Shipping to Ships
(Public Version)
Author
J.E.P.M. Hermans
Supervisor Wagenborg Shipping J.W. Postma
Supervisors University of Groningen Dr. M.J. Land
Dr. B. Yang
Groningen, July 2005
Shipping to Ships
A research on the reduction of costs in the purchase and supply process of
Wagenborg Shipping
Master Thesis MscBA - Operations & Supply Chains 2 Preface
With this thesis my study at the University of Groningen comes to an end. Moreover the time I have been a student comes to an end. With this thesis one of the main chapters of the book of live is closed and a totally new chapter starts. I really enjoyed my time at the University of Groningen; it has been an enormous supplement to my previous study.
This preface provides me the opportunity to thank several people who contributed a lot to the research, the research process and my entire study period.
Firstly I would like to give my great appreciation to my two supervisors of the University of Groningen. Martin, your catching enthusiasm and your strife to perfection really helped my to put the research on the level it is. Biao, thank you for your tremendous effort you put in to the research.
Secondly I would like to thank my supervisor at Wagenborg Shipping. Jeroen, you learned me a lot about the practical aspects of purchasing and how to negotiate with suppliers. I really appreciate the high degree of independency you gave. My thanks also go out to the superintendents and the purchasers who were all very helpful and made my stay at Wagenborg very pleasant and at times even amusing.
Finally I would like to thank my mother, sisters and girlfriend. They all have been very supporting during my entire study career. Kristy thanks for everything you did for me, during my research and far beyond that. At last my mother needs to be mentioned. She has been the best support in my life, not only on the field of education but during my entire life she supported me on the best way possible. Therefore I would like to dedicate this thesis to my mother and father.
Jérôme E.P.M. Hermans
Master Thesis MscBA - Operations & Supply Chains 3
“Never seem more learned than the people you are with. Wear your learning like a pocket watch and keep it hidden. Do not pull it out to count the hours, but give the
time when you are asked”
Lord Chesterfield (1694 - 1773)
Master Thesis MscBA - Operations & Supply Chains 4 Executive Summary
In this project research possibilities were examined to realise cost reductions in the supply chain of the ships of Wagenborg Shipping.
The research is conducted within the Wagenborg shipping division, more specifically the Purchase Department as part of the Fleet Management Department. The research focuses on the supply and purchasing process. The goal of the research is to reduce the costs in the process.
To clarify more what process the research focuses on figure A provides the necessary information. The supply and purchasing process involves the following actors and activities.
Figure A The actors and the flow
The process starts with a ship and goes through the supplier, warehouse, transport and agent / seaports to the ship, while being coordinated by the FMD. Activities falling in this process are purchase, warehouse, transportation to the ships, etc. The research focuses on the costs of this process and mainly on the role of the purchase department in this process.
The analysis of the present situation revealed several remarkable aspects Wagenborg is presently facing.
1. The main aspect is the high workload of the purchasers. Currently a lot of time is consumed by troubleshooting and order administration. Therefore the purchasers are not able to focus on the strategies for the sourcing of materials.
2. Lack of monitoring and cost awareness. To become more competitive and focus on reduction of costs it is important that the purchasers become cost aware. Increase monitoring can help the purchasers increasing their cost awareness.
3. The costs related to the sourcing of materials are by far the majority of the costs. The focus when reducing costs in the supply chain should therefore be on the sourcing of materials.
To deal with these three aspects mentioned above, in the perspective of the strife of becoming more professional in the purchase department, three suggestions for improvement have been developed.
The first suggestion is the development and implementation of a control model. The control model shows information of the most relevant costs related to calling at seaports. The overview assists purchasers in the decision-making process what activity to execute at what seaport. It provides a monitoring function for the costs and therefore helps to increase the cost awareness in the purchase organisation.
The second suggestion for improvement is the Marine Transaction System that focuses on the reduction of time, especially the administration / enquiring and troubleshooting time. MTS functions as a hub between the WALFIS information system of Wagenborg and other information systems of suppliers. Based on XML language the two system can communicate with help of the platform. By implementing MTS the workload of the purchasers have to be
Ship Supplier Warehouse Transport
Seaport / Agent FMD (coordination)
Master Thesis MscBA - Operations & Supply Chains 5 reduced in order to let them focus more on the sourcing of materials. The MTS reduces the time in such a way that purchasers are eventually able to focus on sourcing of materials.
Because of the high savings potential relating to the sourcing of materials the MTS system is very beneficial.
The third suggestion relates to the possibility of outsourcing the warehouse activities.
Wagenborg Shipping hires a warehouse from another division of the Wagenborg organisation. This division charges a relatively high price for the warehouse and the operations executed in the warehouse. The rate charged for the warehouse is far from competitive if compared to other competing suppliers. Comparing both the in-house and outsourced situation showed that costs can be reduced severely and creates a feeling competitiveness and costs awareness at both the purchaser as the managers of the division that rents out the warehouse.
It can be concluded that the suggestions made in this research will contribute to the more strategically purchasing function. The research is one of the main contributions, but there is still a lot of work to be done. This research is one of the main contributions necessary to achieve the change from purchasing to the more strategically procurement. With (small) steps at a time Wagenborg is heading to the right direction. The research can be seen as a guideline for improvement and fits well in the path for improvement (figure B) developed for the purchase department.
