Logistics costs in Western Europe roughly accounted for 6% of sales in 1995*, and is unlikely to have changed much since then, yet means that exist to cut those costs sharply are still largely ignored or misunderstood. A glaring example is the pallet exchange shared network, a concept exploited in Britain for the last 18 years. Within the logistics sector, transport soaked up 1.75% of sales but for France, a relatively large country with a scattered population, it was 3.5%. Revealingly, however, for medium-sized firms it was 4.5% and 2.75% for small firms. This shows how much scope there is for cuts when SMEs, in particular, switch over to shared pallet networks.
In the early stages, the hub and spoke principle behind this shared network concept was confined to 1-6 pallet loads per consignment, which network member hauliers would deliver to a central hub for decanting and reloading onto other member companies' vehicles to trunk back to their regional depots. The great advantage was that vehicles could make outward and return journeys fully loaded, rather than run empty one way. This greatly impacts costs, the environment and even safety. So why is it then that, according to Palletforce, a major network player, that there are still many business leaders who do not understand or know about the benefits of shared network, palletised freight distribution, which last year accounted for only 10.5 million pallet movements in the UK?
The answer seems to be a lack of identity, so much so that businesses often mistake such operations for pallet manufacturers! A more intelligently-honed and robust marketing exercise nationally may be needed to break down the ignorance barrier. The current recession, however, may give a push in the right direction as it is making businesses focus more on their supply chain costs and there is a growing realization that pallet networks offer a viable alternative to inhouse/dedicated solutions, says Pall-Ex, another major network player.
Since the early days, the palletised shared network has branched out in may directions and invested heavily in IT systems to make operations slicker and more profitable and, unwittingly, perhaps, much safer in ways that the industry little imagines. Today, the networks offer full, half, quarter, micro pallet distribution and even ugly pallet loads that do not fit in with the rest of the load. Delivery service choices vary from express next day to 2-3 days.
Security investments, like CCTV and product tracking throughout, are also widening the market, believes Fortec Pallet, so that high value goods, for example, hitherto considered unsuitable for pallet networks, can move with owners' full confidence.
Many network users also look for green initiatives and so Pall-Ex developed Eco-Drive, which uses in-bound vehicles to take back recyclable waste rather than using a skip and separate waste vehicle. At the hub, the waste is baled and Pall-Ex's partner in the scheme, The Green House, collects them once there is a full load for recycling, thus avoiding landfill sites.
The networks have also taken on the big third party logistics (3PLs) companies by offering much more than a mere haulage operation. This includes storage, re-packaging, order picking, sorting, direct line side deliveries on trolleys or in roll cages and overseas haulage.
This British pallet network model is undoubtedly exportable, which can be refined to reflect individual national conditions, believes Pall-Ex. Already Pall-Ex has tied up with an Italian partner, Alberti e Santi, and has now decided to take its model to the Iberian peninsula, Poland and the Benelux countries. Extensive market research confirms that similar supply chain demands exist at different stages of evolution in other European economies.
Pall-Ex believes that the green issues will convince responsibly-minded corporations that pan-European pallet networks are the answer to reducing the carbon footprint of the logistics industry on a national scale.
Other companies, like Palletforce, are using IT investment harnessed to forklifts not only to improve efficiencies but also safety on roads and sea. One innovative example is a new scanning and dynamic axle weighing solution, claimed to be the first in Britain. This allows every pallet to be tracked and traced from the moment it enters the hub. When a forklift touches a pallet, a laser beam reads its barcode to transfer the information to the IT server, including the weight, performed by the forklift's weigher. The server then instructs the forklift driver to go to an appropriate outbound loading bay --a good example of cross-docking. As the pallet weight is known, the forklift driver can load it correctly onto the top and bottom decks of the outbound lorry. This maximises the weight that can be safety loaded and so eliminates issues of overloaded vehicles.
There is, however, a potentially far more important safety issue, given the development of integrated European-wide pallet networks using sea-borne containers or trailers. For many years, container stuffers/consignors have deliberately under declared their container payloads to swindle shipping lines and governments out of billions of pounds every year. When the MSC Napoli container ship was beached on a Devon coast several years ago it was found that 20% of the above deck containers were at least 3 tonnes heavier than was declared and in one case, 20 tonnes. This has grave consequences for ships' safety, given the need to avoid adverse stability and hull stress issues, and was a major factor in the Napoli's foundering.
Container shippers know that they can get away with overloading so easily because there is, as yet, no requirement in European ports to weigh containers. Instead, ports take on trust the shippers' payload declarations. Mandatory weighing will come at ports but meanwhile Palletforce customers shipping trailer loads overseas can do so knowing that they are complying with the law and safety issues. When such port weighing is mandatory it would make sense for container stuffers to use their own forklift-fitted weighers, rather than wait for a port operator to 'phone them to sort out their overloaded containers, which could mean missing sailing times.
Most, if not all, pallet network members now use double deck vehicles, a still, as yet, underused way of transporting goods efficiently. These vehicles can carry 67% more goods than single deckers and so cut down the carbon footprint and wasted money. UK road congestion alone is estimated to cost £25 billion a year. They do, however, require special handling equipment at depots, usually scissor lift deck pods at loading bay doors, as ordinary dock-levellers could not cope.
The good news with double deckers is that there seems to be, at last, a sharply rising uptake of their palpable advantages. How much longer it will take for Europe to realize the huge benefits of palletised exchange networks is anybody's guess, but the longer it takes the more billions of pounds will be lost annually.
-----------------------------------------------------------------------------------
*European Logistics Comparative Costs and Practice 1995. Institute of Logistics, Corby, UK
Thursday, 10 June 2010
Thursday, 20 May 2010
Good Governance Must Prevail
When people begin to doubt their nations' debts then the end game is much nearer than one supposes. If polls are to be believed, this is the disturbing, unfolding scenario that could face all industrial and trading nations. A recent Financial Times/Harris poll of over 6,000 respondents found that Europeans and Americans see a plausible chance of their countries defaulting over the next decade. The French are the gloomiest, 53% of whom believe it is likely that their government would be unable to meet their financial commitments within the next 10 years. At 46%, the Americans were not far behind. German pessimism over the future of the welfare state was acute and lent support by their Chancellor, Angela Merkel, who proclaimed: "We cannot live beyond our means forever." Jean-Claude Trichet, European Bank President, lent solemnity to the issue when he told the German magazine, Spiegel, that doubts being cast over Governments' credit worthiness "is a problem for all industrialized countries."
