Logistics Planning for Projects in Remote environments

The success of planning the Logistics Support for Projects,  is often a direct contributor to the overall project success, and nearly always has a direct influence on cost and schedule.  After all, the way that materials are provided for a project, and are controlledand utilised can affect Cost, Schedule and Quality (the 3 pillars of project management).   In a developed environment, where suppliers are close by, transport is regular, security is sound, IT systems are in place and ‘interconnected’ and we have well trained and largely ethical staff involved through the process,  you have a fair chance of getting it right.

But what needs to be done when one, some or all of these factors are not in place?

The delivery of Supply Chain support for a Project in a remote location has a number of differences which need to be considered during planning. The easiest way is often to identify these variances at each stage of the Project Cycle to develop a clear and effective support plan.

Buying for the Project.

Materials are probably being sourced far from the end project location. For example, materials may be purchased and supplied from Australia, or the US, for delivery to a project in a developing country such as Papua New Guinea, Africa, or even Antarctica.

Project Materials. Inappropriately packaged for forwarding to remote environment. Wasted time and cost that could have been avoided.

Two principles should be considered in these cases…

1. Ensure the goods are properly inspected before payment, and do so as close to the supplier as possible. This often goes against what is now common practice to accept delivery and make payment when the goods arrive at the site.  A ‘receiving and inspection point’ needs to be established outside of the remote location. A shipping or consolidation point before the goods are forwarded to the remote location is often sound.  This should be controlled and tightly managed, preferably supported with a receiving system linked to the Purchasing and Payment system.

Why? Well, you don’t want to find out that you have the wrong goods once you have paid for expensive freight and handling half way accross the world.  Also, if you are going to pay the supplier on time, that is only going to be put at risk if you are going to inspect and pay after you have freighted the goods through some of the worst conditions imaginable. Consider the potential for delays, damage and theft. No supplier wants to wear the responsibility or consequences of that.   If you find a supplier who will accept terms such as this, expect to pay for the privelage.

2. If systems are poorly connected (perhaps an immature site, or poor communications infrastructure limits IT integration), make sure that the system which will be used to manage the goods through the supply chain is the one used to actually raise and manage the Purchase Orders.  In some cases, this can mean that the order are perhaps done on behalf of a contractor, as opposed to the contractor raising their own orders utilising their own ERP systems. At first this appears inefficient, but in many cases the end result is often a smoother operation where the Supply Chain has been integrated into the one system.  Often too, having on-site staff who understand the operation take ownership of the material supply early in the process adds to increased ownership of the project and early identification of other  issues that might not be identified by someone at the Head Office.  For example:

• Identifying local import/customs issues, that the contractor may not be familiar with.
• Incorporating local transport, storage and handling issues into the plan.
• Identifying alternative sources of supply, often local, that may offer a lower cost.
• Advise on the most practical and efficient shipment methods.

Transport and Import arrangements.

As above, hopefully planning has been started to identify solutions early in the process. However, too often the first moment these issues are identified are when the goods arrive at the Port (perhaps without correct documentation) or everyone is scratching their head about how to move the goods, and who will pay for it.

Often, for a remote site, there is only one well established transport route that has been especially developed (or evolved) to meet the requirements of the operation. This is different to a well connected operation where there may be a multitude of roads, airports and providers to move freight inwards.  Not recognising this in the early stages of planning will mean that either the existing Transport chain will be stretched to accommodate the project requirements or the ‘new’ arrangements which may be put in place independently could be unproven or note even appropriate for the environment. This could result in unexpected risk and cost to the project.

Often, contracts are struck with delivery terms stating payment for materials to be provided to the work site, but in many remote locations this is not appropriate as the supplier or contractor does not have control over the Distribution chain through to the end location. Thought needs to be given to who is best equipped to manage the risk of the Transport chain, and who best to operate it.  Transfer of custody and ownership needs to occur at this point,  normally where the supply cain transitions from ‘developed’ to ‘undeveloped’ and where there is a resource to contractually manage that transition.

