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ECR Thailand Conference 2012

Topic: "Winning Consumers' Hearts & Minds"

13th ECR Thailand Conference & Exhibition

Date & Time: 18-19 July 2012 (9.00-17.30)

Venue: Centra Government Complex, Chaengwattana, Bangkok

Organized by: ECR Thailand (www.ecrthailand.com)1

The Federation of Thai Industries

Objectives: The conference is a network session to update the FMCG ECR

community on the advances in our industries.

Participants: Dr. Yokfar Phungphol

A. Nitipan Ratanasawetwad

A. Amornrat Pattarakitham

A. Suppasit Sornsri

Prepared by: A. Nitipan Ratanasawetwad

1 ECR Thailand is an independent joint trade and industry body, launched in 1999, to promote the use of ECR techniques to remove unnecessary costs from the supply chain and make the sector, as a whole, more responsive to consumer demand. This conference is a network session for the ECR community to touch base on the directions and advances in our FMCG industries where it drives major economic growth, touching each and every individual lives across the globe. At this conference we will examine how FMCG can improve consumers’ value as well.

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Background

ECR - Efficient Consumer Response concept has been widely accepted in consumer product and wholesales/retails industries, mainly for cost reduction throughout the whole supply chain management process, for the benefit of end customers or consumers. ECR encourages collaboration between trading partners not only for cost reduction, but at the same time also increase service level - an improvement of both efficiency and effectiveness

ECR movements began in the United States in 1992 in the dry grocery sector. Two key players were Wall-Mart and Proctor & Gamble working together for more efficient replenishment. The key driver was more sophisticated consumer demand following a recession in early 1990s. ECR then moved to Europe and Australia, and to Asia since 1997.

ECR Thailand Conference and Exhibition 2012

This year, the conference was organized on two days. On Day 1, the program started with “Consumer Insight” as ‘Consumers’ is the most important element of the success of ECR, followed by “Shopping Trend”. For afternoon session, the program started with “Fulfilling Consumers’ Needs during Natural Catastrophe”. There also were an introduction and up-date on five ECR Thailand Projects: On Shelf Availability; Returnable Packaging; Pallet Height; Sell More, Lose Less and Green Transportation.

On Day 2, the program covered “AEC – Crisis or Opportunity”, “The Preparation to Cope with Natural Disaster”, “Future Trend in Labor Supply”, and “Supply Chain Academy”. For afternoon session, the program started with “Supply Chain in Action on New Technology & Warehouse Management" and "Enhancing Consumers’ Intimacy”. The last session was on “Senior Executive Forum: Winning Consumers' Hearts & Minds”.

Day 1

1. Economic and Industry Outlook

by Mr. Somyod Tangmeelarp, Vice Chairman of the Federation of Thai Industries.

The economy of Thailand is a newly industrialized economy. It is a heavily export-dependent economy, with exports accounting for more than two thirds of gross domestic product (GDP). In 2011, Thailand has a GDP at current market prices of 10.54 trillion baht with the growth rate of 0.1 percent, much lower than the expected growth rate of 3.5 percent due to severe damage from the historic flood the Kingdom confronted mainly in the last quarter of the year. In 2012, the Thai economy is expected to grow by 5.5-6.5 percent, a V-shaped

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recovery from last year’s flood. Thailand has an average GDP growth during 2007-2011 of 2.64% comparing to Singapore of 5.4% during the same period.

Mr. Somyod also pointed out that, in terms of the economy structure, the manufacturing sector in 2011 accounted for the largest share of GDP at 39%, but employed only 13.6% of the workforce. In contrast, the agriculture sector was the largest employer with 38.2% of the labor force, but generated only

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8.6% of the GDP (see Table below). He suggested that we should improve labor efficiency in agriculture sector.

