Frederik Beelaerts van Blokland, Schenker on 'The Economy: Get Ready for the Rebound

DB Schenker

Corporate Flexibility as Success Enabler

DB Schenker

Frederik Beelaerts van Blokland

VP Automotive Logistics SCM/CL

Agenda

Company Introduction: DB Schenker

G4G (go for Growth)

reAct09

2

Flexibility through market trend adaptations

Flexibility within a global corporate environment

FLEX

Flexibility in Pricing

Logistics flexibility as an evolution

We are a leading passenger and logistics company

No. 1 Public transport in Europe

No. 2 Passenger rail

1)

Rev. (EUR mn) 3,523

EBIT (EUR mn) 306

Employees (‘000) 15

DB BahnLong Distance

Rev. (EUR mn) 4,654

EBIT (EUR mn) 307


DB SchenkerRail

Rev. (EUR mn) 725

EBIT (EUR mn) 670


DB Netze Track

No. 2 Passenger rail transport in Europe

No. 1 European rail freight transport

No. 1 European land transport

No. 1 Biggest rail network in Europe

As of 31.12.2008 1) Difference between the sum of the departments and DB concern result of other activities/consolidation


EBIT (EUR bn) 2.483

Rev. (EUR bn) 33.5

Rev. (EUR mn) 6,687

EBIT (EUR mn) 857


DB BahnRegional

Rev. (EUR mn) 14,680

EBIT (EUR mn) 381


DB SchenkerLogistics

Rev. (EUR mn) 344

EBIT (EUR mn) 210


DB NetzeStations

Rev. (EUR mn) 112

EBIT (EUR mn) 131


DB Services

Rev. (EUR mn) 554

EBIT (EUR mn) 74


DB NetzeEnergy

Rev. (EUR mn) 1,962

EBIT (EUR mn) 205


DB BahnStadtverkehrDB BahnUrban

approved

(DB 2008)approved

(DB 2008)

reACT09 –An initiative to counter the recession and solidify our market positons

Counter Measures – human resources, adapting our expenditures

and investments1

Ziele

4

Market Strategy – Further improve service offerings and strenghten

business development initiatives.

Competitive Pricing –through processes and structure optimization

3

2

Flexibility on global scale - Go for Growth (G4G)

Situation:Massive recession in process of development (Nov 08)

Objectives:To structurally and globally counter the adverse contract logistic sales forecast

Measures: Establish four clearly defined industry segment: automotive, electronics, FMCG and industrialFocus on developing/emerging markets per regionFocus on developing/emerging markets per regionFocus on specific logistic servicesInvest in 100+ FTE for: business development, tender management and implementationexplore M&A opportunities to support our growth strategy

Requirements/Challenge: Ability within DB Schenker to demonstrate it’s global flexibility…and do it swiftly

Outcome:Short term incremental sales/revenue growthProactive sellingEstablished a clear regional & national logistic focus Increased our sales hit rateEstablished sales synergies through a globally aligned business development strategyReduction in participation of “benchmarking” RFQs

Flexibility in pricing:

Generic contract logistic costing model

FTE (partially)

Warehousing MHE (partially)

Consumable materials

Costs

Sales

prior

FTE (partially)

Warehousing MHE (partially)

