Highlighting the industry’s view

With the Federal Government having announced the composition of the expert panel that will advise on the development of the National Freight and Supply Chain Strategy, the real work of shaping its content is now well and truly under way.
It’s not indulging in hyperbole to say that we have a once-in-a-generation opportunity to get this right. Australia’s rapidly growing population coupled with changing patterns of consumer behaviour – especially with the growth of e-Commerce – will impose significant additional demands on the freight and logistics sector.
Indeed, the National Transport Commission (NTC) estimates that Australia’s freight task will grow by some 26 per cent in the next decade alone. When you think of the capacity constraints that are already evident in some of our major cities, particularly growing traffic congestion, such forecasts can appear daunting.
Although it will require a significant degree of hard work on the part of the freight and logistics industry, I am nonetheless confident that we can come up with solutions that will allow us to meet this burgeoning demand.
We know that industry is willing to play an active role, and we know that the Federal Government’s agreement to develop a National Freight and Supply Chain Strategy shows decision-makers are willing to listen to industry’s advice.
Thus, our immediate challenge is to make certain the advice we provide is the right advice, which will help ensure the Strategy that emerges is the right one for our industry and the right one for the Australian economy.
I think there has been an encouraging start on this front.
At the beginning of March, the ALC held its annual Forum in Melbourne, and the entire focus of the event was discussing the content of the National Freight and Supply Chain Strategy.
Of course, we are not starting with a blank piece of paper. Many of the attendees at the Forum are leading figures within Australia’s freight and logistics industry, and throughout their many years of collective experience they have garnered insights and evidence that will prove invaluable in terms of getting policy settings right.
Although ALC Forum 2017 was the first industry-wide gathering since the Prime Minister’s announcement last November that the Government would develop the Strategy, the discussions revealed there is already a remarkable degree of consensus across the industry about what is required to make it effective. This is a strong basis from which to work.
To help synthesise the industry’s conversations to date, the ALC has produced a Working Paper that summarises the views of industry to date about the contents of the Strategy.
Some of the major themes addressed in that publication are as follows:
Urban encroachment issues
In the lead up to the 2016 Federal Election, the ALC prepared a document called Getting The Supply Chain Right, which highlighted the freight and logistics industry’s most pressing priorities for an incoming government.
One of those was urban encroachment, and the lack of buffer zones, land separation setbacks and design mitigation measures around sensitive use developments, which can significantly hamper the efficient operation of freight-related infrastructure.
At the time, the ALC noted that the national freight supply chain will be unable to support Australia’s growing demand if facilities and infrastructure continue to be prevented from realising their optimal capacity, due to restrictions imposed on their use or operating conditions.
This includes things like night curfews for airfreight and port facilities, restrictive speed limits and the banning of heavy vehicles from key routes that provide access to freight facilities.
These things are often pursued by governments in search of an electoral boost. However, their long-term impact is to simply build inefficiencies into the supply chain, which ultimately results in higher consumer prices.
As industry ‘insiders’, we understand that there is a symbiotic relationship between good outcomes for freight efficiency and good outcomes for the community.
The problem lies in the fact that this is vastly underappreciated by the public at large, and even at times by decision-makers within government.
This is how we end up with poor planning outcomes, such as the failure to preserve freight corridors, and insufficient consideration of freight operations when pursuing ‘urban infill’ objectives surrounding new residential developments.
The freight and logistics industry needs to better ‘sell’ the fact that corridor preservation equates to improved safety, liveability and efficiency outcomes.
Technology issues
There was a broad consensus among participants at the Forum that not enough is being done to make use of data, both in terms of improving safety and efficiency across the supply chain, and also when it comes to effectively planning the nation’s freight infrastructure.
Of course, the top priority must be safety in the supply chain. Regrettably, Australia’s approach to safety in the trucking industry is lagging significantly behind that of other comparable nations. In particular, several participants at the Forum noted that Australia’s trucking industry is making insufficient use of telematics when it comes to making business decisions.
The ALC will continue to pursue a national telematics law, permitting the use of data about vehicle performance, equipment and driver behaviour that can be used to enhance road safety, improve efficiency within the logistics industry and identify problems with driver behaviour.
Technology also offers a potential way to overcome the impact of ever-more restrictive planning and vehicular access policies when it comes to CBD freight delivery. One detailed presentation discussed using urban consolidation/distribution stations. These can provide for multi-modal routing systems using bicycles, walkers and electronic vans to facilitate freight delivery.
It is far more efficient than using large vehicles to deliver small loads – especially given that an increasing number of large-scale residential developments do not incorporate delivery zones or provide access facilities for freight vehicles.
Rail issues
There is very strong support within the industry for construction of the Inland Rail, at last providing a port-to-port rail link from Melbourne to Brisbane. This project has had a long gestation, but with the increasing demand for freight resulting from free trade agreements and the growth of e-Commerce, encouraging more freight onto rail is vital.
Constructing the Inland Rail will help to cut freight transport times, reduce road congestion and promote cheaper consumer prices. There are also considerable economic benefits for regional communities along the route.
However, there are also opportunities elsewhere in the sector to make greater use of short-haul rail. This includes pursing projects like the duplication of the rail line at Port Botany, which will help achieve NSW Ports’ target of moving three million Twenty-foot Equivalent Units (TEU) by rail by the year 2045.
Pursuing a rail connection between the Port of Melbourne and three of Victoria’s inland ports will also be important in promoting supply greater supply chain efficiency and addressing road congestion.
This issue is especially important in the context of Asia’s rapidly expanding middle class, whose appetite for the type of high-quality agricultural goods Australia produces will be a source of growing demand on our freight and export infrastructure. We must be mindful not to cede our competitive edge in this area by failing to have a supply chain that operates safely and efficiently from paddock to port.
The next steps
The ALC believes that a dynamic Strategy requires a dynamic consultation process to guide its development, and accordingly the ALC will be continuing to engage closely with industry over the coming weeks and months to make sure we get the right outcomes.
However, from the conversation thus far, it’s already apparent that there are some clear expectations from industry.
Existing freight infrastructure needs to be made to operate efficiently, through making sure planning instruments not only identify and preserve the industrial lands to provide the jobs and logistics facilities of the future, but also ensure new residential developments do not encroach on infrastructure and prevent its effective utilisation.
It will also be necessary to establish some form of mandatory system of data collection that will allow better decision making and improved outcomes in safety, planning and investment decisions, all of which will help boost productivity.
We will need to move towards hypothecation of levies, fees, taxes and charges raised for the purpose of developing an identified piece of infrastructure – so that money raised is invested properly and not put back into consolidated revenue.
The construction of Inland Rail must continue to be treated as a priority, ensuring rail as a modality has a clear place in moving freight in the Australian supply chain.
Great Commonwealth leadership needs to promote supply chain safety and efficiency – this includes helping the public at large understand the importance of supply chain efficiency, as well as incentivising state jurisdictions to consider freight needs in their planning instruments by making Commonwealth funding support subject to conditions such as having corridor preservation strategies in place.
Finally, the establishment of a specific Federal Department of Planning and Infrastructure will allow the Commonwealth’s expertise in these areas (including the development of funding mechanisms) to be concentrated and properly able to be used as resource, by industry and by other jurisdictions.