Facts about Thailand Population (2010) 66 million ASEAN Population 600 million Literacy Rate 96% Minimum Wage (1 Apr’12, Bangkok) 300 Baht/day source: THAILAND BOARD OF INVESTMENT

Hub of ASEAN

Thailand was one of the founding members of ASEAN and has been instrumental in the formation and development of the ASEAN Free Trade Area (AFTA). AFTA entered into force on 1 January 2010 for the six original ASEAN (ASEAN-6) members (Thailand, Singapore, Malaysia, Indonesia, Philippines, and Brunei) thereby reducing import duties to zero; the so-called CLMV countries (Cambodia, Laos, Myanmar and Vietnam) will follow suit in 2015.

Thailand is ideally located at the crossroads of Asia, with easy access to the region’s dynamic markets, including its own booming domestic consumer market of 67 million people. Thailand has long been a proponent of free and fair trade and its attractiveness as a production base for leading international companies is enhanced by a number of free trade agreements, and Thailand is certain to be a beneficiary of the ASEAN Economic Community (AEC), which will enter into force in 2015.

Thailand enjoys a strategic location and serves as a gateway into the heart of Asia–-home to what is today the largest growing economic market. Thailand also offers convenient trade with China, India and the countries of the Association of

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Southeast Asian Nations (ASEAN), and easy access into the Greater Mekong sub-region (GMS), where newly emerging markets offer great business potential.

Greater Mekong Sub-region (GMS)

GMS was formed by the Asian Development Bank in 1992 that brought together the six states of the Mekong River basin, namely Cambodia, Laos, Myanmar, Thailand, Vietnam, and the Yunnan Province of China. Many projects have been completed or are being undertaken including the development of North–South, East–West, and Southern Economic Corridors which are road networks linking many of these six GMS members, the generation of electricity trade between Lao PDR and Thailand, and the agreement to facilitate cross-border movement of goods and people. As these GMS members are market-based open economies, the potential benefits from this cooperation are large. However, there are problems concerning the different levels of development, and the relative lack of political stability in some member countries that may slow down the progress and full benefits of this sub-regional cooperation.

GMS Economic Corridors

The most important parts of the GMS program is the three economic corridors composed of the East-West, North-South, and Southern.

GMS Southern Corridor

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Thai Prime Minister, Yingluck Shinawatra, talked about her government’s

commitment to transform the connectivity in Southeast Asia by building a deep

sea port and a massive industrial zone at Dawei. Estimated to cost more than

$50 billion and to be implemented in multiple phases, the Dawei project is being

touted as the biggest infrastructure project ever in Southeast Asia. Moreover,

according to Thai PM, Thailand and Myanmar plan to link Laem Chabang with

Dawei, and may open three more permanent checkpoints on their shared

border.2

The Chennai-Dawei corridor will connect economically robust regions. As the

crow flies from Chennai, India, Dawei is directly across on the other side of the

Bay of Bengal. The Chennai-Dawei corridor, however, is much simpler in its

conception and will connect India’s emerging industrial hubs in southern India

with the heart of continental Southeast Asia, China and other thriving East Asian

markets.

Thailand has plans to develop transport corridors that will link Dawei to Southern

China, Vietnam’s coastline in South China Sea and the waters of Cambodia

through the land-locked Laos.

The narrow peninsula, where the territories of Myanmar, Thailand and Malaysia

meet, has been the barrier separating the Indian and Pacific Oceans. The

bustling trade between the two oceans today has to circumnavigate the

peninsula through the crowded Straits of Malacca.

Finding a shorter route between the two oceans by cutting through the peninsula

has long stirred the imagination of sovereigns and sailors in the region. The Thai

project is probably closest to the realization of that dream.

Thai companies promoting the project have already won support from

counterparts in China and Japan. China, which is developing many transport

corridors in Southeast Asia, is happy to invest in yet another network. It has

plans to build a large free trade centre in Bangkok, from where it plans to boost

trade with the Indian Ocean region.