There is, of course, no one simple cause of the global fall from financial grace if, indeed, there was any such grace in the first place, and nor is there any one simple solution. But just as bad governance, both of the people and by the people, is the root cause of the angst, so, too, good governance could still win the day and avert catastrophe.
Politics and economics are inextricably entwined, and in any struggle between the two it is the former that will castrate the latter and so render it ineffective. Yet, ultimately it is economics that will humble nations over the full economic cycle, leaving a desolate trail of unimaginable misery, and all because there was no good governance by all.
So why is there inadequate governance? In a word, greed, at any and every level. But stupidity is also involved. This writer began to warn in print* four years ago of the dangerous build up of debt and in particular the deep exposure of Britain's banks and building societies to commercial property lending. Of America I warned that the negative domestic savings for a straight 21 months, adopted so that people could pursue their have-it-all-now culture, often based on taking out second mortgages and liar loans, meant that "much higher interest rates than three years ago (2004) now means many borrowers have reached the end of their rope." Then, on January 12, 2007, eight months before Britain's first major bank failure in over 100 years, I wrote: "The Bank of England's rate policy since being spooked by the dot com crash six years ago, aided by overly eager banks to lend irresponsibly, is a major cause of dangerously high national indebtedness. The banks and credit card companies may well pay a high price for their rapacious stupidity through record numbers of strapped consumers seeking voluntary insolvency deals."
If a mere hack journalist can foresee these developments unfolding then readers can be utterly assured that Governments and their financial regulatory bodies also saw it, but to their great indelible shame did nothing to avoid the gathering storm. In this the ratings agencies must also take some of the blame. Their deferential ratings of suspect corporate debt, which were financially motivated rather than by good governance, is a stigma and stench that will linger long. Many investors bought bonds and shares based on such deceptive ratings and are now ruing the day.
It is natural and right for people to seek a meaningful real return on their post-tax savings but governments and their central banks should not encourage people to seek riskier alternative investments owing to ludicrously low interest rates on traditional forms of saving. This is precisely what happened after 9/11 and the dot com bust when the Fed dropped its interest rate to 1%. This unleashed a spending binge, which in Britain most notably led to alternative investments in buy-to-let housing and commercial property, creating a bubble which could only burst, leaving banks and building societies nursing huge write offs and investors' dreams shattered.
Cheap, lax credit also spawned other serious problems, which ultimately led to the American sub prime housing bust, and so ushered in the world's most serious credit implosion since the 1930s. This involved the creation of new financial instruments like collateralized debt obligations (CDOs) packaged by investment banks for fat fees and sold to unsuspecting banks and other financial institutions around the world who relied on suspect ratings by debt rating agencies.
Beware Greeks bearing debts
In Europe, nowhere is the lack of universal good governance more obvious than in Greece. A country in which more than half the middle class reportedly think it their God-given right to evade taxes, Greece is the epitome of lousy governance, both of the people and by the people. Since joining the EU gravy train, Greece has lived far beyond its means, with other countries paying the bills. This has allowed civil servants to draw full pensions at 45 and others in their fifties, which can amount to more than 90% of their retiring salary.
Despite the Greek Government's robust start in moving towards good governance, there remains international scepticism over the Euro 750 billion EU bail out plan to save Greece and any of the other PIIGS nations#. But bad governance is ubiquitous and it ill befits President Sarkozy, of France, to browbeat Germany's Angela Merkel over her reluctance to have Germany remain the paymaster for profligate and corrupt nations like Greece. After all, is the Greek bail out so different from the billions of Euros paid every year to subsidise hopelessly inefficient small French farmers? Hardly. The Common Agricultural Policy is, perhaps, the supreme EU example of lousy governance in economics. Germans are rightly incensed at paying for the sins of others and have shown their displeasure over Merkel's reluctant decision to help the bail out by voting out her party's control of the upper house in recent elections. Other profligate nations should take note.
"Banking establishments are more dangerous than standing armies," declared Thomas Jefferson. Clearly, part of any good governance exercise must now include much stricter controls of banks, be they retail or investment, but not so much that is stifles acceptable enterprise. But there is another issue of global economic importance which denies peoples' aspirations for a better life -- staggering military expenditure. As Sun Tzu remarked in 400 B.C., "Where the army is, prices are high, when prices rise the wealth of the people is exhausted." Perhaps the most striking recent example to support this sage's acumen of costly military spending is the price tag for America's latest destroyers, $2 billion each, of which up to 60 may be ordered. Meanwhile, America's spending on the Iraq war and its aftermath alone has long since exceeded $1.5 trillion, and Britain's former labour government was too ashamed to reveal its costs of the Afghanistan involvement. Such huge transfer payments from taxpayers yields no significant tangible benefit -- only the feeling that it may provide protection from malcontents. Such is the price of people's suspicions of their neighbours, but as a famous general warned at the dawn of the Atomic Age: "It must be of the spirit if the flesh is to survive."
-------------------------------------------------------------------------------
*Warehouse & Logistics News, London
#Portugal, Ireland, Italy, Greece, Spain
"If you are wise, you will dread a prosperity which only loads you with more." Ralph Waldo Emerson
There is, of course, no one simple cause of the global fall from financial grace if, indeed, there was any such grace in the first place, and nor is there any one simple solution. But just as bad governance, both of the people and by the people, is the root cause of the angst, so, too, good governance could still win the day and avert catastrophe.
