IT Strategy for Terminals:

1.  Our topic today is IT strategy for marine terminals. In our experience, among transport companies, particularly in Russia, marine terminals often have the weakest understanding of what their IT strategy is, and show the lowest level of investment in IT. Expenditure on IT in terminals abroad is ~3% of revenue (data from Gartner). In contrast, while we don’t have good hard numbers for Russia, talking to our customers, we would put the number for Russia in the range of ~1% at most.

2.  Furthermore, it seems that Russian terminal operators are focusing on different issues than the global terminal operators; generally Russian terminals are considering doing today what their world counterparts did about a decade ago.

IT component / What global players are thinking about? / What Russian players are thinking about?
IT Applications / Reduce costs (even if this reduces quality) / Implement basic automation, get systems in
IT Infrastructure / Outsource, move out of terminal (IBM, HP, Infosys), mainly to reduce cost / Modernize and invest in systems (inside the terminal)
IT Staff / Outsource staff to reduce headcount and cost / Retain, motivate, build competence of local staff

Thus, it may be helpful to consider what lessons from the IT strategy of western players could be implemented in Russia today.

3.  A lesson learned from abroad is that articulating a good IT strategy and successfully defending the related investment in front of the board of directors could add significant value to the shareholders of the terminal. Our goal here is to define why having an articulated IT strategy could add value, what are the key components of such a strategy, and how such a strategy could be defined.

4.  Marine terminals are massive investments, often costing several hundred million US$ to build. Generating enough cash flow to pay for this investment is the most important economic consideration for the shareholders of the terminal.

5.  Therefore, the key shareholder measure for terminals is the ROIC (Return on Invested Capital). ROIC is simply the relationship between profit and investment. But how can it be drilled down?

6.  The approach below is based on a standard Dupont analysis, customized for the specifics of a terminal business. This indicates four areas where IT could make impact:

7.  How can IT make impact in these areas? Mainly by solving some of the issues in these areas. A few examples of the IT-related issues we have seen in Russia are:

Issue / Leads to / Financial impact
Lack of shared visibility of what is happening in the parts of a terminal operation: rail, gate, yard, ship-to-shore all operate in isolation / Diminished terminal capacity, due to inefficient usage of terminal capacity (rail lines, cranes, storage space). / Requires more investment in cranes, yard space, berth space, equipment, etc. to achieve a certain capacity in TEUs / tons.
(Linked to: Optimize investment)
Lack of basic IT automation (e.g. managing yard storage or receipt of wagons in a paper notebook) / Not filling capacity: turning down contracts due to concerns if they can be handled, and then having idle capacity later on. / Less contracts / less ships handled with certain level of investment.
(Linked to: Fill capacity)
Lack of transparency on what is done for each customer, especially in extra services (handling, packaging, palletizing, stuffing, customs clearance, reefer, …), since activities are not recorded in a central database. / Performing additional services for customers that are then not invoiced to the customer. / Missing the opportunity to have extra revenue, which could add to EBITA
(Linked to: Commercial)
Too tight and constraining control of capital expenditure for maintenance and repair of equipment; paper processes with multiple signatures to obtain spare parts. / More emergency repairs and last-minute part orders than would be optimal. Downtime due to breakage of equipment. / Last-minute repairs are more expensive than pre-planned ones. Downtime costs money.
(Linked to: Controlling)

These are just a few of the issues, we have also seen gaps in gang and equipment scheduling, delays in key processes due to paper workflows, inefficiencies due to customs integration, errors in information processing, lower quality of service than promised, staff dedicated to re-entry of information received by fax, etc.

8.  So, how much impact could IT achieve by solving issues such as these? The answer varies based on the situation in the terminal. It also depends on how much was invested in IT already – there are diminishing returns from investments past a certain point. Nevertheless, for most Russian terminals, the expectation should be to show on average a measurable improvement in profit of around 10% within 2 years after successful implementation of new IT systems.

9.  Most IT strategies mainly focus on what IT systems are ‘best practice’ and should be implemented in the terminal. In contrast, what is important is to define the IT strategy from the business point of view – it should cut through four layers: (1) which monetary benefits we want to achieve; (2) what organization changes are required to achieve these benefits; (3) what business process changes underline these organization changes; and finally, (4) what IT systems we need in order to support the target business processes.

