Geert Jan Dirven: Innovative use of IT in Logistics

Geert Jan Dirven: Innovative use of IT in Logistics

Innovative use of IT in Logistics

Gartner CIO event, Amsterdam 12 May 2009, Geert Jan Dirven

Container terminals form an important node in the international logistics chain. Where “traditionally” bulk transport have been moving the global trade on raw-materials, containerized shipping evolved around finished goods and is ‘working’ its way up in the value chain. As a key part of the logistics chain, it’s a responsibility for us to reflect on ourselves and challenge our competencies.

Today I want to share with you something what is close to my heart. At the end you will find my e-mail address and should you like to make any comment, expression of support or ridicule my point of view, please feel free! I will also share my thoughts on dirven.blogspot.com at which site you can add anonymous thoughts.

Containerization has –as said- taken a flight. Its first known use is in 1594 when Leonardo DaVinci used the method (including wooden boxes, moving cranes that look exactly like today's, etcetera) for warfare supplies; the faster a fully equipped army could be deployed the better the chance of winning the battle. That speed and particularly the intermodal capacity of containers have led to a massive use and equally impressive growth of the industry.

APM Terminals is a full daughter of APMM Denmark; a Global diversified company with ~$60bn in revenues and 120.000 employees working in Container Shipping (Maersk-line), Oil & Gas (15th Global oil-company), Retail and logistics. APMM is listed on the Copenhagen stock-exchange. PHP, PSA and DPA together with APMT hold ~ 33% of the total market in Container Handling

The CIO has outgrown the IT manager.

The CIO is a member of the board who speaks in terms of business benefit; driving performance, margin, profitability instead of the datacenter or worse: the Electronic Data Processing suppor

t-department… The CIO is in charge of making sure that the business executes its processes, both internally as well as external to suppliers and customers, in the most efficient and effective way. Many senior leaders are riding the roller-coaster

of change on this right now and “welcome” their IT colleague to the table…However!!! We mustn't forget about Technology! Some technologies are much known: administrative and operations support systems, network infrastructures: we talk about services, governance, security, but what about where it was really all about…

First computers were invented from an age old need to compute massively complex and huge calculations. It has found it way into everyday-life and “then” complex calculations can now be equally done by a handheld…

Chess is a hard game to master; a complex set of possibilities and sequences needs to be learned to champion the game. A computer is capable of ‘learning’ and remembering well these sequences; computers can beat ‘human’ brain at the game. On 11 may 1997 Deep Blue, a chess computer by IBM, beat Gary Kasparov.

Today IBM owns the world’s ‘strongest’ computer: Roadrunner with the following tech-spec: The final cluster is made up of 18 connected units, which are connected via eight additional (second-stage) Infiniband ISR2012 switches. Each CU is connected through twelve uplinks for each second-stage switch, that makes a total of 96 uplink connections. Overall system information:

• 6,480 Opteron processors with 51.8 TiB RAM (in 3,240 LS21 blades)


• 12,960 Cell processors with 51.8 TiB RAM (in 6,480 QS22 blades)


• 216 System x3755 I/O nodes


• 26 288-port ISR2012 Infiniband 4x DDR switches


• 296 racks


• 2.35 MW power

Albeit the computing powers remain a novelty and do not live in business at all; the storage does. ILM (information lifecycle management) and SRM (storage requirements management) spin-offs are artifacts of the significance of the growth of data kept. Although last few years, particularly pictures, movies and sound-records have accelerated the use disc-space, we tend to capture more information in business day-by-day, hour-by-hour.

Since a decade ‘everybody and their dog’ implements massive administrative systems, like ERP’s, used as a large base / foundation for the administrative effort needed to support running a business.

Manufacturing ‘connected’ operations planning to the sales forecasts; pioneered by Manugistics and I2 Technologies: optimization which eventually evolved into enhanced planning and execution (manufacturing-PLM; product life cycle management in manufacturing), where MPLM enables businesses to engage IT to contribute to corporate growth.

Logistics ‘stayed’ behind, but retail and express business ‘invented’ the use of event-capturing automation (eg barcodes, rfid).

So “deep blue” is a representant of the academic “divide” between computing for doctors and storage for managers. Particularly the Dutch are bridging the gap; MVO –an old Math-hobby- has produced some insightful improvements.