FIGURE B PATH OF IMPROVEMENT Explanation to the figure
The dashed line indicates a difficult connection.
The weight of the line shows the impact it has on the situation.
Present situation
Improved situation
Improve sourcing Improve process
Master Thesis MscBA - Operations & Supply Chains 6 Table of Contents
Preface ... 2
Executive Summary... 4
Table of Contents... 6
Chapter 1: Wagenborg Shipping B.V... 7
1.1 Shipping Division ... 7
1.1.1 Chartering Department ... 7
1.1.2 Fleet Management Department... 8
1.1.3 Crew Management Department ... 9
1.1.4 Purchase Department... 9
1.2 Interrelationship between the key actors ... 10
Chapter 2 Research Methodology... 11
2.1 Problem Definition... 11
2.2 Research Objective and Research Questions... 12
2.3 Framework ... 13
Chapter 3: The purchasing and supply process ... 14
3.1 Products ... 14
3.2 Actors ... 14
3.3 Fleet Management Department; the internal situation... 17
3.3.1 Organisational change in FMD ... 17
3.3.2 WALFIS ... 18
3.4 The Purchase Department... 18
3.4.1 The total delivery process... 18
3.4.2 Evaluating the purchase process ... 20
Chapter 4: A cost analysis... 21
4.1 Gathering cost information... 21
4.2 Costs related to materials and services... 22
4.3 Costs related to the personnel and process ... 23
4.4 Analysis of the present situation ... 25
4.5 Suggestions for improvement ... 26
Chapter 5: Suggestions for improvement... 29
5.1 Control Model... 29
5.2 Warehouse... 32
5.3 Marine Transaction System ... 35
Chapter 6 Conclusions and Recommendations ... 39
6.1 Conclusions ... 39
6.2 Recommendations ... 41
References... 43
Master Thesis MscBA - Operations & Supply Chains 7 Chapter 1: Wagenborg Shipping B.V.
Royal Wagenborg is a Dutch multidisciplinary transportation firm that includes activities such as; shipping, road transportation, passenger transport services, and special transport. The research will be conducted within the Wagenborg Shipping division.
FIGURE 1: ORGANISATIONAL CHART OF ROYAL WAGENBORG
The Wagenborg Shipping division is responsible for all the shipping activities in the organisation. As can be seen from figure 1, some divisions consist of one or more subunits. In brief, the activities of each of the subunits of the Shipping division will be described. Shipping is responsible for the transportation of cargo overseas. The head office is situated in Delfzijl but there are also subsidiaries in Sweden and North America for better contact with the local markets. Wagenborg Stevedoring is responsible for the terminals located at the seaports of Delfzijl and Eemshaven. Stevedoring execute forwarding and warehouse activities at the two seaports. Wagenborg Towage is the division responsible for the marine and towage activities.
Towage works inlands, Eemshaven and Delfzijl, and on sea (North Sea, Baltic, etc.). The last subunit is project and logistics. Projects and logistics execute special transport task for customers who mostly demand multidisciplinary transportation methods (sea / road transport).
From this point forward to avoid confusion the term ‘Wagenborg Shipping’ is used to refer to the Shipping unit within Wagenborg Shipping.
1.1 Shipping Division
The Wagenborg Shipping unit can, structure-wise, be divided into two major groups. The distinction is made on activities directly related to the shipping activities and activities indirectly related to the shipping activities, so called supporting services. These supporting services include; pay roll administration, general administration, legal advice, etc. The following four departments relate directly to the shipping process:
1. Chartering Department
2. Fleet Management Department 3. Crew Management Department 4. Purchase Department
In the following paragraphs the above-mentioned departments will be elaborated more thoroughly. Also the interrelationship between the departments will be dealt with.
1.1.1 Chartering Department
The chartering department is responsible for the commercial activities within the Shipping division. It contracts cargo, the so-called charters, to load the vessels. The department can be divided into three groups. The first group is responsible for the chartering activities of the own fleet of Wagenborg. The second group arranges the chartering for the private owners, who
Master Thesis MscBA - Operations & Supply Chains 8 contract Wagenborg for executing the charter activities. The third group focuses only on container trade activities. The main activities of the chartering task are:
• To arrange cargo for the fleet
• To conclude charter contracts
• To monitor voyages
• To arrange and control fuel bunkers
• To deal with claims and cargo damage
(SOURCE:COMPANY MANUAL WAGENBORG SHIPPING)
FIGURE 2: THE MAIN TYPES OF ROUTE USED AT THE WAGENBORG ORGANISATION
To structure the activities, the department generates a route for the ship to sail. During a route the vessel loads and unloads cargo at diverse seaports. The routes to be sailed can be divided into three groups.
The first group consists of the liner services (feeders), where the vessel sails a certain route for a fixed period of time. The second group is the semi liner services, in which the vessels have a certain one-way route for a fixed period of time. The return route, to get back to the starting point of the one-way liner service, is determined by filling up the return route with variable charter contracts. This route is characterized by the combination of fixed as well as variable route aspects. Tramp vessels form the third and last group. Their route is based on charter contracts settled in a short period of time and as a result the route can vary strongly.
