Global Supply Chain July August 2016 Issue

July/August 2016 Issue 28

ENHANCING THE BUSINESS OF LOGISTICS

THE SMART Digitised supply chains The chemicals industry

Qatar Cargo

Aggressive growth strategy

Digital risk management An urgent need

CITY Dynamic, connected, convenient

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The Technology issue SIGNATURE MEDIA FZ LLE P. O. Box 49784, Dubai, UAE Tel: 04 3978847/3795678 Email: info@signaturemediame.com Exclusive Sales Agent Signature Media LLC P.O. Box 49784, Dubai, UAE Publisher: Jason Verhoven jason@signaturemediame.com Director: Peter Dass peter@signaturemediame.com Managing Editor: Munawar Shariff munawar@signaturemediame.com Art Director: B Raveendran ravi@signaturemediame.com Production Manager: Roy Varghese roy@signaturemediame.com

Printed by United Printing Press (UPP) – Abu Dhabi Distributed by Tawseel Distribution & Logistics – Dubai

Contributor’s opinions do not necessarily reflect those of the publisher or editor and while every precaution has been taken to ensure that the information contained in this handbook is accurate and timely, no liability is accepted by them for errors or omissions, however caused.

Articles and information contained in this publication are the copyright of Signature Media FZ LLE & SIGNATURE MEDIA LLC and cannot be reproduced in any form without written permission.

For our main story this issue, we’ve focused on Dubai’s initiatives to become a smart city and chatted with SAP about their solutions for the same. A Smart city, by definition, needs to have smart governance, energy, building, mobility, infrastructure, technology and healthcare, in addition to all of the above being at the fingertips of the city’s residents. The UAE has demonstrated outstanding commitment to the Smart City scenario. SAP’s contribution is simple – they can ensure that their innovative solutions are connected, and the government behaves as one single organisation.

These ambitious goals are mission-critical to the cities and country, similar to very large enterprises that operate globally and need systems that are reliable and scalable.

By leveraging the company’s expertise in integrated solutions, SAP is confident in playing a key role in the success of any smart city initiative.

The biggest challenge when working on a city, or an area of a city, to align it to inter connectivity is cultural – Government entities operating in unity, breaking silos and involving the entire ICT ecosystem to create and capture value for the future of the nation.

Besides the cover story, technology is a recurring theme through all our articles. On page 34 we have a detailed story on the digitisation of Chemical logistics. We spoke with Richard Forrest, Lead Partner EMEA Energy Practices, AT Kearney, about how leading companies maximise value by combining best practice capabilities with digital and technology enablers to supercharge an integrated supply chain. On page 48, we spoke to Earl Perkins, Research Vice President, The IoT Group, Technology Service Providers, Gartner, about how digital risk management is an urgent need for all organisations today. This and lots more packed into these 60 pages.

Have a great summer for now and see you in September.

Munawar Shariff Managing Editor munawar@signaturemediame.com

JULY/AUGUST 2016 3

July/August 2016 Issue 28

ENHANCING THE BUSINESS OF LOGISTICS

25 06 News 17 Country report - UAE Maritime sector

Dubai preps to become a major maritime centre With a strategic position near the Strait of Hormuz, Dubai has a longstanding maritime tradition

25 Cover The smart city Smart cities are the cities of the future, and it requires a concentrated and combined effort to make that happen. GSC talks to Pedro Pereira, Digital Innovation and Smart Cities Lead, SAP EMEA South

30 Larry helps build up artificial intelligence

Andrew Spence reports on a robot with an algorithm-based persona, which is being used to help companies make data-driven decisions in real time 4 JULY/AUGUST 2016

34 Technology is critical

for regional chemicals supply chains

Richard Forrest, Lead Partner EMEA Energy Practices, AT Kearney, talks to GSC about the digitisation of the chemical supply chain industry

38 New management at Sohar Port

Global Supply Chain speaks to both CEOs - Andre and Mark - about how the company prepared for this change and their views on what the future holds for Sohar

42 Qatar Cargo –

aggressive growth strategy

Qatar Airways Cargo reveals strategy to become a major player in the Transpacific, Australia and South America Markets in next nine months

45 Taking chemicals seriously

RSA-TALKE opens a new, integrated chemical logistics hub in JAFZA, for hazardous and nonhazardous chemicals in the region

48 Pre-empting the risk Earl Perkins, Research Vice President, The IoT Group, Technology Service Providers, Gartner, talks to GSC about how digital risk management is an urgent need

52 The smart move Huawei has signed an MoU with smart vehicle systems integrator, SamTech Middle East, to develop integrated solutions for the transport sector

54 Omnichannel and the future

Systemic Inventory Rich vs Inventory Velocity is a question businesses need to address

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DP World Group Chairman & CEO Meets President of Kazakhstan

DP World Group Chairman and CEO Sultan Ahmed Bin Sulayem met with the President of Kazakhstan, Nursultan Nazarbayev, at the St Petersburg International Economic Forum (SPIEF) to enhance the co-operation between DP World and Kazakhstan.

The meeting was focused on opportunities to expand on DP World’s participation in the development of the Khorgos Eastern Gate Special Economic Zone and the Port of Aktau. President Nazarbayev noted that DP World was an important strategic partner for Kazakhstan, and Bin Sulayem expressed his interest in joint ventures in other locations around the world. He added that the growing importance of multi-modal transport systems, connecting air, rail, road and sea was vital for seamless cargo movement. Kazakhstan, Russia, and more broadly, the New Silk Road countries and the Eurasian Economic Union (EAEU) are key markets for DP World.

DP World Group Chairman and CEO Sultan Ahmed Bin Sulayem with the President of Kazakhstan, Nursultan Nazarbayev, during the St Petersburg International Economic Forum in Russia

Cebu Pacific and UNICEF join forces

Now flying with Cebu Pacific is about more than just getting to a destination - it will also bring much-needed health and nutrition to infants and young children.

From left: Anne Curtis, UNICEF Celebrity Advocate for Children; Lance Gokongwei, CEB President and CEO; Lotta Sylwander, UNICEF Representative; and Gary Valenciano, UNICEF National Ambassador 6 JULY/AUGUST 2016

Cebu Pacific and the United Nations Children’s Fund (UNICEF) have partnered to introduce the Change for Good programme in the country.

Change for Good® is an innovative global partnership programme, established in 1987, and designed to collect donations from passengers and convert these into lifesaving materials and services for vulnerable children in more than 150 countries around the world. Change for Good will initially be implemented from CEB’s Manila hub starting July 1, before being rolled out across its other Philippine hubs.

The programme aims to provide optimal health and nutrition in the first 1,000 days of a Filipino child, from a mother’s pregnancy to the child’s second year of life.

Safeguarding the health and nutrition of children during this critical window will ensure that they are protected from lifethreatening childhood diseases, that they finish more years of school, and even earn up to 50 per cent more as adults.

Al Naboodah Construction Group appoints Colin Timmons as new CEO After almost 30 years of service to the company, Al Naboodah Construction Group (ANCG) Chief Executive Officer Steve Lever has announced he will step down as CEO of the Group with effect from July 1st, 2016, to assume a strategic advisory role to the company. Current Chief Operating Officer Colin Timmons has been appointed as his successor, with Lever remaining with the company to ensure a successful handover.

Lever’s three-decade contribution to

the Middle East’s construction industry has seen him play an influential role in the direction of the sector, and ultimately the success of the Al Naboodah Construction Group. Over the coming months, Lever will move into a transition role to oversee work in Qatar, and continue to manage key clients in the UAE during this period.

Incoming CEO Timmons formally takes over full responsibility for leading and managing the Al Naboodah Construction Group from July 1st.

JULY/AUGUST 2016 7

Etihad Airways and Avianca Brasil announce codeshare partnership Etihad Airways and Avianca Brasil, a Latin American airline, have announced a codeshare partnership. Under the agreement, Etihad Airways will put its ‘EY’ code on domestic flights operated by Avianca Brasil, while Avianca Brasil will put its ‘O6’ code on Etihad Airways flights between Abu Dhabi and São Paulo.

Travellers on Etihad Airways flights between São Paulo (GRU) and Abu Dhabi (AUH) and beyond will benefit from

convenient connections to and from eight other Brazilian destinations on Avianca Brasil, including Rio de Janeiro (GIG), Curitiba (CWB), Florianópolis (FLN), Fortaleza (FOR), Porto Alegre (POA), Recife (REC), Salvador (SSA), and Maceió (MCZ).

Bookings on Etihad Airways can be made directly through the airline’s website, etihad.com. Competitive fares to Abu Dhabi are available on the Avianca Brasil website (www.avianca.com.br).

Huawei welcomes Dubai Customs for a first-hand experience

Ekhlas Al Mutawa

Etihad Cargo starts twice weekly flight to Brussels Airport Etihad Cargo has commenced a new twice weekly A330 freighter service to Brussels Airport in Belgium, further strengthening the connectivity options and economic ties between Abu Dhabi and Brussels, and adding freighter capacity to its existing passenger service.

The airline already flies a daily passenger service to Brussels with its supporting bellyhold cargo, and the addition of

the freighter underlines Belgium’s importance to its European network.

As a leading European gateway, Brussels Airport will further benefit Etihad Cargo’s operations with its dedicated infrastructure for the transport and handling of products that require an unbroken cold chain, particularly pharmaceutical products and perishables.

Ghaneema Ibrahim Ahmed

Unikai teams up with Eco Lab and Zebak Emirates Unikai has joined forces with EcoLab and Zebak Emirates to raise food production and quality to the next level. The deals, to be implemented over five years, will see Zebak Emirates building a central laboratory for Unikai’s research and quality development activities, fortifying their commitment to providing consumers with only the best

8 JULY/AUGUST 2016

in quality products. EcoLab’s agreement will see them jointly investing in hygiene equipment and products designed to improve operations on all levels. The deals sign-post the maturity of the F&B sector in the region and a growing recognition that consumers should not have to settle for anything less than the best.

Fareeda Fadhil

Narmin Ahmad Issa

Dubai Customs has enhanced its outreach to the global business community with a senior delegation visit to Huawei headquarters in Shenzhen, China.

The main objective of the visit was to learn first-hand about Huawei’s best practices in areas related to supply chain and customs compliance.

The delegation’s mission to Huawei was geared to promote coordination and share expertise towards the improvement of work mechanisms and processes as well as services offered to customers.

As part of the visit, Huawei took DC officials on a sightseeing tour to visit the popular attractions in China, such as the famous Great Wall and the Forbidden City, to discover its rich heritage and history.