Australian businesses ‘underprepared’ for rising ransomware threat

In recent months, the WannaCry and Petya outbreaks caused widespread disruption and losses for businesses and public-sector bodies around the world, highlighting the vulnerable position of businesses when it comes to cyber security. Many are still failing to undertake urgently required remediation, experts have warned, and it is feared a new wave of targeted cyber crime is coming.
Experts at a security roundtable event in Sydney on 11 July agreed urgent action was required by Australian businesses of all sizes to ensure they were as prepared as possible before the next wave of attacks occurs.
“Business owners are understandably focused on the day-to-day challenges of running their business,” said David Cohen, Founder and Managing Director, SystemNet. “But unfortunately this means they are not paying sufficient attention to cyber security.
“Many might be aware of the risks, but have not considered the impact a ransomware attack could have on their operations. Effects could range from mild inconvenience to a data loss so significant it puts them out of business.”
Monica Schlesinger, Principal, Advisory Boards Group International, noted that the situation is not confined to small businesses, in fact many large organisations are also vulnerable to attack. She pointed to the most recent Petya attack that caused significant disruption for global firms such as advertising giant WPP, legal company DLA Piper and Danish shipping giant Maersk.
“Every business needs to have a clear strategy in place when it comes to cyber security, and formation of that strategy has to start at board level,” she said. “The strategy must take into account the evolving threat environment and clearly outline the steps that will be taken to minimise the risk of attack.”
Schlesinger said that, traditionally, IT challenges tended to not be well understood at board level, however the current environment had made cyber security an issue that required constant oversight by senior management.
“It needs to be seen as special risk,” she added. “When you suffer an attack it can happen very quickly and can destroy your company. It’s not a case of ‘if’ an attack will happen but ‘when’ and the board needs to be sure all required steps have been taken.”
Roundtable participants discussed the ramifications of the Notifiable Data Breaches Bill that will come into force in February 2018. The bill requires companies to report security breaches where there has been unauthorised access, disclosure or loss of personal information held by a company that is likely to result in ‘serious harm to any of the individuals to whom the information relates’.
“This means the impact of attacks can no longer be swept under the carpet,” said David Higgins, ANZ Country Manager, WatchGuard Technologies. “Senior management has to be aware of its responsibilities and realise that security can no longer simply be left to the IT team. They have to take a top-down approach.”
Although the recent ransomware attacks have served to increase awareness of the challenge, roundtable participants agreed more education was required for Australian business leaders. Many were still not taking basic steps such as deploying software patches that could significantly reduce their level of risk.
“There is also a need for ongoing education of staff around IT best practices,” said Cohen. “They must be aware of the risks associated with opening emails from unknown parties, visiting suspect websites and installing software from unknown sources.”
Higgins agreed, saying IT security was the responsibility of everyone in a business and all had a part to play in ensuring defences are as robust and effective as possible.
“Awareness and action has to extend from the managing director or board through to the most junior staff member,” he said. “By taking a holistic approach, businesses can ensure they have both the tools and behaviours in place that are needed to counter the threat.”
While ransomware has captured the bulk of attention when it comes to cyber crime, the panel speakers emphasised that there are other trends that should also be on the radar screens of Australian businesses. The trends include:

  • Evolving Attacks: Attackers do not remain stagnant and, as new technologies emerge, they evolve their tactics to be more effective. Ensuring robust security will involve monitoring a shifting target.
  • Authentication: One of the foremost tenants of security is trust, and trust is based on authentication. Unfortunately, the primary mechanism used for authentication – passwords – is no longer sufficient. New methods must be quickly found and put into use.
  • Everyone is a target:  there is a misconception among small- and medium-sized businesses that, because they don’t have huge amounts of intellectual property, they won’t be attacked, but that’s a fallacy. Bad guys don’t always want to steal data, and in the case of a ransomware attack, they don’t want the data at all – they just want the victim to want it badly enough to pay to get it back. Everyone is a target.

“Cyber attacks are going to become more sophisticated and, unfortunately, more effective,” said Higgins. “By having a multi-layered defence strategy in place, applying patches and educating staff, businesses can be best placed to withstand the threats that will have to be faced in the future.”

