Thursday, 28 November 2013

Big Data solves big logistics problems

Big Data has been around for decades in which lie gems that could transform logistics efficiency but those gems cannot be mined while the data remains largely unstructured. This was the main message from John O'Brien, Vice President for Transport and Logistics, at DataArt* during a presentation hosted by DP World at London Gateway, its new container port, and organised by the Logistics Leaders Network#.

Vast amounts of data are generated by people talking to people (Facebook), machines talking to machines (EDI), and the internet of things, involving sensors collecting and sharing data, but ordinary data processing, involving traditional business intelligence using databases, does not work, says Mr O'Brien. But if the information can be structured efficaciously then those who run global supply chains can seriously cut their exposure to supply risks and even improve predicted demand.

By using big data in this way one fuel retailer, for example, employed sensors at its network of service stations and convenience stores so that it would know in almost real time what its fuel/product mix and consumption rates were in each of its geographical territories. Such incoming point-of-sale data also tells it in which mixes of products besides fuel work best by geographical area so it can tailor offers accordingly. The result is faster time to market with offers and better revenue positioning and agility because offers can be instantaneously changed to respond to customer demand shifts.

Market response time is key

This emphasis on time-to-market can be a game-changer for many businesses because it means that their supply chains are their competitive advantage. Zara, the world's leading clothing retailer, built its empire on the unconventional premise that speed and responsiveness are more important than product cost and so it is renowned for its ability to deliver new clothes to stores quickly and in small batches. Another key, successful plus for them is that Zara controls more of its manufacturing than do most retailers and so is less of a hostage to fortune when natural, political and social risks erupt to disrupt far-flung supply sources.

Perhaps mindful of the Japanese tsunami in 2011, one large manufacturer has used big data to minimise exposure to risk in its global supply chain by overlaying its geographical supply chain locations with weather statistics for tornadoes, hurricanes and earthquakes. It also then calculates the probabilities of natural disasters occurring through a predictive analytics program. The result is that the company now has a way to orchestrate its suppliers so that it has back-up plans if a key supplier gets hit by a disaster and the incident takes down production.

In a JIT-dominated supply chain, having a robust, disaster recovery plan is indispensable but global logistics is still exposed by the concentration of too much supply of one key product in one factory. The Japanese tsunami exposed the folly of this because Japan is a choke point for about 95 products key to the auto industry and consumer electronics. When that disaster struck it disrupted just one factory producing 40% of the world's microcontrollers used in cars, leading to idled car plants around the world and multi-billion pound losses in production and profits. Now might be a good time to hold stocks of such small components in higher amounts at point of final assembly, given that the extra costs of holding such inventory would only be a small fraction of, say, a car's cost, if the supplier controls a worrying percentage of world output in a disaster-prone region.  

It would be difficult to single out any business discipline more complex and demanding than logistics. It is not simply a job trying to arrange a supply chain most effectively, or trying to manage production flows in factories and warehouses efficiently. It involves grappling with socio-geopolitical issues that could disrupt global supply chains; in short dealing with numerous what-if scenarios. It could even involve the input of bad corporate governance on consumer sentiment. Many leading global players, for example, use Far Eastern labour by subcontractors where working conditions are often atrocious. One huge Chinese-based supplier to the mobile phone and computer industries became so concerned over staff suicides relating to working conditions and pay that it reportedly asked new employees to sign contracts promising not to commit hara-kiri. But poor corporate governance, like use of child labour and morally repugnant, though legal, tax avoidance schemes has led to effective consumer boycotts. It is every boardroom's worst nightmare and there is no reason why we should not see more of these problems and so logisticians should take note.

Tuesday, 12 November 2013

London's new container port will change Britain's logistics

As ambitious civil engineering projects go, DP World's new London Gateway shipping container terminal, officially opened on November 7, is impressive by any standards, not just for its monumental achievements on time but the likely seismic impact on Britain's logistics map. It took the ancient Egyptians an estimated 30,000 men toiling 30 years to build the 5.8-million ton great pyramid at Giza. It took DP World only three years to dredge 28 million mt3 of river silt, lay a concrete base many times that of Giza's pyramid, lay 25 km of new railway track, build roads, offices and engineering facilities and install eight of the world's largest quay cranes, each towering 448 ft and weighing 2,000 tonnes. Other creditable achievements include DP World's environmental concerns, as it involved the relocation of 350,000 animals and reptiles to amenable sites around Britain, the largest exercise of its kind in Europe. Quite what the good burghers of Wiltshire thought of having 2,000 venomous adders as new neighbours, however, is not known. Little wonder that the project, which when fully operational could create 32,000 full-time jobs, cost £1.5 billion so will it deliver a good return and what are the risks that could upset the apple cart?

London Gateway (LG) has its detractors, and not all from competitors who can expect to lose some business to LG. On close examination, however, these criticisms are largely unfounded. But the risks are palpable and what concerns this writer most of all is the natural risk, on which more later. Two risks are of a competitive nature, and include the new deep-sea Peels Ports' container terminal for Liverpool, due to open in 2015, and uncertainty about growth in world trade, particularly between the Far East and Europe on which LG is banking for much of its traffic.