Emirates GBC networking seminar highlights steps to improve air quality inside buildings Emirates Green Building Council (EmiratesGBC) underlined the measures that can be adopted to improve air quality and the role of Volatile Organic Compounds (VOCs) in adversely impacting green building design at its recent Networking Seminar.

The discussion on ‘What’s in our buildings’ was addressed by representatives of EmiratesGBC, Dubai Central Laboratory, Griffin Consultants, Flowcrete, Mapei and Caparol. Each highlighted the importance of using materials that minimise the emission of VOCs, and the practical steps to improve the air quality of interiors.

The discussion stressed that with 90 percent of the time spent indoors, it is important for

everyone to prioritise indoor air quality and ensure that the environment one breathes in is healthy. This will help prevent health risks and also mitigate hidden costs on the building’s operations, such as sick leave by employees, and low cognitive results of students, among others. Panelists also explained that profit making unfortunately remains a key factor for some contractors and owners. The panelists and audience agreed on the need to implement stricter onsite controls, dedicated to how the products and equipment are being used, mixed or installed. End-users also need to be educated on their indoor environment to make better decisions and become responsible consumers, owners and tenants.

NAFL links with top global universities using FIATA’s e-platform The National Association of Freight and Logistics (NAFL) held an open Forum on FIATA Logistics Academy (FLA) in May to give out distinction certificates to their top trainees who got 95 per cent and above from various freight organisations. Further, the new schedule for the coaching and management courses were announced. This e-learning platform is not limited to logistics courses, but has leadership, management, business etiquette, and much more.

The Forum highlighted how FIATA Logistics Academy (FLA) has moved towards fulfilling its mission to add value

to FIATA members by positioning training, development, and research in freight logistics as a priority FIATA deliverable. It also emphasised how to work towards attracting and assembling best practices, applications and training programmes available in academic and vocational training in the supply chain management and international logistics industry, and also focusses on management, leadership, international relations, social media etc.

Sharjah Chamber of Commerce and Industry introduces the Sharjah Top 10 Business Award The Sharjah Chamber of Commerce and Industry (SCCI) has added a new ‘Sharjah Top 10 Businesses Award’ to their annual shjSEEN Awards programme. An invite only, business excellence award, it is focused on helping private sector organisations in Sharjah drive performance to enable business growth. The Sharjah Top 10 Businesses Award draws on the Excellence Model of the European Foundation for Quality Management (EFQM), a comprehensive management framework used by more than 30,000 organisations across the world.

Organisations invited to apply for this award can enter into either one of the ten categories covering manufacturing, trade and repairing services, real estate and business services, tourism and hospitality, construction, financial services, transportation and logistics, education, healthcare, and digital services.

For further information, visit http://www.shjseen.org/en/award/, or contact the ShjSEEN Award Team on award@shjseen.org.

JULY/AUGUST 2016 9

Average costs for solar and wind electricity could fall 59 per cent by 2025

Expo 2020 Dubai and DP World deal puts UAE at the heart of future trade

The average costs for electricity generated by solar and wind technologies could decrease by between 26 and 59 per cent by 2025, according to a report released by the International Renewable Energy Agency (IRENA). The report, The Power to Change: Solar and Wind Cost Reduction Potential to 2025, finds that with the right regulatory and policy frameworks in place, solar and wind technologies can continue to realise cost reductions to 2025 and beyond.

It estimates that by 2025, average electricity costs could decrease 59 per cent for solar photovoltaics (PV), 35 per cent for offshore wind, and 26 per cent for onshore wind compared to 2015. Electricity prices for concentrated solar power could also decrease as much as 43 per cent, depending on the technology used. By 2025, the global average cost of electricity from solar PV and onshore wind will be roughly five to six US cents (AED per kilowatt hour.

Since 2009, prices for solar PV modules and wind turbines have fallen roughly 80 per cent and 30 to 40 per cent respectively. With every doubling of cumulative installed capacity, solar PV module prices drop 20 per cent and the cost of electricity from wind farms drops 12 per cent, due to economies of scale and technology improvements. Importantly for policy makers, cost reductions to 2025 will depend increasingly on balance of system costs (eg, inverters, racking and mounting systems, civil works, etc), technology innovations, operations and maintenance costs, and quality project management. The focus in many countries must therefore shift to adopting policies that can reduce costs in these areas.

Expo 2020 Dubai has announced DP World as its Premier Global Trade Partner.

The company operates 77 terminals globally, including Jebel Ali Port, under 10 kilometres from the Expo site, and will be integral to the supply chain for the Expo, which will host over 180 nations and 25 million visitors for the world’s largest event in 2020. DP World is the third Premier Partner to date.

Her Excellency Reem Al Hashimy, UAE Minister of State for International Cooperation and Director General Bureau Expo Dubai 2020, said,“Expo 2020 Dubai will be the first World Expo to take place in the Middle East, Africa or South Asia.

The partnership with DP World will play a central role in cementing the UAE’s position at the heart of future global trade.”

The partnership with DP World means that countries participating in Expo 2020 will be able to use ports in their home countries, as well as Jebel Ali Port, for their transport requirements as they prepare to take part in the global mega event, taking advantage of one of the most modern ports in the region, employing state-ofthe-art equipment and the infrastructure required to accommodate the world’s largest container vessels.

10 JULY/AUGUST 2016

KSA government announces regulations for White Land Tax At a Council of Ministers meeting in Jeddah, a number of regulations for the introduction of the White Land Tax were approved.

Important features of these regulations include: White land is defined as empty land designated for residential and commercial use within the urban growth boundaries of all cities across the Kingdom.

The tax will be imposed on a phased basis on land that meets the following criteria (but no details of the timing of the four stages have yet been announced).

- Stage one applies to undeveloped land over 10,000 sq metres within certified master planned

developments will be taxed (although no list of these master planned developments was included in the announcement) - At a second stage, single land owners of large plots of developed land (exceeding 10,000 sq metres) in certified master planned developments will be taxed. The definition of ‘developed plots’ is again not included in this announcement, but it is assumed this relates to sites that have been serviced with horizontal infrastructure (roads,

power, drainage, etc) but where no vertical development has yet taken place.

- At the third stage, single land owners of smaller plots of developed land (exceeding 5,000 sq metres) in the certified master planned developments will be subject to the tax - And finally, at the fourth stage, single land owners of plots exceeding 10,000 sq metres in one city will be subject to the tax The Ministry of Housing will be responsible for collecting the tax, in addition to any imposed fines on land owners who disregard the rules and regulations. The rate of tax has previously been announced to be 2.5 per cent of the value of the site.

JULY/AUGUST 2016 11

BIC launches database to simplify compliance with SOLAS container weight requirements The Bureau International des Containers (BIC) has announced the launch of a pilot database of container tare weight data to support carriers, shippers, forwarders, and other intermediaries as new SOLAS mandatory container weight verification requirements come into effect on July 1st, 2016.

This new mandate from the International Maritime Organisation (IMO) requires shippers to declare the verified gross mass (VGM) of containers before they can be loaded onto a ship. To make fulfilling this

requirement easier for ‘Method 2’ shippers (those adding cargo and securing material weight to the container tare weight to obtain the VGM), the new Technical Characteristics Database (TCD) will provide a reliable, easyto-access source of container tare weight data. The TCD does not capture container location data, nor will it display the owner

Al-Futtaim Engineering wins contract

or user of the container – its sole focus is to return the technical characteristics of a container when interrogated with the container’s operational number.

Al-Futtaim Engineering has won an annual maintenance contract from Abdulsalam Al Rafi Group to maintain elevators at its Burj Al Salam Tower on Sheikh Zayed Road in Dubai.

The Al-Futtaim company’s Elevator division will service and maintain 22 high-speed, high rise Hitachi elevators, which are equipped with

state-of-the-art technology, including Destination Floor Reservation System (DFRS), wherein passengers register the desired floor at the elevator lobby.

An elevator car is assigned to each registered destination floor, thereby ensuring transportation efficiency and easing congestion in the elevator during peak hours.

Dawood Bin Ozair, Senior Managing Director - Al-Futtaim Engineering & Technologie

12 JULY/AUGUST 2016

Emirati companies participating in UAE Nuclear Energy Programme awarded contracts The Emirates Nuclear Energy Corporation (ENEC) has announced contracts with UAEbased companies totalling more than USD three billion (AED 11 billion) for the construction of the country’s first nuclear energy plant. More than 1,400 UAEbased companies have now been contracted for the delivery of products and services for the

Barakah plant, currently under construction in the Western Region of Abu Dhabi.

This achievement not only further facilitates the development of a local nuclear energy industry, but also contributes to the development of the greater economy and stimulates the growth of heavy industry in the UAE. The contracts have been awarded over the past six years through collaboration between ENEC, the entity responsible for the construction and operation of the plant, and

Korea Electric Power Corporation (KEPCO), ENEC’s Prime Contractor.

By focusing on local companies, ENEC is also helping to stimulate the local economy in the Western Region and the UAE as a whole. When the four reactors are completed, the UAE’s peaceful nuclear energy programme will provide approximately 25 per cent of the UAE’s electricity needs, and save up to 12 million tons of greenhouse gas emissions each year.

JULY/AUGUST 2016 13

Emirates SkyCargo boosts freight capacity to Geneva Emirates SkyCargo has doubled its cargo capacity to Geneva with the launch of the airline’s second daily flight between Dubai and the Swiss city. The new service, launched last month, offers nearly 140 tons of additional belly-hold cargo capacity every week to satisfy growing demand for Emirates SkyCargo services between Geneva and the Middle East, Far East and Australia. The service is operated by a Boeing 777-300ER allowing customers to transport large and outsized cargo up to a height of 160 cms.

Geneva is an important commercial and economic hub housing many of the world’s leading trading and trade finance companies, a growing cluster of pharmaceutical companies, and the headquarters of various international organisations including, the International Red Cross. The region is also home to a number of the world’s leading luxury watchmakers.

Australian delegation visits Emirates SkyCargo’s cool chain facilities

Jeddah

14 JULY/AUGUST 2016

A senior Australian delegation, led by Australian Ambassador to the UAE, His Excellency Arthur Spyrou, visited Emirates SkyCargo’s stateof-the-art cargo terminal SkyCentral at Al Maktoum International- Dubai World Central Airport (DWC) last month. The delegation included the Australian Consul-General, His Excellency Gerard Seeber, Deputy ConsulGeneral and Trade Commissioner Elodie Journet, and other representatives from the Australian Embassy in the UAE. The delegation toured Emirates SkyCargo’s extensive Cool Chain facilities, focusing particularly on the carrier’s capabilities in transporting food products, including fresh produce, sea food, and meat. The Middle East and North Africa (MENA) region is one of the largest meat markets for Australia, and the Australian government is looking at ways in which to further encourage Australian organisations to take advantage of the Dubai Logistics hub.