Politics and economics are inextricably entwined, and in any struggle between the two it is the former that will castrate the latter and so render it ineffective. Yet, ultimately it is economics that will humble nations over the full economic cycle, leaving a desolate trail of unimaginable misery, and all because there was no good governance by all.
So why is there inadequate governance? In a word, greed, at any and every level. But stupidity is also involved. This writer began to warn in print* four years ago of the dangerous build up of debt and in particular the deep exposure of Britain's banks and building societies to commercial property lending. Of America I warned that the negative domestic savings for a straight 21 months, adopted so that people could pursue their have-it-all-now culture, often based on taking out second mortgages and liar loans, meant that "much higher interest rates than three years ago (2004) now means many borrowers have reached the end of their rope." Then, on January 12, 2007, eight months before Britain's first major bank failure in over 100 years, I wrote: "The Bank of England's rate policy since being spooked by the dot com crash six years ago, aided by overly eager banks to lend irresponsibly, is a major cause of dangerously high national indebtedness. The banks and credit card companies may well pay a high price for their rapacious stupidity through record numbers of strapped consumers seeking voluntary insolvency deals."
If a mere hack journalist can foresee these developments unfolding then readers can be utterly assured that Governments and their financial regulatory bodies also saw it, but to their great indelible shame did nothing to avoid the gathering storm. In this the ratings agencies must also take some of the blame. Their deferential ratings of suspect corporate debt, which were financially motivated rather than by good governance, is a stigma and stench that will linger long. Many investors bought bonds and shares based on such deceptive ratings and are now ruing the day.
It is natural and right for people to seek a meaningful real return on their post-tax savings but governments and their central banks should not encourage people to seek riskier alternative investments owing to ludicrously low interest rates on traditional forms of saving. This is precisely what happened after 9/11 and the dot com bust when the Fed dropped its interest rate to 1%. This unleashed a spending binge, which in Britain most notably led to alternative investments in buy-to-let housing and commercial property, creating a bubble which could only burst, leaving banks and building societies nursing huge write offs and investors' dreams shattered.
Cheap, lax credit also spawned other serious problems, which ultimately led to the American sub prime housing bust, and so ushered in the world's most serious credit implosion since the 1930s. This involved the creation of new financial instruments like collateralized debt obligations (CDOs) packaged by investment banks for fat fees and sold to unsuspecting banks and other financial institutions around the world who relied on suspect ratings by debt rating agencies.
Beware Greeks bearing debts
In Europe, nowhere is the lack of universal good governance more obvious than in Greece. A country in which more than half the middle class reportedly think it their God-given right to evade taxes, Greece is the epitome of lousy governance, both of the people and by the people. Since joining the EU gravy train, Greece has lived far beyond its means, with other countries paying the bills. This has allowed civil servants to draw full pensions at 45 and others in their fifties, which can amount to more than 90% of their retiring salary.
Despite the Greek Government's robust start in moving towards good governance, there remains international scepticism over the Euro 750 billion EU bail out plan to save Greece and any of the other PIIGS nations#. But bad governance is ubiquitous and it ill befits President Sarkozy, of France, to browbeat Germany's Angela Merkel over her reluctance to have Germany remain the paymaster for profligate and corrupt nations like Greece. After all, is the Greek bail out so different from the billions of Euros paid every year to subsidise hopelessly inefficient small French farmers? Hardly. The Common Agricultural Policy is, perhaps, the supreme EU example of lousy governance in economics. Germans are rightly incensed at paying for the sins of others and have shown their displeasure over Merkel's reluctant decision to help the bail out by voting out her party's control of the upper house in recent elections. Other profligate nations should take note.
"Banking establishments are more dangerous than standing armies," declared Thomas Jefferson. Clearly, part of any good governance exercise must now include much stricter controls of banks, be they retail or investment, but not so much that is stifles acceptable enterprise. But there is another issue of global economic importance which denies peoples' aspirations for a better life -- staggering military expenditure. As Sun Tzu remarked in 400 B.C., "Where the army is, prices are high, when prices rise the wealth of the people is exhausted." Perhaps the most striking recent example to support this sage's acumen of costly military spending is the price tag for America's latest destroyers, $2 billion each, of which up to 60 may be ordered. Meanwhile, America's spending on the Iraq war and its aftermath alone has long since exceeded $1.5 trillion, and Britain's former labour government was too ashamed to reveal its costs of the Afghanistan involvement. Such huge transfer payments from taxpayers yields no significant tangible benefit -- only the feeling that it may provide protection from malcontents. Such is the price of people's suspicions of their neighbours, but as a famous general warned at the dawn of the Atomic Age: "It must be of the spirit if the flesh is to survive."
-------------------------------------------------------------------------------
*Warehouse & Logistics News, London
#Portugal, Ireland, Italy, Greece, Spain
"If you are wise, you will dread a prosperity which only loads you with more." Ralph Waldo Emerson
Wednesday, 5 May 2010
Lousy Logistics Wastes Billions
Each year, in Britain and other countries, billions of pounds are wasted through inappropriate logistics techniques, adversarial business relationships and lack of holistic logistics solutions. What, therefore, could be realistically done to drive down those costs while delivering environmental advantages?
There are mainly two kinds of logistics costs -- storage and distribution, and both are pilloried for their adverse environmental impact. Of the two, storage must cost more if only because stocks put money to sleep. The higher the stocks the greater the opportunity cost. There are many simple ways to reduce storage costs and they need not always involve heavy new investment.
Take, for example, a warehouse footprint and how the chosen forklift types and sometimes the racking affect overall warehouse running costs. Fixed warehouse running costs include rents, rates, utilities, insurance, security and maintenance. The variables include materials handling equipment, with fuel, and labour costs.
There are basically four types of forklifts: standard counterbalance trucks, reach trucks, articulated forklifts and dedicated very narrow aisle (VNA) trucks like man up order pickers and combi trucks, and all require substantially different footprint sizes to handle the same, given pallet loads. The most wasteful of these in terms of space usage is the counterbalance truck, requiring typically minimum aisle widths of 3.6 mt and maximum lifts of 6-7 mt. The reach truck is better, needing only 2.6 mt wide aisles and able to lift to 12 mt, but these are generally unsuited to outdoor yard work. Likewise, the dedicated VNA trucks are internal machines and while able to to work in 1.5 mt wide aisles and up to 15 mt (more with crane types) they are slow, wasteful of space when aisle changing and incur significant extra costs like rail or buried wire guidance.