Liability and Ownership of the Transport Chain

Both parties will also need to appreciate that some risks and factors associated with the transport cannot be managed effectively by either party.  For example, road closures due to weather, road accidents, or civil disturbance. In these cases, consideration needs to be given to ensuring adequate insurance for some of these events (if possible) and incorporating transport delays into the project plan.

Another common mistake is to mobilise a work crew on the assumption that the materials will arrive for a project on a given day.  When the materials don’t arrive on the often over-optimistic time, the crew is often sitting idle incurring cost.  While it may delay start by a couple of days, major mobilisation of work crews should be considered once the ‘risk period’ of material delivery has passed.

Managing the Risk of Transport in a Remote location

Receipt and Control of Materials.

The control of materials once at the worksite is often a problem area.  Ideally, the location and resources that will be required to control materials will be determined, and resources put in place, before they arrive. Project Materials may often be ‘directs’ and more often than not will not be established within an inventory system. An alternative system will often need to be developed to ensure the materials are tracked and controlled. This can be a simple Excel spreadsheet, which references the orders that have arrived, who has collected the materials and when.  Ideally, materials should not be issued to the project in less than the base Unit of Measure from the order.   Care should be given to who will actually collect the materials as well, with perhaps an ‘authorised’ list of people being developed who are given the authority to collect and sign for the project materials.  Either way, all players at the start of the project should be advised of the arrangements and suitable care given to keep the materials in order.

Poorly Planned Project stores - Lost Control, Project delays, Cost.

Because a unique system may need to be established for the project, the control of the store often lends itself to being clearly assigned to a single person, or small group of people. This also facilitates building  a rapport and effective working relations between the project group and the supporting supply chain.  The team controlling the stores should be recognised as stakeholders and participants in the project, and also be asked to contribute regularly status-updates to project stakeholders and be encouraged to propose new ideas for improvement that will help in the flow and control of project materials.

Well Organised Project Lay Down yard - Controlled, Secure, Accountable.

Close Out.

This is another area where the ‘remote’ project has a few issues of its own, and one that few people consider.   Because of the difficulties in supplying the project, there is often a tendency to over-supply with greater than usual levels of contingency built into the Bills of Material. This inevitably leads to a large surplus that nobody wants to know about.  The tendency is to put it ‘into the site inventory’ for a rainy day.  This also usually means that the surplus is written off the account for the project, hence there is little disincentive for the project to minimise surplus.

Disposal is often difficult as well, due to cost of getting the gear out again, and the limited options for disposal of the materials.  There are no easy answers to this issue, but the following suggestions can assist:

• Ensure there is an incentive for Project Managers to minimise surplus materials in their planning.
• At least look for other ’surplus’ materials that are already in location during the planning stages for the project.
• Ask contractors to provide proposals for what to do with Surplus materials. They may know of other buyers or projects nearby where the surplus materials can be transferred and utilised.

The remote project can have a number of unique characteristics that need to be recognised and addressed, in order to develop a project plan that will be successful.   This report covers just some of the issues that may be encountered.  Overall, it is about engaging in a planning process. Understand what is different about the remote environment you are working in, and develop solutions that are integrated and will work. Trust the people who work in that environment every day as they will know what can and can’t work, and are often more resourceful and responsive to change than their developed world counterparts.   I also strongly recommend drafting a specific ‘Logistics Support Plan’ for a project, so that the concepts which will be applied for a project can be clearly communicated and understood by all involved.

Risk Management Model for the Remote Supply Chain

Risk Management within the Supply Chain is something that many competent Supply Chain managers would have previously done, but probably not in a formalised manner.

In recent years it appears that the application of formalised Risk Management techniques has become more commonplace as part of an effective Supply Chain Management strategy.  ISO 28000, the Supply Chain Security Standard and the application of HACCP within the foodstuffs distribution and handling environment are both examples of a formalised approach to risk management within the Supply Chain environment.  Both of these strategies can be applied more broadly, and successfully, within the wider Supply Chain context.

While being wary of  reinventing the wheel,  I have been working on applying a risk-management model to the Remote Supply environment.  The challenge that appears to exist is not so much in identifying the risks… there are plenty and many in the remote environment, but instead prioritising the risks to be mitigated and ensuring that the mitigation strategies are appropriate.

