Roadmap for outsourcing Chemical industry www.groenewout.com Supply chain management Assets & facilities Sourcing Customer Warehousing & distribution Manufacturing GW ref. 9026X021/vBr/ version 2.0 Transportation
Agenda Introduction Groenewout Trends & Outsourcing Roadmap Critical dimensions References GW ref. 9026X021/vBr/ version 2.0 Page 2
Groenewout profile Groenewout is an international independent professional firm providing a comprehensive range of consulting services and transition support across all industry sectors focused on business improvement within supply chains and logistics. Assets & facilities Sourcing Manufacturing Warehousing & distribution Customer Transportation Supply chain management GW ref. 9026X021/vBr/ version 2.0 Page 3
Added value as perceived by our customers Multi-disciplinary supply chain & logistics consultants Independent professionals Identification and realization of the opportunities Over 38 years of proven success BREDA Leader in logistics consulting Pan-European playground GW ref. 9026X021/vBr/ version 2.0 Page 4
Pan European marketplace The grey-scale indicates our experience in the individual countries. This excludes the dozens of pan European references. GW ref. 9026X021/vBr/ version 2.0 Page 5
Quality measured by our clients Cross industries Pharmaceutical FMCG (Fine) chemical After market / spare parts Home-improvement Electronics And GW ref. 9026X021/vBr/ version 2.0 Page 6
Agenda Introduction Groenewout Trends & Outsourcing Roadmap Critical dimensions References GW ref. 9026X021/vBr/ version 2.0 Page 7
Sector trends chemical industry Growth merger activity in chemical industry biggest chemical manufacturers are getting bigger and bigger globalization of chemical manufacturers Reduce Costs chemical manufacturers are looking for ways to reduce costs by concentrating on the manufacturing process GW ref. 9026X021/vBr/ version 2.0 Page 8
Logistics trends chemical industry Service Provider more difficult to find qualified service providers for the chemical industry compared to other industries Growth chemical logistics sector merger activity in the chemical logistics sector globalisation of chemical logistics service providers specialists in chemical sector get stronger GW ref. 9026X021/vBr/ version 2.0 Page 9
Chemical race to succeed Trends & outsourcing Control the power of AND & Overcome the cruelty of OR High quality AND low costs Better customer service AND lean inventories For essential but not core activities outsourcing can be considered GW ref. 9026X021/vBr/ version 2.0 Page 10
Outsourcing decision: what services Warehousing Handling VAL Order entry / Invoicing After sales service Return handling / Repairs Inventory management / VMI Transport Merchandise Spares Specials Return flows Transport management CORE Essential, not core Not Core Indispensable for business Required by customers to protect core Consider Outsourcing GW ref. 9026X021/vBr/ version 2.0 Page 11
Outsourcing decision: tradeoff Outsource decision Flexibility Dependency Strategy Organization Product characteristics Financial Outsource: Yes Flexibility Dependency Strategy Organization Product characteristics Financial Outsource: No GW ref. 9026X021/vBr/ version 2.0 Page 12
Agenda Introduction Groenewout Trends & Outsourcing Roadmap Critical dimensions References GW ref. 9026X021/vBr/ version 2.0 Page 13
Approach Roadmap to outsource Request for Information Request for Proposal Letter of Intent (Operational) Due Diligence Negotiations & Contract development Client: TPL Management Implementation Service Agreement TPL: Provision of Services GW ref. 9026X021/vBr/ version 2.0 Page 14
RFI: Request for Information GOAL First invitation to potential partners to check if they are able to, and interested in an outsourcing partnership DESCRIPTION Document containing rough indication of the business: Service area Type of products and characteristics Logistics requirements Rough indication of volumes DELIVERABLE Request for information document that is to be sent to 10 15 possible candidates. GW ref. 9026X021/vBr/ version 2.0 Page 15
RFP: Request for Proposal GOAL Formal invitation for up to 8 interested candidates to provide a quotation for the outsourcing workload DESCRIPTION Fully specified body of work document containing exact descriptions of the business characteristics and requirements: Origins and destinations Delivery profiles per product (group) Full specification of Logistics requirements Detailed indication of future forecasted developments Usually an order profile for a representative period of business is attached for the candidates to base their quote on. DELIVERABLE Request for Proposal document, to be sent to the preferred candidates. GW ref. 9026X021/vBr/ version 2.0 Page 16