The articulated forklifts, produced in the British Isles by Translift Bendi, Narrow Aisle and Aisle Master, are easily the most space efficient and versatile of the trucks and such is their cost- cutting ability that in certain circumstances they can render instant truck payback. They may not always be the best choice, of course, as it depends on the nature of the business but the fact is an articulated forklift will allow 50% more pallet storage than counterbalance trucks and 33% more than reach trucks. Moreover, because of their yard-working abilities, the artics can reduce the overall number of forklifts on site and handle more pallets per hour than any other truck type. Such cost-cutting should particularly appeal in the current economic downswing.
There is help in the form of warehouse software to test layout options cheaply. It is better to choose a simulation package from an independent software house as those provided by forklift manufacturers may be skewed towards their own truck designs, and so give less than optimal results. A good example is CLASS, from Cirrus Logistics, which allowed one leading UK retailer, ASDA, to raise storage capacity by 10% at is warehouses and 40% in one case.
No matter how efficient products may be stored and internally moved, the operation could be seriously compromised by excessive stock levels, stock-outs, slow-moving and obsolete stocks. This is where a good stock forecasting program can save millions, particularly when used in real time with weather forecasts. Typically, they will allow users to reduce their total stocks by one third without adversely affecting customer service. Given that stocks in UK warehouses are always worth billions of pounds, the scope for savings is immense.
Once goods leave their warehouses, many cost-cutting initiatives beckon and their impact on the nation's economy would save billions of pounds. Congestion on UK roads alone is estimated to cost £25 billion a year. Any developments, therefore, which cut that congestion, but do not require costly new road building schemes, will be highly cost effective at both micro and macro levels. Already, UK pallet exchange operations, like those operated by Pall-Ex, Palletways and Palletline over the last 20 years, are ensuring that their members' lorries run full on both outward and return journeys, thus cutting emissions and running costs sharply.
Of far greater savings potential, however, is the use of double deck trailers. Typically, these trailers can carry 67% more goods per vehicle than single deck models, thus cutting costs and emissions by up to 40%. Yet, double deckers remain largely ignored and the adversarial relationship between third party logistics (3PLs) providers and their clients, and between 3PLs themselves, stymies true cooperation, leading to excessive empty mileage running.
The changing face of information technology (IT), however, could be the greatest cost cutter and environmental boon when applied by the consumer. Home online shopping is the only part of the UK retail industry that is growing like a weed, but a weed that needs nurturing. Each medium-sized van used by the likes of Tesco, Britain's leading food retailer, could eliminate 50 or more car journeys made by weekly shoppers. This would drastically reduce vehicle emissions, road congestion and repairs and accidents. If shoppers are encouraged to place online shopping orders earlier, food retailers and manufacturers could fine tune their supply/demand models so that less food would be wasted.
Such developments have the potential to disintermediate the current retail set ups, where manufacturers deliver to shops often via distribution centres. Large manufacturers of household consumables with a huge product range, could join with similar businesses to build giant order picking warehouses, accessed by shoppers online. This would eliminate a huge swathe of distribution/retail costs. It is difficult to see, however, given the current stranglehold on shopping by a handful of retailers, such a scenario unfolding, and might, for political/security reasons, be undesirable. This writer once pondered when visiting a huge warehouse that stored a quarter of Britain's tea stocks, what kind of cathartic experience would tea drinkers have deprived of their cuppas because the warehouse in question went up in flames. Even so, online shopping will continue to grow at a lick, posing financial problems, perhaps, for all those financial institutions heavily invested in bricks and mortar shops.
There are mainly two kinds of logistics costs -- storage and distribution, and both are pilloried for their adverse environmental impact. Of the two, storage must cost more if only because stocks put money to sleep. The higher the stocks the greater the opportunity cost. There are many simple ways to reduce storage costs and they need not always involve heavy new investment.
Take, for example, a warehouse footprint and how the chosen forklift types and sometimes the racking affect overall warehouse running costs. Fixed warehouse running costs include rents, rates, utilities, insurance, security and maintenance. The variables include materials handling equipment, with fuel, and labour costs.
There are basically four types of forklifts: standard counterbalance trucks, reach trucks, articulated forklifts and dedicated very narrow aisle (VNA) trucks like man up order pickers and combi trucks, and all require substantially different footprint sizes to handle the same, given pallet loads. The most wasteful of these in terms of space usage is the counterbalance truck, requiring typically minimum aisle widths of 3.6 mt and maximum lifts of 6-7 mt. The reach truck is better, needing only 2.6 mt wide aisles and able to lift to 12 mt, but these are generally unsuited to outdoor yard work. Likewise, the dedicated VNA trucks are internal machines and while able to to work in 1.5 mt wide aisles and up to 15 mt (more with crane types) they are slow, wasteful of space when aisle changing and incur significant extra costs like rail or buried wire guidance.
The articulated forklifts, produced in the British Isles by Translift Bendi, Narrow Aisle and Aisle Master, are easily the most space efficient and versatile of the trucks and such is their cost- cutting ability that in certain circumstances they can render instant truck payback. They may not always be the best choice, of course, as it depends on the nature of the business but the fact is an articulated forklift will allow 50% more pallet storage than counterbalance trucks and 33% more than reach trucks. Moreover, because of their yard-working abilities, the artics can reduce the overall number of forklifts on site and handle more pallets per hour than any other truck type. Such cost-cutting should particularly appeal in the current economic downswing.
There is help in the form of warehouse software to test layout options cheaply. It is better to choose a simulation package from an independent software house as those provided by forklift manufacturers may be skewed towards their own truck designs, and so give less than optimal results. A good example is CLASS, from Cirrus Logistics, which allowed one leading UK retailer, ASDA, to raise storage capacity by 10% at is warehouses and 40% in one case.
