Developing a Logistics Strategy

1. Developing a Logistics Strategy Paul Price Spatial Logistics

2. PROGRAMME THE PROCESS AND IT’S EFFECT ON COSTS TIME LINES AND METHODS CHOOSING A LOGISTICS PARTNER IN-HOUSE VS. OUTSOURCING

3. THE PROCESS AND IT’S EFFECT ON COSTS ESTABLISHING CONSUMER NEEDS – Sales & Marketing DESIGN – R&D (Why involve your logistics supplier at this stage?) • Suitability of product for transportation • Size and shape – ability to PKD or FKD in • order to reduce transport costs • Hazardous – increased packing costs, • limited transport options, • increased transport costs • Composition of the product – • effects on duty payments - for example

4. 60% Textile 40% Leather upper 40% Textile 60% Leather upper THE PROCESS AND IT’S EFFECT ON COSTS The initial design Tariff Heading 6404 1100 10 @ 16.9 % Duty The revised design Tariff Heading 6403 9996 11 @ 8 % Duty

5. THE PROCESS AND IT’S EFFECT ON COSTS THE RESULT ! • What it meant in real terms – increased profit • 20’ FCL Containing x shoes @ $2.00 • 4800 pairs of shoes = $9,600 total value • Duty at 16.9% = $1,622.40 • Duty at 8% = $768.00 • Saving = $854.40 Courtesy of Paul Thompson

6. THE PROCESS AND IT’S EFFECT ON COSTS Consider Your Manufacturing location - UK or Overseas? • If overseas you need to consider – • Quality • Controls • Supplier – sole or duel-sourcing • Increase in lead times • Effect on transport costs • Peak season surcharges • Customs clearance and licencing issues

7. Time lines and methods Delivery Methods UK and International Mail UK next day timed to 10 days International 3-5 days priority air up to 13 weeks by surface to Australia! Very cost effective for low value non time-sensitive products but difficult to track if client claims non-delivery. Compensation levels are low unless extra premium is paid at time of posting. Reliability to certain areas of the world is questionable.

8. Time lines and methods • UK & International Courier deliveries • UK – Next day timed deliveries to 2-3 days • On the whole very reliable and deliveries are trackable. • Establish clients delivery needs & don’t assume always next day! • 2-3 day delivery can show significant savings especially if you have • volume • International – Next day timed to 6 days • As above, don’t choose “express” services unless you have to. • We have all come to expect it but do we really need it? • Quote economy delivery and consider billing your client if they want a faster service.

9. Time lines and methods • UK Pallet deliveries – • Next day timed to 2-3 days • Several good quality services now available and again deliveries are trackable. • As with parcels check clients needs. • Many 2-3 day services are delivered next day in order to maximise vehicle usage - although this cannot be guaranteed • European Road trailer deliveries – • Again many good operators to specific areas. • A good Logistics partner will know the “horses for courses!” • Cost effective for even “small” quantities but POD’s can still be difficult to get

10. Time lines and methods Seafreight Up to 7 weeks Cost effective if delivery time allows Established routes around the globe offering scheduled departures and arrivals Dependent upon the size of the shipment and the destination check what packing is needed. Don’t over/under pack. Airfreight Direct flights, deferred flights and consolidations 2- 7 days Direct flights are quick but expensive – consider “spot rates” and auctions. Deferred flights take advantage of space availability and can offer considerable savings. Consols are usually on set days and your cargo moves with others for the same destination. You cargo benefits from economies of scale.

11. Time lines and methods Air/Sea – Sea/Air Faster than seafreight more economical than airfreight Recognised specialist and “hubs” world wide Increasingly common and again, a good logistics service provider can ensure that you get the best deal

12. Time lines and effects Example Yawn Limited – (Thanks to Dave Pearson!) Manufacture bespoke valves and fittings in China Manufacturing time for MOQ (1x20’ Container) is 5 weeks Loading, shipping,clearance and delivery time is a further 5 weeks Yawn quote UK clients 10 week delivery Problem at manufacturing plant causes 3 week delay in production Customer threatens to cancel order Yawn Limited have to order sufficient quantity by air to appease customer or risk loosing this and future orders

13. Client places order on Yawn Limited for 20’ container valves and fittings Usual Costs 1 x 20’ container by sea Cost of manufacture £ 17500.00 Cost of shipping & delivery £ 1300.00 VAT £ 3062.50 Duty £ 1235.00 Total £ 23097.50 Invoice value to client £ 30795.00 Profit £ 7697.50 10 weeks Delivery 5 weeks 5 weeks Arrive, customs cleared and delivered Order placed on factory Goods ready loaded and shipped Yawn Limited - Normal Time line