Letter of intent GOAL Outline of the principal terms and understanding of the proposed partnership subject to negotiations DESCRIPTION Letter of Intent can be a one-page document or can be more extended, but it will contain at least: summary of project history (RFI and RFP related) terms & conditions proposed planning & milestones overview services / financial deal shape, etc. possibility to use a penalties structure DELIVERABLE Signed document, stating the formal agreement with the proposed new logistics services provider to start negotiations to come to a partnership contract. GW ref. 9026X021/vBr/ version 2.0 Page 17
(Operational) Due Diligence GOAL Acquire a clear and unbiased picture of the proposed partner s operation. Identify & verify risks and potential benefits to be gained from the proposed partnership. DESCRIPTION Before contract negotiations are initiated the 2 partners investigate each others operation, to make sure the proposed partner is able to perform as promised. Operational verification main area s: Information system Volumes Operations Business plans Operational verification is a two directions process DELIVERABLE Deliverable is a mutual agree on the outcome GW ref. 9026X021/vBr/ version 2.0 Page 18
Negotiations GOAL Come to a service agreement with the preferred logistics provider for the delivery of the required services and level of performance at a competitive cost DESCRIPTION Negotiation Team & Preparation Team Both teams have a mirrored structure NEGOTIATION TEAM Client Proposed partner Preparation Team prepares the Service Agreement documents and feeds the Negotiation Team Negotiation team negotiates commercial issues and signs of the mutual agreed items PREPARATION TEAM Client Proposed partner DELIVERABLE Deliverable is a mutual agree on the outcome GW ref. 9026X021/vBr/ version 2.0 Page 19
Outsourcing contract components PRICE, PAYMENT AND DURATION PERFORMANCE LEVELS RELATIONSHIP MANAGEMENT TRANSITION MANAGEMENT SERVICE SPECIFICATION GW ref. 9026X021/vBr/ version 2.0 Page 20
Agenda Introduction Groenewout Trends & Outsourcing Roadmap Critical dimensions References GW ref. 9026X021/vBr/ version 2.0 Page 21
Implementation: 3 critical dimensions 1. Relational fit mutual beneficial co-operation cultural fit WINNER 2. Motivation mindset ambition goals Motivation Relational fit 3. Capabilities from direct control to indirect control from logistics process to logistics monitor from logistics knowledge to outsource management Capabilities GW ref. 9026X021/vBr/ version 2.0 Page 22
Key success factors Sustain specific supply chain expertise within your company, develop a clear and dedicated contract management structure. Create partnerships with LSP rather than a commodity cost reduction. Outsourcing has an irreversible component, it is a strategic decision. Be aware: (warehouse) outsourcing does not automatically bring savings. Do not outsource to solve your operational disorder. Outsourcing after optimization maximizes the benefits. The contract pricing model deserves specific attention. It should support an optimal fit between the specific operational characteristics and the financial risk. GW ref. 9026X021/vBr/ version 2.0 Page 23
Agenda Introduction Groenewout Trends & Outsourcing Roadmap Critical dimensions References GW ref. 9026X021/vBr/ version 2.0 Page 24
Description Voridian, an operating division of Eastman Chemical Company (NYSE:EMN), is the world s largest manufacturer of polyethylene terephthalate (PET) for packaging and a global leader in the manufacturing of acetate tow. Voridian currently runs several factories, warehouses and stock holding points in Europe. Opportunities Voridian wanted to know if the performance of its European supply chain met the performances of comparable European supply chains. Besides, Voridian wanted to define possible business opportunities. Benefits 2.5% quick wins by redirecting of good flows 10.5% transportation kilometers savings by producing two product groups closer to the market 16.5% transportation kilometers savings and 10% inventory savings by closing 6 stock holding points throughout Europe and producing two product groups closer to the market. Solution Voridian s current European supply chain was reviewed. Alternative concepts based on redirection of good flows, producing product groups closer to the market and reducing the number of stock holding points in Europe were analyzed and compared. Furthermore, the transportation lead times to the customers of the several concepts and the implementation complexity were determined. 2005 Groenewout B.V. All Rights Reserved. Material may not be reproduced or distributed, or stored in a database or retrieval system, without written permission from Groenewout. GW ref. 9026X021/vBr/ version 2.0 Page 25
