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LSCMS Blog

Blog for updates and happenings in logistics in the Asia-Pacific region

November 5, 2014

Indonesia Plans Three New Ports for 2015

Filed under: Asia Supply Chain Insights,Logistics,Maritime,News,Newsletter — admin @ 11:09 am

Hapag-Lloyd-ShipState-owned port operator PT Pelabuhan Indonesia II plans to issue US$1 billion in bonds to finance the construction of three new ports in the country.

Richard Joost Lino, the company’s president director, said the company will build the ports in Tanjung Api-Api, South Sumatra, in Sorong, West Papua, and in West Kalimantan. The construction of the new ports is expected to start in the third quarter of 2015. Lino said that the ports should be operational by the end of 2018.

[Read more… Curated from World Maritime News]

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September 25, 2014

China e-Commerce and Logistics

Filed under: Asia Supply Chain Insights,Newsletter,Resources — admin @ 12:02 am

China’s direct-to-consumer e-commerce sales grew 42% in 2013 to USD 305.5 billion and McKinsey forecast that by 2020 e-commerce in China could generate online sales of USD 650 billion.
This massive growth in online sales in turn drives the need for comprehensive nationwide B2B and B2C logistics networks, stretching China’s express logistics sector capabilities like never before. Last year the express delivery providers delivered 9 billion pieces, up 61.6 percent year-on-year.
At the recent Post Expo Conference in Hong Kong, I was privileged to moderate the e-Commerce Panel Discussion, where we discussed how stringent customer expectations are driving fierce competition amongst service providers.

The panel discussed how the multi-national service providers have more sophisticated technology systems and provide online track and trace with end-to-end visibility, but are typically at a cost disadvantage when competing with the many thousands of local providers that make up this particular supply chain ecosystem.

Ms. An Chiem from Nike shoemaker Convers, shared how they use multiple different service providers and said that “there are some regions where we work directly with the provider and some regions where we contract a company and let them handle the service providers”.

She also commented on the varying levels of consumer expectations – another factor driving the use of a range of service providers “Some of our consumers are prepared to pay anything for their products, they don’t care how long the parcel takes as long as it arrives undamaged and is delivered to their door. However, by contrast we also have consumers that don’t care what it is and how it comes, they just want it the same day and they want the parcel delivered for free”.

Federico Manno, eBay Enterprise head of e-commerce in Asia, commented that their strategy in China is also to use many different players, quite different to how they operate in USA and Europe. “Logistics in China is still developing, but consumers are really spoiled because they already expect good service and free delivery, which means that the brands have to improve their P&L in order to subsidize most of the shipping costs.”

Also on the panel was Andrew Eldon, COO of Hong Kong based Strawberry Cosmetics who offer a range of 30,000 products from 700 different brands. Andrew shared that Strawberry Cosmetics subsidizes all shipping and uses the postal service networks to service markets all over the world from their main DC in Hong Kong.

In such a crowded market, the fierce competition amongst express delivery service providers is resulting in volumes growing faster than revenues, reflecting price pressure that is reducing revenue per piece. This is impacting profitability for the service providers with expectations amongst market watchers of some impending consolidation.

For Logistics in China we can expect continuing exciting developments, embracing both challenges and opportunities in this rapidly growing sector of e-commerce logistics solutions – which is one of the featured Seminars at the forthcoming 9th China International Logistics Fair (CILF 2014) taking place in Shenzhen, China during 14-16 October 2014 – see http://www.scmfair.com/en/

LSCMS Advisory Board member Mark Millar provides value for clients with independent and informed perspectives on their supply chain strategies in Asia. His series of  ‘Asia Supply Chain Insights’ corporate briefings, consultations and seminars help companies navigate the complex landscapes in China and ASEAN, improve the efficiency of their supply chain ecosystems and make better informed business decisions.

