dhl supply chain strategy 2020

DHL SUPPLY CHAIN STRATEGY 2020

SUPPLY CHAIN

Defining the Industry

London, 13 November 2014

Deutsche Post DHLCapital Markets Tutorial Workshop

2

Agenda

DPDHL IR Tutorial | DHL SUPPLY CHAIN Strategy 2020 | London | 13 November 2014

1 Introduction

2 Supply Chain Business Overview

3 Financial Performance

4 Market Position

5 Supply Chain Vision and Strategy 2020a. Overviewb. Case Studies

c. Focus d. Connect e. Grow

6 Financial Aspiration

7 Conclusion

BREAK

3

Our tutorial workshops providing valuable insights into our operations


• Capital Markets Day May 2012

• DHL Supply Chain November 2012

• Pension and provisions accounting April 2013

• DHL Express September 2013

• Capital Market‘s Day Strategy 2020 April 2014

Recent Capital Markets Days and tutorial workshops

Capital markets tutorial workshops to come• DHL Supply Chain Today

• Post - eCommerce - Parcel tbd

• DHL Global Forwarding tbd

4

Our aspiration for 2020: Defining our industry

As introduced at 2014 Capital Markets Day


EBIT FY 2020 2013 base

PeP ~3% CAGR 2013-20 EUR 1.286bn

DHL ~10% CAGR 2013-20 EUR 1.997bn

CC/Other < 0.5% of Group revenue EUR -422m

Group >8% CAGR 2013-20 EUR 2.861bn

WE are the most global

WE are the quality leader

WE are most customer-centric

When people think of logistics, we want them to think DPDHL

5

SUPPLY CHAIN: Successful member of DPDHL family of divisions


• SUPPLY CHAIN contributes to Group success with strong ROCE and resilient business model

• A valuable member of our family of divisions - but still the least understood

• Increase level of standard-ization while continuing to focus on customer centricity

• Leverage Indirect/overhead cost and establish high performance culture

• Focus on high value services, sectors and geographies

• Supported by restructuring costs with an expected EBIT impact around EUR100m in 2015

• Revenue growth assumption: 5–6%

• Unchanged low capital intensity at 2% Capex/Sales

• EBIT margin increase to 4–5% by 2020

What we have achieved so far

SUPPLY CHAIN Strategy 2020 can take performance to the next level

How SUPPLY CHAIN will contribute to our 2020 targets

Supply Chain will be a strong contributor to DHL’s 10% EBIT CAGR target of Strategy 2020Supply Chain will be a strong contributor to DHL’s 10% EBIT CAGR target of Strategy 2020

6

Agenda


1 Introduction



4 Market Position




7 Conclusion

BREAK

7DPDHL IR Tutorial | DHL SUPPLY CHAIN Strategy 2020 | London | 13 November 2014

Global SUPPLY CHAIN management board

Business units Global functions

North AmericaScott Sureddin

Latin AmericaJose Nava

Williams Lea,NHS Supply

ChainDan Ellerton

Europe, Middle East,

AfricaPaul Graham

Asia PacificOscar De Bok

UK & IrelandPerry Watts

CIO, Products,Solution Design

Alex Pilar

COOPaul Graham

CDOGraham Inglis

Human Resources

Rob Rosenberg

CFODietrich Franz

Service Logistics,

Life Sciences & Healthcare

Graham Inglis

Years of service at DPDHL

12

14

22

19

13

19

24

23

14

19

13

17

#

CEOSUPPLY CHAIN

John Gilbert

20


SUPPLY CHAIN – Number one global contract logistics provider

DHL Supply Chain presence Other DPDHL operations

13,740,000Square meters

>6,000Customers

2,700Locations

~150,000Employees

56Countries

Automotive

Consumer

Energy & Chemicals

Engineering & Manufacturing

Life Sciences & Healthcare

Retail

Technology

Corporate InformationSolutions (Williams Lea) SourcePlan Make Deliver Return


Supply Chain Solutions across the value chain

Source Make Deliver ReturnPlan

Our core services: Warehousing | Transportation | Value Added Services | Management ServicesOur core services: Warehousing | Transportation | Value Added Services | Management Services