V

A

R

I

A

B

L

E

V

A

R

66

Building & surface area

Facility equipment

Investments

Fixed workforce

Administration and overheads

prior

to

crisis

Sales

during

2009

Consumable materials

Building & surface area

Facility equipment

Investments

Fixed workforce

Administration & overheads

Transaction based

payment

Conflict: Not all costs can be convereted to variable costs

E

F

I

X F

I

X

Variable Costs

Variable-Kosten

Reduced of temp workers

Terminated of short term contracts

Reduced shifts


Short Term counter measures

77

Fix-Costs

Fix-Kosten

No long term business sustainability

Reduced shifts

Terminated short term leases

Consolidated businesses

Reduced FTEs

Optimize Purchase

− Volume optimization, low cost sourcing, customer bundling

Conventional

Measures

„Quick Wins“

Proactive Service Maintainance

− Renovation & facility maintainance with own FTEs

Human Resource Training

− Raising skills set level, cross trainning, know-how transfer


Long term measures for business sustainability

88

− Volume optimization, low cost sourcing, customer bundling

Driving Innovation

− IT refinements, process optim., lean engineering

Further Development of Management Systems

− EFQM, FLEX, 5S

Reinforcing Business Development

− Go for Growth, Cross-Selling, Investement in resources

Innovation

Measures

„Sustainable

Wins“

business sustainability

Flexibility within a global corporate environment

Some preconditions for flexibility

Global network

Predominately non-asset based

Structured global transfer of know how

Structure know-how (FTE) transfer – “flying team”

3+ years contracts – span recession

“Fair” contracts: gain sharing mechanism and price/volume structures

Shift our geogrpahic within our global network to focus on growth regions

Fully integrated solutions [SCM] covering all services (forwarding, rail & logistics)

Success CriteriaQualified, Motivated and Flexible Workforce


Service Bundling1.

Logistics:The coordination of information, material and finances ranging from

procurement, production and distributionincluding waste management

Service Bundling1.

Acceleration of Cooperation3.

Shift in purchasing criteria for logistic services2.

Light/complex assembly4.

VMI & O5.

1. Logistic Trends: Service Bundling

Bundling of logistic services (demand side)

A. OEM’s and increasingly tier-1 want:

One contract (multiple services)


One overhead

One pricing module

One system (IT)

Costs synergies through consolidation of services

OMS Outbound consolidation ForwardingCustoms Inbound warehousing Quality checksLight & heavy assembly JIS/JIT Waste ManagementComplete SCM visibility – IT Logistic / Lean engineering VMI & OSpare parts logistics Returns management & repair Reverse



Procurement Production Distribution

Logistic service providers are largely fragmented in service offering….but with a growing tendency to bundle services

Loss of know-how

Loss of control

“All eggs in one basket”

Not a specialist in all fields

Challenges for Integrated Logistics

Customer concerns

Bridging the customers concern gap….

Develop partnership with stronger stakes between customer & logistic provider

Gradual expansion of services

Logistic providers seek partnerships with other



Logistic providers seek partnerships with otherlogistic companies to offset their short comings

Establish customer Control Tower functions forlarge integrated projects

Establishment of new legal entities (customer & logistic provider)

Multiple suppliers contract 1 LP for common client


Customer concern

Loss of know-how

Loss of control

“All eggs in one basket”

Not a specialist in all fields


Customer concern

Price/RatesPrice/Rates

2. Shift in primary purchasing criteria for selelction for logistic providers

Service Quality 3Service Quality 3

References 2References 2


Decision

Process

Innovation 4

Process

Innovation 4

Risk

Aversion 5

Risk

Aversion 5

Financial

Stability 1

Financial

Stability 1

1 Financial stability of LP

2 Proven track record of performance

3 Reliability of service

4 Ability to reduce FTE, costs & time

5 Ability to mitigate/reduce previous risks

Service 2007 - 2008 2009

Forwarding Price/Rates Price/Rates

Risk Aversion Risk Aversion

Quality Process Optimization

Process Optimization Quality

Financial Stability References

Service 2007 - 2008 2009

Warehousing/JIS/

productionPrice/Rates Price/Rates

Risk Aversion Process Optimization

Quality Quality


Process Optimization Risk Aversion


2. Shift in primary purchasing criteria for selelction for logistic providers

References Financial Stability References References

20% of forwarding RFQs have increased their focus on process

Optimization. Forwarding is still predominately price driven73% of decisions are based on process optimization initiatives proposed in the initial

bidding. Fixed “Wall/people/process, IT” are open for optimization at bidding phase.