Tristar Group CEO Eugene Mayne (5th left) and Hyundai Mipo Dockyard President and CEO Hwan-Goo Kang (left) pose with the group’s senior management, shipping crew and guests in front of Tristar Silver Manoora on May 19 in Ulsan, South Korea.

Tristar takes delivery of first of six new MR tankers from Hyundai

Tristar Group CEO Eugene Mayne officially presided over the naming ceremony of the Silver Manoora, the first of six MR tankers to be delivered to Tristar over the course of this year.

The event was attended by the President and CEO of Hyundai Mipo Dockyard, Hwan-Goo Kang, high ranking officials from Tristar and Agility, and the company’s financial advisors, bankers, brokers, lawyers, new building supervisors, classification advisors and fleet technical managers.

The new tankers will operate with lower fuel consumption than existing tonnage, making them much more economical to operate.

They will be fitted with additional fuel saving equipment such as Propeller Boss Cap Fins, New Profile Technology Propeller, and Trim Optimisation System. They will be placed on long term time charter with oil major Shell.

JULY/AUGUST 2016 15

COUNTRY REPORT UAE MARITIME SECTOR

prepping to become a major maritime centre With a strategic position near the Strait of Hormuz, Dubai has always been a natural location for a port serving its hinterland, and the emirate has a longstanding maritime tradition.

Furthermore, following the development of Jebel Ali Port, which now has the largest man-made harbour in the world, Dubai has emerged as a serious player in the global maritime industry

16 JULY/AUGUST 2016

D

ubai has ambitions that go well beyond its famous port. The authorities want to build a maritime cluster that can rival Singapore and Hong Kong in terms of breadth and depth Indeed, with the aspiration of attracting the leading international companies across the whole spectrum of maritime business – from shipbuilding and repairs, to brokerage, insurance and ship ownership – the government has introduced a series of initiatives and strategies to position the emirate at the forefront of the global industry.

Government strategy The government of Dubai has placed a greater emphasis on the maritime sector in the last decade and has been keen to point out its substantial contribution to economic growth and development in the emirate.

The sector currently is an important employment generator

within the emirate’s economy and creates more than 75,000 jobs, with operations, engineering, and ports and shipping accounting for more than three quarters of all jobs in the sector.

Consequently, the emirate is emerging as a highly competitive global cluster. However, it has some way to go to match the world’s leading maritime centres. While Dubai’s maritime industry adds Dh14.4bn ($3.92bn) in economic value, Hong Kong’s contributes Dh41.1bn ($11.2bn), Singapore’s Dh67.8bn ($18.5bn) and Norway’s Dh95.1bn ($25.9bn). Similarly the industry in these centres has a greater impact in terms of employment generation, creating some 222,000 jobs in Hong Kong, 167,000 in Singapore and 101,000 in Norway. Nonetheless, the emirate has grand ambitions to join the ranks of these leading players.“We have done benchmarking with the world’s top maritime clusters and centres. Singapore is a great

COUNTRY REPORT UAE MARITIME SECTOR

JULY/AUGUST 2016 17

COUNTRY REPORT - QATAR

in Dubai. The announcement of the Emirates Maritime Arbitration Centre (EMAC) in September 2014 is a welcome step forward in introducing a legal framework for the regional industry.

Indeed, the arbitration centre is the first initiative of its kind in the Middle East.

“Generally, arbitration is not something Driving growth that is used very much in the region, but it Under the stewardship of the DMCA, the is something that the UAE, as a growing regulatory body for the sector founded in maritime cluster, could benefit from,”Lars 2007, the emirate is highlighting the maritime Seistrup, managing director industry as a leading engine of Damen Shipyards Sharjah, of economic growth and The government told OBG. The DMCA is promoting the city as an ideal confident that the new centre location for maritime companies of Dubai will meet a growing demand to establish operations. has placed in the region.“As a result of The framework for this is laid the volume of sea trade here, out under the Dubai Maritime a greater we know for sure that there’s Sector Strategy, a white paper emphasis on a great need for arbitration,” that outlines the goals of the Jourani told OBG. authority in broad terms. These the maritime The timeline for the EMAC include creating a more robust to become operational regulatory regime, introducing sector in the is yet to be announced; a thorough licensing system, last decade and however, the role the body promoting the emirate to the global industry, pushing has been keen will play has been laid out.

Dispute resolution and smart technology in the sector, to point out deliberation will be based maintaining high-quality infrastructure and developing its substantial on a legal regime drawing from best practices around local human capital. contribution the globe and is designed These long-term goals are to give parties access to a now pursued in conjunction to economic range of maritime regulatory with other plans including Dubai growth and guidelines and standards.

Maritime Vision 2030 and Dubai Strategic Plan, and the DMCA development in The centre will be equipped to hear cases across a range has begun to make inroads the emirate of industry segments, on the first two goals, namely including cargo shipping, regulation and licensing. shipbuilding and repairs, assurance and For example, the agency has introduced a reinsurance, loss adjustment, marine number of regulations and initiatives in the collisions and affreightment. field of environment and safety, including While the EMAC will meet an existing the designation of the international company need, it is hoped that the development of Monjasa as the official oil spill responder for a well-defined legal environment will also the emirate; a safety campaign aimed at ship draw more business to the emirate. Amer operators; a sustainability programme with Ali, executive-director at the DMCA, told the an emphasis on the reduction in harmful local press upon the launch of the EMAC emissions; concerted efforts to improve feeder that,“Dubai’s maritime community has long traffic flows at Dubai ports; and new speed expressed a growing need to attract and limits for marine crafts in the emirate’s waters. recruit more ship owners into the emirate, since they will represent the basic foundation Legal developments of a successful maritime industry.”According One of the most important recent initiatives to Ali, the EMAC is one step that will help by the DMCA is the introduction of a new achieve this goal. arbitration centre for the maritime industry model to learn from; we work together with Singapore on many fronts and we see where we stand in terms of weaknesses and strengths,” Nawfal Al Jourani, director of communications at the Dubai Maritime City Authority (DMCA), told OBG.

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Strength in depth Such initiatives are one of the primary reasons that Dubai and the UAE remain dominant players in the regional maritime industry. In the next three years, the UAE’s maritime sector is expected to be worth $66bn and contribute as much as 35% to Middle Eastern investment in the sector.

As well as a strong regulatory environment, the UAE’s – and Dubai’s – success has been built on a foundation of substantial infrastructure capacity. Sultan Ahmed bin Sulayem, chairman of the DMCA, told the local press,“The maritime industry has been developed through increased investment towards building the capacity of seaports, airports, free zones, logistics and Customs administrations to cope with a remarkable rise in Dubai’s foreign trade, which soared to [a] record high of $361bn in 2013. This is nine times higher than its value in 2000. Such growth is being upheld through continual expansion of ports, particularly the Jebel Ali Port, which will take its total handling capacity to 19m twenty-foot equivalent units (TEUs) early in 2015.”

Another component of Dubai’s infrastructure that continues to expand is the development of Dubai Maritime City (DMC). The project, a 2.27m-sq-metre district, has space allotted for mixed-use real estate development, yacht marinas, and an industrial precinct for shipbuilding and repairs.

Gulf Craft, a yacht manufacturer, announced in October 2014 that it would invest $100m to develop an approximately 900,000-sqft shipyard facility. In addition, DMC also experienced an uptick in the number of real estate development announcements on site in 2014. This includes office space that will be leased to ship owners, ship management companies, and marine protection and insurance companies at preferential rates.

Ports First conceived by Sheikh Rashid bin Saeed Al Maktoum in 1976, Jebel Ali has become one of the leading sources of growth for the emirate. The container port currently has 23 berths and 78 quay cranes, with the $850m Terminal 3 adding six more berths to bring the total capacity to 19m TEUs by 2015. The general cargo terminal has 26 berths and a total storage area of 1.4m sq metres.

BUSS ENGINEERING & HEAVY EQUIPMENT REPAIRING L.L.C.

COUNTRY REPORT UAE MARITIME SECTOR

The port continues to go from strength to strength. The expansion of Jebel Ali’s Terminal 2 by 1m TEUs helped Dubai’s ports, which include Mina Rashid and Mina Al Hamriya, to achieve a record year in 2013, handling 13.6m TEUs, a 2.7% increase on 2012.

Moreover, Jebel Ali took the title of world’s most productive port, according to the US-based Journal of Commerce. The port achieved 138 moves per vessel per hour (MPH), beating 438 other ports included in the worldwide study. Jebel Ali was also found to be the most efficient port in terms of handling large ships, achieving 163 MPH for container vessels of 8000 TEUs or more.

Remaining Competitive As the largest container terminal between Rotterdam and Singapore, and one of the 10 largest in the world, Jebel Ali has become a model for development for several countries in the GCC region.

Saudi Arabia and Oman, in particular,

20 JULY/AUGUST 2016

have moved ahead with plans to build port capacity that could offer an alternative to Dubai and position these countries as logistics centres for the region.

According to the consulting group AT Kearney, GCC port capacity will increase by more than 200%, or 70m TEUs, in the next two decades.

As such, there is likely to be overcapacity in the region. Jebel Ali, however, has a pedigree that will make it difficult to challenge. Jorn Hinge, president and CEO of United Arab Shipping Company, told OBG,“Despite substantial investment in new ports and related infrastructure expected to come on-line in the next few years throughout the GCC, the maturity, volume and sophistication of Jebel Ali Port combined with the neighbouring free zone will make it difficult for other ports in the Gulf to persuade shipping lines to shift business.”

Others in the sector agree: “With Jebel Ali, they are significantly ahead of the demand at any point in time,”Kapil Mehta, head of trade

and marketing for the UAE, Oman, Qatar and Iran at Maersk, told OBG.“We might see some deterioration of throughput through Jebel Ali because infrastructure around the region will grow, but at this time it is difficult to see any other countries being able to take an entire network of ships at their port.”

Consolidation While regional ports could offer a cost discount on Jebel Ali, the port is price competitive on a global scale, according to Mehta. As such, there seem to be few threats to its regional dominance in the medium term.

Yet the port is unlikely to recreate the stellar rise that it experienced in the last decade. Between 2003 and 2012, Dubai ports, led by Jebel Ali, recorded a 150% growth in volumes, increasing from 5m TEUs to 13.3m TEUs in 2012.

With the port firmly established on the world stage, such rapid growth is unlikely to be repeated in the next decade.“For

COUNTRY REPORT UAE MARITIME SECTOR

The UAE’s maritime sector is expected to be worth now, we are looking at the cluster as a fairly mature market. GDP growth will determine containerised growth and we expect it to be in the single digits,” Mehta told OBG. Indeed, while the port has built strong capacity in terms of draft and berths, an excess is likely to remain for some time.

