, sales, distribution, marketing and others) New Structure regional office decides on major aspects of business local office acts as branch office; usually as sales and distribution arm regional pooling of requirements (services/materials)

Regionalization of MNCs from autonomous and self-sufficient national organization to regional organization centralization of manufacturing facilities at a regional level reduction of facilities (economies of scale, market access, incentives, labor costs, etc.) regional centralization of functions (e.g. research and development, advertising and marketing, finance and administration) toll/Contract Manufacturing

How ‘Logistics’ will Change

How ‘Logistics’ will Change the modern consumer instant need to receive goods and services; shorter lead times phone as shopping device pressure to deliver goods fast and cheap (e.g. drones) visibility of order status, tracking and delivery

How ‘Logistics’ will Change omnichannel / last mile Delivery “price of automated labor has fallen by up to 50% since 1991” multimodal options for delivering goods from distribution centers to retail shops technology and online shopping are creating complexity

How ‘Logistics’ will Change digital commerce (Internet of Things - IoT) from 9%, online shopping is now 30% of retail (US) Uber and Amazon has entered logistics logistics means service plus automation (e.g. FLEXE, Convoy) e-commerce is replacing the retail mid-market

How ‘Logistics’ will Change digital commerce (Internet of Things - IoT) (continuation) brick+mortar retail shops closing due to growing online shopping 3PLs and 4PLs continue to leverage on IT platforms Unilever partnering with Convoy

How ‘Logistics’ will Change direction towards SCM certification product “clock speed” / on demand supply chain product life span getting shorter production and delivery based on demand automated delivery / Warehouse Robotics Otto by Uber Amazon is using robots for warehouse and inventory handling

How ‘Logistics’ will Change hyper-local supply chain locally-produced/designed/sourced products for the local market exclusive merchandise for retailers / customs rewards “supply chain” externalities understanding the impact of supply chain transactions on jobs created, carbon footprint reduction, sustainable procurement processes, types of labor used, modes of transportation, etc. thinking global, acting local -- adopting to global trading trends with local flavor

Conclusion

Conclusion digital commerce (and logistics) is here crowd-sourcing / “uber”ing technology allows customization, results in complexity “innovate or die”

Adopting to the Changing Times Preparing for Better Times create an Innovation Strategy (eliminate-reduce-improve-create) partner with IT-driven value-added services use TCO tools to optimize supply chain planning understand the trading environment (e.g. FTAs) comply with evolving government regulations

Thank you