The route can change rapidly, which can result in lucrative contracts for specific ships of Wagenborg. The risk of settling a less lucrative contract is also higher in this group of routes.
To create a stable and competitive fleet, Wagenborg Shipping has pre-assigned their fleet to the three types of routes.
1.1.2 Fleet Management Department
The fleet management department is responsible for the maritime technical aspects of the vessels owned and managed by Wagenborg. The department has been assigned with the following tasks:
• Arranging and controlling maintenance and related activities
• Arranging and controlling repairs and related activities
• Arranging and controlling certification and related activities (SOURCE:COMPANY MANUAL WAGENBORG SHIPPING)
The objective of the tasks is to maintain the vessels in good operational condition. The quality is partly ensured by use of ISO certification. The main tool to achieve the high quality is by executing preventive maintenance. By means of fixed standards, based on hours in use, law and regulation, and supplier’s information parts have to be cleaned and / or replaced by new parts. Nevertheless, technical components of a ship do break down very occasionally; in this case repairs have to be carried out. The major difference between the maintenance and the repair activities is that repair activities are very unpredictable. Maintenance is easy to control, because of the fixed time periods and occurrences, whereas repairs, compared to
LINER SERVICES (FEEDER) (SEMI) LINER SERVICES TRAMP ROUTE Loaded return route
Own way loaded, unloaded return Own way loaded, tramp route A
D B
C
A B
A B
C
A
B
C
D
Master Thesis MscBA - Operations & Supply Chains 9 maintenance, are hard to predict with respect to occurrence and complexity. In all, Fleet Management is responsible for the management of the repair, maintenance and certification processes.
1.1.3 Crew Management Department
The crew management department is part of the Fleet Management Department. This department is responsible for achieving an optimal deployment of the maritime personnel.
One of the objectives is to work with classified and well-trained maritime personnel. The main task of the Crew Management department is the scheduling of maritime personnel under the available vessels of Wagenborg. To sum up, the following tasks can be distinguished:
• Arranging and controlling the manning of ships according to law and regulation
• Selecting and appointing new seagoing personnel
• Making compulsory training and education arrangements
• Performing the personnel planning
• Making travel arrangements
(SOURCE:COMPANY MANUAL WAGENBORG SHIPPING)
Every vessel has a crew sailing for a fixed period of time. The period each crewmember is at work differs on an individual level. The department attempts to avoid relieving the same ranks at the same time. This statement holds especially in the case of the high ranks.
The composition of the crew is very diverse; the following two variables have to be taken into account:
• Ranks of the crewmembers
• Nationality of the crewmembers
The first variable is the distinction between the ranks. The officers, who are the highest in rank, form the first group. They include for instance, the captain, the chief officer and the chief engineer. The other group contains of the non-officers. This latter group consists of the sailors and for instance the fitter working in the engine room.
The other variable is based on the nationality of the crewmembers. Wagenborg attempts to sail as much as possible with a Dutch crew. Due to shortage on the Dutch maritime personnel market it is not always possible to achieve this objective. Therefore Wagenborg is forced to use personnel from other countries. Often personnel from the Ukraine and Romanian are used for the officer ranks while personnel from Indonesian and the Philippines are used for the non-officer ranks.
A side effect of using foreign personnel is that due to difference in legislation foreign personnel can be relieved less frequently compared to Dutch crewmembers. Figure 3 provides an overview on the scheme used to determine the time on-board / off-board for Dutch crews. Personnel from the Ukraine and Romanian are relieved every 4 months and personnel from the Philippines and Indonesian are relieved every 9 months. The time off- board is relatively flexible due to the fact that foreign employees do not work under Dutch labour regulations.
Vessel type Weeks on-board Weeks off-board
D/K/M/V serie 12 - 14 6 - 7
B serie 8 4
S serie 4 4
FIGURE 3: FREQUENCY ON-BOARD / OFF-BOARD SCHEME PER VESSEL FOR DUTCH CREW
1.1.4 Purchase Department
The purchase department is also part of the Fleet Management Department. This department is responsible for a larger part of the purchase activities of the Wagenborg Shipping division.
The activities falling within the responsibility of the purchase department relate to the supplies necessary for the vessels of Wagenborg. These can be the parts needed to execute the maintenance activities as well as food supplies and other domestic materials. The purchase department also manages the service suppliers responsible for the delivery of the goods and parcels on board. Purchasing also manages the lubricants bunkers.
Master Thesis MscBA - Operations & Supply Chains 10 The objective of the purchase department of Wagenborg Shipping does not differ from the standard objective of purchasing in general; the main elements place, time, quantity and cost play an important role. The cost factor has become increasingly more important. This is one of the main motivators for decoupling the purchase activities from all the other activities and to turn the purchase department into a semi autonomous department. The department is semi autonomous in the way that their operations are executed more independently compared to the past. In the past, the purchase department only served as an ordering facility for the technical inspectors, whereas nowadays the purchase department focuses more on achieving efficiency for Wagenborg Shipping. A semi autonomous purchase department is more capable to create economies of scale, because if the department has more insight in the orders it can bundle certain orders and eventually develop the activities into true supply chain management. Besides this cost-effect other benefits on the field of management of the process can be thought of. A further elaboration on the decoupling of the purchase department will follow in chapter 3.