The ball is in our court

This column appeared in the April/May issue of Logistics & Materials Handling.
The ball has been put into the logistics industry’s court. For some years now, we have been urging government not just for more investment in transport and logistics, but also for better targeted investment – investment that will produce the best returns. We have also argued for better planning and better coordination between the three levels of government in Australia.
We gained some success when the Labor Government set up Infrastructure Australia (IA) as a statutory body in 2008, but it required several years of detailed work before IA could produce a comprehensive priorities list in a report to the Government – its 15-year infrastructure plan. Late last year, the Coalition
Government responded to that report in a statement that was welcomed by the logistics industry, and the Australian Logistics Council in particular.
Prime Minister Malcolm Turnbull agreed to something that has been at the forefront of the ALC’s wishlist – the development of a national freight and supply chain strategy. It was the core recommendation of the ALC’s 2016 election priorities document – ‘Getting the Supply Chain Right’.
So it is now critical that the industry plays a central role in the development of that strategy.
The ball is in our court. If we sit on our hands and presume that governments, the general public and narrow industry interests will get it right, we will be sadly disappointed.
The Prime Minister said, “Money alone is not the answer. We need to get better at planning and building the infrastructure, and to do that we have to work together – all governments, industry, stakeholders, consumers and citizens. And we must take a much longer view, rather than the short-term one driven, of course, by election cycles.”
He is quite right. But all too often lofty sentiments get watered down and sidetracked.
One of the critical questions will be the emphasis given to the various parts of the fairly finite infrastructure cake: transport (comprising road, rail, sea and air, with each of them divided into freight and passenger); telecommunications; water; energy; and buildings (particularly schools, hospitals and sportsgrounds).
Unless the logistics industry makes its voice heard, there is a danger that the strategy will emerge with the wrong balance. We know freight does not vote. It means that we start with a proclivity to favour public transport over freight, and to favour buildings over other infrastructure.
There is also a danger that the money for transport will geographically follow the votes rather than the freight.
It is imperative that the logistics industry and its premier voice, the Australian Logistics Council (ALC), put forward sound suggestions for the national strategy.
The ALC has always believed in taking the long view, so it is pleasing to see the Prime Minister stating that the national strategy must do the same. The ALC has always believed in only putting to government soundly argued, evidence-based submissions. This is because our members span the entire supply chain, incorporating road, rail, sea, air, sea ports and intermodal ports, so we are not interested in special pleading. That being the case, our input should be well received – but we cannot take that for granted.
Though the logistics industry impacts every business and consumer in the nation, it is often seen as one removed. People look at the parcel, not the truck, carriage or aircraft belly that delivered it.
We will have to make greater efforts to communicate the importance of our industry to the wider public.
The logistics and transport industries employ 1.2 million Australians and represent 8.6 per cent of the economy. We need to impress this upon the public as well as the people who will develop the national strategy. We also have to stress that the freight task will almost treble by 2050.
Taking the long view and getting coordination between the three levels of government in Australia have been almost intractable problems, so it was pleasing to see the Prime Minister’s intention to tackle them. The ALC’s ‘Getting the Supply Chain Right’ document said the Federal Government, “in partnership with the states and territories, should establish effective corridor protection mechanisms from urban encroachment or incompatible land uses to ensure the timely preservation of surface, subterranean and air corridors and strategic sites for future infrastructure priorities.”
The ALC is determined to not waste this opportunity – for the good of our industry and our nation and its people and businesses. The ALC’s annual Forum in 2017 in Melbourne had the development of the national freight and supply chain strategy as its theme. Taking the industry’s views and resolutions on the strategy from the Forum to government will be the main task of the ALC in 2017.
Experience has show that promoting good policy over bad – but popular – policy is a continuous task. But it has borne fruit in the past and we are determined to keep government accountable to deliver on the sentiments in the Prime Minister’s statement in the future.

Think differently

This interview first appeared in the February/March 2017 issue of Logistics & Materials Handling.
Global megatrends such as globalisation, urbanisation and digitisation are forcing Australian logistics businesses to commit to a new, much more comprehensive mindset.
In a move to renew the company’s focus on innovation and future growth, Linfox founded a stand-alone Development, Strategy and Innovation (DSI) business unit in late 2015. A year on, Logistics & Materials Handling spoke to Chris Hemstrom, head of the ambitious project, about the essence of innovation and the role of creativity in modern business.
Q: It’s been a little more than year now since you became head of Linfox’s new DSI unit. In a time where the term innovation is seemingly losing traction – the Prime Minister’s 2016 Innovation Initiative was deemed too elitist to be successful, for instance – how do you ensure people understand what you’re trying to achieve?
A: That’s an interesting question. To move away from that innovation buzzword, I’d like to think of DSI as an organisational development tool. Our goal is surprisingly simple: to make sure we are delivering value to our client base. Our strategy is therefore much more focused on understanding our customers, their requirements, and how we can best help them than on innovation per se or simply acquiring more business. In fact, you may be surprised to learn that Linfox has shrunk the number of customers we have by almost two-thirds since the GFC (Global Financial Crisis, ed.), while the business has grown quite substantially in terms of its scale. In focusing on fewer customers, we’ve been able to create more value for and grow with our existing ones.
Q: Surely that doesn’t mean you’re not open for new business?
A: No. All we do within the DSI team is look differently at the concept of business development. Part of the reason why DSI was formed was to help scan the market, help identify work with potential new customers and understand what it is they’re after, of course. But we don’t approach it in a transactional way where we create a new service and then try to sell it as much as possible. Rather, we try and understand where there might be a gap in the market, where there might be a problem that someone else hasn’t been able to solve but that we might be able to handle. We look at that both from the perspective of deploying our existing capabilities and services as well as building new capabilities.
Q: Can you give us a more concrete example of that process?
A: One area that we’ve done a lot of work in, for example, is developing and deploying efficient warehouse management systems. We have a long-standing relationship with SAP here, which has a very sophisticated core technology that has been developed over a long period of time. At Linfox, we’ve got special expertise in how to run warehouses and how to deploy their systems, so together with some external suppliers, we have created some very efficient routines, if you like, to make modern warehouses more efficient. In fact, in a first for Linfox, we’ve recently secured two contracts to provide SAP warehouse management system maintenance, support and rollout services to two customer sites – I think many 3PLs are not quite as engaged in the R&D side of things as we are.
Q: So it’s more about the way you approach a problem – a mindset issue, if you will?
A: Precisely. We’re using the design thinking process developed by the Hasso Plattner Institute (HPI) at the University of Potsdam, Germany, and Stanford University, or at least the methodology behind it. It was originally intended as an innovation method for products and services, but has advanced to a completely new way of seeing people in relation to work, of imagining the concept of work and of posing questions about how we want to live, learn and work in the 21st century. To translate it back to what we do, we’re basically saying ‘we want to understand how we can work at the leading edge of technology and bring new efficiencies into our businesses instead of just taking what we’re offered.
Q: That’s quite an academic approach for a privately owned logistics business. Do you sometimes think you are doing everyone else’s work?
A: No. We’re an early mover who is actively bringing promising technology companies into the transport space – that’s all. Without us bringing some of them into the market, they probably wouldn’t have arrived yet. I suppose when you’re a leading player, you need to go down that path to keep moving. If you lead and keep leading while everyone else is trying to get to where you were two years ago, you always have an edge. At the same time you help bring up the standards of the industry at large. I’m hoping we are, anyway.
Q: In that context, does the push of disruptors like Amazon or Uber in the logistics space worry you?
A: We do recognise that the world is changing very quickly. Every day now you’re reading about Amazon and how it’s going to take over the world, and you’re reading about Uber and how it’s going to take over part of the transport chain. What we’re saying is that that may be true, but we’re still in the game. We think we’ve got some different ideas that could add value. To get that across, we have quite an extensive program of talking to our customers and to prospective new customers – not in a sales-y sort of way, just to learn about their problems – which we call our discovery process. Again, it’s not a sales program. It’s a program of understanding how industry is changing. Quite often it’s us that instigate change by just asking the question. That’s probably why I am not all too worried about Uber at the moment.
Q: You are not standing still either, though. Linfox has recently launched a multi-million dollar partnership with Monash University to advance the transport industry’s innovation agenda and provide more education opportunities for the Linfox team. A result of the work DSI has done?
A: It’s been a team result of course, supported by DSI. The Monash University partnership is a critical part of a longer-term strategy for the business to make sure that there is a structured education program for everyone that works in the business, because we believe it will bring value to the customer at the end.
Q: So it’s not just a leadership program, to pick up on the elitist debate once again?
A: Absolutely not, no. Linfox College, our current internal education program, already touches everyone in the business, and our ambition is to expand on that. In fact, Linfox College allows family members to be educated as well as part of the program. There’s quite a substantial array of different courses for them. What we’re trying to do with Monash simply adds more pillars to the program, so we can enable people to go up from doing employment-based courses or single unit courses to Bachelor’s or Master’s degrees, or even PhDs where that’s relevant. But, at the same time, we also get access to the expertise within the university system, and Monash is, as you’re well aware, one of the top universities, not only in the country, but globally. Being able to get access to its research team and its ways of looking at the world will also help us in our innovation and R&D agenda.