Mehta says, for example, that there are no immediate plans for the Triple-E, Maersk’s 18,000-TEU capacity line of ships, to call at Jebel Ali, though the shipper may revise this based on how things develop in the future.

DP World Investments Nonetheless, the port remains crucial to the Dubai-based port operator, DP World.

In 2013 the performance of its Dubai operations outperformed its global network.

The company is now the third-largest ports operator in the world. It has 65 marine terminals around the world and handled 55m TEUs in 2013. In the first quarter of 2014, volumes across its container-handling network increased by 10.5%.

$66

However, DP World is not resting on its laurels. Its core business, container handling, which accounts for more than 75% of company revenues, is expected to grow substantially over the next decade.

Capacity across the company’s container portfolio is forecast to reach more than 100m TEUs by 2020. In June 2014 the operator raised $1bn through a convertible bonds sale, issuing a statement that the funds would be used “to take advantage of organic and inorganic growth opportunities, diversify funding sources and general corporate purposes”.

a majority stake in a Spanish operator of offshore support vessels for the energy industry, Remolcadores de Puerto y Altura SA (Repasa). The new joint venture under the P&O Maritime brand will give DP World greater penetration in offshore operations of liquefied natural gas, as well as greater access to the markets of the Mediterranean and West Africa. In the same month, it was announced that DP World had expressed interest in investing in the Albanian ports of Durres, the biggest port in the country, and Shengjin, when the chairman of the company, Sultan Ahmed bin Sulayem, accompanied a Dubai delegation visiting the Balkan country.

One month later, the company announced the $25.5m acquisition of World Security FZE, a company that provides security services and solutions to ports and free zones in Dubai.

billion

Joining forces Its intention to expand through acquisitions became abundantly clear in September 2014 when P&O Maritime, which is a wholly owned subsidiary of DP World, announced the purchase of

JULY/AUGUST 2016 21

Shipping Industry

Another

This acquisition spree comes infrastructure at a time when the global shipping industry is experiencing that continues a sluggish performance. As a to expand is the result, rates across all segments of the market have been development of depressed as the number of Dubai Maritime new-build ships continues to outpace demand.

City (DMC).

“New tonnage is expected in The project, a the second half of 2015 but an overtonnage situation already 2.27m-sq-metre exists in the dry bulk sector. The situation has deteriorated due to district, has the slow-down in the Chinese space allotted economy in 2014,”Capt. Farhad P Patel, director at Sharaf Shipping, for mixed-use told OBG. Given that there is real estate a time lag between order and delivery, and the strong order development, book following an initial recovery yacht marinas, from the global financial crisis, new inventory is likely to hit the and an industrial market for some time to come precinct for Nevertheless, the sector seems to have seen out the bottom shipbuilding and of the market. In April 2014, repairs for example, investment group Moody’s revised its outlook for the global shipping industry from negative to stable for the first time since June 2011.

In a statement that accompanied the announcement, Mariko Semetko, Moody’s assistant vice-president and analyst said,“The revision reflects our expectation that the global industry’s aggregate EBITDA [earnings before interest, taxes, depreciation and amortisation] to sector expansion over the next decade. will rise by mid-single digits in percentage In the medium term, strong economic and terms year-over-year in 2014, in line with demographic growth in the emirate, the our -5% to 10% growth range for a stable federation and the region, in addition to outlook.”Although Semetko acknowledged growth in emerging markets serviced by that overcapacity remains a challenge, the Dubai, should support the whole gamut of agency also said,“Industry conditions are at maritime businesses from shipping lines a trough and the supply-demand gap will and shipbuilding to freight forwarders and not worsen materially. In this environment, shipping brokers. we expect the supply of vessels will exceed demand by no more than 2%, or that demand will exceed supply by up to 2%.”

Financing This is good news for a local maritime In the short term, however, confidence industry that is reliant on global shipping to remains fragile. It is hardly surprising, stimulate other sectors of the cluster. therefore, that in terms of financing, the In addition to the potential for a global market has been cautious in the last two years. recovery, the local market looks conducive The liquidity in the bank market and appetite

22 JULY/AUGUST 2016

for asset finance returned during 2014, according to Knut Mathiassen, regional head of shipping finance for the Middle East and Africa at Standard Chartered. The bank itself has a significant shipping finance loan book in the Middle East. However, for those that can access loans, the cost of financing has been improving, with the rates on shipping loans falling by as much as 100 basis points since 2010. For a number of companies in need of capital, financing has come in the form of equity. For instance, in November 2010 the US-based private equity firm, Oaktree, acquired a controlling stake in the Emirati company Gulmar Offshore Middle East, which has now been revived as Harkand.

COUNTRY REPORT UAE MARITIME SECTOR

Another success story is Stanford Marine, a Dubai-based operator, acquired by Abraaj Capital in 2007, which prospered during the downturn. The company reported revenue of $237m and an EBITDA of $60.2m in 2013.

Abraaj, which bought a 51% stake in the company in 2007, is currently looking to sell its share for a market value of $300m.

Other maritime companies have gone down the route of publicly listing, with Abu Dhabi’s Gulf Marine Services listing on the London Stock Exchange in February 2014. However, Gulf Navigation Holding is at present the only locally listed shipping company.“It has not been easy to raise money for shipping here after the financial

crisis in 2009, as it’s been mainly centred on Singapore, New York and Oslo,”Mathiassen told OBG. However, GCC banks are now back in the market giving international banks increased competition, especially Islamic banking institutions.

Outlook Despite difficult global conditions, Dubai’s maritime industry is growing into a leading economic engine. The emirate’s flagship companies in the maritime sector, DP World and Drydocks World, continue to adapt and thrive despite a depressed shipping market. With the government introducing new regulation and improving the legal

environment for maritime operators in the emirate through the DMCA, the prospects of an increase in the footprint of a whole range of sector industries looks strong.

Although ship ownership – as well as maritime financial services from insurance to brokerage – is currently under-represented, this is likely to change in the future as the wider maritime industry in the emirate gains weight and credibility. As such, therefore, indicators for the local maritime sector could start to look a lot more like the leading global maritime clusters of Singapore, Hong Kong and Norway against which the emirate has benchmarked itself.

-www.oxfordbusinessgroup.com

JULY/AUGUST 2016 23

COVER STORY

The smart

city Smart cities are the cities of the future, and it requires a concentrated and combined effort to make that happen.

GSC talks to Pedro Pereira, Digital Innovation and Smart Cities Lead, SAP EMEA South about making that happen

A

Smart city, by definition, needs to have smart governance, energy, building, mobility, infrastructure, technology and healthcare, in addition to all of the above being at the fingertips of the city’s residents.“SAP,”says Pedro Pereira, Digital Innovation and Smart Cities Lead, SAP EMEA South,“addresses the city as an integrated organisation that needs to provide a seamless experience to businesses and citizens.”

“Smart City is encouraging cities to behave more like very large enterprises, on which elements such as efficiency of assets utilisation, and satisfaction and happiness of stakeholders

24 JULY/AUGUST 2016

COVER STORY

JULY/AUGUST 2016 25

COVER STORY

SAP’s contribution is simple – they can are crucial. At SAP, we have more than 40 ensure that their innovative solutions are years of experience in helping organisations connected, and the government behaves as of all types to handle complex processes that one single organisation. These ambitious deliver the foundation and means for growth goals are mission-critical and prosperity. Our solutions to the cities and country, range from a horizontal At SAP, we have similar to very large platform capable to deal with any kind of data, despite its more than 40 years enterprises that operate globally and need systems volume, variety and speed. of experience that are reliable and While keeping the big data scalable.“By leveraging in control, we also provide in helping our expertise in integrated a business brain capable to organisations of solutions, we are confident analyse the data in smart playing a key role in the ways, therefore enabling all types to handle in success of any smart city innovative use-cases. To complete the picture, we complex processes initiative,”he adds.

The biggest challenge provide a very agile solution to that deliver the when working on a city, or create applications, and ensure an area of a city, to align they are integrated with foundation and it to inter connectivity is back-end systems, making the means for growth cultural - Government dream a reality. Furthermore, entities operating in unity, we provide a large number of and prosperity breaking silos and involving vertical applications such as the entire ICT ecosystem to intelligent traffic management, create and capture value for the future of the connected cars, travel and transport networks, nation.“Technically, we are more than ready smart parking, etc,”he says. to manage the change and pursue the results The UAE has demonstrated outstanding expected,”claims Pedro. commitment to the Smart City scenario.

26 JULY/AUGUST 2016

“SAP operates worldwide with different cities in different kind of challenges. For instance, in Nanjing-China, our innovation centre was involved in tackling a major issue of traffic management, by applying SAP digital innovation, to have a centralised data platform ensuring city traffic status and analysing congestion root-cause resulting in better services and unprecedented levels of efficiency. In Argentina, human lives were impacted when Buenos Aires and the surrounding region flooded two years ago, and the cost was close to USD 103 million (AED 378 million). Post that disaster, city leaders were determined to be better prepared next time. They decided to mitigate risks by expanding the use of technology with SAP. The city installed sensors in over 30,000 storm drains that measure the direction, speed and level of water. Along with weather reports and citizen alerts on social media, the city can now analyse data to determine in real time which areas need immediate support,”he explains.

The efficient usage of city assets opens brand new possibilities for sustainability.

Over the past 200 years, there have been three technological revolutions that have

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COVER STORY

development efforts channel their deep defined the modern city. Each has provided expertise and diversity to investigate new huge benefits, but also profound social costs. technology and develop new applications “We are now poised for a fourth – Digital that deliver business value to their Technology. We believe digital technologies customers. To capitalise on the power of have the potential to solve today’s pressing diversity, and to best serve their regional urban issues in ways that respect privacy and global markets, SAP research and – serving as a bridge to cities of the future,” development projects are distributed says Pedro. globally across SAP’s Research and infrastructure.“We develop development are at the heart our software in strategic of SAP’s customer-focused We also see countries across the world, innovation strategy.“To such as Brazil, China, continue to win with our independent Germany, India, the United customers, SAP invested international States, and other key about € 2,845 billion (AED 11,889 billion) in 2015 in the organisations being centres. SAP Labs and the SAP Innovation Center development of tools and created to develop Network work with our technologies of tomorrow.

At the end of 2015, our common standards partners, customers, and universities to create and research and development to incentivise more cultivate breakthrough IT organisation counted 20,938 trends and technologies FTEs, who represented cities to adopt on a global scale. This 27 per cent of our overall the concepts and collaboration contributes workforce,” he informs.