1.2 Interrelationship between the key actors
This section deals with the issue on the interrelationship between the previously described departments. The actor introduced for the first time is the ship. Information on a detail level is known by the crewmembers on board of a ship. Therefore it is important to see a ship with all its characteristics as part of the actors’ scheme. The ship has up-to-date information with respect to the weather for instance; the conditions of the ship, the inventory on the ship, and the performance at the seaport. The ship fulfils an important information function because it generates information for the Charter and Fleet Management Department.
FIGURE 4: INTERRELATIONSHIP BETWEEN THE KEY ACTORS IN THE SHIPPING PROCESS
Figure 4 presents an overview of the actors and the way they are related with each other.
One of the most important aspects linking the actors together is the route. The charter department as described before is responsible for the route. The route of a specific ship is for all the other actors one of the main inputs for their own planning. For instance the personnel planning of the crew management department concerning the on-board / off-board process depends heavily on the route a ship sails. Not all seaports within a certain route are possible seaports for executing the on-board / off-board activities. Another important aspect is the information provided by the ship with regard to the demand for technical and domestic supplies. The crew of the ship monitors the ships’ technical performance in case of a repair or related activity, and they can inform the superintendents and / or Purchasing Department of the right part or product.
Fleet Management Department
Chartering:
generates route for the vessels based on customer information wishes and ships' performance
Crewing:
uses route and information on crew and their capabilities at specific ship
Purchasing:
uses routes and information on demand for domestic supplies and technical supplies
Technical Inspection:
uses routes and info. on demand for technical supplies and crew capabilities
Ship:
uses routes and provides information on crew , demand for supplies and ships'
performance
Generate information
Consume information
Master Thesis MscBA - Operations & Supply Chains 11 Chapter 2 Research Methodology
The previous chapter described in short the relevant department and its subunits, which are of interest for the research. This chapter deals with methodological aspects of the research. It informs the reader on the context of the research. Firstly the problem will be defined and the objective of the research is identified. The next aspect in line is the leading research question wherefrom the (sub) research questions are derived. The last aspect deals with the relevant constraints of this research.
2.1 Problem Definition
The problem definition provides information on the context of the research problem.
Wagenborg Shipping is responsible for the shipping activities of the Royal Wagenborg Group.
The focus of this research is on the shipping activities of the Wagenborg Shipping division.
The previous chapter already described the departments that are directly related to the shipping process. This section looks in more detail to the difficulties in the departments.
Two aspects play a vital role in giving rise to the research. The first aspect is the way in which Wagenborg competes in their markets. The second aspect relates to the processes involved in the actual transportation. The aspect of interest in the transportation process is the provision of products / services to and from the ships of Wagenborg.
The first aspect is the way Wagenborg competes with its rivals. Wagenborg uses two tools in this competition. The fleet of Wagenborg forms the first competitive tool. To elaborate on this first the market of Wagenborg will be described.
The main operating area of Wagenborg Shipping is the Baltic’s. The weather conditions in this region are very difficult for carrying out the shipping activities especially during the winter. To operate in this region ships have to be classified with an ice classification. The ships of Wagenborg mostly operating in this region are classified with the highest ice-class ranking.
This means that even in the most severe circumstances (ice thickness of 1 metre) the ships of Wagenborg are able to sail in this region.
Wagenborg uses a focus strategy to position itself in this niche of the market. But to compete in this market the specialised fleet is more an order qualifier. The second tool used by Wagenborg in competing with their rivals is price. Charter contracts can be concluded by offering a more competitive price compared to other shipping organisations. As a result of the strong competition, margins are small. Offering a low(er) price can increase the number of charters concluded. Besides the increase in competitiveness resulting from low(er) prices, also the profitability can benefit from cost efficiency. Paying attention to costs and create cost awareness in the company can result in, ceteris paribus, increased margins and eventually increased profits.
The second aspect starts with a ship sailing a certain (charter) route assigned by the chartering department. This route consists of (multiple) seaports where a ship has to load and unload goods. The loading and unloading of the cargo is the main reason why a ship sets off to a seaport. But the cargo handling activities are not the only activities relevant for the ship during the stay at a seaport. Many other activities such as the provision of food, bunkering of petroleum, and so on, also have to be executed. Compared to the cargo handling, the activities mentioned above only serve as a supporting process to the core business. They do not contribute to the revenues of Wagenborg Shipping, in fact it are costs resulting from operating and maintaining a ship.
One of the main tools of competing with its rivals is the price charged for transporting cargo.
Therefore it is very important for Wagenborg to work as efficient as possible. Besides the fact that lower costs enable Wagenborg to offer a more competitive price, a cost reduction can benefit Wagenborg on more ways. Decreases in costs can eventually lead to higher profits.
This increase in profit enables Wagenborg to eventually expand their operations, which in turn enhance the competitive edge of the organisation even further. This orientation towards costs efficiency gave rise to this research. To achieve a higher level of efficiency the Head of the Purchase Department provided two possible suggestions for improving the current situation on the field of costs. Investigation of the intended improvements resulting from suggestions is therefore a major aspect of the research. In addition other improvements will be investigated.