Clients have engaged Mark as Speaker, MC, Moderator or Conference Chairman at more than 350 events in 20 countries. The Global Institute of Logistics recognise him as “One of the most Progressive People in World Logistics”. London based business publisher Kogan Page have recently commissioned Mark to write the book entitled “Global Supply Chain Ecosystems” – due for publication in 2015. Contact: mark@markmillar.com

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July 16, 2014

Strategy & Strategic Planning for LSP’s

All logistics providers — 3PLs, transport, forwarders, warehouses, logistics centers, ports and others — and whether they are asset based or non-asset based should have a strategy. The strategy identifies challenges, issues and risks with markets and their dynamics; and, going forward, can set the direction where the company is going for new markets and new business and customers to grow sales and profits.

Surprisingly, despite the purpose and benefit, many service providers do not have a viable, current strategy. Instead they view developing one as too much work, react to what customers ask or what competitors are doing, or have one that is outdated. In a way, they letting business vagaries drive their direction and future. Having no strategy can be a risky approach, especially if competitors, established and the potential new entrants, have a well-done strategy and especially given the reality of global economic change.

The strategy can be operations focused or it can be a significant change, to transform the company. Which strategy is developed can be based on and reflect risks for the business or for the service sector, competition, or changing customer and/or market segments.

There are two parts to a successful strategy—first, developing one and second, executing it. Developing a strategy comes from serious, formal strategic planning process. It involves a blend of financial and non-financial objectives. The plan should also focus on the present business, and how it will adapt to the future and new services and opportunities. It identifies where the company is going–and where it is not going– and what it takes to succeed in that service arena.

Planning. The starting point is where the business is now as to present dynamics with trends, markets, services, and customers; value proposition, and competitive positioning, coupled with sales and profits. At any stage of the planning process, at the minimum, a SWOT (Strengths, Weaknesses, Opportunities, and Threats) is useful for the present and potential future scenarios.

Planning contains mistakes that can limit the ability to develop a worthwhile strategic plan. Some of the shortcomings that can lead to a bad strategy include:

• Firms only go out one to three years with the plan. While that span is easier to deal with than looking out five years or so, that is based too much on what has happened, miss-assumes what will happen, over-assumes the company’s position in that future trend and is not strategic. It is more like a budget or extended sales plan.

• As a corollary to the short-span view, companies confuse goals with strategies. Increasing sales or reducing costs by a certain percent is a goal, not a strategy.

• Providers try to mimic what a competitor is doing, especially if it is new. That is not a strategy. A good strategy separates the business from the competition. Emulating competitors or chasing the next new logistics service is a short-sighted approach that often lacks understanding of market niches, operational nuances and value proposition.

• Companies stay with what they are familiar with, their comfort zone. This can be a myopic bias against performing the diligent planning analysis that is necessary.

• It does not identify and address hard questions and challenges, such as how sustainable the present business approach and operations model are. That negates the concepts of strategy and of planning.

• Planning is not rigorous and does not adequately assess both external and internal factors. Internal analysis does not get the rigorous attention it should get. Diligent self-assessment is required, but it can be difficult. Overestimating abilities and underestimating problems short-circuit any serious planning.

• Companies oversimplify trends, especially global ones, and their impact on future business. They let the past dictate too much of what will happen, even against the dynamic and changing global business world. Firms do not comprehensively deal with uncertainty and look at “what if” scenarios. It is a dismissive approach based on the past. Change, with its speed with competitors and markets, is more than local; it is global.

• Businesses create a wish list of strategies. Aggregating a catalog of possible ideas, no matter how worthwhile, is not strategic planning. The effort dictates potential strategic choices be culled and prioritized and that hard decisions must be made on what to do.

• Service providers do not scrutinize how well the strategy positions the service offering to the dynamics of global economic and business forces. They also overestimate potential competitive advantage—and underestimate its transiency– that the firm may create with its strategic placement.

• Companies keep the planning within the C level and do not extend down to others who may have a better understanding of the present activity. There is also an underlying assumption that what a company and its executives do are transferable to the future. This lack of communication and buy-in with the planning often continues with attempts to execute the strategy—attempts that often fail.

• Planning is an annual process with little happening with regards to implementation. That creates frustration and lack of interest with the effort.

There are basically three approaches for logistics service providers to strategically differentiate themselves—

1) Status quo. The conservative, stay-the-course option may seem like the safest choice; but it carries significant risk in the ever-changing and competitive global economy. Executives with strong risk aversion favor this way. It depends on the past to predict the future and on simplified assumptions to assume away uncertainty.