Japan, conscious of its declining influence, is stepping up its diplomatic activism

in Southeast Asia and strongly backing its integration with India and South Asia.

2 http://www.businessweek.com/news/2012-07-22/myanmar-president-to-meet-yingluck-over-stalled-deep-sea-port

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The Dawei Project

City of Dawei, located around 350 kilometers west of Bangkok, is a city on the southern shoreline of the Republic of the Union of Myanmar. The Government of

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Myanmar has granted the right to use designated area in Dawei to Italian-Thai Development Public Company Litmited ( ITD ). However, ITD has found it difficult to secure funds for the project at Dawei, which sits about 350 kilometers (219 miles) west of Bangkok. The company is courting Japan to secure $12.5 billion in loan agreements this year to build the port, roads, power plants and a railway, Chairman Premchai Karnasuta said At its greenfield stage and under the Special Economic Zone Law, Dawei has been planned as a large fully-integrated industrial zone with a sustainable industrial complex and fully-supported infrastructure & utilities. The Dawei Project includes the development of the Dawei deep seaport, industrial estate, pipeline along the road-link to Thailand, highways and railroad to Thailand. Dawei Deep Sea Port and Industrial Estate will cover an area of 205 square kilometers

Challenges

Mr. Somyod also pointed out that the logistics cost in Thailand is still too high. The logistics cost in Thailand is almost 20 percent of its gross domestic product (GDP). In comparison, Singapore and Malaysia's cost of logistics are about 8 percent and 13 percent of their GDPs respectively.

In comparison, Thailand still lags behind Singapore and Malaysia in terms of infrastructure development. It may take a few more years before it becomes a viable alternative to Malaysia or Singapore. Political uncertainty and civil unrest in some provinces could slow the growth of infrastructure. Apart from the limitations in transportation and warehousing infrastructure, the communication and information networks in the country also need to evolve significantly to match those of its rival neighbors. Human resource is a big challenge for the logistics industry in Thailand. Identifying the right people to do the job and training and helping them to hone their skills needs a lot of investment from logistics companies.3

3Mohan, Deepak, "Thailand as ASEAN Logistics Hub: Possibilities and Challenges", Logistic Digest

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In the end, Mr. Somyod summarized Thailand economic strategies such as value creation, technology & innovations, sustainability, cluster manufacturing development & supply chain management, and human resource development.

Cluster Manufacturing Development

Supply chain management clusters are geographic concentrations of three or more companies directly involved in the upstream and downstream flows of products, services, finances and/or information from a source to a customer.

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Clusters extend downstream to channels and customers, as well as laterally to manufacturers of complementary products. They also extend to companies in industries related by skills, technologies or common inputs.

Clusters exhibit some common characteristics: physical proximity; complementary core competencies; activity base; collective growth potential; competitive position; and industrial organization and coordinating mechanisms.

A typical composition of this cluster type is a “parent” (i.e., car or bike manufacturer) and various component suppliers located in the cluster.

source: Team revision of Christian Ketels, “Thailand’s Competitiveness: Key Issues in Five Clusters”, ISC/HBS, May 2003

Clusters offer many benefits to member companies4:

1. Resources are concentrated in an area, creating the opportunity to streamline and shorten supply chains.

2. Geographic proximity greatly reduces supply chain complexity.

3. Interdependence and mutual trust is heightened between companies that are members of the same supply chain.

4. Productivity is increased, through faster access to customers and suppliers, faster access to specialized information and better network support for supply chains.

4 Kumar, Nandan (2011), "Cluster Manufacturing: A Supplu Chain Perspective", Cognizant 20-20 Insights.

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5. It is easier to motivate and measure the performance of supply chain partners.

6. Visibility is greater, due to obvious communication advantages.

7. Flexibility is increased when partners of a supply chain exist in the same cluster.

8. Risk of failure is greatly reduced, due to focus and alignment of efforts of all the partners in the supply chain.

9. Information is shared more quickly and efficiently. Players in a cluster are likely to gain knowledge of new business opportunities more quickly.