10.  Likewise, the sequential definition of an IT strategy should follow a similar approach, going through all four layers sequentially:

11.  So, what should be the key components of the IT strategy of a Russian terminal? The backbone of a good IT strategy for a terminal is normally based on two systems: the ERP and the TOS. This gives several possible combinations of how to organize the IT landscape, shown on the chart below:

12.  The rest of the IT architecture is normally dictated by what two systems are chosen for ERP and TOS, and such extra systems are normally selected to close the gap. The choice of TOS and ERP quite often dictates the choice of IT hardware and infrastructure as well.

13.  There is a great range of providers of TOS systems on the world market, we list below a few from our database:

Company:
NAVIS
Realtime Business Solutions (RBS)
Hamburg Port Consulting GmbH
Solvo
Total Soft Bank (TSB)
CyberLogitec
Autostore
Jade Logistics

14.  However, on the TOS side, Solvo is the only system proven to work on the Russian market. Solvo is specialized in containers, and has a general cargo module which is largely not proven yet. Because of this, different types of terminals are in a different situation when choosing the TOS provider, as illustrated in principle on the scale below:

Ease to select TOS / Terminal type / Reason
Easiest / Smaller container terminals (up to 1m TEU) / Solvo very good fit
Liquid bulk / chemicals / oil terminals / Low IT requirements – simple process
Large container terminals (several mil TEU) / Good IT systems available worldwide
Dry bulk (coal / ore / grain ) terminals / Medium complexity requirements, no good system on the Russian market
Hardest / Break bulk / Ro-Ro / general cargo / semi-processed cargo terminals / Complex requirements, not a good system already on the Russian market to address requirements

This is a particular issue due to the great number of general break bulk cargo terminals within Russia, most with fairly basic systems.

15.  In terms of ERP systems, the difference between the major players (SAP, Oracle, Microsoft Dynamics, Infor, and Epicor) is much less pronounced than in the TOS systems, and the choice is to some extent dictated by what gaps in the TOS system have to be closed. Nevertheless, in our experience, when it comes to terminal operations some ERP functional areas are more important than others, and a principal priority is given in the list below:

High importance / Medium importance / Low importance
Finance & Controlling / HR management / Production planning & execution
Planning & Budgeting / Procurement & Logistics / Enterprise risk management
Asset Management / Sales & Distribution / PR & IR
Document Management / Project management / Quality management
Reporting and analytics / Product management

16.  Beyond the TOS and ERP, here are some of the other systems you should be thinking about. Most of these are critical to addressing terminal operations, and could deliver financial benefits:

Systems that fit in any terminal / Container terminals specialized systems / Bulk & break bulk terminals specialized systems
Gate management system / Container positioning system / Warehouse management system
Rail management system / Reefer management system / Equipment allocation system
Crane management system / Container repair system / RFID or barcode system
Yard data network (optics / wireless) / OCR (optical character recognition) system / Vehicle positioning systems
Radio communications (voice) / Position detection system / Silo / tank measurement
Yard / perimeter security / Simulation & optimization system for yard operations / Automated flow measuring
Asset management system / Electronic scales
EDI integration with customers / Fire detection / suppression
Order management / Laboratory equipment
Integration with customs
Rostering system

17.  We should also look at the IT strategy beyond the point of view of the individual terminal. The integration of terminals within one port, inclusion of extra players (customs, border control, towing and bunkering services, etc.) within a common system to interact with port and terminal customers is becoming increasingly important. This is often achieved via a port community system, as shown in the chart below. Port community systems are addressed in detail in another report submitted by us to the Transtec conference.

18.  As a conclusion: IT strategy for terminals is not a “one-setup-fits-all” game. It is important to start from the business improvement objectives of the terminal, map them into organizational and business process changes, and think about IT from that perspective. Once this is done, the decision on how much money to spend and which systems to install becomes both clearer to management, and easier to sell to the board of directors.

19.  About IntelliCo Solutions

IntelliCo Solutions is a business and IT consulting company specialized exclusively in the transportation and logistics industry. Our company has more than 10 years of successful consulting experience doing projects for world leading transport and logistics companies like DHL, APM Terminals, Itella Logistics, Lufthansa, Swiss Rails and many more. Our transportation focus, experience with world leading companies and hands-on approach to our customers’ needs enable us to consistently improve their financial performance.

To learn more about our experience in project success assurance and understand how we can help you today, contact us at http://www.intellico-solutions.com