Retail as a driving force in Ukraine’s SCM Ministry of Transport and Communications October 31 st, 2008 Construction and retail as driving forces in Ukraine’s.

Retail as a driving force in Ukraine’s SCM

Ministry of Transport and CommunicationsOctober 31st, 2008

Construction and retail as driving forces in Ukraine’s SCM

Oleg KalenskyStrategic Marketing & Development DirectorUVK Group of Companies

Retail – a driving force of our civilization

A country’s potential (in many aspects) – its retail, giving impulse to many other markets & economy sectors

Logistics (thru SCM concept) – veins and arteries of retail

Retail is a margin management businessGross margin (at purchasing) 30%- Shops costs 12%- Logistics costs 6%…(head office costs, discounts costs, marketing costs etc.)

The European Logistics Association: a latest market trend – re-structuring of retailers’ costs from own logistics management in favor of value added services:

specialized (under regional demands) packaging manufacturers’ stock management joint (with manufacturers) planning, forecasting, and goods movement flow adaptation of products to consumers’ tastes


Retail = …

As the retail market develops, the following issues become even more topical: guaranteed deliveries high level of stock management professional organization of distribution center(-s) intra-chain distribution

Outsourcing logistics services enables retail chains to focus on the core business (such cases include Ramstore, Auchan, Metro). A.T.Kearney’s studies: SCM outsourcing can give 15-25% optimization of logistics costs

Retail – Logistics Operator interaction (chronology of outsourcing): international forwarding in-bound delivery warehouse operations (50% European retailers outsource 35% operations) SCM


Retail + Logistics = ?

Retail market players: consumers retailers financial institutions FMCG suppliers FMCG manufacturers logistics operators developers State’s legislative bodies State’s regulating agencies

The right approach for improvement:Consumer -> retailer -> FMCG supplier / manufacturer -> 3PL-operator / developer

-> the State


Retail + Logistics + ? = Success

The Ukrainian retail today: over 1,000 POS’s over 150 retailers (20 are top operators) all retail formats and commodity categories exist

Key retail: 29 nation-wide and regional operators over 800 POS’s appr. 10% of gross retail turnover (in $)

2007: $32 bln market volume (4.3 times more than in 2000)

+23% to 2006 (‘like-to-like’)


Ukrainian Retail = …

Effective and efficient SCM is based on DC’s conception with these benefits (direct and indirect):

goods on shelves increase (+1-2% of turnover in DC) better discounts from manufacturers due to direct supplies to DC (-3-4% of

prices) costs reduce due to processing of goods through DC (up to -1% of prices,

depending on a centralization extent and IT system) stocks in shops get optimized goods turnover increase, while stock management becomes more effective guaranteed availability of goods in shops while peak periods and promotion

activities assured quality of goods due to centralized quality management costs reduce due to a better pattern of suppliers’ relationships management


Outsourcing SCM = Strengthening Retailers’ Competitive Market Advantages

Pro’s of outsourcing:(1) “all specialists are employed by LSP’s” (logistics is a “narrow” market)(2) often retailers’ top managers lack logistics proficiency(3) no need to heavily invest in own warehouses, transportation etc. (but in shops

and working capital)(4) sharing services due to LSP’s network(5) “critical mass of shops” for centralization of supplies system(6) “change management” (in many aspects 3PL has been the first to implement up-

to-date managerial technologies – WMS, quality management etc.)(7) focus on the core business


What 3PL Brings for Retail?

SCM means:(1) timely deliveries(2) safety of goods(3) management of costs(4) stock management assistance(5) high / low season flexibility(6) high-quality operations assets (warehouses, vehicles, IT etc.)

Just-in-time -> Just-in-sequence


What a 3PL-Operator Must Be?

P.O.C.K.E.T.S. – 7 areas for a retailer to deal with:(P)rice(O)perations(С)ulture(K)ey item promotion/product(E)xpense control(T)alant(S)ervice

Current problems:(1) retailers put on hold payments to suppliers(2) suppliers halt deliveries(3) USD / UAH rate increase -> dollar importers increase prices(4) lowering consumer’s buying capability(5) banks stop financing programs


What to Do in the Crisis?

Goal – maximizing earnings from 1 sq. m of shopping area. End-consumers’ prices cannot be changed!

Healing means(1) optimization:

- material (to get rid of non-profit assets)- financial (long-term financing, suppliers’ crediting)- HR (in-house processes revision, bulk personnel, multi-functionality)

(2) marketing – consumer orientation (comfort, loyalty, in-store communications, private labeling)

(3) purchasing (tough negotiations, retro-bonuses)(4) conservative assortment policy(5) new technologies (bar-coding, self-checkout, shelf ready pack, merchandizing,

personal shopping assistant, online retailing)(6) outsourcing (of non-core activities)


How Should Retailers Save the Retail?

3PL market volume = $230-250 mln (2007)

Annual growth = up to +25% (year-on-year, since 2005)

12 key market players

3PL and CEP operators possess the utmost flexibility

Viewed tasks:(1) optimization (processes + financing sources)(2) marketing (client orientation, retention)(3) further development (operations assets)(4) more coverage & deeper penetration (in distribution)(5) penetration of new segments (temperature logistics, street retail, HoReCa)(6) more focus on value-added logistics(7) high time to decide on a strategy: aggregation or specialization(8) HR management(9) quality, quality, and quality again


Is Logistics Ready to Shift for Retailers?

Retail as a driving force in Ukraine’s SCM Ministry of Transport and Communications October 31 st, 2008 Construction and retail as driving forces in Ukraine’s.

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