Copyright © 2007 Logistics Consulting Asia Real Benefits from Pallet Standardization – A Case Study John Talbot – CEO, Logistics Consulting Asia David Edwards, General Manager – Business Development, Loscam Asia

The business Background –Multinational FMCG manufacturer –National market leader in beverages –Product produced at multiple factories – mostly rural –Sales primarily in urban areas –Direct delivery to over 300,000 customers –Modern trade increasingly important (and demanding)

The business’ logistics challenges Relatively low value product Rural sources, but primary markets in towns/cities Fuel costs rising (oil price & removal of subsidies) Product damage in transit Only 2-3 days pipeline inventory Growth of modern trade Logistics cost as high % of revenue Maintenance of service levels

Solution: logistics capability development program Logistics consultants have been supporting the business since 2005, managing a range of supply chain development projects: –Network analysis (optimal location for new plant lines) –Demand / production planning automation –Factory off-take time-slotting –Logistics skills development –Improved product care –Transport cost reduction –Factory & depot productivity & performance upgrades Supported by pallet standardization

Concept development thru piloting Pool pallets and drive-in racking piloted at 1 factory and 1 depot Key lessons: –ECR format preferred to hi-stack –Acceptance much higher where training more intense –Acceptance much higher when scale of pilot is substantial (otherwise it has a nuisance factor) –ECR format opens opportunities for packaging cost reduction

Pallet standardization benefits sought 1.Reduce pallet acquisition costs 2.Utilize drive-in racking 3.Reduced transport costs & product damage 4.“Soft Benefits” Operational discipline Customer service

1. Reduce pallet acquisition costs Imperative to review “owned” pallets –Current 2-way (1220 x 1050) pallets –Too expensive (due to high damage rate and loss) –Undermine product care due to poor quality –Do not support installation of pallet racking –Cost of Capital (bank interest) increasing –Pallets are normally cannibalized for repairs destroying investment –Headcount and consumables required to repair pallets –Need redundant pallets for peak season –Avge 3 years life

2. Utilise Drive In Racking Agreement that best alternative is 1200x1000 industry standard pallet “ECR Pallet” Utilize drive-in racking –Increase storage capacity by 70% Increase inventory build capacity

3. Reduce Transport Costs & Product Damage Reduced transport costs –Compatibility with modern vehicles –Better vehicle utilization –Faster turn-around –Increase in direct deliveries to modern trade Reduced product damage –Due to block-stacking –Due to timber/nail damage –Due to movement in transport

4. “Soft” Benefits Operational discipline –Better handling practices –Safer work practices Customer service –Better protection of product through to point-of-sale –Compatibility with modern trade standards

Copyright © 2007 Logistics Consulting Asia LEVEL OF SUPPLY CHAIN SOPHISTICATION INFLUENCE OF MODERN RETAIL TRADE HIGH LOW HIGH PHP INDO THAI HKG SING MAL CHN IND VNM Retail Market Maturity

Direct to Store – sustainability? SUPPLIER WAREHOUSE SUPPLIER WAREHOUSE Orders Transport

Centralised Distribution Driving Efficiencies SUPPLIER WAREHOUSE MODERN TRADE DC’S MODERN TRADE DC’S One consolidated order not one order per store SUPPLIER WAREHOUSE Pick by SKU not by individual store order Deliver on larger vehicles no manual handling More Trips Possible Priority Unload

RETAIL - Commercial benefits MODERN TRADE DC’S MODERN TRADE DC’S Decide on one standard pallet for all & introduce standardization around that pallet Velocity of product across docks & and for putaway and pick functions Truck turnaround times and yard capacities Supplier sponsored pallet hire Outsource pallet function to professional mgt company Reduce losses Remove repair costs Remove sorting

SUPPLIERS – Sales & CS Reduction in Invoices/missed invoices Reduction in collections Reduced credits Days outstanding/cash flow Access to forecasting & sales data Supplier incentives

SUPPLIERS – Supplier Operations Picking task reduced Wrapping, labeling, loading, paperwork reduced Reduced number of loaders Reduction in pallet usage Pallets always available Opportunity to modernise – suppliers suppliers, materials handling etc SUPPLIER WAREHOUSE SUPPLIER WAREHOUSE

SUPPLIERS – Transportation Reduction in transport - greater trucks turns Priority Unloading – night time slots Reduction in transport management task Reduced transit damage SUPPLIER WAREHOUSE 3 – 4 Hours LOADING 20 Minutes

Bottom Line Savings in supply chain ~ 2 - 7%+ No disadvantage philosophy for suppliers Total supply chain cost analysis critical Loscam works with suppliers and transporters/3PL’s to ensure smooth transition Modern trade influence getting stronger amongst SME’s – be prepared and achieve win win

Copyright © 2007 Logistics Consulting Asia Questions? Please contact us at … John Talbot - David Edwards –