Service 2007 - 2008 2009

IT (Visibility

Tooling) Quality Quality

Process Optimization Process Optimization

Risk Aversion Risk Aversion

References References

Price/Rates Price/Rates

Financial Stability Financial Stability

Service 2007 - 2008 2009

Trading

Finance* Quality Risk aversion

Price / rates Price / rates

Risk Aversion Financial Stability

References Process Optimization

Process

Optimization Quality


No change in decision priority.Implementation timing guarantees and start-up cost models

Many RFQs = few bidders

Key issues :Product liability, Pricing, Inventory duration, Engineering changes

Traditional Automotive Cooperation

In establishing new cooperations, industries are focusing on innovations that lead to cost improvements as opposed to

functional improvements

This development of cooperations is driven and accelerated by financial crisis.

3. Acceleration of Cooperation


Cooperation of Mutual Support - Network

by financial crisis.

Tier 1

Tier 2

Tier 3OEM

LP1

LP2

Tier 0

Demand for value-add services are developing to include assembly functions

Why? Shortage of production space at OEM/tier-1It’s cheaper on account of LP wage structureLess FTE on OEM/tier-1 payrollOEM/tier-1wish to focus on their core competenceCost pressure


4. Light & complex assembly as an integral part of SCM

Cost pressure

These services are predominately rendered outside OEM/tier-1 facility

Demand is growing in particular where warehouse outsourcing opportunities have already exist

Inventory is increasingly often owned by LP

Move from basic/simple assembly to complex

Modules (IPs, engine dressing, axles, etc.)

Consequence: Emergence of production and engineering oriented LP

Instrument panels Engine drerssing

Axels Tyre and wheel

Headliners Pedal boxes

Wire harness Fuel tank

Main Outsourced modules

There is an increase in demand for VMI& O for intercontinental supply chains- China to US,EU to Russia & S. America

- inbound SCM

Supply chains with high value-add components (i.e. forwarding with: warehousing, quality control, light assembly)


5. VMI & O (Vendor Managed Inventory & Owned)

forwarding with: warehousing, quality control, light assembly)

Supply chains with high commodity value

International banks were increasingly addressing this demand by offering newsolutions to LPs

VMI: a process in which a supplier generates orders for its distributor based on demand information sent by the distributor

The coordination of information, material and finances ranging from procurement, production and distribution

including waste management.

Flexibility through FLEX: Flawless Execution The business excellence model for contract logistics

Regional FLEX program

with specific target setting

Co

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on

targ

ets

C

om

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arg

ets

Region

1

Region

2

Region

… Region

Country

Operation

Region

7

Growth

Profitability

Customer satisfaction

Efficient reporting

Management

reviews

Tool kit &

HQ Services

Feed back

Human

Resources

Continuous

Improvement

Process

WorkflowManagement

Knowledge Management

Glo

ba

l su

pp

ort

+

FL

EX

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ard

Regional FLEX program

with specific target setting

Co

mm

on

targ

ets

C

om

mo

n t

arg

ets

Region

1

Region

2

Region

… Region

Country

Operation

Region

7

Growth

Profitability

Customer satisfaction

Efficient reporting

Management

reviews

Tool kit &

HQ Services

Feed back

Human

Resources

Continuous

Improvement

Process

WorkflowManagement


Glo

ba

l su

pp

ort

+

FL

EX

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� Vision

Implementing first class

benchmark practices within time

and budget

� Approach

Develop measures within a

global team that can support

FLEX Program

FLEX Tool Box global team that can support

local business units.

� Applications

Complete supply chains

solutions including business

development, tender

management, implementations

and business monitoring

FLEX Tool Box

Knowledge ManagementKnowledge Management

Human ResourcesHuman Resources

FLEX

Continuous

Improvement Process

Continuous

Improvement Process

Workflow ManagementWorkflow Management

Human Resources

Carrier development

Taskforces for project implementation

Bonus mechanism based on KPI-Performance

Continuous Improvement

Schenker- 5S-Audits

Customer Centric Value Map´s

Roll out of Six-Sigma LEAN Methode


PM Training for contract logistics

Vertical Market Training

Process standardization for BD,tender management, contracts & implementaiton.

Workflow Management

Standardized logistic process .reporting tools

Implementation support tools

Establishment of project control, Risk-Management mitigation

Flexibility as an evolution

Market Trends Worldwide for LSP

Thank you!