Dave Mellon and Steve Pospisil

Brussels, 24th November, 2009

Supply chain risk and third-party logistics in a time of

crisis

The views expressed here are

entirely our own and are not

necessarily those of DHL nor of

Steve Pospisil and Dave Mellon| Brussels | 24th November 2009 Page 2

necessarily those of DHL nor of

Coca-Cola

Prologue - forecasting

“Prediction is very

difficult, especially about

the future.”

Steve Pospisil and Dave Mellon| Brussels | 24th November 2009 Page 3

the future.”

Niels Bohr

Our two companies

� ‘800-pound gorilla’

� Divisions:

� Supply Chain

� Global Forwarding & Freight

� GB, France, Benelux

FINISHED GOODS

� 2,000+ FTLs per day

Steve Pospisil and Dave Mellon| Brussels | 24th November 2009 Page 4

� Express

� Mail

� 2,000+ FTLs per day

EQUIPMENT

� 600,000 Cold Drinks

Vendors and Coolers

Third party logistics providers’ attitude to risk

3PLs are risk averse

• Margins are low

• Often providing a commodity service

• Barriers to entry or change are often low

– 3PLs try hard to differentiate themselves from the competition through, for

example, IT

Steve Pospisil and Dave Mellon| Brussels | 24th November 2009 Page 5

example, IT

Low risk High risk

Contract logistics Hauliers Freight

forwarders

Infrastructure

networks

In-house logistics people are somewhat risk averse, too!

What risks are we talking about?

• Business risk

– Particularly around volumes

– Changing supply chain requirement

– ‘Consequential loss’

– Means different things to different people

– Liability disproportionate to remuneration

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– Liability disproportionate to remuneration

• Pricing or cost risk

• Operational risk

– Security

– Product liability

• Financial risk

– Risk of default

Open book versus closed book

Specificity

Dedicated,open-book

Shared use,open-book

High

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Specificityof equipment

or service

Size

Shared use,closed book

Dedicated,closed book

Low

Small Large

The current environment

What has changed?

• More uncertainty

• Higher risk of default

• Reducing demand while capacity

changes much more slowly

– Margin pressure

What hasn’t changed?

• Major retailers!

• Long-term view

• Need to change and drive

inefficiencies out of the supply chain

– Accelerating

Steve Pospisil and Dave Mellon| Brussels | 24th November 2009 Page 8

– Margin pressure

• Logistics lags behind manufacturing

– Accelerating

Video here

Steve Pospisil and Dave Mellon| Brussels | 24th November 2009 Page 9

Conclusions – in the real world

• If we could predict the future we would be millionaires, not working in

logistics

• Third-party logistics providers are risk-averse

• Requirement is for ability to deploy (and absorb) resources at short

notice

• Flexibility comes at a cost

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• Flexibility comes at a cost

• Biggest is best isn’t necessarily true but selection is vital

Postscript - forecasting

“The only function of

economic forecasting is to

make astrology look

Steve Pospisil and Dave Mellon| Brussels | 24th November 2009 Page 11

make astrology look

respectable.”

J K Galbraith

Questions

Any questions?

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Any questions?