14. Client places order on Yawn Limited for 20’ container valves and fittings Recovery Costs Emergency stock (3 weeks)– 8000 kilos by air Cost of manufacture £10750.00 Cost of shipping & delivery £16100.00 VAT £ 1880.00 Duty £ 2660.00 Total £31390.00 Invoice value to client £ 18477.00 Profit/Loss (£12913.00) 10 weeks Delivery Order placed on factory 8 weeks 5 weeks 13 weeks – TOO LATE! Enough late goods ready and shipped by air “Emergency stock” arrives, clears and delivered Unforeseen delay at factory Yawn Limited – Problem Time line

15. Time lines and effects Be realistic Involve your logistics provider at the outset Build in time for unforeseen issues Always have a contingency plan Consider duel-sourcing if practical Consider “emergency” stock holding – either you or manufacturer – consignment stock is common Consider use of bonded warehousing to take advantage of bulk purchasing or seasonal discounts

16. Choosing a logistics partner Look at your existing arrangements on a regular basis– Are they adequate? Are you getting what you want? Don’t get complacent. Look for flexibility – be sure you get what you want Big isn’t always best – “big fish small pond” or “small fish big pond” Have they the ability to grow with you? Check your chosen partner is fully accredited – ISO, IATA,FIATA,BIFA,RHA,UKWA…………………. Ask for references and examples of similar operations to yours Don’t always choose the cheapest option – always consider service Draw up a proper service agreement – set down KPI’s Hold regular review meetings

17. In-House vs. outsourcing With continual pressure to improve the efficiency and reliability of transportation and logistics operations without sending overheads through the roof, shippers are realising the potential economic advantage of outsourcing their logistics activities. Outsourcing opens the door to resources not necessarily available in one’s own organisation –without the need to invest in specialist personnel, capital equipment or expensive infrastructures. In a recent survey, a third of the respondents outsourced their logistics activities to avoid the costs of expanding their own organisation, while a third said that the need to coordinate warehousing, manufacturing and inventory management was the primary reason for outsourcing.

18. In-House vs. outsourcing Logistics outsourcing is a dynamic, shifting and growing business environment, and shipper-3PLs relationships are evolving into proactive and cohesive partnerships. 3PLs need to immerse themselves in the client company’s culture and adapt to their ethos and management style. In return, shippers need to see their 3PLs as an extension of their business, rather than merely a supplier

19. In-House vs. outsourcing Clients who outsource their logistics activities expect their 3PLs to operate as an extension of their business, proactively seeking new ways to reduce logistics costs without compromising efficiency, and developing new and innovative logistics solutions. Communication and information sharing between 3PL and customer is essential in order for a 3PL to achieve agreed performance levels, Those who share their business visions and strategies, achieve far more in the long-term as both partiers are empowered to plan ahead in terms of improving operating efficiencies whilst controlling – and even reducing – operating costs.

20. In-House vs. outsourcing Although the practice of outsourcing is clearly increasing, there are obviously a number of reasons why shippers prefer to retain their logistics activities in-house. Some of the main concerns that dissuade clients from outsourcing their logistics activities are: Perceived service issues Perceived higher cost Loss of control Reduced flexibility Lack of expertise In order for outsourcing to succeed, and as we have mentioned before, it is vital that clients share their current, short and long time strategies with their chosen supplier. BECOME A TRUE PARTNERSHIP!!

21. In-House vs. outsourcing Some benefits of outsourcing logistics activity • Reduction of fixed overhead costs • Releases your organisational time • Allows you to concentrate on core activities • Removes the burden of all export and bank documentation • Provides constant year round cover • Removes need for expensive export computer systems • Reduces recruitment and training Costs • Allows you to take advantage of your logistics partners group purchasing power

22. Conclusion Look at your existing logistics processes and check your sourcing Consider the pros and cons of outsourcing your logistics operation Involve the logistics experts early in new product development and future plans In consultation with your logistics partner,choose the most suitable delivery method for your product in order to satisfy both your customers needs and your budget Ensure that you are in control – don’t accept someone else's systems that don’t work for you Adopt and embrace the partnership concept

23. Thank you for your time this evening And if you do feel you need assistance……… I know a company that might just be able to help!