Jacomine GroblerJgrobler@csir.co.za03 October 2014

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

The logistics piece in the economic puzzle

Ulrich Joubert Economist & advisor

International factors influencing logistics in SA

• Growth prospects• Unemployment• Inflation• Interest rates• Commodity markets• Energy

Local factors influencing logistics in SA

• Balance of payments• Budget deficit• The Rand• Inflation• Interest rates• Human resources

Logistics costs and efficiency

Prof Jan HavengaZane SimpsonStellenbosch University

Moving towards integration

Dr Dinesh KumarKPMG

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

• 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

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

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

Supply chain trends analysis

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

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.

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.

• Douki Seisan 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.

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

Logistics infrastructure capacity

Hans IttmannHWI Consulting

State of roads

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.

State of roads

State of roads

State of 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

Road-to-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

State of rail

State of air freight

State of pipelines

State of maritime

Greater road efficiencies through innovative regulation

Dr Paul NordengenCSIR

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2001 2002 2003 2004 2005 2006

Year

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France

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USA

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Switzerland

Fatal truck crash per 100 million vehicle kilometres travelled

Source: OECD report, Moving Freight with Better Trucks, 2010

Heavy Vehicle Fatal Crash Rates

36

PERFORMANCE-BASED STANDARDS APPROACH

Prescriptive Standards Performance-Based Standards

What the vehicle looks like What the vehicle can do

Governs mass and dimensions Governs actual on-road performance

Constrains productivity Allows heavier and/or larger vehicles

Constrains innovation Promotes innovation

Prescriptive Standards Performance-Based Standards

Images courtesy of the Australian National Transport Commission

Prescriptive Standards Performance-Based Standards

What the vehicle looks like What the vehicle can do

Governs mass and dimensions Governs actual on-road performance

Constrains productivityAllows heavier and/or larger vehicles• Improved productivity• Fewer trucks required on the road• Fuel and emissions savings

Constrains innovation Promotes innovation

Prescriptive Standards Performance-Based Standards (PBS)

Baseline vehicle PBS vehicle

Three trailers Four trailers (higher payload, improved productivity)

Very poor “rearward amplification” performance (whipping effect on the rearmost trailer causing it to rollover).

Meets all performance standards (including rearward amplification). A more stable and safe vehicle.

Road-Train, Mining

Computer simulations performed by, and animations courtesy of, Wits University

Baseline vehicle PBS vehicle

Current vehicle in operation Axles relocated to increase wheelbase

Poor “rearward amplification” and “yaw damping” performance. Sustained oscillations in response to a severe steer input.

Meets all performance standards. A more stable and safe vehicle.

Computer simulations performed by, and animations courtesy of, Wits University

Bi-Articulated Bus

Baseline vehicle PBS vehicle

Six pallets of timber. Seven pallets of timber (higher payload, improved productivity).

Very poor “rearward amplification” performance (whipping effect on the rearmost trailer causing it to rollover).

Meets all performance standards (including rearward amplification). A more stable and safe vehicle.

Computer simulations performed by, and animations courtesy of, Mechanical System Dynamics, Australia

Timber Vehicle

• 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

Car-Carrier (1 of 3)

PBS vehicle (increased trailer wheelbase)

Baseline vehicle

• 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

Car-Carrier (2 of 3)

PBS vehicle (increased trailer wheelbase)

Baseline vehicle

• 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

Car-Carrier (3 of 3)

PBS vehicle (increased trailer wheelbase)

Baseline vehicle

Top view

The talent gap

Rose LukeGert HeynsUniversity of Johannesburg

The talent gap

The talent gap

The talent gap

The talent gap

The talent gap

The talent gap

The way forward

Jacomine GroblerCSIR

The way forward

?

Jacomine GroblerJgrobler@csir.co.za03 October 2014