InboundSupply Chain Consulting

Outbound & Distribution AftermarketWarehousing

10

DSC Solutions Video – What we do for our customers


Sony Australia

Pfizer Australia

Konica Japan

Valero USA

Lowe's Mexico

Sky Brazil

MSD Benelux

JLR UK

BA UK

Virgin Trains UK


We have come a long way

2014Strategy 2020

2008Supply Chain as

standalone division

2005Exel

acquisition

2010Strategy 2015

-4.9%-1.7%

2.9%2.7%1.8%

3.1%

DHL Supply Chain, EBIT margin

2008 2009 2010 2011 20132012

Integration Consolidation & Turnaround EBIT Growth


Strategy 2020 is driving the ‘Earnings Growth Model’

Sales Gross profit EBITRevenue

Value Proposition

Ops Efficiency & Standardization

OverheadLeverage

13

Agenda


1 Introduction



4 Market Position

5 Supply Chain Vision and Strategy 2020a. Overview b. Case Studies



7 Conclusion

BREAK


Over the past five years, we went from turnaround to continuous top and bottom line growth while rationalizing our portfolio

Comments

Turnaround managing financial crisisand customer insolvencies

Portfolio rationalization & divestments

Strong cost reductions

Profitable growth through sector & product focus

1) As reported and including Williams Lea

419362231

-208

+24%

2013

439

20122009 201120102008

-675

2013

-2% +3%

12.214.3

2012

14.3

2011

13.2

2010

13.1

20092008

13.7

EBIT, EUR mRevenue, EUR bn

-4.9% -1.7% 1.8% 2.7% 2.9% 3.1%

Financial performance1)

EBIT margin%

CAGR

15

Our well balanced portfolio and business model with long term outsourcing contracts adds to DPDHL’s overall resilience


Europe

58% Americas28%

Asia Pacific, Middle East & Africa

14%

2013 Revenue by Geography

Retail25%

Technology11%

Life Sciences &Healthcare

19%

Consumer

20%

Other (7%) Williams Lea (9%)

Automotive (9%)

2013 Revenue by Sector

16%50-100m

18%100-200m

25%

15-50m

21%

> 200m < 15m

20%

2013 Revenue by Account Size

WilliamsLea

9%

17%

Value AddedServicesWarehousing

47%

Transportation27%

2013 Revenue by Service Comments

Resilience through long term contracts (average is 2-3 years) and a balanced portfolio across:

• Geographies

• Sectors

• Services

• Customer Account Sizes


We continuously reduced indirect cost while revenue has grown and significantly improved Gross Profit to EBIT conversion

20132008

-170(-20%)

6.1%

4.7%

1) At constant exchange rates

Comments

Driven by “IndEx” (Indirect Expenditure) program 2008-2010

Strengthened Gross Profit to EBIT conversion

Indirect cost as % of revenue%Global Overhead, EUR m1)

17

GROUP AVERAGE

EXPRESS ~4%

SUPPLY CHAIN ~2%

PeP ~3%

FORWARDING ~1%

Low capital intensity is enabling a strong conversion of EBIT to Earnings After Asset Charge (EAC)


0%

1%

2%

3%

4%

2007 2008 2009 2010 2011 2012 2013

Asset-light business as main operating assets (real estate and material handling equipment) are leased or outsourced (e.g. transportation)

~3%

DHL Supply Chain, Capex/Sales ratio Gross Capex intensity, 2007–2013 average

18

SUPPLY CHAIN is a strong contributor to DPDHL’s shareholder value


2014 9M

16%14%

2013

12%

2011

13%

2012

ROCE = Rolling 12M EBIT / average capital employed

(100% = EUR 2.8bn)

Operating Assets(mainly fixed assets)

Intangible Assets(mainly customer lists)

Goodwill

Comments

Asset light and resilient business model

2013 ROCE excluding Goodwill was 39%

Strong and sustainable contribution to the DPDHL’s shareholder value

Asset mix, year-end 2013

Return on capital employed, including goodwill

16%

14%70%

19

SUPPLY CHAIN – divisional results Q3 2014


EUR m Q3 2013 Q3 2014 Chg. Comments

Revenue 3,519 3,660 +4.0%FX turned positive, mainly reflecting stronger USD and GBP. Organic revenue up 0.6% supported by new business in APAC and UK retail