2) Organic growth. This can be a slow and assumed steady method using internal capabilities and resources. The approach implies high expectations and requires improved performance.

3) Aggressive growth. External partnerships or alliances and, especially, merger and acquisition are options with this choice. In addition to identifying right target firm, timing is an issue with this choice.
Companies, whether using organic and aggressive, can pursue one strong initiative or a few worthy opportunities. These approaches mean there will be an allocation, even reallocation, of resources–capital, people, assets and technology.

Going forward, firms should adapt and change their present businesses and build new ones. Companies should both change existing services and create fresh service offerings. It is not an either-or as to adapt or create; it is to do both, unless the plan involves divestiture or maximize profits of the present service and let it fade away.

Execution. Strategy implementation is critical. The best strategy, without good execution, will struggle to succeed. And the more dramatic the strategy is with scope and impact, the greater is the challenge for sound execution. An operations strategy has an internal capabilities and requirements, perhaps best-in-class. The significant change strategy has both internal and external requirements. Each strategy carries different proficiencies to implement and creates challenges for present executives, managers and employees to have the skills to implement the strategy.

Achieving the strategy separates planning for the sake of planning and planning needed to advance into the future. It also demonstrates the conviction that the company has in the strategy. Executing the strategy means communicating the plan within the company and with stakeholders to build support—both operating and financial–and aligning the business with its strategy. Adequate resources and defined responsibilities for execution are needed, along with corresponding, relevant metrics to track progress.

The transformation and its rate of implementation to carry out the strategy may require recognizing and dealing with the need for change management. In reality, there are strong similarities between change management and successfully implementing a strategy.

Tied to the grand strategy are underlying strategies and implementation plans for sales, pricing, marketing, positioning, operations and technology. Logistics providers should recognize the life cycle to their services, especially with regard to profit maximization and the commodity service view of their offerings. This service life cycle creates the need for the subset of strategies and fulfillment of them. How people within the company grasp and execute these opportunities can have significant effect on long-term margins.

While direction can come from the top level, carrying out the execution needs clear lines of responsibilities couple with a coordinated, cross functional effort by different groups within the company. There can be no standalone activities for success. It should be integrated. The potential for assuming away the need for the collaboration can create unnecessary surprises and failure to gain all the market, operations and financial benefits of the strategy.

Strategy planning and execution are not easy for logistics providers. They are a challenge. But as difficult as they are, doing nothing in the face of dynamic competitive and market changes can be dangerous for all stakeholders. Logistics providers that do not plan well and implement well let events drive where they are going. They do not control it. These providers are market followers, not market leaders. As a result, these firms do not transition to take full advantage of opportunities. They miss out on market share, customers and profits that companies, who have a coordinated planning and strategy execution, earn and enjoy.

TomLTD2Tom Craig is president of LTD Management, a cutting-edge consulting firm that specializes in logistics and supply chain management. Tom has real world supply chain experience with major global corporations. He has an MBA in logistics from The Pennsylvania State University. 

LTD Management’s consulting is reflects the actual experience and knowledge of its team. LTD provides strategic and tactical consulting with solutions that work. The company website is http://www.ltdmgmt.com

Tom is a long standing Advisory Board Members of LSCMS and a judge at the upcoming LogiSYM2015 Industry Awards – www.logisym.com

Tom can be contacted at tomc@ltdmgmt.com

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July 15, 2014

China Logistics Sector Developments

Traditionally the logistics sector in China was focused on moving products from factories within China to the coastal ocean ports for export to developed markets. More recently the emphasis is just as much on moving goods within the domestic mainland China market in order to reach increasingly prosperous consumers, located all over this huge country. In particular, the residents of second, third and fourth-tier cities in central, western and northeastern China are driving a new wave of domestic consumer demand. Although logistics in China is the backbone of the supply chain, the industry itself remains hugely complex, expensively inefficient and massively fragmented, with the top 20 companies sharing just 7 percent of the total domestic logistics market.