Master Thesis MscBA - Operations & Supply Chains 12 2.2 Research Objective and Research Questions
The previous paragraph introduced the problem that has to be researched. This section describes the research objectives and the research questions. The research objective states why the research has to be conducted (action-oriented), whereas the leading research question is about the way information has to be obtained (information-oriented). (De Leeuw, 1998)
Research Objective:
Provide suggestions, for the head of the purchase department, to decrease costs occurring in the purchase and supply process to and from the ships of Wagenborg Shipping.
Leading Research Question:
What aspects determine the costs in the purchase and supply process to and from the ships of Wagenborg Shipping? And how can these costs be reduced?
To provide an answer to the research question in a more manageable way, (sub) research question can be made. Each of these research questions covers a specific section of the leading research question. The following research questions have been defined.
1. Present situation
a. What does the present process of delivering goods and services to and from the ships of Wagenborg Shipping look like?
b. What relevant actors / variables play an important role in the process of delivering goods to a ship?
c. What (organisational) changes influence the present situation in the short / mid term?
2. Analysis
a. What costs play a role in the process of delivering goods and services to the ships?
b. What criteria can be used to analyse the costs, identified in the description of the present situation?
c. On what should Wagenborg Shipping focus based on the criteria set in 2b, to achieve costs reduction?
3. Design
a. What alternatives for cost reduction are viable in order to decrease costs in the process?
b. What alternatives fall within the scope of the research?
c. What organisational implications result from implementing these alternatives?
Constraints to the research
• Time, the research will be conducted in the time period February 2005 – July 2005.
• Process, the research only takes the ships managed and owned by Wagenborg Shipping into account. The ships involved are the B/S/D/K/M/V series (for a list with names of the appendix).
Modelling decisions
• The activities of the crew management department will only be part of the research when they directly influence the performance of the purchase department. Therefore improvements for the crew department will not be researched.
• The chartering department will only be part of the research when they directly influence the performance of the purchase department. Therefore improvements for the chartering department will not be researched.
Master Thesis MscBA - Operations & Supply Chains 13 2.3 Framework
To prevent chaos and work in a structured manner, a framework to guide the research process can be very helpful. Information is provided on an irregular bases and ideas do not have to follow on a sequential base. To ensure a structured approach and as a result a more predictable outcome, the researcher can use a framework during the research. Figure 5 presents an overview of the most relevance aspects of the research. The framework can be used for schematic presentation of the process of conducting the research. The research starts with describing the process and the actors involved in the process. The next aspect helps to put the research into a cost perspective.
FIGURE 5: OVERVIEW OF THE STEPS TO BE TAKEN IN THE RESEARCH
Cost will be the main performance objective; nevertheless the quality of the core business process and transportation overseas has to remain unchanged. The next step is to analyse the performance of the present situation. Based on the findings in analysis of the present situation suggestions are proposed for improving the current situation. The next step is to make recommendations regarding the current process. Also the organisational implications of changes will be taken into consideration. The changes have to result in a more cost-efficient process compared to the currently used process.
Examining the present situation will start the research. The present situation is firstly described, with the help of flow diagrams and other figures. Next to this Actor Activity Diagram is used to investigate the process more thoroughly. Also the costs related to the process are researched. These costs are measured based on the information present in the financial system of Wagenborg and by assumptions made based on interviews, literature and common sense. The next step is to analyse the present situation. The costs in the description of the present situation are analysed based on two criteria. The first criterion is the financial impact of the cost group. The second criterion is the way they can be changed / improved. The goal is to improve the part with the most improvement potential. The research will continue by describing the suggestion for improving the costs in the process. To conclude the research the organisational impact of the changes will be discussed and conclusions will be drawn.
Supplier Seaport Ship
Process of delivering non cargo goods and services to and from the ships of Wagenborg
Actors:
- Supplier - Warehouse - Transportion - Seaport - Agent - Ship - FMD
Process Analysis
Process adjustment and change Performance
objective:
COST
Master Thesis MscBA - Operations & Supply Chains 14 Chapter 3: The purchasing and supply process
The previous chapters briefly described the organisation and the field of research. It provided an overview of the most striking issues that have to be researched. In this chapter, the research will start with a more thorough description of the process that relates to the delivering of goods to the Wagenborg vessels. The main objective of this chapter is to describe the present situation and all actors involved in the present situation. In addition the focus on the costs perspective of the research will be dealt with.
3.1 Products
The delivery of goods is one of the main supporting services provided to the vessels of Wagenborg. There are numerous different goods / services that have to be transported to the vessels. In addition there are also a number of goods that have to be unloaded from the ship, excluding the cargo a ship is transporting.
When looking at the process of delivering goods to and from the ship, the following categorisation can be made:
1. (Spare) parts 2. Provision of food 3. Marine Lubricants 4. Oil (fuel)
5. Waste
6. Crewmembers
The items depicted above are the products and services delivered to and from the vessels.