10. Gaps in products and services are identified earlier.

11. Feedback loops are shorter, allowing for faster modification of supply chains, which results in significant cost savings.

2. Consumer Insight

by Mr. Yongyut Ongwattanpat, Director in Retail Management Science (RMS) of Nielsen Company.

2.1 Fast Moving Consumer Goods (FMCG)

FMCG in Thailand has recovered after the flood last year. Although, FMCG has effected less than other goods since consumers still need to consume anyway. Alcohol and tobacco have grown during the past two years because of changing tax collecting method for imported alcohol and tobacco. Therefore, consumers shifted down to consume cheaper brands. Beverage and Personal care have high growth than other FMCG. Consumers are willing to pay and consume premium products if they perceived better benefits from the premium products.

2.2 Retail Trend

For trade sector, in 2012, grocery (โชห่วย) represents 53.8% of total retail value. Even if the value of grocery keeps going down, but it is not significantly

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decrease. Groceries are still important for supply chain in Thailand. Convenience store has high growth around 15-20% because of both store expansion and more sell items per store. Recently, hyper market shifts down to supermarket format.

2.3 Shopping Behavior

78% of the customers said that they planned before going shopping. Females (80%) and/or Hi-income (82%) customers plan more. Teenagers plan less. 34% out of 78% planned customers said that sometimes they also buy additional items, and 42% out of 78% said that they always buy additional items, only 3% out of 78% said that they did not buy additional items.

32% of Thai consumers checked promotions from newspaper or flyer before having a shopping trip. 46% of Thai consumers will walk around the store to check for promotions. Only 9% went to the shelves directly to buy the items they wanted and then out of the store. In summary, these suggest us that in-store execution is important.

For store selection, the most important factor is (convenience) location. 73% of Thai consumers always shop at the same store.

2.4 Technology & Media Trend

Social network sites used by Thai people: Facebook (56%), 4shared (43%), and youtube (33%)

e-commerce grows in double-digit (14%), especially for apparel, travel, fashion, computer (not much for FMCG yet)

Shopping Trend

by Mr. Charkrit Direkwattanachai, Function Head of Corporate Affairs of Ek-Chai Distribution System Co., Ltd.

Mr. Charkrit pointed out 2012 trends and forwards as below:

World issues:

• Population growth of bottom of pyramid in urban area. There will be more low income in urban

• Economic Woes cause low consumer confidence • Inequality in income concern 2012--10% richest household accounts for

35%+ • Unemployment of people of 15-24 year-of-age--self employment by 're-

commerce' and become high spenders • Power of China: In 2016, Asia Pacific will overtake Europe as the biggest

regional packaged food market

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Less becomes more:

• Not only saving but good deal • Long term deal: the more they can save, the more they buy • Help consumers to consume less of their products, but increase purchase • Collaborative consumption • Renting goods, instead of buying new one • 'On the move' is emergently done to save time • Consumer respect will be beamed by business--transparent, caring and

privilege • Hunt for the best (i.e., deals, discount, relish, service, fit-to-purpose,

pride) • Consumer vigilantes empower their right. They can protest online. • Expect seamless in accessing digital world in terms of convenience,

control, and choices. • M-commerce and E-commerce will be everywhere • Cross-broader sales via the Internet • 3D better experience of entertainment • Everyone connects: Facebook, Twitter, LINE, Whatsapp • Staying healthy gives better life: smart looking, confident, and saving

medical bills • Look for 'Meaningful life' by using products that give that • Just 'on the go' meals are too normal, they need to be healthy • Forever young: inspiring to ageless society and timeless beauty

Self effort--exercising and sports Beauty aid--cosmetic and fashion Dermatology

• Can afford to buy green but need motivation • Expect brands to clean up their acts

Act environmentally Use environmentally friendly products

• Corporate social responsibility is a key activity for every firm. It reflect positively 'brand'

Fulfilling Consumers' Needs During Natural Catastrophe

by Mr. Chakkaphob Nuangchamnong, Supply Chain Management of Charoen Pokphand Foods PCL.