Despite these challenges, the domestic contract logistics industry continues to grow at healthy rates, being serviced by a mix of multinational logistics service providers (MNC LSP) and local Chinese companies. Valued at USD 88 billion in terms of 3PL revenue, China’s logistics market is the second-largest in the world and is projected to become the world’s largest 3PL market by as early as 2016, with growth forecasts of 12 to 16 percent over the next 10 years.

For quite some time, one of the biggest questions customers need to consider when outsourcing their logistics in China to a Third-Party Logistics service provider (3PL) was whether to work with a local Chinese 3PL or a multi-national 3PL – each category had their respective strengths and the options were reasonably clear. Whereas the local Chinese 3PL companies had the on-the-ground knowledge, local connections and typically operated on a lower cost basis, the international MNC 3PL service providers such as DHL, CEVA and DB Schenker provide global management expertise and deployed sophisticated technology solutions, together with international best practices and sector specific knowledge and experience. Today the differences between these categories of logistics providers are becoming increasingly blurred – multinationals have extended their market knowledge, sector expertise and geographic reach in China, while local service providers have gained more international exposure and experience and are increasingly investing in technology platforms and solutions. In recent years a few privately owned Chinese 3PLs have grown to become national service providers, however, they tend to be the exception rather than the rule. In the fragmented China logistics industry, servicing nationwide domestic distribution typically involves several third party providers – in some cases shippers are using more than 20 different companies to distribute their goods throughout China.

It is clear that in order for the industry to become more efficient and to meet the market demands, consolidation amongst logistics service providers will continue. More local Chinese companies will group together in alliances to form stronger regional and national networks and we can expect more formal mergers between local Chinese companies. Meanwhile, the international 3PLs will continue to seek acquisitions as a means of expanding their network within China.

MM Speaking at Global SCM Summit Shanghai 11-2013China based since 2002, MARK MILLAR delivers value for clients with informed and independent perspectives on their supply chain strategies in China and Asia. He serves as International Advisor to the Shenzhen Logistics and Supply Chain Management Association (LSCMA), the organisers of the China International Logistics Fair (CILF) 2014.

Whilst living in Shanghai he led sales and marketing for start-up joint venture Platinum Logistix and served as Honorary Chairman of the China Supply Chain Council. He subsequently led business development initiatives in China for Exel Contract Logistics (now DHL Supply Chain) and across Asia for the Supply Chain Solutions division of UPS.

Mark has visited more than 30 Chinese cities, and is now based in Hong Kong, where he serves as Logistics Committee Chairman at the British Chamber of Commerce and Chair of International Relations Committee at the Hong Kong Logistics Association.

A regular Speaker at industry events across Asia, including China, Hong Kong, Singapore, India, Thailand, Malaysia, Vietnam, Indonesia, Philippines and Myanmar, Clients have engaged Mark as Speaker, MC, Moderator or Conference Chairman at over 300 events in more than 20 countries.

The Global Institute of Logistics recognised him as “One of the most Progressive People in World Logistics” and London business publishing house Kogan Page have recently commissioned him to write the book “Global Supply Chain Ecosystems”.                

Contact him at:       mark@markmillar.com

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June 10, 2014

Reverse Logistics – the Opportunities outweigh the Challenges

Filed under: Asia Supply Chain Insights,China,Economics,Newsletter — admin @ 1:05 pm

Reverse Logistics is complex and disjointed but represents big opportunities for value creation. It includes the key processes involved in moving product back through the supply chain to accommodate overstocks, returns, defects and recalls, and is defined by the Center for Logistics Management at University of Nevada as “the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal”.

For product returns, Accenture report that on average it takes 12 times as many steps to process returns as it does to manage outbound logistics. The additional steps include activities such as assessing, repairing, repackaging, relabeling, restocking, reselling, recycling and refurbishing, which can result in the cost of reverse logistics being four to five times those of forward logistics. However, best-in-class practitioners can directly correlate their reverse logistics expertise and systems to positive impacts on Customer Satisfaction, Brand Equity, Competitive Differentiation and Profitability.

Reverse logistics is big business – in the USA it is estimated that manufacturers and retailers are now dealing with $100 billion of products being returned on an annual basis. Here in Asia, product returns are destined to expand exponentially, driven by two rapidly accelerating consumer trends – online shopping and the proliferation of electronic gadgets.