The first four items relate to the main groups delivered to a ship in a seaport. Waste, the fifth item, is obviously a product that is transported off the ship. The crewmembers, already described in the previous chapter, go as well on board as off board and therefore form a category on their own.
The material flows of the products from the supplier to the seaports differ among the categories. There are four different material flow types that can be distinguished. Figure 6 provides an overview of the diverse material flows. The first flow is directly from the supplier to the seaport, and subsequently unto the ship. The second flow is rather similar to the first, although in this case the agent arranges the purchasing of the goods from a(n) (unknown) supplier. In the third flow, the goods are first being transported to the warehouse of Wagenborg. In the warehouse of Wagenborg the goods are stored and bundled for a specific ship and subsequently a logistics service supplier will transport the products to the seaport, where the products will be brought onboard. The fourth and last flow occurs less frequent and is the least important flow. The products are sent from a supplier to the storage facilities of a maritime service supplier. The warehouse of the maritime service supplier is used as a cross- docking facility wherefrom the goods will be delivered.
3.2 Actors
Figure 6 presents an overview of the flows from the materials. In these flows six actors play an important role; the supplier, the warehouse, the logistic service supplier (transport), the seaport, the ship and the Fleet Management Department (including Purchasing). This paragraph describes the most relevant aspects related to the delivery process.
The supplier is the first relevant actor in line. The supplier provides the Fleet Management Department of Wagenborg with (spare) parts used in the maintenance and repair process.
The products are for instance a crankshafts, (oil) filters, etc. Besides the technical products, there are suppliers for safety materials, food provision, domestic materials and so on.
Wagenborg uses a large number and variety of suppliers. A category that needs some further elaboration is the transport service supplier. The transport service supplier is one of the actors and will therefore be discussed more thoroughly later on in this paragraph.
Master Thesis MscBA - Operations & Supply Chains 15 FIGURE 6: THE MAIN FLOW TYPES TO DELIVER PRODUCTS TO THE SHIPS (WHS = WAREHOUSE) The next actor in line is the warehouse. Wagenborg Shipping uses an in-house storage facility of 1700 square metres owned by Wagenborg Stevedoring. Parcels delivered at the warehouse are stored on pallets in pallet racks. The warehouse makes use of fixed locations to store products on dedicated pallet rack locations for each individual ship. Besides the storage for Wagenborg Shipping, Wagenborg Towage and Wagenborg Kazakhstan also use some part of the warehouse to store products for their operations. Although products can be stored for a long(er) period of time, the warehouse is mostly used as a kind of cross-docking facility. An aspect to take into consideration is the fact that the warehouse is a customs warehouse. The result of this is that products can be stored at the warehouse without interference of the customs.
The transport service provider (external) is the next actor in the flow of the products to the ship. The goods are retrieved from the warehouse and transported to a specific seaport where the ship is located. The logistics service providers offer a wide variety of services. This ranges from low costs transport with long transit times and relatively expensive services with very short transit times. The transit time and the resulting costs depend highly on the transportation modality. Airfreight is often (especially in the case of long distances) much faster compared to road transport. Besides the diverse services, there are other differences between the service suppliers, such as price, transit times and other related services.
transport flow (contracted by Wagenborg)
Supplier Seaport Ship
Supplier (agent)
Seaport Ship
Supplier WHS
Wag
Seaport Ship
Supplier WHS
TBS
Seaport Ship
Master Thesis MscBA - Operations & Supply Chains 16 The fourth actor in the supply chain is the seaport. The seaport is the gateway between the ship and the mainland. The seaport often provides numerous facilities to serve the ship and its crew. Naturally the availability of certain facilities differs strongly among seaports. At a seaport, Wagenborg makes use of an (local) agent to provide the necessary services. These services can be for instance provisions for the captain and its crew or repair parts ordered by the Fleet Management Department and delivered to the agent. The agent also arranges the facilities to dispose waste, such as sludge (dregs from oil / lubricants bunkers) and domestic waste. The agent plays an important role, because he can facilitate services for the ships as well as the office departments of Wagenborg. For instance spare parts are most of the time transported to the agent. The agent arranges that products for delivery at the ship. The agent is able to arrange more or less almost every request made by Wagenborg.
Besides the role of the agent the port authorities are an important factor in the delivery process. Seaport authorities are the governmental responsible organisation present at each harbour. The seaports of interest to Wagenborg are scattered around the globe. This posed interesting challenges given the differences in maritime law and legislation, even between countries of the European Union. Custom operations between the Netherlands and Italy are official equal, because there is free trade of goods between EU countries. Nevertheless getting products through customs in Italy can be very difficult, because customs in Italy still use their own legislation.
The fifth actor relevant in the flow of materials is the ship. The ship is in a way the starting point and the ending point of the supply chain of products. The ship triggers the process by requesting certain products and services from ashore. Besides that the ship holds information on the most detailed level; actual arrival time, condition and performance of the ship, etc.
The last actor in line is the only actor not actually present in the flow; the office personnel of Wagenborg Shipping. The different departments, especially fleet management (including purchasing) and partly chartering are very important in the process. Fleet management coordinates the process of delivering the goods; they are involved in filtering the request of the ship and purchasing the orders. This position gives the Fleet management a prominent role in influencing the costs occurring in the process. Although they are not present in figure 6 they hold a vital roll in controlling the flow.