No matter how efficient products may be stored and internally moved, the operation could be seriously compromised by excessive stock levels, stock-outs, slow-moving and obsolete stocks. This is where a good stock forecasting program can save millions, particularly when used in real time with weather forecasts. Typically, they will allow users to reduce their total stocks by one third without adversely affecting customer service. Given that stocks in UK warehouses are always worth billions of pounds, the scope for savings is immense.
Once goods leave their warehouses, many cost-cutting initiatives beckon and their impact on the nation's economy would save billions of pounds. Congestion on UK roads alone is estimated to cost £25 billion a year. Any developments, therefore, which cut that congestion, but do not require costly new road building schemes, will be highly cost effective at both micro and macro levels. Already, UK pallet exchange operations, like those operated by Pall-Ex, Palletways and Palletline over the last 20 years, are ensuring that their members' lorries run full on both outward and return journeys, thus cutting emissions and running costs sharply.
Of far greater savings potential, however, is the use of double deck trailers. Typically, these trailers can carry 67% more goods per vehicle than single deck models, thus cutting costs and emissions by up to 40%. Yet, double deckers remain largely ignored and the adversarial relationship between third party logistics (3PLs) providers and their clients, and between 3PLs themselves, stymies true cooperation, leading to excessive empty mileage running.
The changing face of information technology (IT), however, could be the greatest cost cutter and environmental boon when applied by the consumer. Home online shopping is the only part of the UK retail industry that is growing like a weed, but a weed that needs nurturing. Each medium-sized van used by the likes of Tesco, Britain's leading food retailer, could eliminate 50 or more car journeys made by weekly shoppers. This would drastically reduce vehicle emissions, road congestion and repairs and accidents. If shoppers are encouraged to place online shopping orders earlier, food retailers and manufacturers could fine tune their supply/demand models so that less food would be wasted.
Such developments have the potential to disintermediate the current retail set ups, where manufacturers deliver to shops often via distribution centres. Large manufacturers of household consumables with a huge product range, could join with similar businesses to build giant order picking warehouses, accessed by shoppers online. This would eliminate a huge swathe of distribution/retail costs. It is difficult to see, however, given the current stranglehold on shopping by a handful of retailers, such a scenario unfolding, and might, for political/security reasons, be undesirable. This writer once pondered when visiting a huge warehouse that stored a quarter of Britain's tea stocks, what kind of cathartic experience would tea drinkers have deprived of their cuppas because the warehouse in question went up in flames. Even so, online shopping will continue to grow at a lick, posing financial problems, perhaps, for all those financial institutions heavily invested in bricks and mortar shops.
Friday, 23 April 2010
Has Volcanic Ash Lessons For Logistics?
Warehouses put money to sleep, pithily remarked one Toyota vice president, but idled assembly lines can cost far more. This is now the prospect that faces car production plants worldwide as air-freighted key electronic component supplies dry up, caused by the Icelandic volcanic ash cloud which grounded all flights to much of Europe for five days.
Some 40 years ago such a world-disrupting event would not have raised a logistics eyebrow because all factories had some buffer stock that would tide them over for weeks or more and/or relied on locally-sourced parts. But in today's globalised markets, typified by dependence on complex worldwide supply chains geared to Just-in-Time (JIT) deliveries, that is no longer an option but the Icelandic event does, at least, spur a rethink of JIT techniques. But what, if any, changes should be made to stretched supply chains, particularly with respect to JIT?
Doubtless, expansion in global trade, partly underpinned by JIT, has done wonders to reduce world poverty. The most globalised countries, like Chile, China, Thailand and Bangladesh, to which much Western manufacturing has been outsourced, have grown the fastest and benefited the most. This helped cut world extreme poverty, defined as less than $1 a day, from 28% to 21% between 1990 and 2001, while infant mortality rates between 1980 and 2002 fell and life expectancy rose in low and middle-income countries. If only for that reason, JIT and globalisation are here to stay but vulnerability to disruption much be reduced.
Airfreight may only account for a tiny fraction of freight by weight --about 0.5% for the UK, but in value terms it is 25% and for Ireland 30%. Most UK car makers use suppliers near their factories and mainly road and sea for most deliveries, but high value electronic components come by air from far-flung places where production costs are much lower.
A case could be made for manufacturers to stock higher levels of these small electronic components at point of assembly and use more road/sea deliveries. While this would add to logistics costs it would be far cheaper than idling whole plants for the want of tiny components or, worse still, losing overseas markets to unaffected, opportunistic suppliers. As explained by the Irish Exporters Association's chief executive, John Whelan, "the big thing is to hold onto your customer base. Asian suppliers will try to grab US customers of European exporters and US suppliers will do the same in Asia."
The Icelandic event may be a rare occurrence and so prompt many to deride any calls for higher stock levels of air-freighted items. However, JIT-orientated manufacturers are exposed to a legion of disruptive supply risks and just one, tiny, isolated incident can be highly damaging. One of the most unlikely examples was the collapse of a container crane at Southampton Container Terminal in 2006. It disrupted parts supply to Honda's Swindon car plant so much that the whole plant was closed temporarily.
There are, of course, techniques for efficient disaster recovery, anticipatory measures and production philosophies that could sidestep or ameliorate supply chain disruption. Useful guidance on this can be found in Yossi Sheffi's book, The Resilient Enterprise.* As the book explains, insurance companies have well-developed models of the likelihood of earthquakes, floods, hurricanes and tornadoes for America and other countries. Volcanic eruptions are usually preceded by tremors but these signs are often dismissed or ignored by managers. Supply chain managers need not become Earth scientists but they could do better by reacting faster to top up critical item supplies by air before it is too late.
In time, the global supply chain environment could be expected to change for the better in terms of JIT risks. More global corporations see the value of locating their manufacturing and supplier base close to their main markets. Not only does this reduce supply chain risks it also enhances quality control and faster response times to customers' changing demand patterns. It seems customers require products faster than supply chains can respond. The growing prosperity of Third World countries like China will also erode their cost advantage, while transport costs will also rise.