Description Client is an international manufacturer of protective coatings and paint. Benefits 10% reduction of transportation costs to France 30% additional cost savings were identified and currently being implemented Opportunities Client wanted to improve the customer service and reduce costs of European distribution especially in relationship to transportation costs to France. Solution The client s logistics data in France was compared with the benchmark figures available in the Groenewout database. Their transportation costs of the logistics service provider was rated above the market average. A tender procedure was developed for a new transportation contract to France. 2005 Groenewout B.V. All Rights Reserved. Material may not be reproduced or distributed, or stored in a database or retrieval system, without written permission from Groenewout. GW ref. 9026X021/vBr/ version 2.0 Page 26
Description Outsourcing support for an industry leader in imaging products and solutions for the digital home and digital office environments. Supply chain characteristics: short product life cycle, high value products, mainly non-european suppliers, trend towards European centralization, pan-european distribution. Opportunities To increase flexibility and reduce company asset costs in preparation of an organizational change, Client was committed to selecting a Logistics Service provider to outsource the complete UK Warehousing and Distribution activities Benefits With help of Groenewout, Client managed to complete Due Diligence and contract negotiations in a very tight schedule. Within a two month period, a complete outsourcing contract was set up and agreed, covering a.o. a performance based Service Level Agreement TUPE transfer of 100 staff facility sale & lease back subcontracted contract migrations IT usage & Legal settlement Solution Groenewout supported the tendering process to evaluate the 4 remaining potential LSP partners. Besides comparing the quality of the financial proposals, during live presentations by the LSP management teams, a risk assessment and overall impression formed part of the final evaluation criteria. After selection of the preferred partner, Groenewout supported the Due Diligence and contract negotiation process between Client and the proposed Logistics Service Provider. 2005 Groenewout B.V. All Rights Reserved. Material may not be reproduced or distributed, or stored in a database or retrieval system, without written permission from Groenewout. GW ref. 9026X021/vBr/ version 2.0 Page 27
Description Nestle Purina PetCare (formerly Friskies) is a producer and distributor of pet food and accessories. Nestle Purina PetCare owns several factories and numerous warehouses in Europe. Opportunities Friskies European Logistics team was committed to improve their distribution in terms of performance and costs for the Benelux countries and Germany. Benefits The selected service provider proposed: 10+% Cost reduction in German warehouse costs Increased quality and flexibility Future opportunities Creating overlap of articles between countries, product rationalization and changes in product sourcing will reduce the annual logistics costs significantly. Solution Groenewout analyzed different alternative distribution networks. Caused by the uniqueness of articles per country market, consolidation per country was determined to be the optimal short term solution. After executing a benchmark analysis Groenewout proved to Nestle that particular contracts for warehousing were too expensive. The decision was made to contract with one logistics service provider to consolidate the German warehouses. Space for photo Groenewout developed a RFP for selecting a new logistics service provider operating in a multi-client environment. Subsequently Groenewout supported Nestle in the development and negotiation of a new service level agreement. 2005 Groenewout B.V. All Rights Reserved. Material may not be reproduced or distributed, or stored in a database or retrieval system, without written permission from Groenewout. GW ref. 9026X021/vBr/ version 2.0 Page 28
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