Roles of supply chain during disaster

1. Maintain of supply continuity--'Availability to consumer is 1st priority' • Fulfill consumer's needs • Protect business' needs • Minimize affects from disasters

2. Restore the confidence of consumers, customers, shareholders and public

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The company should set up 'disaster recovery plan'. A management plans in document for how and when to utilize resources needed to maintain selected functions when disrupted by agreed upon incidents.

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Mr. Chakkaphob proposed 'six success' factors during a disaster

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ECR Project: On Shelf Availability

by OSA Project Team

On-Shelf Availability (OSA) is the ultimate measure of supply chain service. The shelf is where the supply chain touches the shopper and this ‘first moment of truth’ is the very reason the supply chain exists; to make product available for people to buy. The availability of product on shelf is of major importance to both retailers and suppliers and it receives a great deal of focus.

Below is the most widely used, publicly available research concerning OSA

Source: Gruen, Corsten & Bharadwhaj, 2002, 20 countries & 70,000 consumers, multiple product categories. Using traditional calculations, for each Out of Shelf (OOS) this equates to approx: • 35% manufacturer losses, 3:1 OSA ratio (3% OSA improvement = 1% turnover gain) • 40% retailer losses, 2:1 OSA ratio (2% OSA improvement = 1% turnover gain)

ECR Project: Returnable Packaging

by Mr. Peter Hubbard, Country General Manager of Loscam Thailand Ltd. and Mr. Richard Volle, Business Director for Whole Sale of Big C Supercenter Thailand.

Retail Ready Packaging (RRP) is the term used to refer to a product that comes in a ready merchandised unit which is easy to identify, easy to open, can easily be put onto the shelf and disposed of, allowing an optimization of shelf replenishment and enhanced visibility to the shopper.

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There are 2 types of retail ready packaging referred to in ECR documents and standards;

1. Shelf ready packaging allows for a number of consumer units to be placed directly onto the store shelf in one movement without the requirement of stacking individual items and without impacting on the visibility or access to the consumer units.

2. Merchandising units are reusable secondary packaging involving the use of dollies, milk cages etc where the product is merchandised in the unit and typically the unit is returned for re-use.

Benefits of RRP

Cost reduction is introduced at all 3 levels of the retail cycle

Display, Logistics & Packing

Significant savings & benefits are achieved

Higher product availability for consumers per floor space

Enhanced product protection & integrity

OH&S improvements in-store and throughout the value chain

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Faster in-store replenishment

Reduced packing materials & waste

Easy to operate & clean - improved sanitation

Adaptable to suit different markets store layouts, logistics footprint etc

Retail ready packaging should have the following characteristics: •Easy to find •Easy to open •Easy to shelve •Easy to dispose (recycle or reuse) •Easy to shop

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Shelf ready packaging or SRP is packaging that can be placed to the shelf in one touch, but may not have the other attributes of RRP such as easy identification and opening. Another form of retail ready packaging is display ready packaging, which includes product ready to be displayed without additional retail stocking labor. This could include bins of bulk products, such as the image of the watermelons in the bin manufactured by Macro Plastics, or other designs of displayer pallets.

Fresh Produce Catagory - 'Easy Replenish / Easy Shop'

How can we make shelf-filling operations and consumer shopping trips simpler?

Produce is a higher margin category but higher cost in damages and spoiling

Higher damage rates, especially at replenishment

Current crates used take too much space for storage and transport

Peak shopping hours require much faster replenishment than traditional methods

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Presentation of produce to the shopper needed rethinking to enhance the experience

Benefits of Using Dynamic Bins

• Much faster replenishment • Increased on shelf availability • Reduced product damage

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• Improved shopability

Benefits of Using Foldable Crate

• Reverse logistics from store • Storage space (back of store & DC) • Vendor transport efficiency

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ECR Project: Pallet Height

by Mr. Ekachai Kanjanavanich, Customer Services & Distribution Group Manager of Nestle Thailand Ltd.