Why are products being returned?

According to the Reverse Logistics Association, products are returned for numerous reasons:

What is interesting about these reasons for returns, is how by improving processes within the forward supply chain, companies could surely eliminate many of these returns – for example Late Delivery, Missing Parts, Damaged, Not Functioning – representing some 46% of returns. Furthermore, one could argue that additional diligence during the sales and customer service processes may further reduce the volume of products that are returned due to No Reason, Different than Expected, Not Satisfied with Performance, Did not want Product and Found better competitive product – another 39% of all returns.

In practice however, companies do need to balance their acceptance of product returns in line with their philosophies and policies for their brand, warranties and customer service. The complexity of reverse logistics involves many more transactions than the forward supply chain and the various activities relating to product returns will span across many functional departments – sales, customer service, finance, warehouse, repairs and transportation.

For the majority of these functions, product returns are likely seen as much more of an annoyance rather than a priority. However, with effective returns management providing tangible opportunities for businesses to reduce costs, recover value and improve customer service, appointing one senior leader to be responsible for all aspects of product returns will focus attention and harness the resources to capitalise on the opportunities.

Mark Millar MBA, FCILT, FCIM, FHKLA, GAICD provides value for clients with independent, external and informed perspectives on their supply chain strategies for China and ASEAN. He has been engaged by clients as Speaker, MC, Moderator or Conference Chairman at more than 300 events in 20 countries and is recognised by the Global Institute of Logistics as “One of the most Progressive People in World Logistics”. Mark serves on the Advisory Board of the Logistics and Supply Chain Management Society (LSCMS). mark@markmillar.com

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May 26, 2014

Vietnam Container Ports Development

With its lengthy coastline of some 3,200 km, Vietnam’s seaport network comprises of numerous small and medium-sized entities, the fragmented sea-side capabilities further hampered by inefficient land-side distribution. Most large ports are located on rivers, like Hai Phong and Ho Chi Minh City, typically with limitations of access from the ocean, water depth, quay length and container yard space, compounded by downtown city locations making cargo transfers to other modes of transport difficult and inefficient due to traffic congestion. Hence the development of modern deep-water port facilities at Cai Mep – further out from HCMC and closer to the ocean.

As discussed however in a recent ASEAN Ports and Shipping forum, the fragmented approach to the development of multiple container terminal facilities at the Cai Mep-Thi Vai port complex – situated on the southeast coast some 50 km from Ho Chi Minh City – has resulted in over-capacity, to the extent that operations at several of the new terminals have been suspended, due to a shortage of cargo and absence of ships.

Distance from major industrial zones, together with limitations in land side connectivity – and associated additional cost implications – all combined to make cargo owners reluctant to utilise the newly built facilities, in turn making shipping lines question the viability of making port calls at the new terminals.

Vietnam Ports

Picture: South Vietnam fragmented container port developments resulting in over capacity and underutilisation (source: ICF GHK Hong Kong)

Compounding the unfortunate scenario is the continuing operation of the Saigon city river ports in downtown HCMC, thereby supporting the existing inefficient operations within the busy city, with the related congestion and pollution, and further entrenching the incumbents’ reluctance to move cargo operations to the new Cai Mep facilities.

As a ray of sunshine amongst the gloom, CMIT (Cai Mep International Terminal) see many positive opportunities for Vietnam to capitalise on the newly constructed, modern, deep-water terminal facilities and their strategic geographic location near the ocean, not least of which is to connect south Vietnam to the major international trade flows from Asia to Europe and USA, eminently feasible assuming larger container vessels can be persuaded to return to Cai Mep and that multimodal hinterland connectivity can be enabled through effectively integrated logistics networks.

In the international context, Vietnam’s location on the South China Sea provides access to the main intra-Asia and inter-Asian shipping routes, which are forecast for above average growth in the coming years. Adopting a more holistic and integrated approach to deep-sea port development, and the related multimodal hinterland connectivity, will enable Vietnam to better capitalise on its strategic position and vast potential – with many opportunities to empower performance and growth throughout regional supply chain ecosystems in this Asia Era.

