Optimization of logistics services : a transnational companies’ experience in crisis environment

1. Optimization of logistics services: a transnational companies’ experience in crisis environment Perry NeumannManaging Director Russia dialog e.V. Moscow, 26.03.2009

2. Agenda • Kuehne + Nagel Global / Russia • Kuehne + Nagel in Crises • Case study

3. Kuehne + Nagel Global Contract Logistics Air Freight Sea Freight Road & Rail • Global Top 4 • Cargo 2000 Phase II certified (first mover!) • Strong partnerships with preferred airlines • Winner of the golden Chariot Award 2008 „leader in transport and forwarding industry in Russia“ • Global No. 1 • Outstanding IT-based solutions • Strong partnerships with preferred carriers • Market Leader in Logistics for Industrial Projects • European Top 7 • Focus on network services, LTL & FTL business • Pan-European coverage of 38 countries • Innovative intermodal solutions • Global Top 3 • Global infrastructure for global contract logistics coverage • Dedicated and shared warehousing & distribution management

4. Kuehne + Nagel in Russia • Since 16 years in Russia • 620 logistics specialists in 4 branches (7 offices, 6 warehouses) • ISO 9001 Global Certificate valid for 3 offices in RU (Mow, Led, Uus) • Winner of the Golden Car Award 2008 • Handling more than 7.000 tons airfreight per year • 78,300 square meters of distribution space Russia is an important strategic market to Kuehne + Nagel even during crisis

5. Agenda • Kuehne + Nagel Global / Russia • Kuehne + Nagel in Crises • Case study

6. Asian Crisis Speculation crisis (new economy) Kuweit-Crisis/Irak War Oil crisis Depth crisis in developing countries (i.e. Mexico) Kuehne + Nagel in Crises 2009 1890 Kuehne + Nagel established a stable and reliable market position based on innovation, creativity and solid financial management despite severe global crises

7. Kuehne + Nagel – reliable anchor in crisis Proactive crisis management with creative customer solutions and stable financial management. Crisis driver • Intelligent cost reduction with customer • Solid stabilization of own finance management Costs • Focus on successful countries with potential • Higher investments in important markets Market • Offer IT-Tools und IT-Innovations to be flexible within crisis Technology • Increase quality and service level to keep customers • Being reliable partner for customers during crisis • Hiring and keeping qualified sales staff Customer Expectations • Supporting environmental oriented logistics • Driving environmental responsibility and sustainability Environmental Concerns

8. Costs - reliable anchor Costs • Intelligent cost reduction with customer within the complete supply chain instead of price dumping. • Consequent cost saving programs and streamlining processes during crisis. • Stabilisation of the company by increase of charter capital. Costs have to be reflected seriously and sustainable

9. Markets - reliable anchor Market • Be present in all important markets in the future with stable resources and qualified staff for customers. • Even in times of crisis taking investments to be able to offer high quality services in changing world markets. • Differentiate from price dumping to be a reliable partner even through crisis. Be a reliable and stable partner in and after crises

10. Technology - reliable anchor Technology • Auto-ID technologies can increase visibility of goods in the supply chain and thus reduce overall inventory requirements (RFID, active auto-ID). • Advanced WMS technologies can help optimize picking operations, labor management and quality (Pick to voice, Labor standards and tracking, Layer picking). • Agent based transportation management systems can optimize shipment activities in real time and reduce overall transportation costs (Node Optimization, Inter-node optimization). IT-Tools offer customers fast, efficient and flexible crisis management.

11. Customer Expectations Customer expectations - reliable anchor • Even in crisis quality of service and customer care has to be on a high level and still be improved. • Investment in training of staff for stable crisis management and operational excellence. • Hiring new sales forces to strengthen customer care especially in crisis in order to keep customers and to create new product and services where necessary. • Supporting of customers in their daily logistics processes. To be a sustainable logistics partner concerning repositioning and adjustments but also daily business.

12. Drivers of Customer Loyalty Customer Loyalty Price Satisfaction … their 3PL‘s prices Commitment … their commitment to their 3PL Retention of existing customers through contract renewals Proactive Improvement … their 3PL‘s ability to proactively improve their logistics processes Retention Customers’ evaluation of… Service Quality … their 3PL‘s service performance Extension Alternatives … market alternatives to their current 3PL Extension of business by providing new services to existing customers PersonalTrust … the trust they have in their 3PL RelationalSatisfaction … their interaction and cooperation with their 3PL Customer Expectations customer expectations drive many decisions … Source: WHU Research

13. Environment - reliable anchor Environment • Develop environmental and payable solutions. • Keeping reliable and sustainable towards customers especially in crisis. • Driving innovations within logistics. Even in crisis offer responsible and sustainable behaviour and be open for innovations.

14. Kühne + Nagel believes that environmental issues will dramatically impact how we do business in the future. Environment

15. The financial storm does not stop in front of logistics not only in Russia but also for the rest of the world. Situation Logistics companies deliver stability, reliability and security even in rough times.

16. Backup through professional and integrated crisis Management. Solution Integrated crisis management in the field of logistics needs more streamlined operations for all parties

17. Kuehne + Nagel Global / Russia Kuehne + Nagel in Crises Case study Agenda 01/01/2020 p. 17

18. Case study Leading Telecommunication Provider • STRATEGY • Become an R&D and marketing company. Divest logistics business to single lead logistics provider. • OBJECTIVES • Reduce logistics costs • Risk-based compensation based on delivered savings • Create flexible logistics infrastructure • Improve service levels • Support revenue initiatives Market Factors Driving 4PL Consideration • Telecommunications market decline • Company drive toward asset reduction and variable cost models • Need for Supply Chain visibility tools; limited capital to invest • Favorable experience with outsourcing manufacturing and logistics 01/01/2020 p. 18

19. Savings Goal Actual Savings 16.0 14.0 12.0 10.0 $ MM 8.0 14.4 11.4 14.2 6.0 8.6 8.4 9.0 4.0 2.0 0.0 Year 1 Year 2 Year 3 Case study Leading Telecommunication Provider RESULTS Cost Reduction • Reduced total logistics cost as percent of cost of sales of 14% • Reduced per-unit transportation cost by 15% • Increased use of ground, ocean modes • Reduced warehouse space 45% globally and renegotiated fixed-rate contracts to 50% variable Administration • Reduced LSP base from 300 to 150 Quality • All service metrics sustained or improved during transition Exceeded Savings Goal By 62.5% • CONTRACT RENEWAL • New 3-year-contract in 2008 *savings achieved are independent of the cost impact of reductions in business volume 01/01/2020 p. 19

20. Thank you for your attention!