True Tales From The Distribution Dark Side

Martin Bailey & Aldi Steenkamp

Industrial Logistic Systems

Intro Video

1

The Influence of The Dark Side Across the Supply Chain!

Procurement

(Submarines)

Planning

(Nike)

IT

(Heathrow)

Warehousing

(Sainsbury)

Warehousing

(Foxmeyer)

RFID

(Walmart)

Risk

(Fire)

Transport

(Transnet)

The Great Submarine Purchasing Disaster

http://www.corruptionwatch.org.za/the-arms-deal-what-you-need-to-know-2/

• Deal done at better than R7 to $1

• Total deal R30 Billion to R50 Billion (that we know)

How Supply Chain Can Go Wrong, Wrong, Wrong,

wrong

How ^ to buy stuff to protect our shores

not

When Driven By Corruption – Supply Chain Can Go Wrong

• Investment in submarines - R8 billion

• Number of submarines operational – 0

• SAS Queen Modjadji – crashed underwater after launch

• SAS Manthatisi – crashed before launching & plugged in wrong

• SAS Charlotte Maxeke is still busy with "routine maintenance"

https://www.timeslive.co.za/news/south-africa/2012-08-12-not-one-of-the-r8-billion-arms-deal-submarines-is-operational/

8

What was the purchasing objective?

What we needed

We could have bought 2600 of these We could have bought 235 of these

Lesson:

• Kickbacks = Poor Decision Making

• Submarines never good to protect our waters from over-fishing

• Often not the amount of the kickback – but sends everyone in wrong

direction

• In this modern era someone will find out

11

The Planning Failure at Nike

Nike

Background:

• March 1999 Nike buys new software from I2 technologies

• Replaced Manugistics

• Customisation cost $40m

• Idea was to supplement legacy system (rather than adding to SAP – SAP SCM / APO was in its infancy)

• 120,000 SKU variations!

• Lots implementation & communication issues

• Irrational exuberance for I2 – but it was the base

for most of the other software

http://www.scmfocus.com/scmhistory/2010/07/the-history-of-apo-and-the-influence-of-i2-technologies/

Result:

• In 2001 Nike, announced profits worth $97 million. This figure was $48 million below their forecasted projection.

• Nike held i2’s Technologies responsible.

Why?

• Integration with a 3rd party tool that did not completely fit into existing legacy systems

• Lack of training and understanding of the i2 demand forecasting tool. This could have been a direct effect of inexperience

• Making projections that were too far ahead in the future?

• Too far from I2 vanilla

http://cmuscm.blogspot.co.za/2012/09/forecasting-gone-wrong.html

2000’sPanacea For

Forecasting 2020’s Panacea For Forecasting

Machine Learning Systems & Rapid Response

Learnings:

• Even the best companies make mistakes

• Complexity of the application without commensurate resources applied

to making it work?

• Too quick to jump on the bandwagon and adopt new systems?

• A ‘big bang’ approach to the launch without sufficient testing.

http://softwaremoneypit.com/case-study-nikes-adventure-with-demand-planning-software/

Maybe not the best strategy for new software

16

The Great Heathrow Luggage Disappearance

IT Case Study

- Heathrow Terminal 5

IT failure at Heathrow T5

• Queen Elizabeth's grand opening speech, which called the terminal “a 21st

Century gateway to Britain.’’

• Terminal 5 cost British Airways and the British Airports Authority £4.3bn to

build and to fit out.