If world trade proves sluggish over the next few years then the result would be a slugging match with Felixstowe, the country's premier container handling port, and in this LG has logistics very much in its favour owing to its advantageous location to London and the South-East where 40% of England and Wales' population live and have the highest disposable income. Its proposed 10 million ft2 logistics park, the largest in Europe, will also leverage LG's competitive potential, offering tenants huge savings in transport, handling, and stock-holding costs, plus quicker time to market and less food waste through longer shelf life. It was remarked that Marks & Spencer (M&S), who will build a 1 million ft2 distribution centre there, will be able to deliver directly from ship to retail store in three days against three weeks. This recalls the days of yore when London opened the West India dock in 1804 and so reduced ship turnaround time from one month to four days and deprived the 11,000 waterfront thieves, classified into groups from relatively harmless mudlarks to murderous scuffle hunters, of their income. Even the customs men, with their pigs' bladders for siphoning off the rum puncheons, were discommoded. Other potential clients see LG as a platform for e-tailing directly from the logistics park to consumers' homes.

Ships rather than ports at risk?

A third risk, though not of a competitive nature, is allied to world trade growth and involves changing trade flow patterns brought on by a desire to re-shore outsourced manufacturing facilities from the Far East back to Britain and Europe. The reasons are many, not least soaring inflation  in China, poor quality, long delivery times, widespread intellectual property theft and natural hazards disrupting JIT deliveries. Although only a trickle so far, if the re-shoring becomes a flood, and it is difficult to see why it should not, would this pose a significant threat to LG? This writer posed that question to LG's chief executive, Simon Moore, who agreed that trade patterns were changing but that it was a problem for shipping lines rather than ports. "I think it is certainly an interesting topic with the shipping lines, who have invested in very large tonnage, the majority of it really applicable to Asia-Europe trade," he said. "As a UK national, to see some of our traditional manufacturing return to this country I personally think is fantastic. Can those companies grow again to become potential exporters to the growing consumer markets in Asia and the Continent? Again, that is fantastic and a very positive trend," added Simon.

He believes that 90% of our international trade will continue to move by sea, and some large UK retailers who import by air transport are thinking of switching to sea owing to LG's strong business case. He also believes that most of that 90% will still come from points east of the UK and that if there is a trend to more cargo to and from the Continent that LG's location is a positive. Concluding, he said: "One of the things M&S will be doing is not just importing but also using this as a base to export. So I think we can say that we can't inhibit, stop or encourage any particular market trend. We will hope to be flexible enough to have the physical capability to grow with them. So whether it's more use by rail, we are ready for that. If it's coastal shipping we are ready for that. It does not have to be big ships."

LG seems to have all the angles covered but is there an unpredictable Achilles heel? As a tri-modal port operating at all tidal stages in wind speeds of up to 60 mph, it promises quick vessel turnaround for the world's largest 18,000 TEU box ships. It's 41-tonne capacity automated stacker cranes, unique in Britain, offer uninterrupted 24-hr working, as straddle carriers from quayside positions feed containers to them. The logistics park is flexible enough to cater for many users with building sizes to match. Some floor plates will be up to 120,000 mt2 and building heights up to 41.5 mt, high enough for automated stacker cranes within clad-rack buildings that makes construction costs so much cheaper. There is a large common user facility which apparently is 2-3 times oversubscribed, so the port is not just for large businesses.

LG claims that it can save £186 on each London round trip and the present practice of sending some goods north to distribution points only to be sent back south again will be eliminated. The rail connection should remove 100,000 TEU round trips a year from the roads, a significant improvement to the environment, in which air pollution, much of it from road traffic, has been shown to be a leading cause of lung cancer and a major factor in soaring asthma rates world-wide. The whole operation should also be a safer one, as LG has fitted its handling equipment with weighers to detect deliberately misdeclared container payloads, a major cause of accidents at sea, on roads and rail and which nets the miscreants billions of pounds a year through lower shipping charges and import duties. There remains, however, the thorny safety problem of lax container packing, which the IMO/ILO/UNECE's new code of practice, available after next May, will not solve unless money is spent on adequate training. It is to be hoped that any container stuffing which may be done in the logistics park will be by properly trained packers.   

DP World, however, appears to have a non-union policy at its ports. This is an issue exercising minds at the International Transport & Workers Federation (ITF) who seem determined to allow workers union representation if they wish it. This could be LG's Achilles heel. The issue, however, that worries this writer most of all is Nature's fury. The port seems to have adequate drainage facilities to cope with heavy downpours but a proposed bund of sorts around the logistics park of only 1.5 mt high seems inadequate should a storm surge occur at the highest of tides. Sea levels are also rising at an accelerating rate. A three-metre high bund would be much more comforting, especially for insurers. Having so many eggs in one basket, which would be the case at LG, need not be a nightmarish risk provided the calculated risks have been realistically assessed and catered for. One only has to look at the disastrous logistics impact of the Japanese tsunami in March 2011 where Japan was a choke point for about 95 products.The result was idled car plants around the world for want of JIT-supplied parts, leading to multi-billion pound losses in production. There is nothing wrong with the concept of JIT principles provided the ground rules are unswervingly obeyed. One of those rules is to have a robust disaster recovery plan in place. A bund of only 1.5 mt around the logistics park seems tempting fate.

With those caveats, DP World must be commended for their vision and tenacity in bringing a project to fruition 10 years in gestation with a care for the environment that is, alas, still uncommon in big projects. And there seems little doubt that LG will change the logistics map of Britain for the better.  

Salient statistics

Container handling capacity: 3.5 million TEUs per year when all 6 berths are operational
Logistics Park: 10 million ft2, including large common user facility.
Quay cranes: Currently 8 with 24 planned, all supplied by Shanghai Zhenhua Heavy Industries Company (ZPMC) capable of handling 25-box wide ships.
Rail Terminal: currenlty equipped with three 400-tonne rail mounted gantry cranes from ZPMC
Automated Stacker Cranes: 20 from Kalmar (Cargotec)
Straddle carriers: 28 from Kalmar