Found in translation – Exporting the Australian logistics mindset

This article first appeared in the February/March 2017 issue of Logistics & Materials Handling.
Three Australian logistics veterans have been tasked with rethinking Japan’s supply chain strategy, mixing the traditional and the modern to achieve unprecedented growth.
Even when you’re the biggest name in your market, that’s no reason to rest on your laurels. While Coca-Cola is the market leader for beverages in Japan, there are five other major players vying for a share of the action. Market pricing has been declining steadily over the past 16 years, putting a squeeze on margins and forcing beverage suppliers to stay vigilant to remain relevant. According to Bruce Herbert, Chief Supply Chain Officer at Coca-Cola East Japan (CCEJ), consolidation and diversification have been key strategies for many in the industry. “Coke in Japan is not just carbonated drinks, over half our volume is sugar-free teas, coffee and water,” he says. “A very strong innovation and new product pipeline has to be filled every year from our own plants and a network of contract packers.”
Covering over half of Japan and serving a population of 60 million, Coca-Cola distributor CCEJ is in a constant state of metamorphosis, always looking for ways to increase efficiency and cut costs. The US$6 billion ($8.2 billion) bottler was originally formed in 2013 through the merging of four smaller bottlers and has since absorbed a fifth one. It will soon merge with Japan’s next biggest beverage distributor – Coca-Cola West – and cover some 90 per cent of the market. Set to take place in 2017, the merger will increase the company’s value to US$10 billion ($13.7 billion) and increase its assets from eight factories to 17, 250 sales warehouses from 150, and 800,000 vending machines from 400,000 and 3,500 daily semi-trailer loads shifted per day from 2,000.
CCEJ recruited supply chain experts from around the world, including Bruce, to come to Japan and lend their expertise and, as a result, has been hugely successful in cutting costs and increasing profit. Bruce is joined by two other Australian supply chain experts, cherry-picked for their knowledge of the beverage and retail industries with decades of experience working with supply chains in Australia, Asia and Africa – Edward Walters, now Senior Executive Officer, Planning, Logistics & Distribution at CCEJ; and Distribution Transformation Manager, David Sim.
The Japanese market has presented a challenge, thanks to the country’s complex traditional business etiquette, though Bruce found its workforce’s strong work ethic and customer service to be worthy of admiration. “In Australia we take for granted that change and improvement are part of working life,” he says. “Especially at [Coca-Cola’s Australian-based bottler, ed.] Amatil, where supply chain transformation has been progressing since the mid-90s and many world-leading initiatives were started. Coming to a business which was effectively five small Japanese businesses just three years ago, I have realised just how far ahead some of those things we were doing in Australia were.
“In one way we have a big advantage of having lived in what will be ‘the future state’ for the supply chain here. Of course, there are many things to be learnt from the Japan model as well, but knowing that changes needed here have worked elsewhere gives us a big head start.
“I respect the Japanese working style. My Japanese colleagues are extremely hardworking and focused on detail, in a way that most Australians would find very challenging. Workers regularly work very late in the office, never hesitate to stay back or work over weekends and don’t give up on a problem. So much so that Government and companies are focused on encouraging people to relax more and take more time off, take more holidays etc. – this is definitely not a problem in Australia.”
The Japanese approach to life in general, including even how seemingly ‘logical’ issues are approached is quite different to the West, according to Bruce. “Not better or worse, but different,” he adds. “Whilst basic human reactions and motivations are the same, the way they express themselves is different. Relationships are much more important and sensitive here, as is loyalty to the business or community. All of these things translate into business culture and relationships.”
In some aspects, Australia’s logistics sector could benefit from observing the Japanese workplace, says Bruce. In particular, he believes that the value placed on quality and customer service in Japan would do wonders for Australian business. “Japan is surely the most quality-focused country on earth, and customer service is seen as an extension of quality,” he says. “Near enough is not good enough, perfection is sought after and worked towards at every level. It is deeply ingrained into everyday life – I don’t think we would ever have to ‘train’ for customer service as it is intrinsically understood. This often leads to failures by multi-national companies who don’t understand what Japanese consumers and customers expect. Likewise: quality. Australian businesses may be more ‘lean’ but often do so at the cost of customer service and quality.”
CCEJ looked at successful logistics strategies in use around the developed world when searching for ideas to rejuvenate their own approach and, according to Bruce, flexibility and a laid-back Australian style have been instrumental in ‘cracking the code’ for the company’s logistics strategy. “I think openness to different ideas has been key,” he shares.
“I experienced some changes put in place here earlier by some of our colleagues from the US, but many of them did not work as they were simply ‘cut and pasted’ ideas from the US. Aussies may be proud of their country, but they usually don’t expect that they have all the answers.”
Edward likens the challenge of solving CCEJ’s issues to the task of unravelling a badly tangled set of Christmas lights – difficult to unravel without breaking a light and stopping the business. “We discovered that, over many years on the quest to providing high service and quality, network efficiency at CCEJ had been eroded severely,” Bruce adds. “This had happened steadily and high transport, warehouse and other costs had been accepted as ‘normal’. As there was little benchmarking of supply chain costs outside Japan, and since the costs were not easily ‘visible’, they had not been tackled by investment or progressive change either and a gap grew between global practice and Japan Coca-Cola practice.”
In order to ‘crack the code’, Bruce shares that two major changes needed to be introduced. “First was a painful implementation of a new SAP ERP system which replaced multiple legacy systems and gave central visibility to live data,” he says. “Second was more instinctive – we cut inventory by about 20 per cent – a very brave move in Japan – and thereby decongested the network, eliminating double handling, waiting times, extra transport and product write-off.”
A third big change, which is currently in progress, involves moving inventory upstream, closing small sales centres and cross-docking others, together with possible investment in new warehouses at plants and picking automation. CCEJ is already seeing positive results from the change, with over 25 billion JPY ($290 million) supply chain savings both from manufacturing and logistics/distribution improvement since its inception in 2013.“This year, heavy transport cost is down 20 per cent and write-offs are down 50 per cent,” Bruce shares. “So we are already almost halfway to the long-term cost reduction goal after just one year.” The 2017 merger of Coca-Cola East Japan and Coca-Cola West is expected to create opportunities for further savings.
Bruce attributes his team’s success to a combination of factors, from slow and cautious implementation of changes to constant re-evaluation of direction. “We didn’t approach this as a ‘project’,” he says. “We tackled this as a management challenge – to implement changes, monitor them closely and adjust as we went along. In that way the original ‘plans’ were gradually changed – with successes amplified and failures dropped quickly. Good real-time data access and manipulation was crucial here.
“Thanks to methodical and detailed execution of strategies by our team here, the changes we made to inventory levels, planning processes, truck routing, pallet configurations etc. were executed without impacting customers or quality. This meant that the costs we saved were not lost in upset customers or lost sales, but could flow directly to the bottom line.
“We discovered a clear and costly link between inventory levels and transport costs, which had never been uncovered before. I’d like to say we found this by a big analytical study, but actually it only became clear by trial and error – which is why an army of experts and analysts had failed to find it before.”
CCEJ now encourages its employees to make suggestions for improvement of processes, and implements over 100,000 small innovation ideas per year on ways to improve quality, safety, service and cost.
The notoriously rigid traditional Japanese business culture presented a particular challenge for the CCEJ supply chain team, Bruce explains, though they were still able to achieve “massive change and results” thanks to their measured approach. “Resistance to change remains a constant both within the business and with customers and some suppliers,” he says.
“This is largely due to the extremely high standards set by customers and consumers and fear of making big mistakes. We were able to overcome this by making many small progressive changes, and avoiding – for the most part – big bang or sudden, unplanned change.”
Bruce believes that if applied in Australia, his team’s strategy could result in similarly positive outcomes. “The approach we have taken here has been based on numerics and data combined with good management routines, not just ‘hardware’,” he shares. “It can therefore be applied anywhere, to any problems.”
The CCEJ supply chain team have developed their own version of the revered – though oft-misunderstood – ‘Kaizen’ (kai: change, zen: good) business philosophy whereby big changes can be achieved through small, continuous improvements in all aspects of business. They are confident this method could be applied with success in any business environment. Bruce adds, “All I know is that after 35 years in this game there has never been a change as big and fast as what this team has achieved here in Japan this year.”

