Jacomine Grobler Jgrobler@csir.co.za 03 October 2014

1. Jacomine Grobler Jgrobler@csir.co.za 03 October 2014

2. Agenda • Thoughts on the economy & cost drivers • Actual cost of logistics • Supply chain trend analysis • State of infrastructure • Improving efficiency through innovative regulation • The talent gap

3. The logistics piece in the economic puzzle Ulrich Joubert Economist & advisor

4. International factors influencing logistics in SA • Growth prospects • Unemployment • Inflation • Interest rates • Commodity markets • Energy

5. Local factors influencing logistics in SA • Balance of payments • Budget deficit • The Rand • Inflation • Interest rates • Human resources

6. Logistics costs and efficiency Prof Jan Havenga Zane Simpson Stellenbosch University

14. Moving towards integration Dr Dinesh Kumar KPMG

15. Supply chain trends analysis • Person-to-person interviews with supply chain directors of 80 companies from the KPMG network • A broad cross-sector of industries and sectors were presented: • Consumer packaged goods • Retail • Diversified industries • Logistics providers • Utilities • Telecommunications

16. Supply chain trends analysis • Various aspects were considered such as… • Customer focus: • Essentiality accepted • Declining customer levels over last decade • Two constraints to customer focused businesses are lack of skills and silo-based corporate cultures due to ineffective change management • Agility in supply chains: • Not a big focus • Only 50% of retail organizations are barely or partially incorporating agile design • 68% of manufacturing organizations are barely or partially incorporating agile design • Collaborating with supply chain partners: • 46% of organizations will never or rarely collaborate with SC partners • 46% of SA supply chains are only partially managing to collaborate

17. Supply chain trends analysis • Supply chain maturity: • 62% of FMCG supply chains considered themselves as mature • 44% supply chains in other industries considered themselves as mature

18. Supply chain trends analysis • Technology in SC: • Use of fragmented ERP systems were evident • Most companies focused on incremental upgrades, tweaking & customization • High focus on financial functionality • Planning, forecasting and replenishment strategies: • Lack of planning capabilities one of the greatest challenges for South African companies • Use of supply chain coordination control methods specifically noted in the manufacturing industry • Inventory management: • High levels of buffer stock evident in retail, manufacturing and mining • Inventory carry cost contribution to total logistics cost on the rise

19. Future trends • Demand-driven supply chains: • Supply chain partners are tuned in to the demand signal that originates at the furthest points of consumption • DDSC has greater alignment, responsiveness and efficiencies impacting on customer satisfaction. • 1 – 4% improvement in revenue and 20-30% reduction in working capital. • Cloud-based supply chain management: • Real time access to critical information, transparency, cost reduction, scalability and flexibility • The most important barrier relates to data security • Talent: • Well qualified talented people required in all functions at all levels of the company

20. Future trends • Collaboration • Close collaborative ties result in optimized inventory and logistics processes. Also greater responsiveness to volatile customer demand. • Joint innovation & R&D activities in future • Pooled warehousing, distribution and transport resources.

21. Nissan SA case study • In 2011 Nissan spent 27% more on production parts logistics than their benchmark global competitor. • High inefficiencies due to high transport costs due to the landlocked position of the plant and frequent production line stoppages due to a lack of parts availability. • DoukiSeisan system implementation – customer driven production philosophy that syncronizes SC partners to cut lead times. • Implementation of Nissan Manufacturing UK (NMUK) mainframe ERP system which seamlessly integrates with global Nissan systems • Re-evaluate status quo transport decisions such as: • From Ro-ro vessels to containerized vehicles through their on-site vehicle containerisation facility • From Road transport to containerized rail transport for imported production parts.

22. Nissan SA case study • After 12 months: • Full delivery timing visibility for all customers • Flexible vehicle ordering capabilities allowing changes in specs up to 4 weeks before production • Finished vehicle inventory reduced by 20% • Domestic market volume flexibility from 20 to 12 weeks • Domestic market-mix flexibility from 15 to 4 weeks • In 2011 Nissan spent 27% more on production parts logistics than their benchmark global competitor • A 21% reduction in supply chain CO2 footprint • A R387 million improvement in free cash flow • A R206 million year-on-year logistics cost reduction

23. Logistics infrastructure capacity Hans Ittmann HWI Consulting

24. State of roads

25. State of roads

26. State of roads • Decades of underinvestment in maintenance and expansion left a huge infrastructure backlog. • SANRAL has been relatively effective in addressing this backlog, but still room for improvement • Poor roads lead to increased vibrations and potential structural damages to vehicles, leading increased vehicle maintenance & repair costs & higher logistics costs. • Certain road roughness – what is the percentage increase in VOCs. Model changes in cost of logistics based on changes in quality of roads.

27. State of roads

28. State of rail

29. Road-to-rail • Mostly Iron ore, coal & manganese & agricultural dry bulk sector • Long haul general freight business is challenging with service delivery the issue • 11.4% (2011) to 12.1% (2013) w.r.t. tonnage • 29.5% (2011) to 30.5% (2013) w.r.t. tonne-km • Investment, productivity, efficiency & skills development required

30. State of rail • Iron ore, coal & manganese • Agricultural dry bulk sector • Long haul general freight business is challenging; service delivery the issue • 11.4% (2011) to 12.1% (2013) i.t.o. tonnage • 29.5% (2011) to 30.5% (2013) i.t.o. tonne-km • Investment, productivity, efficiency, skills development – reduce cost of logistics

31. State of air freight

32. State of pipelines

33. State of maritime

34. Greater road efficiencies through innovative regulation Dr Paul Nordengen CSIR

35. Heavy Vehicle Fatal Crash Rates Fatal truck crash per 100 million vehicle kilometres travelled Source: OECD report, Moving Freight with Better Trucks, 2010

36. PERFORMANCE-BASED STANDARDS APPROACH Images courtesy of the Australian National Transport Commission

38. Road-Train, Mining Computer simulations performed by, and animations courtesy of, Wits University

39. Bi-Articulated Bus Computer simulations performed by, and animations courtesy of, Wits University

40. Timber Vehicle Computer simulations performed by, and animations courtesy of, Mechanical System Dynamics, Australia

41. Car-Carrier (1 of 3) Baseline vehicle PBS vehicle (increased trailer wheelbase) • High-speed lane-change manoeuvre, used to measure “rearward amplification” and “high-speed transient offtracking”. • Trailer overshoot and yaw damping response have improved. Computer simulations performed by the CSIR

42. Car-Carrier (2 of 3) Baseline vehicle PBS vehicle (increased trailer wheelbase) • Speed is increased on a constant-radius curve until rollover occurs. • Vertical arrows signify vertical tyre loads (colours as above). • The increased trailer wheelbase has increased the initial vertical load on the drive axles. Without any changes to any other vehicle parameters, this results in delayed rollover (improved “static rollover threshold”). Computer simulations performed by the CSIR

43. Car-Carrier (3 of 3) Top view Baseline vehicle PBS vehicle (increased trailer wheelbase) • Low-speed 90° turn. Used to determine how much road-space a vehicle utilises when turning. • The increased trailer wheelbase has reduced its rear overhang, resulting in improved “tail swing” performance. The rear corner of the PBS vehicle swings out less than half that of the baseline vehicle. This is important for pedestrian and cyclist safety. Computer simulations performed by the CSIR

46. The talent gap Rose Luke Gert Heyns University of Johannesburg

47. The talent gap

48. The talent gap

49. The talent gap

50. The talent gap