On top of all this is the joker in the pack -- environmental concerns. Although the jury may still be out over the causes of global warming, the vociferous environmental lobby should not be underestimated. New legislation through tax disincentives, et al, would discourage far flung global supply chains. As to whether that would economically harm industrialising countries, and so pose political risks, only time will tell.
-------------------------------------------------------------------------------------------------
*The MIT Press, Cambridge, Massachussetts, 2005
Some 40 years ago such a world-disrupting event would not have raised a logistics eyebrow because all factories had some buffer stock that would tide them over for weeks or more and/or relied on locally-sourced parts. But in today's globalised markets, typified by dependence on complex worldwide supply chains geared to Just-in-Time (JIT) deliveries, that is no longer an option but the Icelandic event does, at least, spur a rethink of JIT techniques. But what, if any, changes should be made to stretched supply chains, particularly with respect to JIT?
Doubtless, expansion in global trade, partly underpinned by JIT, has done wonders to reduce world poverty. The most globalised countries, like Chile, China, Thailand and Bangladesh, to which much Western manufacturing has been outsourced, have grown the fastest and benefited the most. This helped cut world extreme poverty, defined as less than $1 a day, from 28% to 21% between 1990 and 2001, while infant mortality rates between 1980 and 2002 fell and life expectancy rose in low and middle-income countries. If only for that reason, JIT and globalisation are here to stay but vulnerability to disruption much be reduced.
Airfreight may only account for a tiny fraction of freight by weight --about 0.5% for the UK, but in value terms it is 25% and for Ireland 30%. Most UK car makers use suppliers near their factories and mainly road and sea for most deliveries, but high value electronic components come by air from far-flung places where production costs are much lower.
A case could be made for manufacturers to stock higher levels of these small electronic components at point of assembly and use more road/sea deliveries. While this would add to logistics costs it would be far cheaper than idling whole plants for the want of tiny components or, worse still, losing overseas markets to unaffected, opportunistic suppliers. As explained by the Irish Exporters Association's chief executive, John Whelan, "the big thing is to hold onto your customer base. Asian suppliers will try to grab US customers of European exporters and US suppliers will do the same in Asia."
The Icelandic event may be a rare occurrence and so prompt many to deride any calls for higher stock levels of air-freighted items. However, JIT-orientated manufacturers are exposed to a legion of disruptive supply risks and just one, tiny, isolated incident can be highly damaging. One of the most unlikely examples was the collapse of a container crane at Southampton Container Terminal in 2006. It disrupted parts supply to Honda's Swindon car plant so much that the whole plant was closed temporarily.
There are, of course, techniques for efficient disaster recovery, anticipatory measures and production philosophies that could sidestep or ameliorate supply chain disruption. Useful guidance on this can be found in Yossi Sheffi's book, The Resilient Enterprise.* As the book explains, insurance companies have well-developed models of the likelihood of earthquakes, floods, hurricanes and tornadoes for America and other countries. Volcanic eruptions are usually preceded by tremors but these signs are often dismissed or ignored by managers. Supply chain managers need not become Earth scientists but they could do better by reacting faster to top up critical item supplies by air before it is too late.
In time, the global supply chain environment could be expected to change for the better in terms of JIT risks. More global corporations see the value of locating their manufacturing and supplier base close to their main markets. Not only does this reduce supply chain risks it also enhances quality control and faster response times to customers' changing demand patterns. It seems customers require products faster than supply chains can respond. The growing prosperity of Third World countries like China will also erode their cost advantage, while transport costs will also rise.
On top of all this is the joker in the pack -- environmental concerns. Although the jury may still be out over the causes of global warming, the vociferous environmental lobby should not be underestimated. New legislation through tax disincentives, et al, would discourage far flung global supply chains. As to whether that would economically harm industrialising countries, and so pose political risks, only time will tell.
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*The MIT Press, Cambridge, Massachussetts, 2005
Sunday, 11 April 2010
Will Noro virus scupper cruise market revival?
After two years of declining fortunes typified by slashed prices, cruise lines see better times ahead with rising bookings and prices but will the smallest of organisms, the Noro virus, scupper the nascent revival?
The cruise lines badly timed their expansion plans when laying down orders for new ships several years ago, which came on stream just when global credit markets imploded. The situation, however, could have been very much worse if it were not for the growing British love affair with cruises. The Passenger Shipping Association, for example, shows that more than 1.5 million people took a cruise last year, up 4% on 2008 and nearly 50% since 2005.
It is not hard to see why such growth occurred when recession hit other travel markets badly. Cruising is one of the most pleasant ways to spend a relaxing holiday, offering many new sites and entertainment more competitively priced than most land-based holidays. But what land based holidays do not normally have is the Noro virus, which sadly has reached epidemic levels on many cruise ships.
This vomiting virus has the power to cripple the cruise industry and even, on occasions, endanger the running of the ships if sufficient crew members go down with the bug at the same time. On more than one occasion cruises have been cut short for just such safety reasons. The reason for the concern is that many passengers struck down by the virus have said they would not cruise again. This is an understandable reaction because the bug can ruin a cruise. Although the vomiting only lasts for 1-2 days, passengers are normally ordered to remain in their cabins for another 3 days until they have been given the all clear by the ships' doctors. Being mewed up in a small cabin for 5 days is like serving a costly prison sentence.
So far it seems that the media and cruise lines have tended to blame infected passengers for bringing the virus on board. This may be so on some occasions but there is far more to it than that. According to the US Food and Drug Administration, person to person transmission of the Noro virus has been well documented but the virus is transmitted by the fecal-oral route by contaminated water and food. Water, says the FDA, is one of the most likely causes of the virus and that must include water stored on cruise ships. This raises concerns about where potable water is taken on board and why, it seems, there is never a mention of whether the water was tested and what the results of those tests were.