Mark Millar provides value for clients with independent, external and informed perspectives on their supply chain strategies in Asia. His series of ‘Asia Supply Chain Insights’ presentations, consultations, seminars and corporate briefings help companies to improve business operations, plan more effectively, and increase the efficiency of their global supply chain ecosystems. Clients have engaged Mark as Speaker, MC, Moderator or Conference Chairman at more than 300 events in 20 countries. The Global Institute of Logistics recognised him as “One of the most Progressive People in World Logistics” and USA-headquartered Supply & Demand Chain Executive named him as one of their 2014 Pros-to-Know in Supply Chain. mark@markmillar.com

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May 7, 2014

LSCMS Advisory Board Member Recognised

Filed under: Asia Supply Chain Insights,Awards,China,General,Newsletter — admin @ 8:52 am

MM Speaking at Global SCM Summit Shanghai 11-2013USA-headquartered Supply & Demand Chain Executive, the executive’s user manual for successful supply and demand chain transformation, has included Hong Kong-based industry leader Mark Millar in its latest annual listing of Pros-to-Know in Supply Chain.

The 2014 Provider Pros to Know is a listing of individuals who have helped their Supply Chain clients or the Supply Chain community at large prepare to meet the industry challenges they face in the year ahead.

As managing partner of M Power Associates, Mark leverages 25 years global business experience and an exclusive network of best-in-class supply chain practitioners to provide value for clients with informed and independent perspectives on their supply chain strategies. His series of ‘Asia Supply Chain Insights’ corporate briefings, consultations and seminars help companies navigate the complex landscapes in China and ASEAN, improve the efficiency of their supply chain ecosystems and make better-informed business decisions.

Speaking from the Multi Modal trade show in Birmingham, England – where he is hosting a seminar on ‘China Supply Chain Strategies’ – Mark said: “I am honoured to be named in this prestigious listing of supply chain leaders, which reflects my continued focus on helping clients to understand and improve their global supply chain ecosystems. These ecosystems play a crucial role in enabling global trade, highlighting why all businesses should put Supply Chain firmly on the strategic agenda in 2014.”

Barry Hochfelder, editor of Supply & Demand Chain Executive, said: “Supply Chain is increasingly recognized as a strategic differentiator and Supply Chain Leaders have become crucial to the success of the enterprise in meeting the challenges of what truthfully has been called a turbulent economy. Our Pros to Know listing highlights many of these outstanding executives and their accomplishments.”

“This honor highlights the many thought-leaders who are helping to shape the Supply Chain industry and advance Supply Chain as a respected discipline in the enterprise,” Hochfelder added. “Their efforts in developing the tools, processes and knowledge base necessary for Supply Chain transformation, and in promoting new approaches to supply chain enablement, have earned them a place on this year’s Pros listing.”

Pros to Know 2014 SDCEWell-known throughout the logistics and supply chain communities across Asia, Mark has been based in Hong Kong since 2005, prior to which he lived and worked in industry roles in Shanghai, Sydney and Singapore. Acknowledged as an engaging and energetic presenter, Mark has been engaged as speaker, moderator, MC or conference chairman at over 300 events in more than 20 countries.

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May 1, 2014

China at the Heart of Two Worlds – Global and Local

In continuing its impressive development path of recent decades China has become two economic markets that are interconnected and converging:

– its Global market which is driven by mass production for export to developed countries, and

– its Local market which revolves around rapidly expanding domestic consumption.

Multi-national companies first came to China to capitalise on the abundant supply of low-cost labour and take advantage of the incentives to establish operations in Special Economic Zones. Nowadays they remain in China to sell products to Chinese consumers in the local market.

Factories and shops are interconnected and converging – the workers have become the shoppers. One development has fuelled the other, increasing economic prosperity across the nation. The latest saying is that the foreign companies “came to China for the workers, now they stay in China for the shoppers”.

From the China logistics perspective, the emphasis is therefore no longer purely on transporting products from factories to the ocean ports on the eastern seaboard for export to the developed markets. Nowadays there is just as much emphasis on distributing goods within-and-throughout the domestic China market – in order to reach the increasingly prosperous consumers located all over this vast country.