EBIT 100 110 +10.0% Good growth reflects increase in volumes andnew business start-ups

Operating Cash Flow 213 214 +0.5% Cash flow in line with previous year’s

performance

Capex 79 69 -12.7% Slightly lower than last year due to phasing of investments

Divisional results Q3 2014

20

Agenda


1 Introduction



4 Market Position




7 Conclusion

BREAK


DHL in Gartner’s global 3PL magic quadrant study 2014

Challengers

Niche players Visionaries

Completeness of vision

Abi

lity

to e

xecu

te

DHL

Kuehne+NagelDB Schenker

AgilityUTi

SDV

Pantos Logistics

DSV Damco

CevaUPS Supply

Chain Solutions

Expeditors

Source: Gartner (May 2014); Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose

Key strength of DHL

• Wide range of industry-leading solutions across DHL’s focus sectors

• Global reach of 3PL capabilities (220+ countries)

• Strong understanding of market dynamics and execution along evolving customer/industry needs

• Track record in executing on solution design

• Forward-looking talent management

• Robust technology platforms

• Healthy financial position

Leaders

22

The majority of industry leaders trust us to manage their supply chain


1) © 2014 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates, share of DHL customers on top 25 supply chains2) Sector rankings top 15 by revenue, figures taken from Annual Reports and Onesource

24/25

GARTNER TOP 25

Best rated supply chains are served by DHL1)

0 5 10 15

Consumer1010

Life Sciences & Healthcare1212

Engineering & Manufacturing

77

Energy & Chemicals88

Technology1212

Retail1313

Automotive1313

Serving the industry leaders across all sectors2)


DHL Supply Chain’s profitability is amongst the industry leaders

Comments

There are four global players whose contract logistics performance can be monitored

DHL Supply Chain’s EBIT margin 2013 excluding 1.8bn EUR of pass-through revenue from procurement business was 3.5%

EBIT Margins

~12%

2.1%

2.1%

2.7%2.8%

4.2%

1.6%

2.3%

1.3%

3.1%2.9%

EUR 14.3bn EUR 3.6bn EUR 3.6bn EUR 1.8bn

1)

Source: Financial statements of comparable business segments of competitors; 1) Ceva EBIT margins after estimated depreciation & amortization allocation; 2) DB Schenker Contract Logistics EBIT & margin is substantially higher in H2 2013 and may include significant one-off benefits

2)

FY 2012 FY 2013 Annual revenue 2013 one-off

24

In a fragmented market, we are by far the market leader


Comments

With 8% market share in this highly fragmented market we are in a unique position to define our industry and generate growth

Strategy 2020 will enable best in class services via a globally standardized platform and further leverage our economies of scale

1) Other large players do not report Contract Logistics revenues or do not have a global scope; 2) DHL Supply Chain excl. Williams Lea

2013 market share of top 4 truly global contract logistics players1)

87% ~13%

~13%

2%

2%

8%2)

Largest providers

Total Outsourced Market = EUR 168bn

1%


The contract logistics market is large and growing with significant outsourcing potential remaining

Comments

Contract logistics market is growing faster than GDP due to structural outsourcing trend

More customer-centric services will further accelerate outsourcing

With our leading scale and geographic reach, we are uniquely positioned to prioritize the most profitable market segments (sectors, services and geographies) and grow selectively

1) DHL analysis based on Transport Intelligence data

Total addressable market size1), EUR bn

1,232

2017

1,022

210(17%)

2013

1,073

905

168(15%)

6%

3%

CAGR

In house logistics

Outsourced Contract Logistics

Outsourcing through more customer-centric services

Outsourcing through more customer-centric services

26

Agenda


1 Introduction



4 Market Position

5 Supply Chain Vision and Strategy 2020a. Overview b. Case Studies



7 Conclusion

BREAK


Challenges / Opportunities

Supply chains and customer requirements

are getting more complex and

increasingly diverse by sector

Externalcomplexity

Customer centricity has grown business

yet bespoke nature of each contract

increased complexity

Internalcomplexity

Customers have become increasingly mature in outsourcing core logistics services while opportunities in VAS are not yet fully

utilized

Shift of marketopportunity

28

Shift the portfolio…

Grow

…to address attractive segments

Create an effective organization globally…

Connect

…to enable change

Drive standardization and reduce complexity…

Focus

…to increase efficiency


DHL Supply Chain vision & Strategy 2020

Define the logistics industry globally through standardized, cost efficient, high quality and innovative solutionsVISION


