As Purchasing & Logistics manager of Stolt Tankers, Rob Scharff knows a fair bit about the challenges facing purchasing departments in his place of work, Rotterdam.
We caught up with Rob, who's also IMPA's VP for Education and Training, to discuss what’s on the agenda for his department this year, how he intends to meet the challenges of a struggling tanker market, and the potential stumbling blocks in the supply chain…
Shipping market woes
One of the key issues facing procurement right now is the relatively poor tanker, and this is something Rob knows all too well. “The market is still poor,” he said. “Like any other company there is an increased focus on short term costs and budgets. We’re providing the majority of the data to help the organisation to realise these goals. An increased focus on cost allows additional focus on the role of procurement. Yet procurement needs to ensure that optimisations and savings are captured and realised based on budgets with fixed consumption [quantities]. Optimisations and savings will not be visible if budgets allow too many changes of quantities.”
With the market conditions continuing to prove difficult in 2015, procurement departments have an important job to. Part of that lies in the fact that they are the only team that can make small changes that produce big results. “I believe that procurement departments are not necessarily more scrutinised because of market conditions,” Rob says. “Yet minor optimisations on the procurement side of the company can lead to large improvements of the company results. To obtain similar results on the sales side is virtually impossible in a weak market. Therefore procurement can make the [extra] difference in today’s market. Yet the impact of minor optimisations remains in good markets, meaning focus on procurement should remain regardless of a strong or weak market.
“We [the procurement department] also provide a lot of business information that we share. Detailed process information allows stakeholders to benchmark their own ships to the ships of their colleagues, for instance logistics costs. Detailed assessment of discrepancies is food for thought for improvement strategies and alignment.”
As in any team, there are times when errors are committed and have to be overcome. In procurement, when someone is significantly over budget there are a number of possibilities for errors, from individual mistakes to complete strategy issues. “There are many different reasons for overspending,” Rob states. “It is important to analyse our data and identify the correlation between the different factors. Analysis per ship allows adequate root cause analysis. The data and analysis are 50%, adequate planning and discipline are the remainder. Furthermore our 4PL [fourth player logistics] provider will play a crucial role.
Data is king
No matter how much procurement tries to focus on other goals, cost is always going to be important in purchasing. Rob is always working on new ways of ensuring that Stolt Tankers has strategies in place for reducing costs and mitigating the risk. “If ever you talk to people in procurement they will say ‘I knocked off 20% here, 30% there.’ That’s fine and dandy but it doesn’t say anything,” explains Rob.
“I began an initiative last year with two of my team. We developed reports for eight different commodities; we developed a measure of the effects of our contracts versus the effects versus the market prices. We used market indices to verify the prices to prove to the organisation the difference between having a contract with a supplier versus not having a contract.
“We did this for provisions and also for lube oil and for spare parts. With the provisions for example, you could compare over the last couple of years the prices on beef, the prices of chicken and the prices of pork and so on. For instance over the last couple of years, the prices of beef have been increasing. The report depicts the effect of long-term partners.
"This year I am going to extend those reports and improve them. We will write an annual report that looks at 20 of those commodities and measure that on a set of bi-monthly or quarterly prices. It means we can provide information to the superintendent and the fleet manager that they will let them know how their group of ships is performing.
The sheer amount of reporting involved in this highlights the importance of data for Stolt Tankers, and Rob’s department in particular. Having good knowledge of the data allows the team to improve their supply chain in a number of ways. “Data is everything,” Rob says. “To share data is key. Data sharing is based on trust. Partnership relations are not built over night. I believe supply chain management is key for costs optimisations and risk management. Yet this represents a continuous and long-term improvement process focus. This might conflict with temporary short term goals and focus.
Developing new systems
The Stolt purchasing department is also constantly working to make the supply chain more efficient, a focus that brings a number of benefits to the wider organisation. “The purchasing department and new-build department are on the same floor – that’s not typical,” Rob explains.
“We (the purchasing department) are managing the supplier list together with fleet management and new-building. What you see in many companies that the new-building department will decide the equipment to be used on the ship; that means that the rest of the company is stuck with the suppliers for a number of years. We do it differently.
“We are developing a new-building system where we capture from our supplier for life. If we have issues now then we can deal with it; this will eventually die out because if a supplier doesn’t work for Stolt then he’s going to disappear from our list. We have very clear criteria about why we want to use a specific client and we apply that right now. It’s a very useful tool because some of these suppliers assume they are in a dominant and comfortable position. This might eventually turn against them.
Looking to the rest of 2015 and beyond, Rob says that there are many challenges to overcome, but the key is to have a clear plan. “Short term goals provoke an even tighter focus on the amount of storings per ship per year,” Rob says. “Yet the human element in various phases of the process provokes a medium/long term TQM approach to optimise these processes. Enforcing policies without proper introduction and training might have a negative effect and additional costs.
"One of my goals is to develop a tool to measure and report the effect of supply chain training for our on board crew. Although this is the beginning of the chain, the suppliers have an equal or, in some cases, more dominant role to play in supply chain management success because their info is essential for re-supply strategies."
This article was adapted from a feature in Marine Trader magazine, the exclusive publication for International Marine Purchasing Association members. To find out more about becoming a member head to the IMPA website.