Continuing economic development in both production and consumption sectors brings new challenges and opportunities for the logistics industry. Although logistics in China is the backbone of the domestic supply chain, the industry itself remains complex, inefficient and fragmented.

Whilst we are seeing improvements in the quality of warehousing infrastructure – largely driven by a combination of property developers and the increasing presence of foreign enterprises and their related investments – the domestic transportation sector remains massively fragmented and hugely challenging.

As China’s economy continues to develop, the logistics sector will gradually mature, and outsourcing levels increase. The increasing presence of multinational companies in the domestic market – in particular the consumer, retail and electronics sectors – will accelerate the deployment of international best practices in logistics – embracing multi modal transportation, structured distribution networks and more efficient supply chain ecosystems.

Mark Millar provides value for clients with independent and informed perspectives on their supply chain strategies in Asia. Clients have engaged him as Speaker, MC, Moderator or Conference Chairman at over 300 events in more than 20 countries. London based business publisher Kogan Page have recently commissioned Mark to write the book entitled “Global Supply Chain Ecosystems”, due for publication in 2015.  Mark serves on the Advisory Board of the Logistics and Supply Chain Management Society (LSCMS).

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March 10, 2014

Robotic Ships may become reality.

Running away to sea has been a dream of escape for centuries, but unless you plan to be a tap dancer on a cruise ship, that door may be closing. In a report on the future of cargo shipping, Rolls Royce Vice President for Innovation, Engineering and Technology, Oskar Levander, outlines a vision for a time not far from now when freighters and other ships are unmanned robots that cruise the oceans under remote control by shore based captains.

Imagine it’s 20 years from now and a cargo container ship bigger than anything afloat today approaches the port of Shanghai. Despite its size, it looks surprisingly simple with a hull designed for extreme efficiency. It has Flettner rotors for catching the wind and helping to save fuel, but below the slim equipment mast there’s no superstructure. There’s no space for crew’s quarters, and there aren’t even lifeboats or guardrails. When the pilot comes aboard to guide the ship into port from the minimalist bridge (if it has one) there’s no one to greet him or offer a cup of tea because the vessel is a robot, without a single person on board.

According to Levander, this scenario may come about because of the economic pressures being put upon the merchant fleets of the world. The Rolls-Royce report works on the assumption that the era of cheap energy is over and that rising fuel costs will require alternatives to the heavy fuel oil that currently powers the world’s shipping. In addition, shipping companies will have to contend with increasing burdensome national and international regulation, especially in regard to greenhouse gases, which will produce major rises in costs.

This will require a great deal of innovation, such as converting ships to burn biofuels, developing more efficient hulls, and installing solar panels or wind propulsion in the form of Flettner rotors and the like to cut down on energy bills. However, the biggest cost to shipping is labor – in fact, industry consultant Moor Stephens LLP put this expense at 44 percent in an interview with the BBC.

This cost isn’t just in the form of salaries and pensions. Crews need living quarters, galleys, washing facilities recreation areas, lifeboats, and a lot of other things to keep them safe and comfortable. These cost money to build and maintain, as well as fuel to cart it all around the world. Rolls-Royce’s plan is to take an holistic approach to future ship design aimed at tackling the problem by incorporating new hulls, engines, solar power systems, and partial sails.

In all of this, the most radical is turning merchant ships into robotic craft, where Horatio Hornblower sails his ship all over the world without ever leaving Plymouth. That may not seem like much fun, but it’s a path that marine engineering has been on since the time when some ancient ship’s master figured out how to balance his sails, so he wouldn’t have to steer so much. Since then, all sorts of automatic steering and navigation mechanisms have been developed until today when it isn’t uncommon to read news stories of ships steaming into port of their crews abandoned them prematurely in some disaster.

Even with the largest ship, steering a course is relatively simple and its rare for a helmsman to touch the wheel between ports. What’s really needed is the ability of a ship to pilot itself and keep watch under the guidance of shore operators. Many ships are already equipped with all sorts of cameras that can see at night and through fog, not to mention radar, sonar, GPS and a plethora of other sensors hooked up to high speed satellite data relays. Rolls-Royce foresees a time when these sensors and automatic systems will allow onshore crews to control and monitor ships from land-based centers with little difficulty.