Let’s have a mature, calm conversation about driverless trucks and drone deliveries

If we are to believe the headlines, then driverless trucks and drones are about to revolutionise delivery transport. But how close are these developments, really?
These developments will likely be academic for years to come. There is more value in looking at what we can do now to improve efficiency with technology and processes which are already available.
Don’t get me wrong – technology will eventually have a huge impact and bring improvements. But we need to bring a healthy scepticism to the big claims currently being made.
Consider an extraordinary recent claim from a Stanford economist predicting petrol vehicles will vanish within eight years – what are we to make of such bold predictions, aside from its click-bait headline? The oil industry is a global behemoth, and internal combustion vehicles currently have a massive edge on power, distance, reliability and price point. Something incredible will need to happen to see all internal combustion engines replaced by electric vehicles with competitive prices and performance in a mere eight years.
Other headlines suggest we soon won’t need drivers at all. I think there needs to be an honest, mature conversation about self-driving vehicles.
The supposed economic gains raise as many questions as answers. We don’t know what the price point for purchasing a self-driving vehicle will be. We don’t know how the regulators will deal with them, don’t know the running costs (though there are claims they will cut down on fuel costs), and don’t know how insurers will view them.
The human factor is the big question. The driver is an expensive part of delivery transport, alongside fuel. If these vehicles require ‘babysitters’ who may be called upon to take control, then they need to be qualified drivers, with the appropriate licences and the appropriate pay levels. If a human is required to be present in a driverless vehicle, how deep will the cost savings be?
The most obvious use for self-driving vehicles is long-haul freight. There have been some fascinating moves, including a self-driving truck delivering Budweiser in the USA. Uber Technologies Inc. and Anheuser-Busch InBev NV collaborated to have an 18-wheeler travel 180 miles with a driver present in the sleeper cab, to make the first commercial delivery using the technology. Volvo also demonstrated a self-driving truck last year, on a short journey in a Swedish underground mine.
Before we get too excited about the self-driving capabilities, Gartner offers an interesting statistic – the IT research house predicts less than one per cent of long-haul freight will be carried by driverless trucks by 2021. This is a long-term game.
While we must monitor these developments, will there be any benefit in being an early adopter? There are many examples in business where it has paid to be conservative, let the early adopters make the early mistakes, and wait until prices come down. These vehicles may require a huge investment and still require somebody on board. We don’t even know what the regulators will do with this technology, though it’s bound to become political.
Safety concerns and potential widespread job losses will fuel much debate and we can expect heavy regulatory involvement.
Transport is statistically one of the most dangerous industries in Australia and worldwide – so we all have to work harder on safety. Self-driving vehicles could potentially make big in-roads into safety, but this seems most plausible on long haul, interstate routes, which are more predictable.
Self-driving vehicles in built-up, metro areas is another thing. Will people, and therefore governments, ever accept driverless semi-trailers or B-doubles in built-up areas?
Early research suggests widespread distrust of self-driving vehicles. A US survey of over 2,000 people found over 75 per cent thought they would never own a self-driving car. Everybody knows how technology can ‘crash’, how it can be hacked and corrupted. Those promoting self-driving vehicles need to persuade the public and the politicians they are safe.
Consider it this way: would you put your child in a self-driving car, on their own, without any other human supervision, for them to be driven to school?
Any incident involving a self-driving vehicle anywhere in the world will be headline news. The potential for PR disaster is huge. Yet we’ve lived with human error for a long time. We may not like it, but we understand it. Will people ever be so understanding of computer error?
Drones are another fascinating development, with Amazon investing in the technology. Drones have huge potential for parcel delivery, but don’t do away with your delivery fleets just yet.
The commercial application of drones faces considerable hurdles around airspace and public safety. Some of these drones weigh 25kg – add payload, and that’s a considerable weight to fly over built-up areas. If drones can achieve air clearance and cover off all safety problems, some serious number crunching will need to ascertain whether several drones controlled by people are more cost-efficient than a driver who may carry dozens of parcels in a van.
In my 30+ years in transport I’ve seen many innovations, which should have made bigger impact on efficiency: mobile communications, telematics, vehicle and parcel monitoring, and insourcing. Yet transport remains a top-five cost of doing business, and a continual source of angst in the supply chain.
Many companies could revolutionise their transport right now. Without any massive investment in technology or personnel, most transport divisions could cut their running costs by 10–15 per cent – just by being smarter in how they use their technology and personnel.
There needs to be more focus on what we’ve got. Properly utilising existing technology would be a huge step forward for many organisations.
Doing so would not just deliver immediate benefits, it provides clear thinking on these breakthrough technologies when they finally do become available – any organisation which clearly understands its costs and efficiencies is bound to make the best decisions on future investments.
Walter Scremin is General Manager of Ontime Delivery Solutions.