However this slide is not intended to share any other information then to back the statement that anything produced by smart brains is put into a model: by definition a simplification of reality… the divide or disconnect has a physical presence or rather blinding lack thereof… Academics finding reality to difficult (and too uninteresting) to cope with, particularly its needs for “all-inclusiveness” and executer who do not “wish” to rely on the machines…

Eyesight has previously been challenged when the jet-engine was introduced into aviation; pilots were challenged to not to trust their eyesight but to trust the panel instruments; a fight that has continued on for more then 3 decades to finally buy a firm grip into daily practice.

If you know about the below listed methods and systems, you must be like a simultaneous chess-player facing 10 players blindfolded…. Imagine how many routines, possibilities, sequences he must manage in his head. The chess board on the right relates to the real problem: it’s a representation of the “8 queen” problem: the challenge is to place 8 queen’s on the board without any one of them “threatening” another. That’s how academic optimization got…

• CPLEX solves integer programming problems, very large linear programming problems, quadtratic programming problems, and has recently added support for problems with convex quadratic constraints


• COMET is a language dedicated to optimization: constraint-based local search, constraint-programming, mathematical programming (free for academic use)


• IMSL Numerical Libraries are collections of math and statistical algorithms available in C/C++, Fortran, Java and C#/.NET. Optimization routines in the IMSL Libraries include unconstrained, linearly and nonlinearly constrained minimizations, and linear programming algorithms


• IPOPT - an open-source primal-dual interior point method NLP solver which handles sparse matrices


• KNITRO - solver for nonlinear optimization problems


• Mathematica - handles linear programming, integer programming and constrained non-linear optimization problems


• NAG Numerical Libraries- The NAG Library contains a comprehensive collection of Optimization routines, which cover a diverse set of problems


• OpenOpt - a free toolbox with connections to lots of solvers, for Python language programmers


• Merlin - A Fortran-77, user friendly open source software package, for non-linear optimization with bound constraints.

With the vast deployment of these large systemized administrative foundations and the enormous technological advancements of event-capturing particularly the “moving” part of the value chain; logistics, is becoming very data-rich… Academics finding reality to difficult (and too uninteresting) to cope with, particularly reality’s need for “all-inclusiveness” and the final executer who does not “wish” to rely on the machines… Eyesight has previously been challenged when the jet-engine was introduced into aviation; pilots were challenged to not to trust their eyesight but to trust the panel instruments; a fight that has continued on for more then 3 decades to finally buy a firm grip into daily practice.

Logistic service providers have great difficulties in managing profitability and securing their business’s future Planning and scheduling of a (near infinite) number of variables is key to their profitability (Multi Variable Optimization: MVO).

The practical view; a call to action

In reality there is no time to “model”, there is also no ‘quest’ to deploy 8 queens… the situation is predictable to a certain extend, but no imagination has ever beaten a real life situation; nothing is as bizar as reality. We can now face that; Demand is known, movements are tracked, administration is digital… we should be able to deploy real-time systems to optimize our ways.. And start making some money again!

MVO and tools providing practical solutions is key to success in the logistics industry, considering the crisis we are in, we ALL must look at MVO. It is the CIO’s core responsibility to elevate “new” technologies that can play to the bottom line. Consider this: Every business has a multitude of repetitive decisions: presumably none of them done automatically a terminal has at least 7:

- berthing
- quay-crane
- move to yard
- yard-crane
- yard-location
- rail/barge/truck-management
- labor

APMT has embarked on mathematical optimization through mature methods and we’ve seen a potential of up from 15% savings on our cost base, I leave you to think on that one for a minute to consider your cost base…

Summary:

- The CIO is the key person to “keep an eye out” on technology

- There is a divide between the computational and the storage power of IT

- Academics work off models that are slow to interact with reality

- Event capturing opens up opportunities to bring the power to mathematically optimize processes to real-time

- APMT started the journey and hoped it inspired you to do the same

How to manage the crisis

The good news about any crisis is that it's highly predictable: it's bad and probably will get worse! So how can IT enable your business in wheathering the storm? I guess you've done you're homework and arranged for ample metrics and measurement systems; so you'd know how bad it really got... great! You must have also started to downscale; re-use, all these things that drive down costs... great!

I think IT provides 2 routes to business: increase revenue and decrease cost. The gap in the middle is named many things by finance experts but usually it helps to have a gap as wide as possible.

However, with putting in new IT no-one is going to pay you more or buy more and with putting in more IT costs aren't automatically coming down either. So IT as an enabler of something else then?