Aside from the more obvious cost advantages, such an arrangement would allow one person ashore to control several ships. Levander sees this as both safer and making it easier to retain skilled crews, saying that it’s better for a ship to be operated by five operators on shore as opposed to 20 wrestling with the ship in a gale in the middle of the North Sea.

However, shiphandling is a complex task and a ship doesn’t operate in isolation. Before robot ships can set sail, there are serious safety issues to be answered about collision avoidance and similar concerns. There are also many legal hurdles about responsibility for the ship and compliance with regulations and maritime law, which might see a token crew kept aboard with nothing to do except fulfill salvage law. If these and other objections can be overcome, then the seas may be a safer and more efficient place, albeit a less romantic one.

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February 11, 2014

Changing Landscape of China’s Supply Chain

Exploring the key dynamics impacting low cost manufacturing in China . . .

As China continues its impressive development path of the last twenty years, it has now become two economic markets that are interconnected and converging – its Global market which is driven by mass production for export to developed countries, and its local market which revolves around rapidly expanding domestic consumption.

Multi-national companies first came to China to take advantage of low-cost labour and Special Economic Zones. Nowadays they remain in China to sell products to Chinese consumers in the local market. One development has fuelled the other. As quoted by the Economist ‘foreign firms came for the workers, now they stay for the shoppers’.

The logistics emphasis is therefore no longer just on transporting products from the factories to the ocean ports on the eastern seaboard for export to the west. Nowadays there is just as much emphasis on distributing goods within and throughout the domestic China market in order to reach the increasingly prosperous consumers located all over this vast country.

Amongst the many dynamics influencing shifts in China’s production landscape, Labour related challenges are one of the key driving forces for change:

Labour Shortages – the migrant labour force in the coastal areas, in the range of 200 million workers, is reducing in size. There is now more work available in the inland provinces, where workers can live at home with their families, instead of in a cramped dormitory at a coastal factory. Some migrant workers who have worked away from home for 20 years or more may have saved enough money that they do not need to work in the factories anymore. Living costs in the developed coastal cities are continually rising, so in many cases the lower cost of living in a rural province more than offsets the lower wages, resulting in more actual spending power from the workers’ net disposable income.

Labour Costs – in coastal areas the cost of labour is becoming more expensive, with the minimum wage increasing by an average of over 18% last year. Local governments are committed to raise workers’ wages, with Guangdong province having a mandate to increase the minimum wage by 20% for each of the next five years. This reflects national priorities to increase domestic consumption and thereby reduce the economic dependency on exports.

Labour Unrest – there is emerging unrest and dissatisfaction amongst factory workers in the coastal cities. Historically these migrant workers had little choice but to accept the poor working conditions in the factory complexes. However, the latest generation of young migrant workers are better educated and technologically enabled. They are much less willing than previous generations to put up with the hardships of factory life. As digital natives they are constantly connected through technology and thus become more organised and vocal in their protests for higher wages and improved conditions.

Supply and demand economics thus come into play, whereby the reduced supply of labour commands a higher price. In Guangdong province, there are currently one million vacancies for production workers, even with most factories offering salaries above the minimum wage. These labour challenges, together with government incentives to attract investments into the provinces, and potential cost savings in the region of 40% on land and 50% on labour, are resulting in some of China’s production moving inland.

To address these dynamics and capitalise on the rapid emergence of inland consumption, companies will need to adapt and adjust their business models accordingly – reconfiguring their supply chain ecosystems to focus on the expanding domestic markets throughout China.

Businesses that successfully address this challenge will become empowered to gain competitive advantage and drive profitable business growth – accessing the knowledge and networks that provide independent and informed supply chain insights will be critical to your success.

Mark Millar provides value for clients with independent, external and informed perspectives on their supply chain strategies in China and Asia. Clients have engaged Mark as Speaker, MC, Moderator or Conference Chairman at over 300 events in more than 20 countries. The Global Institute of Logistics recognised him as “One of the most Progressive People in World Logistics”.  Based in Hong Kong, Mark serves on the Advisory Board of the Logistics and Supply Chain Management Society (LSCMS) 

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