Led by the Products and solutions in a wide significantly to the technological edge of our Innovation organisation, variety of contexts product portfolio,” he says.

SAP’s research and

28 JULY/AUGUST 2016

Smart City market value is estimated at US$ 1.5 trillion (AED 5.51 trillion) by 2020. Today, visionary cities such as Dubai, Barcelona, Amsterdam, and countries such as Singapore and Qatar are leading the way.“We also see independent international organisations being created to develop common standards to incentivise more cities to adopt the concepts and solutions in a wide variety of contexts.

ITU-T is a platform created by United Nations where cities stakeholders exchange knowledge and identify policy and standard needs,”muses Pedro.

“We believe, in a journey of becoming a smart city or nation, it starts with a transformative vision of the digital future, which leads to engagement of stakeholders at scale, internal and external, to government, to make the vision a reality. In practice, this means linking IT and business communities to build digital skills and transform technology platforms, and establish strong digital governance to steer the course. We believe in future a typical city will operate seamlessly, secure, efficiently, and above all, ensuring great experiences to citizens and businesses,”he concludes.

                     

 

                                                                                   

Larry helps build up artificial intelligence Andrew Spence reports on a robot with an algorithmbased persona, which is being used to help companies make data-driven decisions in real time

30 JULY/AUGUST 2016

S

outh Australian company Complexica has developed Larry, the Digital Analyst, which is basically a set of algorithms tuned to complex problems to quickly generate answers that would otherwise take people a very long time to work out.

Big Data software algorithms are taking decision-making to a new level, delivering solutions and efficiencies like never before. The global Artificial Intelligence market is forecast to exceed US$ five billion (AED 18.4 billion) by 2020.

Father and son team Matthew Michalewicz and Dr Zbigniew ‘Mike’ Michalewicz, a former professor at the University of Adelaide’s School of Computer Science and Artificial Intelligence pioneer, started the company in 2014 with software architect Constantin Chiriac.

It has quickly signed up 20 companies across a range of industries and aims to scale up to 100 clients within two years. Their

customers include a food services company, Leader Computers and Coventry Group.

“The problem we identified is that companies want to make data-driven decisions, and the way they do that is they hire data scientists, data analysts, and it is a very expensive process. So the solution is to create a software robot that automates analytical tasks,” Complexica Managing Director Matthew Michalewicz said.

“Now we have the freedom to go beyond the initial customers with something that is actually proven and functioning in the marketplace.

With every deployment, we make the product more scalable, we make it more robust in terms of what it can do and how quickly it does it,” he adds.

Larry is applied to an application layer that is problem specific – a problem could be promotions or pricing, segmented customers or cross-selling and up-selling. End users interact with an application,

ARTIFICIAL INTELLIGENCE

With every deployment, we make the product more scalable, we make it more robust in terms of what it can do and how quickly it does it

JULY/AUGUST 2016 31

they push a button, which then goes to Larry to come up with an answer.

In one example, Larry helped formulate a 52-week promotions plan for a national company with 25,000 different products sold in 1400 stores across Australia, based on the question of what product should be on promotion, at what time of year, and at what price, to maximise profits. The plan took into account promotional lift, cannibalisation in the category, and complementary sales.

“It (usually) takes about 30 man days to come up with one plan, because you are dealing with 25,000 items over 1400 stores for 52 weeks – it’s like a really big Sudoku,”

32 JULY/AUGUST 2016

Michalewicz explained, adding,“But in 60 seconds, Larry was able to consider about 10 million combinations of different prices, products, frequency, predict how much more you will sell with all of these combinations and convert them into weekly averages per state and per store.”

The number of combinations and the number of possible outcomes is not infinite, but it is close, and no matter how big your set of people is, it’s impossible for one to consider everything, whereas a machine and all the computing power that sits in the cloud can consider things that an organisation will never have time to consider.

Michalewicz said Larry was best suited to large companies that experienced repetitive sales of everyday items such as food, hardware and drinks.“Businesses that have complexity are going to get much greater benefits from Larry than businesses that don’t. We define complexity by three core things: how big a business is; how many products you sell; and how many customers you have.”

Michalewicz said giving the product a persona like“Larry”made it easier for customers to use and relate to the product.

“I think whether it’s Apple’s Siri or IBM Watson, or Larry, it’s just easier for human

ARTIFICIAL INTELLIGENCE

With Larry, you can kind of envision that he’s a hard working guy, he doesn’t smoke, he has his nose down to make sure the work gets done beings to relate to things that are personable like us. A name like Artificial Intelligence Algorithms Based on Deep Learning – that would be very difficult for people to get their heads around. With Larry, you can kind of envision that he’s a hard working guy, he doesn’t smoke, he has his nose down to make sure the work gets done, but he’s easy to relate to – you ask Larry to help and he’s there to give you the answers and insights to help you succeed,” he explains.

Michalewicz escaped to New Zealand from communist Poland with his parents in the 1980s, before moving to the United States, and then making his way to South Australia

a dozen years ago. Complexica is the third company co-founded by the father and son team, following the success of NuTech Solutions and SolveIT Software, both of which were sold off to large multinationals.

The company employs 26 people in Adelaide, the South Australian capital, and is planning to open offices in other major Australian cities before expanding overseas in two to five years.

“Unlike my previous businesses, I want to turn Complexica into a public company, not tomorrow, not even in a couple of years but when it’s a substantial business where it can remain and grow and actually

be an acquirer and a consolidator of this analytics space,” Michalewicz said, adding, “There’s definitely a greater demand than we thought there would be, and there’s enormous tailwinds in the whole field of analytics. Data scientists are being bid up in the marketplace, analytics companies are being bought, insight teams are being created. So many people are interested in creating analytical environments in their organisation, and it’s certainly more attractive to have a robot drive your analytics process than to have 20 people you need to hire.”

-www.theleadsouthaustralia.com.au

JULY/AUGUST 2016 33

TECHNOLOGY

Technology is critical for regional chemicals

supply chain Richard Forrest, Lead Partner EMEA Energy Practices, AT Kearney, talks to GSC about the digitisation of the chemical supply chain industry

Richard Forrest

34 JULY/AUGUST 2016

What are your thoughts on how technology is changing, and going to change the chemicals supply chain, if we compare the workings of the current supply chain to practices from two to five years ago? And what about the way forward?

There are multiple trends currently impacting the global chemicals industry. Feedstock prices, customer trends, market preferences, etc, are currently challenging the dynamics of the chemicals industry and its supply chain. More than ever, leading companies look to maximise value by combining best practice capabilities with digital and technology enablers to supercharge an integrated supply chain. Best practices within traditional levers such as procurement, operations and commercial excellence need to be enhanced by leverage technology and digital opportunities to fully address the increasing margin pressure, changing flows, opening of new markets, and continued volatility of the industry.

Digital opportunities are driven by a combination of exponential, mutually reinforcing and disruptive technology developments. In

the past 30 years, we have seen processing power, memory and network bandwidth grow exponentially. For example, memory improved from 20MB costing Euro 75,000 (AED 311,572) in 1986 to 10TB costing Euro 75 (AED 312) in 2014. These exponential and reinforcing advances have spurred opportunities for digitisation, social networks, augmented reality, big data, advanced analytics, and internet-of-things, among others.

In the recent A T Kearney study of Excellence in Supply Chain Management, close to 40 per cent of supply chain executives across industries expect radical digital disruptions of their value chains within the next two years. Nearly 80 per cent of the surveyed executives feel the need to boost their digital transition with new ecosystem partners and platform solutions.

A T Kearney and the GPCA (Gulf Petrochemicals and Chemicals Association) have recently launched a survey to explore the perspectives of regional Petrochemical executives, and define the best path ahead, leveraging digital enablers within their business, and specifically within their supply chains.

Petroleum construction on offshore

JULY/AUGUST 2016 35

TECHNOLOGY

What is the status, in terms of being technologically advanced, of regional supply chains handling chemicals? How do they compare to global supply chains?

Globally, chemical companies in general have been slow to embrace the disruptive digital solutions relative to other industries.

While 43 per cent surveyed supply chain executives believe technology and digitisation are the key drivers for value in their supply chain, other industries globally have come much further in reaping the benefits of digital and technology. The digital advancement of chemicals customers will further accelerate the digitalisation need for chemical producers.

In the Middle East, we have yet to see a rapid uptake and implementation of digital and other technologies in the regional chemicals supply chain. Given that the Middle East chemicals sector is based on an export-driven model, where supply chain capability is increasingly critical to competitiveness in existing and new export markets, the adoption of digital and technology enablers is critical. We believe regional players have an opportunity to potentially leap frog competition by leveraging the power of the digital levers.

The A T Kearney/GPCA survey results will support the continued awareness and drive leveraging of digital and other technologies in the region in the future.

How tuned are regional governments to these changes in demand?

Digital and technology enablers will be implemented, not only because of demand changes, but because it makes business sense, and has the potential to supercharge an integrated supply chain. In this region, governments and economic clusters are

36 JULY/AUGUST 2016

increasingly supporting companies to leverage these new opportunities. We believe they see the opportunity, and some of the regional players have started to talk about this value lever, however, execution is still an issue.

What are some examples of how digital and technology enablers can be leveraged by regional companies?

Some examples of the most promising technology enablers for the chemical’s supply chain are big data, sensors, augmented reality, and Internet-of-things, as well as robotics and 3D printing. We already see examples of companies taking the lead in leveraging digital disruption of the chemicals industry.

One such example is the digital customer service set-up of Valspar PaintDrop in the US. Through a combination of a mobile app and mobile distribution units, customer needs for colour matching and mixing are met on site vs going to a paint

outlet. Another example is the increasing adoption of chemicals sales on the digital market place is Alibaba. Finally, and probably one of the most striking examples, is the increased digital transformation and endto-end integration in agrochemicals, where fertiliser sales, big data and meta-analysis of weather conditions and crop data of farmers is used to optimise crop yield. One such example is Google’s Farmers Network.

From the survey you are compiling, what do you think will be the biggest finding?

Together with the GPCA, we have launched a survey to identify the views of regional supply chain professionals. We are especially looking forward to hear from regional professionals where they see the biggest digital opportunities for regional chemicals companies, and their willingness to be regional first movers to adopt digital technologies.