• BA says around £75m of these costs are for technology, while BAA invested

at least another £175m in IT systems

http://www.independent.co.uk/news/uk/home-news/disastrous-opening-day-for-terminal-5-801376.html

70 000 Bags a day

18km of conveyor belts for baggage handling

131 escalators

“enough cable to lay to Istanbul and back“

It has 175 lifts

2,100 PCs

more than 9,000 connected devices

546 interfaces

180 IT suppliers and run 163 IT systems

1st Week - Bags Went Into a “black hole”

Location of First Weeks Luggage

Lessons:

• Need more testing – never

enough

• Stress testing is vital

• Big bang implementations

dangerous

• Once fixed – as long as it works

– all is well

Personal Note: Don’t travel 1st week after a terminal opens

24

• 2 years earlier (1995 vs 1993) • Baggage system failed day 1 • So bad they went back to the Old Terminal

Denver International Airport :

25

Hong Kong International Airport :

• $20 Billion Airport

• Computer glitches paralyze air-cargo

operations.

• 4 000 tons of cargo every day

• Seafood, vegetables, and other perishable

goods sitting for days

• Glitch erased the company inventory list

• Kai Tak Airport (old terminal) as temporary

solution

https://www.nytimes.com/1998/07/09/business/international-business-

problems-continue-to-mount-at-new-hong-kong-airport.html

26

Darth Vader Shopping at Sainsbury’s

Warehousing Case Study

- Sainsbury

Rank Retailer Nr of stores

1 Tesco 3,500

2 Sainsbury 1,374

3 Asda 626

4 Morrison 498

• Founded in 1869, by John James Sainsbury.

• Became the largest grocery retailer in 1922, was an early adopter of self-service retailing in the United

Kingdom, and had its heyday during the 1980s.

• In 1995, Tesco overtook Sainsbury's to become the market leader

• Asda became the second largest in 2003, demoting Sainsbury's to third place

• January 2014, Sainsbury's regained second place

https://en.wikipedia.org/wiki/Sainsbury%27s#cite_note-RUDDICK-3

To compete with Tesco

Need a world class supply chain Build 4 automated DC’s (in secret)

Warehouse automation failure at Sainsbury’s

• The warehouse automation project commenced in 2000 --- collapsed in

2004.

• Cost Sainsbury £3bn

• Sainsbury’s blamed Design Partners

• So many suppliers – blame game ensued

• Needed to recruit 3,000 shelf stackers to fix the damage manually.

33

Lessons: Sainsbury

• Make sure you understand the supply chain needs

• Automation can cause lots problems if not fully

understood

• Use consultants who know what they are doing

• Big bang is dangerous

• If you are “rich enough” maybe you can recover

from anything

Sometimes You Don’t Recover – Project Delta 3

Foxmeyer – much the same storey a few years earlier

• In 1996, Foxmeyer 4th largest wholesale drug distributor in the U.S. - sales

over $5 billion dollars

• In 1993 they embarked on an ambitious project:

New ERP system (SAP R3)

New WMS (Pinnacle)

New highly automated DC in Ohio.

• Inability to ship product and failure!

http://aboutdavidkiger.net/the-foxmeyer-logistics-failure-story/

Result! • Bankruptcy - $5 billion company was sold to its larger rival, McKesson,

for only $80 million.

• Leading vs bleeding edge?

• Sometimes no matter how big – you don’t recover!

• Sometimes we don’t learn

Formula for disaster: • New IT • New facilities • New tech

`

37

Wal-Mart RFID a Solution Looking For

a Problem

RFID Case Study

- Walmart

• June, 2003, Wal-Mart CIO Linda Dillman announced that the world's largest

retailer would require its top 100 suppliers to tag everything with radio-

frequency identification (RFID) tags.

• RFID promised fast tracking of anything – everywhere!

• For Wal-Mart, it held the promise of a more efficient supply chain

• Wal-Mart biggest $250 billion in sales that year.

http://www.scdigest.com/assets/FirstThoughts/09-05-07.php http://www.zdnet.com/article/did-wal-mart-love-rfid-to-death/

Simply Not Viable!

39

$0.01 vs $1 dream

No tellers & easy inventory counting?

Not Only Wal-Mart

40

Unmanned check out stations - No queues - No errors

RFID simply did not work reliably at check out

41

Lessons

• Many consumer products (eg toilet paper and laundry detergent) have

razor-thin margins (50c to $1 each) – can’t afford fancy tech

• Given the nearly non-existent cost of bar codes relative to RFID, was

RFID a solution in search of a problem?