Standard Pallet Size

With a successful initiative of ECR Thailand, Thai industries has agreed to the size of wooden pallet of 1.0 meter x 1.2 meter since 1998. The standard pallet size is widely used by FMCG Thailand today.

Further Opportunity for Efficiency Improvement in Operations

Different pallet height requires manual re-palletized before put away to storage area. This leads to longer waiting time for delivery trucks, and also slow down throughout in DC. Therefore, by having a same pallet height, we would optimize transportation and space utilization, as well as improve truck turn around time and improve flow in the warehouse operation

There are four key factors in consideration of setting a standard pallet height

1. Regulation on delivery truck 2. Truck utilization 3. Warehouses operator ergonomics 4. Safety at work

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Truck size is mandatory by regulation of Land Transportation Department.

Truck Utilization

Human Ergonomics

A company need to consider the operation that perform by human in warehouse and DC in terms of health and wellness of their employees.

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In summary, as shown in the table below, by considering four key factors and six range of pallet height, Mr. Ekachai proposed two pallet heights, 1.0-1.2m and 1.7-1.8m, that would be used as standard.

ECR Project: Sell More, Lose Less: Reducing Shrink in the Supply Chain

by Mr. Bob Travers, Associate Director, Physical Distribution & Customer Logistics of P&G Singapore.

Managing Shrink at P&G

• Upstream Solutions--packaging, Fixtures, RFID, and EAS • Lead research agenda and investment

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How do consumers respond to security solution? How do thieves steal P&G product? How to design stores and packaging to reduce theft? How do the low shrink retailers consistently deliver low shrink results? What works in terms of solutions?

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Five keys learning from P&G

1. Work together--power of collaboration 2. Focus on hot products/stores--the vital few 3. Shrink is a function of opportunity--remove opportunity 4. Engage all the right people and use a structured approach 5. Document and Evaluate progress--reapply learning

Work together: P&G and Tesco Lotus

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ECR Project: Green Transportation

by Dr. Nutthanakrizz Chantijiraporn, CEO of SCM Executive Education Institute.

Day 2

AEC Crisis or Opportunity

by Ms. Kobkarn Wattanavrangkul, Chairperson of Toshiba Thailand Co., Ltd.

The Preparation to Cope with Natural Disaster

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by Asst. Prof. Dr. Seree Supharatid, Director of Natural Disasters Research Centre, Rangsit University

Future Trend in Labor Supply

by Mr. Sanan Angubolkul, Chairman of Srithai Superware Public Company Ltd.

Supply Chain Academy

by Dr. Sompong Sirisoponsilp, Director of Transportation Institute Chulalongkorn University and Dr. Pongchai Athikomrattanakul, Director of Centre for Logistics Excellence, King Mongkut's University of Technology Thonburi

Supply Chain in Action: New Technology & Warehouse Management

by Mr. Kanok Juthamanee, Logistics Center Manager of Boonthavorn Ceramic Co., Ltd. and Mr. Sarawut Laoprasert, Country Manager of SSI Schaefer Thailand

Supply Chain in Action: Enhancing Consumers' Intimacy

by Ms. Chiranun Poopat, Senior Vice President; Buying, Marketing & Retail Merchandising of Central Food Retail Co., Ltd.

Retailers' challenges

High competitive environment High customer expectation Rising costs Value conscious Emerging channel for convenience (hybrid channel) Government regulation Natural disaster and political unrest

Therefore, it is critical for retailers to build unique proposition. Retailers have made attempts to create customer engagement in order to keep their customers. Central Food Retail company try to understand their 'best' customers by analyzing Spot rewards data as shown below:

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