40,000 m2 40,000

36,000 18,000 m2

2,500

38 JULY/AUGUST 2016

PORT REPORT - SOHAR

success A Continuing the legacy of Sohar Port and Freezone welcomes a new CEO on board, with a focus on developing the new ‘Gateway to the Gulf’ as a regional logistics hub, finds GSC

Andre Toet, Sohar’s outgoing CEO (seated) and Mark Geilenkirchen, Sohar’s new CEO

change in leadership means fresh ideas and perspectives. The same objectives get a new life when experience joins in with motivation. As Sohar Port and Freezone CEO, Andre Toet, heads back to Europe, after five years in the Sultanate, his successor, Mark Geilenkirchen, joins Sohar as CEO from APM Terminals in Hong Kong, where he’d been working for two years as Global Client Director, managing client portfolios at over 60 ports around the globe. While Toet will now take on the Chairmanship of essDOCS (pronounced ‘S-docs’), the world’s leading enabler of paperless trade, Geilenkirchen is bringing new blood into the top position.

“When I started here five years ago, Sohar was still seen as the Omani newcomer port, whereas today, we’re establishing a significant regional hub that is very much on the map - and people all over the globe are sitting up and taking notice,”reminisces Toet. The growth story of Sohar, in terms of international investment and industrial diversification, has been phenomenal. The port had its first ship in 2004, and now boasts over 2,500 ships a year, and a million tonnes of cargo a week, with investments in the Port and Freezone reaching US$ 25 billion (AED 92 billion) earlier this year.

Such numbers may be daunting for some. But Geilenkirchen is prepared.“For many weeks now, I’ve been working side-by-side with Andre Toet and Jamal T Aziz, our Freezone CEO, and the rest of the Port and

JULY/AUGUST 2016 39

Freezone management team. Before that, I spent time at Port of Rotterdam to fully understand their side of the business: their long-term global goals, and how Sohar integrates into the World Port Network. But above all, I’m just listening attentively to all our stakeholders: our staff, our tenants, and terminal operators, our current and prospective investors, and, of course, the Oman government - there’s a wealth of experience, knowledge and know-how embedded here in Sohar,”he says.

Geilenkirchen’s background is helping make the transition smooth. Of course, this change was planned a long time ago, and a great deal of preparation was done by the team, behind the scenes, to ensure that the handover is as seamless as possible.“When it comes to sector experience, Mark and I speak the same language, and we share the same international perspectives, with a focus on Asia, so that’s made things much easier. We’re both firm believers in open communication at every level, from the Board to the operational teams. Moreover, we’ve had the full support of our international, best-in-class terminal operators in the Port; the terminals have been with us since practically day one at Sohar, and we could not have achieved our success without them,” reassures Toet.

Sohar stands at the crossroads of Europe and Asia, both in terms of culture and business styles. It is this position that made the job attractive to Geilenkirchen. “Since I have a great deal of experience from both regions, it seemed like the perfect fit from my perspective. I started as a business consultant in the Netherlands in the early

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1990s, focusing on logistics and quality; I became a business school lecturer, and helped to establish a specialised faculty for logistics; and later I worked internationally in the field, most recently in Hong Kong.

Today, Sohar is one of the world’s fastest growing port and free zone developments, and is really establishing itself as the region’s challenger brand; frankly, I am

very keen to help write the next chapter of this amazing success story, made in Sohar,” he smiles Geilenkirchen considers himself an entrepreneur, which is exactly the mindset needed to manage a business that is now challenging the more established regional ports. These are uncertain economic times, and the business needs someone who would

PORT REPORT - SOHAR

be able to manage the situation.“I helped to navigate ABNAmro, the Dutch bank, through the global financial crisis, and a very turbulent time in its history. Later, I helped create a turnaround at Port of Zeebrugge, a business that had been struggling financially, by attracting significant investments from China. And, of course, I have a lot of highly relevant experience in logistics,

from consulting and teaching the theory of logistics at business school, to hands on global business experience, acquired in both Europe and Asia,”informs Geilenkirchen, adding,“To be frank, change management is often easier than inheriting a house that’s already firmly in order.”

The business in Sohar has seen continuous double-digit growth for 10 years

now, and Geilenkirchen is expected to build on that. This means further development across their four major hubs - metals, logistics, petrochemicals and food - as well as supporting continued, dynamic growth in our container, liquid, dry-bulk and general cargo terminals.

“It’s going to be all about continuity and building on our already successful long-term strategies. We’ll be looking to develop more synergies between our Port and Freezone businesses, and, especially, further developing the Freezone as a regional hub for innovation in the logistics sector. Then we’ll be talking with our neighbours in the hinterland, especially in Saudi Arabia, and across the water in Iran, to develop more business opportunities with them,” he explains.

As the GCC countries continue the rapid diversification of their economies, shifting focus away from hydrocarbons, this will drive more non-oil, international investments into the region, and Sohar is ideally positioned to benefit from that.“Also, as Iran reopens for international business, there is phenomenal upside potential for Oman in general, and specifically for Sohar,”says Toet.

Agree Geilenkirchen, “We are in exactly the right place at the right time: thanks to our prime location, as well as our excellent marine and landside connectivity, Sohar is poised to become a very significant international logistical hub in the years to come.”

As a final piece of advice, Toet leaves Geilenkirchen with these words,“Stay calm, keep smiling, and appreciate Omani culture you will have a good time here.”

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AIR CARGO NEWS

Qatar Airways Cargo’s new stand was officially inaugurated at Air Cargo China 2016 in Shanghai today.

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AIR CARGO NEWS

Qatar Cargo - aggressive

growth strategy Qatar Airways Cargo reveals strategy to become a major player in the Transpacific, Australia and South America Markets in next nine months

Q

atar Airways Chief Officer - Cargo, Ulrich Ogiermann revealed several plans by the world’s third largest international cargo carrier at Air Cargo China 2016 in Shanghai. Ogiermann revealed that the cargo carrier plans to become a major player in three new markets: Transpacific, Australia and South America in the next nine months.

This major enhancement of the carrier’s network is made possible by the constant growth of its fleet, which now includes nine Boeing 777F, eight Airbus 3330F and two Boeing 747F aircraft, as well as the opening of its new European hub in Luxembourg. The cargo carrier projects that its pure cargo

fleet will grow to 22 aircraft by 2017, and from July 1, the carrier will double its flights into and out of Luxembourg providing better connectivity for its customers. He also shared that Qatar Airways Cargo will add Halifax (Canada) and New York (JFK) to its freighter network in July 2016.

Said he,“China is a major market for Qatar Airways Cargo, where we currently operate freighters to Guangzhou, Shanghai and Hong Kong, as well as wide-body flights to Beijing, Chengdu, Chongqing, Guangzhou, Hangzhou, Shanghai and Hong Kong.

Last year, we succeeded in becoming the world’s third largest international cargo carrier, but there are still areas we have not yet targeted to their full potential. In 2017, we will target areas

Qatar Airways Chief Officer Cargo, Ulrich Ogiermann (right) and Qatar Airways Cargo Senior Vice President of Sales and network planning, Peter Penseel hosted a press conference at Air Cargo China to announce the latest developments and network enhancements from the world’s third largest international cargo carrier.

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AIR CARGO NEWS

Qatar Airways Cargo’s press conference at Air Cargo China was well attended by both international cargo press and local Chinese media.

In 2017, we will target areas such as Transpacific, Australia and South America – do not be surprised if you see us becoming a strong player in all these markets in the next nine months

Qatar Airways Chief Officer Cargo, Ulrich Ogiermann (left) and Qatar Airways Cargo Senior Vice President of Sales and network planning, Peter Penseel at the official opening of the Qatar Airways Cargo stand at Air Cargo China where a traditional lion dance was performed to mark the special occasion.

such as Transpacific, Australia and South America – do not be surprised if you see us becoming a strong player in all these markets in the next nine months. Our expansion into these markets has been made possible thanks to our continuing fleet growth – we will receive three new aircraft by March 2017 – and by the launch of our new European hub in Luxembourg.”

In a further announcement, Ogiermann officially launched QR Live, a new addition to the cargo carrier’s portfolio of air freight solutions.“The new solution QR Live provides stress-free and comfortable transportation of horses, pets, exotic animals and livestock from origin to the final destination. In cases where transit in Doha is required, our state-of-the-art cargo terminal at Hamad International Airport has a fullyequipped live animal facility and a team of experienced ground and animal handling staff to provide round-the-clock care for live animals. We ensure the animals receive special care and treatment all the way, on the ground as well as in the air. As a committed member of IATA, we comply with the Live Animal Regulations, which set out strict

guidelines regarding the welfare of animals during transportation,”he explained.

The spacious 4,200 sq metre airconditioned live animal facility at Qatar Airways Cargo’s hub in Doha is designed with special features, including large holding areas for horses, eight stalls for horses (300cm x 300cm each), a 24/7 dedicated expert animal health care service, 300-square metre paddock, rubber pavers for soft walk area, hydraulic loading and unloading docks as well as hydraulic workstations.

It is of the utmost priority that the cargo carrier ensures that the well-being of live animals is upheld during transportation in compliance with IATA’s Live Animal Regulations. Pets, exotic animals and livestock carried on board Qatar Airways Cargo flights transiting through the live animal facilities in Doha are provided with adequate and appropriate welfare arrangements such as temperature control, ventilation, feeding, container type, species mixing and veterinary care. A dedicated email address for live animal shipment enquiries - qrlive@qatarairways.com.qa – has also been introduced.

The cargo carrier already has a dedicated equine product, offering professional care, red-carpet treatment and world-class service for the transportation of thoroughbreds. With a modern fleet of Boeing 777, Airbus A330 and Boeing 747 freighters offering controlled temperature zones, a network of more than 150 destinations, comfortable and spacious horse stalls and seats for grooms on board the freighters, the service guarantees the care, comfort and safety of its equine guests.

The airline recently signed the United for Wildlife Transport Industry Declaration at Buckingham Palace in the presence of HRH The Duke of Cambridge and The Rt Hon the Lord Hague of Richmond. The declaration, which is supported by the IATA, commits the participating airlines to increase passenger, customer, client, and staff awareness about the nature, scale, and consequences of illegal wildlife trade.

It will also develop mechanisms to enable the transport sector to receive and share timely information about the transport of suspected illegal wildlife and their products, including methods of transportation, key routes, ports and other locations.

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Taking chemicals seriously RSA-TALKE opens a new, integrated chemical logistics hub in JAFZA, for hazardous and non-hazardous chemicals in the region. GSC talks to Abhishek Ajay Shah, Co-founder and MD at RSA Logistics and member of the board at the chemical logistics JV RSA-TALKE

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T

he new integrated chemical logistics hub by RSA-TALKE in Jebel Ali Free Zone is an integrated storage, handling, cleaning and service complex for hazardous and nonhazardous chemicals in the region. The first phase, which was inaugurated this May, offers storage and transhipment services for empty, as well as laden tanks, that can contain hazardous and nonhazardous liquids, cleaning of ISO tank containers, as well as repair and maintenance services, including certifications. In the second development phase, the facility will offer chemical drumming as well as warehousing for packaged goods.“The facility has been built with the most stringent safety standards, and the property is equipped with advanced safety features in the unlikely event of a chemical spill or fire,”said Abhishek Ajay Shah, Cofounder and MD at RSA Logistics and member of the board at the chemical logistics JV RSA-TALKE. The 50,000 sq metre facility has a storage capacity for 1,800 TEU. It is designed to store most of the hazardous classes and non-hazardous substances. The warehouse in phase two will be covering 10,000 sq metres, with 12,000 pallet

positions, and can store hazardous and nonhazardous chemicals.“The design will be of the same state-of-the-art quality as our facilities in Dubai South,”he informs.