Figure 7 provides an overview of the interrelationship of the actors involved in the process of delivering goods to and from the ships of Wagenborg. The role of the Fleet Management Department, abbreviated here as FMD, can be seen in this figure. The Fleet Management Department tries to arrange the best conditions (in terms of price, quality and reliability) in which the products are delivered.
FIGURE 7: INTERRELATIONSHIP BETWEEN THE ACTORS IN THE PROCESS
Ship Supplier Warehouse Transport
Seaport / Agent FMD
(coordination)
Master Thesis MscBA - Operations & Supply Chains 17 3.3 Fleet Management Department; the internal situation
This section looks in more detail at the internal situation of Wagenborg Shipping and more specifically the Fleet Management Department and the Purchase Department. The three most important changes / aspects related to the Fleet Management Department together with the influence they can have on the research are discussed. Firstly the organisational change with respect to the role of purchasing in the organisation is discussed. Secondly the influence of the new information system WALFIS is handled. Finally the high work pressure on the purchase department is described.
3.3.1 Organisational change in FMD
One of the main changes is the new organisation of the Fleet Management Department. Until a couple of years ago the organisation of the department was quite different. The superintendent, in charge of the maintenance and operating budget for the ships, had a very powerful position; they worked on a so-called organisational island. On that island the superintendent had the responsibility for the entire process and therefore also for purchasing.
FIGURE 8: OLD ORGANISATIONAL CHART OF FLEET MANAGEMENT DEPARTMENT
The result was the fact that every superintendent was suboptimalising his own island.
Benefits from economies of scale were seldom achieved, because every superintendent worked with his own set of suppliers. To decrease this sub-optimalisation the director of the Fleet Management Department employed a head of the purchase department.
FIGURE 9: NEW ORGANISATIONAL CHART OF FLEET MANAGEMENT DEPARTMENT
The head of the purchase department has to identify possibilities for improvement in the field of purchasing. Especially potential benefits resulting from synergy are an important aspect. It can be easily concluded that decreasing the number of different suppliers and contracts can make improvements. However in order to achieve the synergy by using a restricted number of suppliers for all the ships, the superintendents may need to be “overruled” by a purchaser for
Dir. FMD
Superinten- dent A
Superinten- dent B
Superinten- dent C
Superinten- dent D
Superinten- dent E
Purchaser A Head of
pur. Dep.
Purchaser B
Purchaser C
Purchaser
D Purchaser E
Cluster A Cluster B Cluster C Cluster D Cluster E
Dir. FMD
Superinten- dent A
Superinten- dent B
Superinten- dent C
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Superinten- dent E
Purchaser A
Purchaser B
Purchaser C
Purchaser
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Cluster A Cluster B Cluster C Cluster D Cluster E
Master Thesis MscBA - Operations & Supply Chains 18 the selection and contracting of a supplier. Superintendents logically are very sceptical with respect of this change, because somebody is entering their island. This resulted in a certain tension between the purchasers on the one hand and the superintendents on the other hand.
Since the understanding between the two parties can negatively influence suggestions for improvement, this should therefore be taken into account when proposing suggestions.
3.3.2 WALFIS
Presently, Wagenborg is implementing an information system called WALFIS. WALFIS is the abbreviation of Wagenborg Logistic and Financial Information System. This system will replace the legacy system used until recently by the Wagenborg Shipping division. There are several reasons why the new system is being implemented. This section will deal with the cause for implementing a new information system. In addition the influence of the new system on the research is examined.
The main cause for the development of a new system is the rather old status of the till recently used information systems. Wagenborg Shipping used several old-fashioned systems with very limited functionalities, which in addition are not able to communicate with each other. To cope with more demanding requirements of both internal and external customer, Wagenborg has developed and implemented the new system. WALFIS enables more integration with the diverse departments (finance / fleet management / purchasing, etc). In addition, the system provides functions for reporting and for management information. In particular the ability of extracting information from the systems was lacking in the old situation.
A side effect resulting from the poor information facilitation is the limited possibility of monitoring. It is very difficult to extract information concerning expenditures and other relevant financial figures. Managing hands-on on these figures is therefore almost impossible. The main result of the lack of monitoring is the low costs awareness within the Wagenborg organisation. Purchasers are often not aware of the large differences between the costs at seaports. Providing insight in these costs and showing the differences can possibly increase the costs awareness in the organisation.
WALFIS forced many employees to adapt their daily routine to the functionalities provided by the WALFIS system. For instance quotations and order administration is strongly simplified and registration and history is easier stored in the system. The procedures were slightly changed but the functionality remained the same, while a reduction of the time needed for the procedures was realised. In the following section attention is paid to the work pressure on the purchase department.
3.4 The Purchase Department
The implementation of WALFIS already reduced part of the work pressure. The third element that needs some explanation is the process related purchase department. The first chapter already described in brief the main tasks of the purchase department. This section will discuss the process of the purchase department more thoroughly. The reason for focussing on the purchase department is a result of the fact that is was this department that requested research on the first place. First the total delivery process is described by using an Actor Activity Diagram. Subsequently the purchasing process is examined and evaluated.
