“When you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind.” (Lord Kelvin)
While perhaps not the sexiest of industries, logistics is an integral part of all of our lives. It represents around eight percent of annual US gross domestic product, but it’s influence is far more expansive. Even as a multi-trillion dollar industry, it has yet to be truly transformed by technology and remains beset by inefficiency––and this inefficiency thus impacts all of us. It can mean the difference between making a profit or loss in a business, particularly in low margin sectors like construction.
The Big Picture
20 billion miles––that’s a pretty long way (for comparison, Mars is ‘only’ 34 million miles away). Yet, that is the distance trucks travel empty every year in the United States.
Understandably the direct financial cost of this is significant. The wider economic impact is greater though; the cost of annual congestion in the US alone is north of $160 billion (although not just road freight), and the impacts of air pollution and climate change cannot be understated.
This is why city governments and other authorities are starting to focus on increasing regulation around minimizing the negative impacts of freight, and best practice is being shared globally by organizations such as Transport for London.
Observe, Orient, Decide, Act
A theory developed in the Korean War called the Boyd Cycle, sought to explain how US fighter jets were winning over their Russian-built competition, and it came down to the ability to make better decisions, quicker than their enemy.
When I was in the army, a lot of work I did was about providing better information to battlefield commanders in real time to better enhance decision making. This same logic applies directly to business, and these same principles enable success. Much of the reason I set up Voyage Control was to see how technology could enable better decision-making, and thus efficiency and better profitability in the logistics industry.
So how does this apply to construction?
Anyone on a construction site will know the challenges of not knowing where your deliveries are and spending wasteful hours on the phone trying to work out who needs to come and when. This is all compounded in inner city construction projects where loading bays are tight and it’s easy to cause a traffic jam if a truck has to wait on a busy street because the loading bay is full.
A lot of these correlated costs are known unknowns or even unknown knowns, to paraphrase Donald Rumsfeld, but ultimately these things all cost general contractors a lot of wasted time and money.
So what are the costs on a jobsite?
While logistics costs are direct or indirect depending on who you are (project owner, general contractor, subcontractor, haulier), ultimately they all have an impact on the bottom line. Material handling (the movement of goods onto a jobsite) is clearly the largest single cost; it is also not uncommon to have a site superintendent spending half their day on the phone trying to schedule deliveries too, and the cost of having an unproductive crane or hoist operator can be significant.
Failures in material handling can range at the lower end from parking tickets, damaged goods, and demurrage charges and at the high end can cause project delays and insurance problems, and there are certain cases where logistics problems have caused multi-billion dollar headaches. It doesn't take long to eat into already small profit margins though.
The movement of goods (and sometimes staff) to jobsites is often an important issue that gets raised during planning permission, particularly in congested, inner city areas. As cities adopt more stringent rules about freight deliveries, there will be increasing regulation for construction projects. This will start to force certain behavior on trucking companies, in the same way that new rules electronic log books are having an effect.
The other big value in digitizing logistics management is that you can start to build an audit trail and corporate knowledge of what is happening. Putting everything on paper, or a whiteboard that gets wiped clean every week, doesn't lend itself to robust operational analysis, or being able to see where problems are arising with logistics and your supply chain.
So what can you do?
We actually started working in the events industry with some major convention centers that were owned by a property developer. The status quo in that industry was that you queue for hours if you’re delivering to a big venue––we saved them 300,000 hours of queuing time for trucks, which was a huge loss of productivity for all involved.
We now work in multiple sectors around the world, and the problems are often the same, so the solutions that work in one industry likely apply to others. Therefore, the most important thing is to realize that sometimes the status quo is not acceptable and then see how you can change it––incremental/small savings for individuals can add up to massive savings at an enterprise level.
Manual processes involving whiteboards, faxes, and paper trails are no longer the best way to do business, even if people are very comfortable with them. Companies that don’t embrace new solutions won’t survive, but those that do will prosper. As one of our clients put it, you have to jump on the innovation train or get run over by it.