The  ’sphere of influence’  probably has a part to play in this issue.  For example,  due to the extended supply chain and possibly fractured communication a risk which can be readily addressed in a developed, tighter supply chain may not be able to be adequately addressed across the boundaries of the remote environment.

An example may be the risk of a Supplier not responding to changing demand patterns. In an environment with integrated systems and rapid transfer of data, and a distribution chain that is responsive and regular the mitigation for this risk may be easily addressed.   For the remote environment where a change in demand may not be able to be ’seen’ or communicated for some time, and then the replenishment lead time is variable (eg: Due to transport delays, or unscheduled delays in Customs processing) the mitigation may not be as straightforward. In fact, it may be that challenging to address that other risks which are classified as equal in terms of Risk (likelihood and consequence) may have an easier or more cost effective mitigation. Hence, it would be rational to tackle the  risk which is more readily addressed.

Taking this into account,  an appropriate Risk Assessment and Management strategy for the Remote Supply chain may be to:

Identify the Risks

At this stage,  the importance is on identifying the risks, as opposed to ‘classifying’ them.  However, a structured approach will make sure they are systematically identified, as opposed to randomly brainstormed.   Common options could be:

• By Function (eg: Warehousing, Purchasing, Transport)
• Sequentially through the Supply Chain (eg: From Supplier, to Transport, to receipt, to Warehousing, to final consumption)
• By Location (eg: Operating site, Remote Warehouse, Consolidation depot, Port, Supplier base)
• By Process (eg: Procurement, Freight Forwarding, Repairable item management)

There is nothing wrong with applying more than one approach.  Some overlap will be encountered, but the importance is on comprehensive risk identification.  Incorporating stakeholders (within and external to the Supply organisation) in a structured group environment would generally  be effective for risk identification.

Risk Categorisation

Once collected, the risks may be sorted and categorised.  The common tendency may be to sort these risks by Supply Chain Function or Area, but this may not be the most appropriate basis for many organisations.  Ultimately, it will be important to integrate the risk management outcomes into the broader Strategic plan for the business or project. Considering that in many remote environments, the Supply Chain supports a broader organisation, the risks would best be categorised in line with the business strategy.  Alternatively, if the Supply Chain Risk assessment is feeding into a broader organisation Risk Assessment, then dovetailing into that model is worth considering.   Remember, the purpose of categorising the risk is to ensure we have alignment of Supply Chain risk management with corporate or project objectives.  An example is given below:

Operational/ Technological
Forecast errors, component/material shortages, capacity constraints, quality problems, equipment failure/downtime, software failure, efficiency, process changes, property losses (due to theft, accidents, etc.), transportation risks (delays, damage from handling/transportation, re-routing, etc.), storage risks (incomplete customer order, insufficient holding space, etc.), emergence of a disruptive technology, contract terms (minimum and maximum limit on orders), communication/IT disruptions.

Social

Labor shortages, loss of key personnel,  industrial strikes, accidents, human errors, organizational errors, union/labor
relations, negative media coverage (reputation risk), coincidence of problems with holidays, fraud, sabotage, pillage, acts of terrorism, decreased labor productivity, loss of social license (ability to operate within community), loss of reputaiton within business community.

Natural/Hazard

Fire,  severe thunderstorm, flood, ice storm, drought, heat wave, earthquake, tsunami, epidemic, landslide. May affect capacity of suppliers, the operation, or disrupt distribution chains and communications networks.

Economy/ Competition
Interest rate or exchange rate fluctuation, commodity price fluctuation, bankruptcy of suppliers or contractors, competition for  a limited supply or service base.

Legal/Political

Law suits, governmental incentives/restrictions, new regulations, lobbying from customer groups, election disruption,  war, tax structures, prohibition of products, customs risks (inspection delay, missing data on documentation), access to facilities.