To deliver our Strategy 2020, we have 9 initiatives

1 Improvement of underperforming business

2 Operational standardization

3 Commercial standardization

Focus


4 Efficient and effective functions

5 Consistent and lean organization globally

6 Culture and mindset shift

Connect


8 Global sectors andproducts

7 Value added services

9 Geographical shift

Grow



…to enable change…to increase efficiency


To give you some concrete examples for some of our initiatives, we will show you three case studies




Focus





Connect





Grow




Shared ServicesCase Study

Life Sciences & Healthcare Case Study

Plenary session / webcastcontinues 12:10 pm GMT

Service Logistics Case Study

31

Agenda


1 Introduction



4 Market Position




7 Conclusion

BREAK






Focus





Connect



7 Value addedservices


Grow





Our commercial and operational standardization agenda covers a broad range of aspects

Support functions and site services

Comments

Standardization benefits :• Clear customer value

proposition• Improved efficiency and

productivity leveraging economies of skill

• Reduced complexity and greater coordination

• Creating space for innovation

A Global Solution Design function and a Global Operations Excellence function are key enablers for standardization

Product portfolio

Solution design

Internal costing

Reporting

Operations

Pricing/sales

Commercial & operational

standardization


Our Global Operations Excellence Function will drive the operations standardization agenda

Standardization

Simplification

Continuousimprovement

We actively promote best practice sharing and innovation in our operations

We standardize our service offerings and operations management capabilities

We drive simplicity into our sites globally by streamlining our activities and tools

We engage all of our people and tap into their enthusiasm and expertise to make continuous improvement part of our DNA


A top priority is to deploy a standard approach to resource management in our operations globally

1) Based on 12 months tracking per site after introduction of standardized resource management 2) Measured in direct cases per hour

+13%

Labor productivity2)

Cost per case

Average efficiency improvements from standardized resource management in the Americas1)

-12%

• Planning resources accurately is a key capability to run efficient and productive operations

• Standardized resource management systems and processes implemented in 100+ sites across the Americas

Comments

AfterBefore

AfterBefore

36

Agenda


1 Introduction



4 Market Position




7 Conclusion

BREAK






Connect


…to enable change


7 Value addedservices


Grow






Focus


…to increase efficiency

38

To enable change, the top management structure of Supply Chain with 650 roles has been re-organized over 8 months

March

New Divisional

CEO

May

Global Board

July

Board Direct

Reports

October

Next Organisational

Level

We designed the management structure for the first three levels of the organization addressing approximately 650 roles

8 months


The new Top Management structure is “fit-for-purpose” built to enable and implement the required strategic change

39

Distribution of FTEs


Our strategy will be enabled and implemented by an efficient and effective organization that is globally consistent

Comments

Create a lean and consistent organization to:

• Eliminate activity overlap

• Simplify decision making

• Strengthen links across the organization

• Leverage local “specialist knowledge” in global Shared Service Centers and Centers of Excellence

Top Management

Middle Management

Site Level

Lean Management structure

Consistent and efficient site structures

Leveraging Shared Service Centers and Centers of Excellence


We will further leverage economies of scale through global shared service centers and centers of excellence

HR, IT,Finance

HR, IT,Finance

HR, IT,Finance

Shared ServiceCenters

HRFinance

IT

Centers ofExcellence

HRFinance

IT

Comments

• Shift from independent sites towards sites leveraging common backbone of shared functions, leveraging economies of scale

• Improve efficiency andstandardization in our support functions through more global use of shared services centers

• Boost effectiveness of expertise focused functions with globalized reporting structures and Centers of Excellence

Global Shared Services & Centers of Excellence

Site Functions

HR, IT,Finance


Other modules(Leadership, Skills+, …)