A Private Port – The outlook for Australian logistics

This article first appeared in the February/March 2017 issue of Logistics & Materials Handling
The privatisation of the Port of Melbourne in late 2016 will have major economic and infrastructural implications for the city, Victoria and the country for the next half-century. For the region’s logistics industry, it will be anything but business as usual.
Australia’s largest container and general cargo port, the Port of Melbourne, was recently leased for 50 years to a private syndicate, the Lonsdale Consortium. Victoria’s logistics industry is set to benefit from massive investment by the new owners to improve the Port’s efficiency and increase its capacity.
The deal follows the privatisation of the east coast’s other major marine transport hubs, the ports of Brisbane, Botany Bay, Kembla and Newcastle, in recent years. The Victorian gateway handles the bulk of Australia’s freight task and, as such, the agreement will impact the region’s logistics industry at every level, in the region and across the country.
The successful bidders secured the lease in September 2016 in a deal worth $9.7 billion, and promptly took control of the Port of Melbourne on 31 October. Having expected to settle around the $7 billion mark, the Victorian Government was pleased with the result, vowing to invest the money on improving the region’s transportation links. Along with an additional, expected-though-disputed 15 per cent top up from the Federal Government under the asset recycling agreement, Victoria’s $11 billion windfall will have massive implications for its trade, transport and infrastructure ambitions.
Several projects have already been earmarked for investment with the proceeds of the sale, each aimed at relieving transport woes around the region. Lease proceeds going to the Victorian Transport Fund will be allocated to improved rail and vehicular access to the Port and the removal of 50 of the area’s worst level crossings to ease urban traffic congestion. Also to receive funds is a major urban rail project, Melbourne Metro, designed to ease commuter congestion on highways, and the ‘Western Distributor’, a five-kilometre toll road to link the West Gate Freeway at Yarraville in Melbourne with CityLink at Docklands, allegedly taking 6,000 trucks per day off the West Gate Bridge.
At the time of the sale, ALC Managing Director Michael Kilgariff voiced his support for major investment in logistics infrastructure. “Infrastructure Australia has predicted the volume of containerised trade going through our ports and airports will increase by 165 per cent from 2011 to 2031,” he said. “This significant growth underscores a need for all governments, including Victoria, to invest in appropriate national infrastructure to ensure our landside infrastructure can keep pace with waterside growth.
“Now is the time to get Victoria’s supply chains right by investing in the State’s logistics infrastructure to maximise the Port’s future potential.”
Tim Pallas MP, Treasurer of Victoria, has given assurances that the money obtained from the lease sale will directly benefit road users, and commercial vehicles in particular. “The Victorian Government is already working to take thousands of trucks off the West Gate Bridge and to the Port of Melbourne by a new dedicated road link, easing congestion for city-bound traffic,” he wrote in an official release. He has, however, already expressed concerns over funding and the politics of progress after the Federal Government refused to offer the full 15 per-cent asset recycling scheme top-up payment. Nonetheless, it would appear that, at least for the near future and the current government, the coffers are full and investment is possible.
On the other side of the transaction, the Lonsdale Consortium, comprising the Future Fund, QIC, Global Infrastructure Partners and OMERS, has secured a valuable deal. For their money, they have gained control over Australia’s largest and busiest container, automotive and general cargo port, and the 3,000 vessels that visit each year handling 36 per cent of the country’s container trade.
In addition, the deal specifies that the State will be required to pay compensation if a second container port in the region is constructed within the 15 years of the lease’s commencement.
Some observers worry that in order to recoup their cash, the Consortium will hike up fees and rents as soon as an agreed 15-year fee freeze period has expired, resulting in a loss for the Port’s users and, indirectly, consumers. ANL Container Line Managing Director John Lines warned at the time of the sale that port users and the broader Victorian community would soon feel the squeeze. “Port and other State asset privatisations are a tax by stealth which will be paid over decades to come,” he told Lloyd’s List Australia. “If we look at the numbers for Melbourne and do some very simple calculations, the Port made EBIT in 2014–15 of $121 million which at the sale price of $9.7 billion for a 50-year lease, is $195 million per year just to get their money back, let alone make a good investment return. So the only way is up for prices. There is some comfort in the 15-year price cap in the lease agreement but after that, for another 35 years, it will be open slather…and we will all be paying dearly for it.”
The Victorian Transport Association (VTA), meanwhile, has advocated the private lease, welcoming the infrastructure improvements to come as a result. “The VTA played a significant role in the process behind leasing the Port of Melbourne, through numerous submissions, appearances before the Upper House lease inquiry and advocating for transport projects lease proceeds,” said VTA CEO, Peter Anderson. “The windfall from the lease will fund projects through the Victorian Transport Fund, such as strengthening roads and bridges to accommodate high productivity freight vehicles.
“It was also notable that through our efforts, the legislation was modified to address the major concerns we had about protections at the port, giving operators certainty against excessive price hikes.”
As the Lonsdale Consortium and Victorian Government congratulate themselves on a job well done, thoughts must move to the realities of a privatised Port for the thousands who pass through it each day.
In return for the anticipated rise in fees, port users will ideally benefit from the spoils of a transition from state ownership to private management, including increased efficiency, faster decision- and change-making powers thanks to a less bureaucratic system and investment in facilities.