IT can help you define and measure what it is your sell best. And what you sell best is measured through receivables; what are customers paying for? what not? Start an initiative that measures exactly what is supposed to be done (according to your agreement with the customer, the specification or the service level agreement) and map that information against the invoiced amount: chances are they don't match... Then, what else is done? Can you stop doing anything that cannot be billed according to the agreement or start charging for it?  Finally, when you've done it and delivered, do you send an accurate invoice (=according to what you've agreed) right away or is there a time-elapse between completion/delivery and invoicing (i've seen up to one year-wide gaps in my time) and guess what happens to your Days OutStanding (DOS)...

To earn the customer over to you and distinct from your competition, what is that you do -say for government reasons- that you need to do anyway that delivers information that could be of use to your customers. For you there's no or very limited added cost to produce this information and you're customer could actually see a lot of value in it and prefer you over competition.

Finally you could share your suppliers information. Say all is gloom and doom in your business and your suppliers knocks on your door to raise his prices... what's going on? is he out on a revenue hunt just like you or is there something else going on that can be passed on through the value chain? that's good news as your customers can soon start to raise their prices too (after you've done so of course).

IT can bring a lot to the table when it comes to revenue increases. The first few lines seem to say little but actually there's a lot of work in them. Think of the revenue pipeline from in the Order to Cash process; there's operations inthere somewhere; how do you capture activity that's linked to an order? how can you make sure all activity is adding value to that order? these are relevant questions which can only be answered through the right deployment of IT. Then the speed of invoicing is a clear IT issue; straightforward and relatively easy to implement. To be able to charge your customer with all adding value activities (or just stop these) you need a firm grip on your tracking mechanisms through IT.

The role of IT in the crisis

The crisis has transferred from a credit crisis into an economical crisis. In fact these crises should have been prevented but at a minimum forwarned by IT. Now they are both here, IT plays a vital role in solving the crisis.

Albert Einstein has once said that the secret of success lies in (1) how to get the right information and (2) how to use it. Based on the age of this quote (well before the digital era we live in) it is astonishing when one realizes how true this is in light of the current circumstances.

As a first -prevention- the crisis started with the debt crunch of the USA. Big money made on collateral debt products based on house mortgages. It is not unusual to work with extensive risk management systems in investing, but apparently it considers the first next risk; the one that we are directly faced with. This is very much the same if the Netherlands only considers the dike that faces the sea; waterfront defense. This first line of defense didn't suffice in 1953 when a large part of the south-west of the country fludded. The response to this disaster was to engage in a near 40-year project called "Delta Werken" and build a structured defence that would prevent something dramatic as that happening again and at the same time making sure that the ecology of the Delta was not threatened or damaged.

in a later blog I want to emphasize on the importance of these lessons, but one major difference with the situation here must be made. Back then the technology currently deployed that make up the defense mechanisms didn't exist; my claim is that the technology to being able to signal, recognize and prevent such a crisis are readily available!

In a financial system looking at the first line of defence only is apparently not enough. The depth of any risk-analysis should be to the source of the capital need. Such as Venture Capitalists performs due-dilligence on any investment and make the best results. A due-dilligence is a deep dive in the source of the capital need; the collateral the potential and therefor the risk. This calculation is in mortgages done by income assessments and risk-mitigation is done by downpayments. However the potential failure of income is completely neglected. Regardless of what the method of assessment is, there is no watertight evaluation. On top of this, the system was fueled by higher house prices and benefited by a high volatile market; no long bureaucracy! None of the institutions (brokers, banks, investors) performed an automated check on either of the applicants, in a country where credit ratings are/were at the core of the system. A 'trust' mechanism that has proven to be obsolete. In today's society -particularly- in the USA it is absolutely no rocket science to create a widespread credit-profile on any subject within seconds.

Finally, today's systems offer ample opportunity to predict and analyze any trend. Even forecasting wheather has become reliable by the use of information-rich systems. For financial risk forecasting and assessment of exposure on large portfolio's it musnt be necessarily a daunting task. in fact in investment management the tools and algorythms are readily available. Combine those with powerfull algorythms in search engines and information retrieval (IR) methods, it must be very do-able to build the financial "Delta Werken" for the financial credit world.

With this in hand it must be possible to re-instate trust and re-fuel the world's economies. Trust and information are closely related; in fact as Einstein says; the key to success.

I have invited a fairly broad group of contacts from my personal contact list who "join" on a few area's:

- enterpreneurial ambition

- tecnhology and trends

- business 

- personal effectiveness

I welcome thoughts on these topics

Revamping the Blog.

I've decided to go a step further with the blog site and post thoughts and comments here with a clear intention to provoke feedback from a wider audience.

Hopefully this will not go unnoticed and will create lively discussion