The safety and security measures in place at the facility also meet the highest international standards, specifically for chemical logistics.

Explains Shah,“As an example, the sophisticated flooring of the ISO tank container yard is outfitted with a special concrete and HDPE liners to contain spills and prevent seeping chemicals into the ground. Trenches and tanks underground are designed to collect and hold any chemicals in the unlikely event of an incident. The facility is built for the retention of potential spills for maximum environmental protection.”

The integrated chemical logistics hub has created a gateway for RSA-TALKE to serve customers who, till now, had to seek such integrated services outside of this region.“For us, the increased throughput will create opportunities for more conversations on how we can further serve the chemical ecosystem in the Middle East in future,”he smiles.

There is a desire and a movement towards vertical integration amongst chemical and

CHEMICAL HANDLING FACILITIES

From left: Alfred Talke, MD ALFRED TALKE Logistic Services and Member of the Board of RSA-TALKE; Richard Heath, Director Middle East & USA, ALFRED TALKE Logistic Services and Chairman of the Board of RSATALKE; Sultan Ahmed bin Sulayem, DP World Group Chairman and CEO, Chairman of Ports, Customs and Free Zone Corporation; Abhishek Shah, MD RSA Logistics and Member of the Board of RSA-TALKE; Armin Talke, Director of ALFRED TALKE Logistic Services; Ajay Shah, Chairman of RSA Logistics and Member of the Board of RSA-TALKE; Markus Gloeckler, Director Finance of ALFRED TALKE Logistic Services and Member of the Board of RSA-TALKE; Kirit Mehta, Director of RSA Logistics and Member of the Board of RSA-TALKE

petrochemical companies in the Gulf. Their supply chain is developing and reaching more complexity. These companies require comprehensive chemical logistic solutions to support their growth.“This is where our unique strengths and offerings come in. By providing the whole gamut of services, in a safe and responsible manner from one spot, we can support the diversification of our customers, as well as the portfolio of Dubai and UAE as a whole, in this case as a global chemical hub next to other locations in the world. The chemical and petrochemical industry, and especially the logistics in the Middle East, is growing faster than other industries, and Dubai and the UAE will become an important location for the industry overall,�he predicts.

RSA-TALKE is committed to raise the bar in chemical logistics with health, security, safety, environment and quality as highest priority.

Therefore, the completion of the integrated chemical logistics hub in Jebel Ali Free Zone will be an important next step to complete their core purpose, and to enhance the importance of Dubai within this industry.

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DIGITAL RISK MANAGEMENT

Pre-empting the risk Earl Perkins, Research Vice President, The IoT Group, Technology Service Providers, Gartner, talks to GSC about how digital risk management is an urgent need

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artner defines digital risk management (DRM) as the ability to facilitate risk awareness, understanding and decision making associated with the convergence of the digital and physical worlds through cloud, mobile, social, big data and the Internet of Things (IoT).“To succeed in many organisations today requires an extensive set of partners that use these digital and physical worlds, and also use the cloud, mobile and other technologies outlined to interoperate and exchange both digital and physical resources to succeed. As a result, they are highly dependent on having an integral DRM strategy that addresses the varied relationships between partners within that supply chain,”says Earl Perkins, Research Vice President, The IoT Group, Technology Service Providers at Gartner.

Although Gartner has not done secondary research that would allow them to understand what percentage of businesses own infrastructure and how many are sourced to third parties, their anecdotal research indicates that the owner number would be growing at a decidedly significant rate.

Says Perkins,“Gartner believes that digital risk IS digital business. The era of thinking of risk and digital security as somehow separate elements of an organisation, simply because

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DIGITAL RISK MANAGEMENT

they are managed by different business units, is over. Digital business now requires that digital risk and digital security be on the ‘front lines’ of business, that their role is customer and citizen-facing, and the results are part of the digital business process. The days of risk and security as indirect or ‘back-office’ functions are long over. Digital risk and digital security are now real-time process issues for most organisations if they are to compete and survive.”

This issue can be handled by incorporating a digital risk process directly into the core business process, which impacts key performance in the organisation.“Ensure that cyber-physical (ie, digital) risk is part of enterprise risk decisions, and a means of measuring digital risk is established as an integral part of production and operational process,”advises Perkins. The same is true regarding cyber-physical security concerns.

There should no longer be a distinction between security disciplines. All security disciplines now have some form of digital

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presence, whether the discussion is about application security or building security, whether the issues involve information technology or the Internet of Things technology. The digital and the cyber are two sides of the same coin. Digital risk must reflect this reality.

Recent cyber compromises have shown that entire organisations can experience a business continuity event as a result of that compromise.“In other words, it is possible to force organisations into a disaster recovery experience through digital means alone.

The impact on both the digital and the physical can now be realised. Digital security, the successor to cybersecurity, is key to mitigating digital risk, and keep organisations functioning and productive,”he warns.

Ironically, some organisations may not require a significant investment in infrastructure. According to Perkins, the weakest link in any security practice is a human. Significant improvements can be realised, first, by more effective

communication, awareness, and training of the people in the organisation. Second, simple steps to bring ‘foundational’ security practices, and to use the technology those organisations already own, can yield significant dividends at low costs by leveraging and exploiting that technology and modifying the process for production and operations.

“Finally, some investments need to be made if there are significant extensions in accountability and responsibility for operational technology (OT) security, and if the use of solutions from the Internet of Things (IoT) are applied. Physical security automation and expansions in digital technology to protect physical environments and people may also require additional capability. All of these expansions will result in the use of others outside of your organisation (solution providers, managed services, cloud services, etc), and result in considerations for using all of these abilities in a supply chain setting to ultimately be effective,”concludes Perkins.

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7/3/16 4:32

The smart

move Huawei has signed an MoU with smart vehicle systems integrator, SamTech Middle East, to develop integrated solutions for the transport sector

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TRANSPORT

SamTech Huawei MoU signing

S

amTech and Huawei have joined forces to develop customised applications that integrate with Huawei’s connected-vehicle solution, to improve public safety and comfort across all forms of transport, including buses, taxis and heavy goods vehicles.

The new applications will focus on safety and security services such as in-vehicle video surveillance, accurate passenger tracking, emergency services communication, realtime vehicle health data analysis, and multimedia services for passenger’s entertainment.

By enabling high-speed internet connectivity to transport vehicles, stakeholders can also access high-definition in-vehicle video surveillance to monitor driver and passenger status, analyse driver performance, highlight potential safety issues, such as passengers not wearing seat belts, and even allow for swift connectivity to emergency services in the event of a road collision or accident.

“The regional transport industry is about to make a major leap into the future, with new ICT solutions enabling increased levels of capability in safety, efficiency and comfort,” said Safder Nazir, regional vice president of Smart Cities and IoT, Huawei Middle East, adding,“Huawei’s connected-in-vehicle solution, coupled with SamTech’s intelligent software, delivers on a key capability for regional smart city initiatives, whilst enabling critical control capability for transportation and emergency service stakeholders.”

“As a leading system integrator with more than 13 years of regional vehicle tracking expertise, SamTech is well positioned to provide software solutions that add value to Huawei’s widely adopted technologies,” said Samir Abdul Hadi, founder and CEO of SamTech Middle East, adding,“SamTech’s innovative solutions and applications are conceived, planned and developed in Dubai to utilise state-of-the-art hardware applications, in partnership with leading vendors in the Internet of Things (IoT) industry. We appreciate Huawei’s leadership in the intelligent transportation sphere, and are proud to be partnering with them in the journey to revolutionise the regional transport landscape.”

The connected vehicle solutions are intended for public and private transport fleets, including buses, taxis and good vehicles, and can provide a range of data on vehicles, including real time data on vehicle performance. Connected-in-vehicle solutions are part of Huawei’s Smart City solutions portfolio, which includes cloud computing, Big Data, IoT, 5G and SDN. Huawei recently signed an MoU with Intel to deploy Intel’s X86 microprocessors in Huawei’s IoT gateway for its Smart Bus Solution. This will provide better performance to a multitude of smart services, including invehicle video surveillance, accurate passenger tracking, emergency services communication, real-time health data analysis of the vehicle, and multi-media services for passenger entertainment.

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54 JULY/AUGUST 2016

INVENTORY MANAGEMENT

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Systemic Inventory Rich vs Inventory Velocity is a question businesses need to address to stay ahead of the game and avoid over stocking. Tom Craig, President , LTD Management and supply chain expert explains the concept in detail

nventory rich is a condition enjoyed by many retailers, manufacturers, and wholesalers. Much of this is due to systemic inventory. And the condition is becoming more significant as firms deal with the differing demands of omnichannel, and with the accelerating requirements of lean for supply chain stakeholders. The challenge is compounded for companies that source and/or manufacture globally with their large supply chains.

Many firms are focused on supply chain finance, just-in-time, vendor managed inventory, buy-sell, optimisation, and other programmes. These supply chains are based on the end positioning for inventory; they are not based on how fast inventory moves.

Turns and days on hand – and liquidity – are not good.

Numerous current operations do not have inventory velocity, which creates financial and customer benefits. Systemic versus velocity is a choice derived from using the old supply chain versus designing and implementing the new supply chain.

There is inventory throughout the supply chain – multi-echelon distribution, in – transit, raw, work in progress – everywhere.

The situation is a factor of the way, for multiple reasons, that present supply chains are designed and managed in a somewhat piecemeal fashion, instead of in supply chain totality.

Omnichannel did not cause the condition; it has compounded it. Additional channels have increased uncertainties with demands, and how to meet and allocate products to satisfy the customer buying options. Some have taken this to mean carrying more inventories to handle channel demand ambiguities. This is especially interesting in that companies can have too much inventory; yet these firms may also be out of stock of items.

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INVENTORY MANAGEMENT

Unsold and unnecessary inventory can negatively impact profits from intense promotions and steep markdowns to sell it.

Reactions to these situations can, in turn, cause purchase cutbacks in future quarters that limit inventories, resulting in lost sales.