In reaction to a once-popular opinion favouring government intervention, Harvard Professor of Economics, Andrei Schleifer, stated in his much-cited 1998 paper State Versus Private Ownership that capitalism limited by government regulation – not socialism – should be the answer. “Private ownership should generally be preferred to public ownership when the incentives to innovate and to contain costs must be strong,” he wrote. “Many of the concerns that private firms fail to address ‘social goals’ can be addressed through government contracting and regulation, without resort to government ownership.” Schleifer’s vision, however, relies on the absence of monopoly, a fact that the Lonsdale Consortium’s contenders for the lease will now be keenly aware of, though the Victorian Government will retain responsibility for some aspects of port business – notably safety and environmental regulation.
According to former ports boss Michal Frydrych, while privatisation or leasing of terminals and port operations can be beneficial, selling or leasing entire ports can lead to serious abuse of power. “I have always operated on the premise that ports are vital to development of countries and should play a supporting role to the rest of the economy,” he wrote. “We cannot have expensive ports with limiting power over other port developments. We need ports in correct places, practical and managed by port people.
“Ports are far too important to be used for quick cash to be used to build bridges that should have been built anyway.”
The privatisation of the Port may lead to an increased cost of business for its users, with owners pursuing profitability and shareholder interests. Already it seems likely that a levy introduced by the Victorian Government in 2012 to improve infrastructure around the port and increase supply chain efficiency, the ‘Port Licence Fee’, will continue to be collected beyond its original projected end date of 2022. Peter Van Duyn, Maritime Logistics Expert at the Institute for Supply Chain and Logistics at Victoria University, warned in late 2016 that the ‘temporary’ charge is likely to be collected until the end of the lease agreement. “The Port Licence Fee, which currently contributes approximately $80 million per year to the Port’s coffers and is CPI indexed…was originally meant to be levied for a duration of about 10 years, or until it had raised $1 billion,” he wrote. “It looks like importers and exporters are now stuck with this fee for the next 50 years.”
There are big changes ahead for the Port of Melbourne. Over the next 50 years, the Lonsdale Consortium will be responsible for the success, or failure, of Australia’s most important port and its many dependents. So far, many promises have been made, but it shall soon become clear whether the Lonsdale Consortium will deliver, or if the people of Victoria are being taken for a ride.
Air logistics – outlook
The Port of Melbourne lease is not likely to have a dramatic, direct impact on the region’s air logistics industry. Indirectly, though, it is sure to benefit from the upgrade projects and investment in other parts of the region, with shorter Port-to-airport times thanks to reduced road congestion, the construction of dedicated freight routes and the reduction of commuter traffic if a metro system is developed. Additionally, with members of the Lonsdale Consortium holding stakes in Melbourne Airport, the region’s air cargo hub may well figure in the group’s long-term vision for Victorian logistics.
Marine logistics – outlook
Set to benefit most from improved efficiencies in processes in the Port of Melbourne, marine logistics is also positioned to take the brunt of added fees. With no second container port in the area to help deal with the projected doubling of freight volume in the next decade, and with a 15-year block on the construction of a new one, the Port of Melbourne will continue to face the massive task alone, with some operators worrying they will be at the mercy of the owners’ management, rules and fees. ANL Container Line Managing Director, John Lines, expressed serious concerns about the privatisation, for example: “Ports are big, lumpy bits of vital infrastructure for each region and, being a natural monopoly, are best owned by the state. The prices paid to cash-strapped governments are no doubt attractive but these prices can only be recouped by the purchaser by increased flows or increased prices and only one of these, prices, is under their control,” he says. “These extra costs will flow through the whole economy.”
Rail logistics – outlook
Rail logistics are set to benefit from the privatisation of the Port of Melbourne, both directly and indirectly. Russell Smith, Partner at Global Infrastructure Partners (GIP), part of the winning Lonsdale Consortium, advised at the time of purchase that the group has plans to use its experience in managing port and rail assets to make the rail logistics chain from regional NSW and Victoria into the Port more efficient and pricing more competitive with other ports. “GIP looks forward to bringing to bear our strong port and rail industry expertise to drive forward the efficiency and capacity of the Port of Melbourne and focus on the necessary transformational change in the road/rail mix servicing the freight task,” he commented.
Some proceeds from the sale are to be directed towards developing better rail infrastructure in anticipation of growing freight volume. At the time of the purchase, ALC Managing Director, Michael Kilgariff, commented on the importance of investment in road and rail infrastructure linking the port to the wider transport network, including the development of an inter-modal terminal. “This includes an appropriate investment of the $58 million set aside for the port rail shuttle, which has been on hold while the port lease transaction was finalised,” he said. “Investment must incorporate all modes of transport, including short-haul rail, which needs to play a greater role into the future as our ports continue to move greater numbers of containers each year.”
Road logistics – outlook
If planned infrastructure developments come to fruition, fleets will benefit from better port access and traffic conditions, avoiding the overloaded West Gate Bridge thanks to the ‘Western Distributor’ project. “An appropriately regulated port, supported by efficient road and rail links, is vital to sustaining the Victorian economy and driving productivity improvement across the supply chain,” said ALC Managing Director Michael Kilgariff. Beyond the port, improved infrastructure in the region funded by the sale will contribute to more efficient journeys, directly through the removal of level crossings, and indirectly by getting cars off the road and people onto a city-wide metro system.
Sources: Lloyd’s List Australia, Shleifer, A. (1998) ‘State Versus Private Ownership’. Ferrier Hodgson (2014) Transport and Logistics Insights: The road ahead. AFR (2016) Record $11b Port of Melbourne sale rides infrastructure boom. Infrastructure Victoria (2016) Advice…on options to secure Victoria’s future ports capacity.
 