PjM Sales

HR

Transport

Supervisory

Warehouse

IT

Finance

Functional modules

DSCFoundations

The “Certified Supply Chain Specialist” program will increase employee engagement to enable the required cultural change

Certified Supply Chain Specialist

Comments

• Strengthening mindsets and behaviors that enable DHL Supply Chain to achieve success through customer and market focus

• Win hearts and minds to strengthen employee engagement

• Build "certified" capabilities to be leading practitioners in the industry

• Program built on DHL Express experience

Employee Engagement Program

42

Agenda


1 Introduction



4 Market Position




7 Conclusion

BREAK






Grow






Focus





Connect



44

To increase margins, we will focus on the most attractive market segments and shift the portfolio along three dimensions


Sectors

Geo

grap

hies

Value addedservices

Geographical shift

Global sectors andproducts

45

Sectors

Drive growth through more customer-centric, specialized solutions in less commoditized i.e. higher margin and fast growing segments


Global sectors andproducts

Current Focus

Service LogisticsProduct

Global Product Example

Global Sector Example

• Setup of dedicated and truly global organizations for:- Life Sciences & Healthcare- Service Logistics

• Unlocking the full potential of our global customer base and to scale up innovative solutions across regions

Strategic Initiative

46

Hospital logistics

Temperature assured

transportation

Medicaldevices

Core

Warehousing Transportation

Enhanced value proposition through increased share of value added services offered through a globally standardized platform


Value addedservices

Example

Current Focus• Creation of dedicated global function for Solution

Design• Industry practice groups working as agile and

expert partner to Business Development and Operations

• Global Solution Design is our engine for creating competitive advantage, driving state of the art solutions based on globally standardized modular components


47

We shift our portfolio by prioritizing investments into fast growing economies where we already have a strong existing footprint


Our top 4 Emerging Markets

Geo

grap

hies

Geographical shift

Current Focus• Further increase the share of revenue from

Emerging Markets (>20% in 2013)• Nominated dedicated board members for Latin

America and Asia Pacific• Heavy investments into infrastructure and talent,

strengthening local capabilities ahead of growth


MexicoBrazil

IndiaChina

48

The GROW pillar of our strategy will be supported by a focus on highly valuable deals to increase our return on sales investment


Annual Gross Profit

Contract Length

Focus on large total contract

value

Sales Focus Comments

• In addition to a portfolio shift towards the most attractive sectors, services and geographies we focus our sales efforts on deals that offer the largest total contract value to:

- Increase our return on sales investment

- Enable amortization of bigger investments for more sophisticated, long-term solutions

49

Agenda


1 Introduction



4 Market Position



6 Financial aspiration

7 Conclusion

BREAK

50

Strategy 2020 takes EBIT performance to a new level


Today 2020


Strategy 2020 driving the ‘Earnings Growth Model’

Sales Gross profit EBITRevenue

ConnectFocusGrow

• Increased growth and profitability of new business and renewals

• Higher return on sales investment

• Improvement of operational efficiency and effectiveness

• Minimization of underperforming business and start-up issues

• Better overhead leverage

• Overhead growing slower (about half the rate) than gross profit

52

SUPPLY CHAIN: 2020 growth & margin aspiration

2020

3.14–5%

2013

1.8%

2010


Selective revenue

growth ahead of GDP, driven by outsourcing

Further margin improvement

to 4–5% by 2020

Supply Chain will be a strong contributor to DHL’s 10%

EBIT CAGR target of Strategy 2020

Supply Chain will be a strong contributor to DHL’s 10%

EBIT CAGR target of Strategy 2020

5–6%

Strategy 2020 revenue growth aspiration

53

Agenda


1 Introduction



4 Market Position




7 Conclusion

BREAK


Conclusion

Strong contributor toDPDHL‘s shareholder value through excellentreturn on capital and a

resilient businessmodel

Unrivaled marketleader with a proven

track record and majoropportunities for

further profit growth

Clear vision, ambitious goals and

the right plan toachieve them

DHL SUPPLY CHAIN

Q&A

SUPPLY CHAIN



DHL SUPPLY CHAIN STRATEGY 2020

SUPPLY CHAIN

Defining the Industry



dhl supply chain strategy 2020

Documents