3.4.1 The total delivery process
In the previous paragraphs of this chapter the actors involved in the process have been discussed. To summarise the following actors were identified: Supplier, Warehouse, Transportation Service Supplier, Seaport (agent), Ship, and Fleet Management. All these actors execute a certain task and all these tasks combined form the process of delivery.
During these tasks costs are made to perform the task. The costs are a result of consumption of resources (time/goods/money) in order to execute the tasks. To determine which actor is responsible for which activity in the process and what costs can be linked to those activities, an actor activity diagram can be very useful. An actor activity diagram is used to gain insight in processes taking place in an organisation. It provides a simplified yet detailed overview of the activities and the actors involved in a process. Therefore the AAD can be used as a quick scanning tool.
Master Thesis MscBA - Operations & Supply Chains 19 The ship triggers the process by requesting certain goods. They send a list with requested items to the superintendent that supervises the ship. The superintendent checks the list on relevancy. This step is executed because some employees on the ships have the tendency to order unnecessary and expensive materials.
FIGURE 10: ACTOR ACTIVITY DIAGRAM OF THE PROCESS OF DELIVERY
The next step is a decision point. The superintendent can choose either to request a quotation from a supplier or to procure the product directly. Requests for a quotation occur in the case of modified re-buy or a new task procurement situation. In the situation that a quotation is requested, suitable suppliers are selected by the purchase department in consultation with the superintendent. The suppliers are requested to provide an offer concerning the specific item. When an employee of the purchase department receives the offer, another consultation between superintendent and purchase employee will take place in order to select the right supplier. The selected supplier is asked to supply the item and deliver it at the warehouse or directly at the agent at the seaport.
In case of a straight re-buy the product is directly ordered at the supplier, which is a task of one of the purchasers. At the same time the supplier is asked to send the products to either the warehouse or directly to the agent at a seaport. When the warehouse receives the item, the product is stored at the dedicated pallet location.
In the next step the exact time and place of delivery is determined based upon the route of the ship. Once this information is present, the transportation company can be informed and the most suitable transportation service for that specific case is selected. The transportation
C C
Ship Superintendent Purchaser Supplier Warehouse
discuss supplier
Transport
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selecting supplier check requested list request goods
goods to purchase
new task or modified re-buy
straight re-buy products to war ehous e
order picking storage
loading goods
groupage, etc.
recieving offer requesting
of f er
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creating offer
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selecting transport selecting transport products to war ehous e
Seaport
Master Thesis MscBA - Operations & Supply Chains 20 company loads the products at the warehouse of Wagenborg and ships them to the seaport.
At seaport the products are delivered at the agent contracted by Wagenborg. The agent will facilitate the final transport to the ship in the seaport area. Upon arrival of the products at the ship, the process of delivery is closed.
3.4.2 Evaluating the purchase process
The actor activity diagram can be used to evaluate the process on two performance objectives, efficiency and effectiveness (Syllabus: Modelleren van bedrijfsprocessen met behulp van Actor Activity Diagrams, Drs. D.J. Schaap). The effectiveness of the process is evaluated by looking at the vertical level of the flow, while the efficiency can be evaluated by examining the horizontal flow. Effectiveness of a process is defined as the extent in which a product or service at the time of transfer by a company to a customer is delivered according to the expectations of the customer during the time of transfer. In short this means that a business process is effective if the services / goods delivered are in line with the customers’
expectations. The less a product / service meets the expectations, the lower the effectiveness of a process is. Efficiency is also an important aspect when evaluating a business process with an Actor Activity Diagram. Efficiency is defined as; the required actor time for the delivery of a product or service to a customer. Actor time is the time between the moment of transfer à charge and transfer à decharge. The smaller the time is between the request of the customer and the actual ending of the process the more efficient a process is.
The Actor Activity Diagram (in figure 8) clearly shows that there are several loops in the process. These feedback loops have a negative influence on the efficiency of the process according to Schaap in his syllabus on Modelling with Actor Activity Diagram. To be more specific the loops are mostly handled by the purchase department. This indicates that the purchaser functions as a gateway between suppliers and superintendents. During interviews with several purchasers, the head of the purchase department and a superintendent revealed that presently the purchasers have to deal with a heavy workload. This high workload can also be derived from the figure in the form of the loops in the process. The many contact points for the purchaser due to the loops in the process can result in a high workload. The next chapter on cost will look more closely at the financial consequences resulting from the high workload. Also the time distribution of the purchaser will be discussed thoroughly.
This chapter thoroughly described the most relevant aspect related to the delivery process.
Firstly the products that are used / transported in the process were briefly described.
Secondly the most important actors involved in the delivery process were described. In all, the following actors were described: ship, FMD, supplier, transport, warehouse and agent/seaport. Finally the organisational aspects relevant to the research were dealt with. The first aspect is the change in the organisation of the purchase process. The next aspect is the implementation of a new more sophisticated software system named WALFIS. The third and last aspect was the workload of the purchase department. This chapter described the most important aspect in a rather broad perspective. The next step is the focus on the costs of the process and to analyse, which costs can de reduced, and how to achieve that reduction.