Supply Chain Reality The points below lay the foundation for many excess inventory problems that run through supply chains, regardless of industry or market.

• Complex international inbound supply chain. Whether the parts and products are coming from suppliers or company factories, if Additional they are located outside the home country, the channels have global supply chain is increased the most multifaceted and demanding. The uncertainties distance and flows among different with demands, countries set the stage and how to for what happens throughout supply meet and chains. allocate Add in that there can be 15 (or more) products to parties involved with an satisfy the international order and shipment. Each party, customer to varying degrees, buying options. operates within its own practices; there is limited real integration from a supply chain perspective. Even more, one of the key parties – container lines – brings vagaries to the supply chain execution with schedule times and reliability.

The complexity is increasing. Additions and changes to suppliers, origins, products, production and factory trade-offs – and more – make understanding and managing the supply chain challenging. river is not a single entity. It is fed by 7,000 • Supply chains within supply chains. streams, water basins, and rivers to form Every firm has a supply chain – and more. one river that actually is part of 31 states and The idea of a single company supply chain two Canadian provinces. That is how supply is an illusion. In actuality, there are supply chains are – many branches of inventories – chains within supply chains. and how they have evolved.

Think of the Mississippi River in the US. It Supply chains, as a result, are more complex is very long and runs from Minnesota down than is often presented. Not recognising that through Louisiana, and ends in the Gulf of actuality means that supply chains can be Mexico – the Mighty Mississippi. But the

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under-designed and under-managed.

• Emphasis on the downstream. Much supply chain discussion involves some part of the domestic supply chain – distribution centres, transportation and such. The exception may be international transport. This is similar to lean supply chain management, which focuses much within the four walls of warehouses and factories. With this emphasis,

INVENTORY MANAGEMENT

companies can be operating in a fulfilment mode, and looking at the last mile and other topics that do not address inventory excesses.

By the time inventories reach warehouses, they are often at excessive levels.

These shortcomings may create a myopic interpretation of supply chain management design, operations, and performance. With all the focus on the downstream, the excess

inventories issues exist. These could have been mitigated with a comprehensive view of the supply chain.

• Uncertainty. Inventory is a buffer against uncertainty. There are issues with demand ambiguity, network design, and inventory positioning. But there is another driver of inventory uncertainty – time – the amount of time it takes to replenish items.

International sourcing has long lead times that also have variability. The additional time and inconsistency increase inventory requirements and compound uncertainty – and the amount of inventory that is carried.

New Retailing Omnichannel with e-commerce is retail duality. There are two very different ways to

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INVENTORY MANAGEMENT

reach customers. One is the traditional store approach, which requires customers to go to the store to purchase products from stocked shelves. The other has retailers delivering many individual orders to many individual customers.

It is customers going to retail stores; and it is also retailers going to customers via e-commerce. The change is expanding from mass merchandising to tailored direct selling.

Retailing is transforming from being about stores to being about a delivered service.

Retailers struggle with omnichannel.

For example, they are dealing with slowing store sales and are closing stores. Yet, some use a click-and-collect delivery practice to get customers into stores, while, at the same time, shutting them. This presents a contradictory message and can raise questions as to the customer experience that underlines the new retailing.

Omnichannel and e-commerce have changed demands, expectations, and requirements. Order Immediacy – delivering e-commerce orders within 48 hours or less – is the customer experience. Traditional retail supply chains were built to stock stores, not perform order immediacy.

Original supply chains for e-commerce were built to ship parcel orders, not deliver quickly. E-tailers and omnichannel retailers may transition to Tier one, two or three, based on how they respond to the new retail reality.

Customer expectations are delivery of their orders within two days – or less – of when they placed it. Retailers and e-tailers that are not able to deliver orders quickly may be looking at their futures in rear view mirrors.

Amazon Amazon started the order immediacy customer expectation. And they are not stopping. It is not the fulfilment exercise of shipping quickly from distribution centres. It is about the supply chain, and how to move products through it – not just ship from warehouses. Order immediacy is driven by supply chain management – the new supply chain management.

They started the idea of drones for order deliveries. Around the world, they pushed same-day deliveries, developed dash buttons, have leased airplanes, started a freight forwarder in China, may be buying container ships, and are looking at using 3D printing

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Trying to force standard retail supply chains do more than they were designed for is not agility; it is a failing attempt to change and grow delivery trucks; all for easy ordering and to speed movement within their supply chain and to customers. Faster and faster everywhere. It is not just about last mile delivery.

New Supply Chain Retail duality requires and is driven by supply chain duality - to deal with stores and moving cases and pallets of products, and to deal with many, individual customers and meeting their satisfaction expectations.

The new retailing is about supply chain management. And that new selling requires a new supply chain to drive and create the customer experience. Trying to force standard retail supply chains do more than they were designed for is not agility; it is a failing

attempt to change and grow. A one-size-fitsall supply chain does not meet the differing requirements of omnichannel.

Standard supply chains cannot respond to the new retailing. It requires the new supply chain. Otherwise retailers will be buried in inventory along the supply chain, while not providing the customer experience.

The New Supply Chain drives new performance requirements and moves products quickly through the entire supply chain. There are key, interrelated elements that address systemic excess inventory and satisfying customer requirements. The New Supply Chain directs and manages structured complexity to deliver the Customer Experience.

In turn, to respond to order immediacy by

INVENTORY MANAGEMENT

retailers and e-tailers, manufacturers must accelerate production and supply chain capabilities. They also need the new supply chain with its embedded lean capabilities.

Elements of New Supply Chain It extends upstream, compresses, advances integration, and speeds the movement of inventory/products. The result is reduced inventory and improved performance.

Inventory Velocity Much inventory sits in warehouses and other places. No value is added. Products are supposed to flow. From a lean view, this is waste. Moving inventory more quickly through the supply chain is critical to the

omnichannel supply chain, to lean, and to good liquidity practice. Velocity is important to mastering demand ambiguity. With the new supply chain, inventory velocity is escalated to inventory velocity squared.

Velocity means that companies can move inventory faster, and runs counter to what some firms do by adding to their already high stock levels – and low turns that add to liquidity and inventory problems. Companies face being left behind by order immediacy that will be required across borders, industries, and markets.

Not every product requires velocity. Selection of products/SKUs is needed. The targeting can be based on analytics, segmentation, or other methods. Inventory velocity mitigates the

tendency toward carrying more inventory, while increasing service.

Time Compression Removing excess time is important to the new supply chain for inventory velocity.

Unnecessary time exists throughout the supply chain. With so many parties involved in the supply chain, it is caused by internal and external actions.

Compressing time means being able to react more quickly to sales vagaries – and, in turn, realising inventory yield maximisation.

Identifying areas of extra time is needed in to compact it. Value stream mapping of the supply chain is an excellent tool to find time compression opportunities and reliability

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improvement. This is especially true for the upstream sector where much of the total time occurs.

It may also impact outsourcing. There should be a shift from outsourcing with logistics providers to instead using supply chain providers. This means a new breed of outsourcing firms who can compress time – and positively impact inventory velocity. This is a new outsourcing performance metric – contribution within the supply chain, not for a logistics activity.

Extend Supply Chain Upstream Upstream is where the supply chain begins.

Extending the supply chain is a logical result of recognising the supply chains within supply chains and managing its complexity.

Supply chain management pulls, not pushes, inventory. Extending the supply chain is a natural action to doing this. It does not expand the definition of end-toend supply chain management, it actually performs it. In fact, end-to-end recognises that suppliers are not an end. Suppliers have supply chain complexity and supply chains within supply chains.

The omnichannel supply chain can have a pushback to suppliers for more and faster deliveries. This means more than implementing procedures for supplier compliance.

Upstream extension implements the New Supply Chain with key suppliers. It is designing and managing the entire supply chain, not sectors of it, not logistics functions of it. The extension is into the supply chains of suppliers. Identifying key suppliers can be accomplished using segmentation or supply chain risk analysis.

This upstream move redefines supplier relationships and identifies the previously unknown, hidden supply chains – the supply chains of suppliers. It is the secret sauce of inventory velocity and is a de facto vertical integration of supply chains. The result is that extending the supply chain shortens it by removing unspecified parts, compresses time, and drives inventory velocity to inventory velocity squared.

Advanced Process and Technology Integration The supply chain process flows horizontally across the internal organisation and

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externally to suppliers and customers.

The horizontal direction contrasts with organisational pyramids with its vertical emphasis and implicit silos. Also factor in all the stakeholders and participants involved with supply chains.

Supply chain complexity and breadth has gaps in the process; it has gaps in technology. These gaps – black holes – mean a loss of visibility and of compressing time and building velocity. Total process and technology integration is integral with extending the supply chain upstream.

Much technology reflects sections of the supply chain. WMS, TMS, and other technologies address pieces. They are somewhat standalone pieces of select activities and do not provide visibility and control of the entire supply chain. Integration is about visibility; but visibility is not enough.

Expanding digitisation for the total supply chain is needed to drive and manage it and to support the process.

Conclusion The world is in the early stages of a global supply chain revolution. The Amazon Effect. The Internet of Things. Platform Businesses. The new supply chain will grow beyond omnichannel. It will cross into other industries and markets, and will incorporate supply chains of products, information, and finance.

All the elements of the New Supply Chain tie together. They are not separate steps. They are not to be selectively chosen or excluded.

These are inter-related. The New Supply Chain brings performance excellence.

Similarly for manufacturers and others, moving to the New Supply Chain provides structure for the advanced lean requirements that come with the new operating reality.

Think about what will happen when virtual reality becomes virtual retailing and what that will requires supply chain management with larger order sizes and greater product mixes. Or, as retailers struggle, what will happen if and when brand-name manufacturers enter e-commerce markets? Retailing is being continuously redefined.

Moving to the New Supply Chain is required for the new global reality of doing business. It is not a choice.

Tom is a leading supply chain and logistics consultant with LTD Management. He has real-world logistics and supply chain experience. He provides consulting for 3PLs and other logistics service providers to develop and execute strategy, create value proposition/unique selling proposition, positioning, blue ocean strategy, and service / market segmentation that improve customer retentions, increase margins, and grow the business.

Craig has practical supply chain experience with major corporations, including General Electric, Abbott Laboratories and 3M. Craig has written over 70 articles on supply chain management and logistics.

In addition he has spoken at conferences worldwide, including England, Singapore, China, Hong Kong, UAE, Chile, Panama, and Nigeria.

He has also conducted a master class programme in supply chain management in China for Chinese companies and is on the advisory board of the Logistics & Supply Chain Management Society in Singapore.

Tom Craig has an MBA from The Pennsylvania State University, which has the leading supply chain programme in the U.S. Contact: tomc@ltdmgmt.com

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