• Technology – as envisaged – did not work!

• Has Wal-Mart’s involvement pushed the technology forward?

43

The Great Fire

Angle Grinder + Flammable Roof Insulation = Fire

+ =

Risk Case Study - Great South African Fire

The Great 5 Day Durban Fire

47

Why Don’t We Learn?

48

Grenfell Fire Makro Fire

49

Not just the fire – What

about the down stream

effect on the Supply Chain

Lessons

• Clearly we don’t learn

• Procedures during repairs vital

• Use of flammable material for insulation!

• No sprinklers – is it worth it!

TIPSASA FIRE REGISTER FEBRUARY 2018 Tested and classified in accordance with SANS 10400-T & SANS 428:2012

• 80% of facilities have flammable insulation ?

• SANS does not prohibit the use of

flammable insulation

• Flammable insulation is usually much

cheaper than “the good stuff”

51

What about your warehouse??

52

53

The Battle Between Road and Rail

Clearly We All Want Rail For Freight Long-haul!

54

55

Energy Efficiency

56

RAIL

ROAD

And Preserve our Roads

57

What Has Happened to Freight Rail In SA

58 https://jtscm.co.za/index.php/jtscm/article/view/228/447

Annual Tons on Rail by Freight Category – 1949 -2011

http://www.safti.co.za/?page_id=166

Rail Freight – South Africa VS USA

Rail Freight Road Freight

60

Rail Freight Road Freight

USA RSA

USA worlds best user of rail freight!

What Went Wrong

• Transnet highly politicised during apartheid days

• Transnet was highly protected

• R6.332bn loss for the year ended March 30 2004!

• Then Transnet CEO Maria Ramos – brief – stop bleeding

• Non core operations trimmed (freight non core)

• Under – investment in freight for years

• Focus on bulk (coal, iron ore, etc)

• Issues: management, corruption, lack of capital, lack of focus

• Lack of co-operation with transport industry & customers

Business

Politics

In Theory

• Transnet Freight Rail (TFR) has a road

to rail strategy

• New Market Demand Strategy (MDS)

had been launched in 2012 -- with an

emphasis on massive capital

investments and moving additional

tonnage by rail -- the “death curve” of

previous years had been arrested and

the situation had started to improve.

https://pmg.org.za/committee-meeting/21086/

Can it Be Fixed?

• Partially on its way – more investment

• Trying to be more user friendly

• But real technology updates needed

• Need big money to modernise!

• Road – low capital & easy to enter

• Road – private

• Needs better ports (integrated multi modal)

• Needs less internal focus & more external focus

Piggy Back & Bridges!

Bridges Can Be A Problem

65

Public Private Partnerships

Public Private Partnerships!

Additional Port Facilities – Total System

Intermodal Efficiency

We Have Presented Some Dark Tales

Procurement

(Submarines)

Planning

(Nike)

IT

(Heathrow)

Warehousing

(Sainsbury)

Warehousing

(Foxmeyer)

RFID

(Walmart)

Risk

(Fire)

Transport

(Transnet)

Taking no Risk is Also Not An Option

71

Some Simple Rules – To Stay on the Bright Side

• Understand total business processes and all ramifications

• IT is usually the biggest risk

• Automation great if properly understood

• Big bang has its benefits, but increases RISK.

• Test – test – test – test – test – test – test – test – test – test

• Try learn from past mistakes

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• Proper understanding of customer needs

• Separate what customer wants from what he needs

• Good co-ordination between physical & IT processes

• Follow good practice from concept to execution

• Leading / not bleeding edge

• Chose the best supplier – with lots history

• Don’t go with ridiculous timelines

• Test – test – test – test – test

• Test under pressure!!!

73

Some Simple Rules – To Stay on the Bright Side

The Old Description Still Applies

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