Food supplies can also sicken passengers. The FDA reports that shellfish and salad ingredients are foods most often implicated in Noro virus. This suggests that increased cleaning everywhere on infected ships and frequent hand washing with spirit lotions will have little effect. This writer's own experiences bear that out. On taking a 24-day cruise last November on board Fred Olsen's Balmoral, I had been warned that there might be departure delays caused by sanitizing the ship owing to a serious outbreak on the preceding cruise. Such cleaning, however, did not stop the almost immediate outbreak of the virus on my cruise which lasted almost the whole voyage. The Celebrity's Mercury cruise ship may be another case in point. On two of its most recent cruises alone around 600 passengers fell ill but does that seriously suggest 600 people simply failed to wash their hands?
Cruise lines must clearly do more than sanitizing if they do not wish to see their fortunes impaired by class law suits and a waning interest in cruise ships turned plague ships. One travel law specialist, Irwin Mitchell, already has over 80 angry customers of Fred Olsen Cruise Lines following 5 separate outbreaks over the last few months on Boudicca.
The Centre for Diseases Control reports numerous outbreaks of Noro virus on cruise ships operated by Celebrity Cruises, Cunard, Holland-Amerika Lines and Royal Caribbean. If left unchecked there will be an avalanche of claims against the lines. Now is not the time to imperil the recently launched, costly cruise ships like P&O's Azura and Royal Caribbean's Oasis of the Seas (225,000 tonnes) simply because health and safety issues remain sloppy or inadequate.
This writer has viewed many cruise ships in ports and all failed to have all their rat baffles (guards) in place. Such baffles may no longer be a legal requirement, except where there is a serious rat infestation or plague but their lack of use is symptomatic of the sloppy procedures undermining passenger health and safety.
The cruise lines badly timed their expansion plans when laying down orders for new ships several years ago, which came on stream just when global credit markets imploded. The situation, however, could have been very much worse if it were not for the growing British love affair with cruises. The Passenger Shipping Association, for example, shows that more than 1.5 million people took a cruise last year, up 4% on 2008 and nearly 50% since 2005.
It is not hard to see why such growth occurred when recession hit other travel markets badly. Cruising is one of the most pleasant ways to spend a relaxing holiday, offering many new sites and entertainment more competitively priced than most land-based holidays. But what land based holidays do not normally have is the Noro virus, which sadly has reached epidemic levels on many cruise ships.
This vomiting virus has the power to cripple the cruise industry and even, on occasions, endanger the running of the ships if sufficient crew members go down with the bug at the same time. On more than one occasion cruises have been cut short for just such safety reasons. The reason for the concern is that many passengers struck down by the virus have said they would not cruise again. This is an understandable reaction because the bug can ruin a cruise. Although the vomiting only lasts for 1-2 days, passengers are normally ordered to remain in their cabins for another 3 days until they have been given the all clear by the ships' doctors. Being mewed up in a small cabin for 5 days is like serving a costly prison sentence.
So far it seems that the media and cruise lines have tended to blame infected passengers for bringing the virus on board. This may be so on some occasions but there is far more to it than that. According to the US Food and Drug Administration, person to person transmission of the Noro virus has been well documented but the virus is transmitted by the fecal-oral route by contaminated water and food. Water, says the FDA, is one of the most likely causes of the virus and that must include water stored on cruise ships. This raises concerns about where potable water is taken on board and why, it seems, there is never a mention of whether the water was tested and what the results of those tests were.
Food supplies can also sicken passengers. The FDA reports that shellfish and salad ingredients are foods most often implicated in Noro virus. This suggests that increased cleaning everywhere on infected ships and frequent hand washing with spirit lotions will have little effect. This writer's own experiences bear that out. On taking a 24-day cruise last November on board Fred Olsen's Balmoral, I had been warned that there might be departure delays caused by sanitizing the ship owing to a serious outbreak on the preceding cruise. Such cleaning, however, did not stop the almost immediate outbreak of the virus on my cruise which lasted almost the whole voyage. The Celebrity's Mercury cruise ship may be another case in point. On two of its most recent cruises alone around 600 passengers fell ill but does that seriously suggest 600 people simply failed to wash their hands?
Cruise lines must clearly do more than sanitizing if they do not wish to see their fortunes impaired by class law suits and a waning interest in cruise ships turned plague ships. One travel law specialist, Irwin Mitchell, already has over 80 angry customers of Fred Olsen Cruise Lines following 5 separate outbreaks over the last few months on Boudicca.
The Centre for Diseases Control reports numerous outbreaks of Noro virus on cruise ships operated by Celebrity Cruises, Cunard, Holland-Amerika Lines and Royal Caribbean. If left unchecked there will be an avalanche of claims against the lines. Now is not the time to imperil the recently launched, costly cruise ships like P&O's Azura and Royal Caribbean's Oasis of the Seas (225,000 tonnes) simply because health and safety issues remain sloppy or inadequate.
This writer has viewed many cruise ships in ports and all failed to have all their rat baffles (guards) in place. Such baffles may no longer be a legal requirement, except where there is a serious rat infestation or plague but their lack of use is symptomatic of the sloppy procedures undermining passenger health and safety.
Saturday, 3 April 2010
MoD's stock mismanagement threatens security
In what must be one of the most damning indictments of a Government department's financial ineptitude the Defence Select Committee has excoriated the UK's Ministry of Defence (MoD) for its accounting failures. In its annual report on the MoD's accounts, published on February 24, the Defence Select Committee comments: "Failures in the administration of service personnel and sensitive equipment are unacceptable" This has led the National Audit Office to qualify the department's resource accounts for the third consecutive year. Usually one year's qualified accounts would be enough to presage a commercial company's obsequies.
Such an embarrassment could not have come at a worst time for a government battered by economic forces and preparing what seems to be deep cuts in this year's Defence Review. Given the three armed services' worries over cuts that could reduce their commitments, such monumental logistics and accounting failures, worth many millions of pounds, must feel like a stab in the back from their own governing department. But if the MoD does not clean out its own Augean stables then the Defence Committee, chaired by the Rt Hon James Arbuthnot, MP believes that the MoD's accounting failures have the potential to threaten its own long-term capability.