Ports forging new alliances to meet challenges of shipping industry consolidation

After decades of rivalry, regional shipping ports are joining forces in an effort to make themselves more attractive to the world’s top ocean carriers.
The trend has been sparked by consolidation in the shipping industry which threatens to cut some ports out of lucrative global trade routes. Earlier this year, the world’s largest shipping companies formed three alliances which, together, will control around 90 per cent of global shipping traffic.
The alliances plan to save costs and improve efficiencies by packing more cargo onto larger vessels. As a result many are likely to make fewer stops, thereby bypassing some ports altogether.
In response, port operators are scrambling to retain their traffic and find ways to increase operations in this changing market. As well as examining every facet of their operations, many are considering forming commercial relationships with other ports in their region.
Creating new port agreements
The new agreements between port operators are being facilitated by the sharing of information about current operations and future plans. This is allowing aligned ports to understand where others are making investments and guide their own future spending.
Rather than simply competing with every other port in their region, some operators are seeing value in specialising in the types of cargo they handle while leaving other types to another port. For example, Port A may opt to invest in its container handling capabilities under an agreement with Port B that will vie for mixed cargo shipments.
Such specialisation is attractive for port operators as it allows them to create a point of difference when negotiating with shipping companies. The operators can also make capital investments safe in the knowledge that they will not be competing with other nearby ports for the same types of shipments.
The forging of mutually beneficial agreements with other ports will rely on the sharing of accurate data about operations. Rather than keeping their cards close to their chest as has been traditional, operators must be prepared to reveal details of everything from throughput rates and productivity to vessel turnaround times and equipment utilisation.
Some agreements between operators could lead to official alliances under which multiple ports are combined under a single agreement. This would result in further improvements in productivity and the sharing of back-end processes.
In this scenario, the Terminal Operating System (TOS) used within each port becomes critical. It must be able to handle the now specialised cargo moving through the facility as well as provide accurate data for shipping companies.
Ideally, the same TOS will be used in each port location, allowing seamless sharing of data and the streamlining of administrative workflows.
Boosting appeal for shipping companies
As well as creating new working relationships with other ports, operators must also ensure they are making themselves as appealing as possible to the shipping companies. The companies must be confident their vessels can be loaded and unloaded swiftly and administrative processes handled with the minimum of fuss.
Here, the TOS again plays a critical role. Firstly, the TOS is used to accurately plan shipping movements to ensure vessels are not forced to wait for long periods for a berth to become available. Shipping companies can plan their journey times to ensure minimum turnaround times are achieved as often as possible.
Secondly, the TOS will aid the management of any warehousing facilities made available to shipping companies for storage of goods prior to or post journey.
Some port operators are also looking at making investments in their facilities to better accommodate the larger vessels now being used. Improvements can include dredging channels and installing larger cranes. Such investments can be coordinated with other port partners to ensure duplication is avoided and a financial return is achieved.
By taking such steps and creating working agreements with former rivals, port operators will be in a much better position to retain and grow their shipping traffic. Those that choose not to follow such a path risk losing their business as shipping companies opt to use specialised facilities with efficient processes in place.
The global shipping industry will continue to evolve and it is vital that port operators constantly examine and develop their facilities to ensure they match market demands.
Kaustubh Dalvi is President of Global Business Development at Logistics Jade Software.

Robotics to be biggest supply chain disruptor

Robotics will cause the most disruption in the supply chain in the next five years, according to a study carried out by the University of Tennessee’s Knoxville’s Global Supply Chain Institute, as first reported by Modern Materials Handling.
The study looked at the anticipated impact of five technologies on the supply chain on the next five years: 3D printing, driverless vehicles, drones, robotics and wearable technology, assessing the current and potential use of these technologies as well as the benefits and barriers to using them.
“Robotics have been around for more than 50 years, but they have become dramatically more dynamic in the last five,” said Paul Dittmann, Executive Director of the Global Supply Chain Institute and the paper’s author. “They are no longer stationary, blind, expensive and unintelligent but can work alongside people and learn as jobs change.”
3D printing was deemed to be the least viable technology in the short term, though the study acknowledged that it has the potential to eliminate the supply chain completely if costs can be reduced and usable materials expanded.
“We are at a turning point in the industry where disruptive innovation is required to meet the exponentially growing customer expectations,” said Danny Halim, Vice President – Distribution and 3PL Strategies at JDA Software, one of the sponsors of the white paper.

Digital innovation to support future supply chains

Companies are embracing digital innovation as a tool to help them manage future supply chains, as found by a recent global study carried out by the Economist Intelligence Unit (EIU) in collaboration with Standard Chartered Bank.
The study surveyed individuals in senior executive, senior management and C-level or board roles in 13 countries in early 2017.
The report found that companies will pursue a stronger embrace of innovation over the next five years to help their businesses adapt to potential disruptions and intensifying competition.
‘Rebooting supply chains: Shorter, smarter and more sustainable?’ found that 93 per cent of companies surveyed recognise the importance of innovation in supply-chain management.
Furthermore, 55 per cent of companies described digitisation as either an important or very important five-year objective for their supply chains.
Companies also reported a need for greater visibility across their sourcing networks, with 54 per cent stating that achieving complete transparency about where and how their products are made is an important or very important goal.
Companies expect operational improvements and innovations will help them reduce the length and complexity of their supply chains. Forty-nine per cent of respondents said they expect their supply chains to become shorter and simpler in the next five years.
However, the study concluded that shorter supply chains may not necessarily be more simple, particularly for consumer-facing industries, where customisation and personalisation are becoming important trends.
Kevin Plumberg, Editor of the report, said, “We don’t expect supply-chain complexity to relent anytime soon when it comes to doing business internationally. However, digitisation of supply-chain information, increased transparency and more internal collaboration between functions can help companies with global supply chains become more efficient and effective.”
 

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