The MoD has long been a lumbering, bureaucratic moloch, devouring huge taxpayers' funds, and stock control has rarely been its forte in modern times. Apart from worries over specialist pay of £268 million and lack of evidence to show that the errors in accommodation and food charges of £83m had not been made good, a key worry of the Defence Committee was the inability of the MoD to account for certain items of expensive and sensitive equipment.
The National Audit Office has carried out a selective audit of the army's relatively new £1.3 billion BOWMAN tactical communications system, which provides secure, integrated radio intercom and internet services. Only 89% of these assets could be accounted for by the end of the year owing to problems of accounting for radios in use on the battlefield. James Arbuthnot said that the MoD could not at a given time account for radios worth £155 million, giving rise to serious security implications. "Having an effective audit trail is the only way to ensure that all equipment is accounted for," he added.
Veracity and transparency, however, are two traits woefully lacking at the MoD, the COD Donnington warehouse fire in 1983 being a huge example. Until then, at £174 million, the uninsured fire loss was the costliest in the country's history. On various occasions the MoD had been explicitly warned that the building was not fire safe but the MoD ruled out fire improvements on cost grounds, callously opting instead for the "calculated risk" approach. The consequences of that decision are now being felt decades later with the recent death of a 31-year old woman from mesothelioma, caused by asbestos ash falling on thousands of houses over 15 square miles. The asbestos content was originally denied by the Army and the Controller and Auditor General, the Public Accounts Committee and the Select Committee on Defence all made scant comment on the fire.
The fire's cause was never proven but the investigators thought that the likely cause was workers using lighters and cigarettes to sever plastic wrapping. Another, darker, mooted cause was arson, because the Falklands War allegedly occasioned a comprehensive stock audit which, it was claimed, would have exposed serious stock losses and so tracks had to be covered by a fire. The sprinkler system failed to work and it is very rare for sprinkler heads to fail. Nearly half of all warehouse fires are maliciously caused.
Astoundingly, five years later, a second fire hit the stores after £31 million had been spent on building 10, autonomous, high bay automated stores designed to limit fire damage spread, destroying most of store B1. Arson was not ruled out but the cause was never determined for certain. Ironically, on another occasion, the sprinkler system accidentally flooded out an entire high bay store. Still, at least the store separation principle was sound and probably saved £800 million worth of stock.
The Defence Select Committee recommends that the National Audit Office should continue to monitor closely the MoD's management of stock, perhaps giving consideration to undertaking a broader analysis of this problem at some future date. But given the broken assurances made last year by the Secretary of State for Defence and the Permanent Under Secretary to provide sufficient audit evidence to support their accounts perhaps a start should be made to encourage these two functionaries to fall on their swords now.
Such an embarrassment could not have come at a worst time for a government battered by economic forces and preparing what seems to be deep cuts in this year's Defence Review. Given the three armed services' worries over cuts that could reduce their commitments, such monumental logistics and accounting failures, worth many millions of pounds, must feel like a stab in the back from their own governing department. But if the MoD does not clean out its own Augean stables then the Defence Committee, chaired by the Rt Hon James Arbuthnot, MP believes that the MoD's accounting failures have the potential to threaten its own long-term capability.
The MoD has long been a lumbering, bureaucratic moloch, devouring huge taxpayers' funds, and stock control has rarely been its forte in modern times. Apart from worries over specialist pay of £268 million and lack of evidence to show that the errors in accommodation and food charges of £83m had not been made good, a key worry of the Defence Committee was the inability of the MoD to account for certain items of expensive and sensitive equipment.
The National Audit Office has carried out a selective audit of the army's relatively new £1.3 billion BOWMAN tactical communications system, which provides secure, integrated radio intercom and internet services. Only 89% of these assets could be accounted for by the end of the year owing to problems of accounting for radios in use on the battlefield. James Arbuthnot said that the MoD could not at a given time account for radios worth £155 million, giving rise to serious security implications. "Having an effective audit trail is the only way to ensure that all equipment is accounted for," he added.
Veracity and transparency, however, are two traits woefully lacking at the MoD, the COD Donnington warehouse fire in 1983 being a huge example. Until then, at £174 million, the uninsured fire loss was the costliest in the country's history. On various occasions the MoD had been explicitly warned that the building was not fire safe but the MoD ruled out fire improvements on cost grounds, callously opting instead for the "calculated risk" approach. The consequences of that decision are now being felt decades later with the recent death of a 31-year old woman from mesothelioma, caused by asbestos ash falling on thousands of houses over 15 square miles. The asbestos content was originally denied by the Army and the Controller and Auditor General, the Public Accounts Committee and the Select Committee on Defence all made scant comment on the fire.
The fire's cause was never proven but the investigators thought that the likely cause was workers using lighters and cigarettes to sever plastic wrapping. Another, darker, mooted cause was arson, because the Falklands War allegedly occasioned a comprehensive stock audit which, it was claimed, would have exposed serious stock losses and so tracks had to be covered by a fire. The sprinkler system failed to work and it is very rare for sprinkler heads to fail. Nearly half of all warehouse fires are maliciously caused.
Astoundingly, five years later, a second fire hit the stores after £31 million had been spent on building 10, autonomous, high bay automated stores designed to limit fire damage spread, destroying most of store B1. Arson was not ruled out but the cause was never determined for certain. Ironically, on another occasion, the sprinkler system accidentally flooded out an entire high bay store. Still, at least the store separation principle was sound and probably saved £800 million worth of stock.
The Defence Select Committee recommends that the National Audit Office should continue to monitor closely the MoD's management of stock, perhaps giving consideration to undertaking a broader analysis of this problem at some future date. But given the broken assurances made last year by the Secretary of State for Defence and the Permanent Under Secretary to provide sufficient audit evidence to support their accounts perhaps a start should be made to encourage these two functionaries to fall on their swords now.
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