Risk Assessment

The next step is to assess the risks.   For these risks, a standard 2 dimensional assessment should be undertaken related to likelihood and consequence. Sufficient scale should be used to allow for distincition and distinction between the risks. To ensure consistency, clear definitions of the Likelihood and Consequence must be established prior to undertaking the activity.  These definitions are likely to need to be tailored to suit the operation. For example, a standard Safety Risk Management consequence category may relate to the severity of injury to humans. In the Supply Chain we may want to assess based on the severity of impact to the busienss, perhaps financially or from a reputational perspective (depending on what your Supply Chain is supporting).  A standard Risk Management table format, and probably the one that is already utilised by your corporation or department, would make sense to use if possible.

The end result from this step should be a rating of each risk, based on its likelihood and consequence.

Risk Mitigation

The next step is to assess the mitigations that are available for each risk.  Some mitigations may address more than one risk that was identified… not a problem.   It is also worthwhile to give these a rating as this will assist in the final step of prioritisation.  The following is recommended:

- Ease / Cost to implement.

- Likelihood of Success.

Similar to the risk  Assessment Step which resulted in a rating, for each mitigation strategy we should now have a rating for each risk, in relation to its Mitigation.  This step may prompt the development of alternative solutions for mitigating the risk.  This is an added value of this step, as it is likely to foster lateral thought and consideration of more effective ways to mitigate and address particular risks.  If alternatives are presented, the mitigation that delivers the best score should be recorded and incorporated into the assessment.

Prioritisation

While Subjective to an extent, this step can also be quantified by mapping out each risk on a table that displays the Risk Score versus the Mitigation Score.  This will deliver a chart as below. It can then be rationaled that the risks appearing to the top right corner of the plot should be of high priority to address.  They present the greatest risk to the business, and are also the most likely we are able to successfully mitigate for minimal cost. The more comprehensive the risk mitigation strategy (and effort) the greater the benefit to the operation, but the reality is for many remote operations that constraints limit the ability to fully mitigate all risks, and so prioritisation is critically important.

Integrating into the Business Plan
The final step is to secure the resourcing for the risk mitigation priorities and integrating the strategies into the broader business planning cycle.  This is worthy of another article in itself. It can be expected that having worked through this planning cycle will enable the Supply Chain practitioner to effectively communicate the risks and value of the mitigation strategies to the rest of the business.

It is also recognised that this approach is a fairly grass-roots approach to risk mitigation in the Supply Chain, designed to take the first steps in identifying, analysing and prioritising the risks inherent in a remote operation.  The long term goal should be to develop the maturity of risk-management within the Supply Chain to where lead indicators are utilised to sense risks and respond prior to realisation.  From experience though, it is apparent that many remote and challenging operations are in constant ‘reaction’ mode, and will deliver strong benfits quickly by undertaking the brief project of conducting an effective risk assessment of their Supply Chain.

The Importance of Protecting Infrastructure in a Developing Nation

Any economist with developing nation experience would tell you that one of the greatest levers to enhancing development in a nation or region is its infrastructure.  The roads allow people to trade, travel efficiently, launch business ventures  and get products to market.  Communications ensure that people can be informed, coordinate business activities and efficiently arrange transactions.  Meanwhile, the value of water, power and the like is pretty well self explanatory.

Papua New Guinea has great difficulty in protecting its infrastructure, and unfortunately it is not just a case of a lack of maintenance or financial resources to repair damage through normal wear and tear. Instead it is the organised sabotage of roads and infrastructure in the quest for short term financial gain or to persuade on other (often non-related issues) that is at fault.    An example is the digging and channeling of water over roads, to then demand compensation for the disruption caused by repair when government work crews arrive to undertake repairs.  Another example is to knock down communications or power equipment, in the quest of additional payments to then ‘protect’ it.    One would normally consider these to be criminal activities, but in PNG the perpetrators are rarely successfully prosecuted or penalised for such acts.  In some cases, they are rewarded.

The cost is much greater though, than just the direct cost of repairing or replacing vandalised infrastructure and paying out the often unrealistic demands being imposed.  The cost stretches to the whole communities dependant on that infrastructure and the long term success of the nation.

If the country is to develop, critical national infrastructure needs to be protected and respected.  Bob McKillop clearly described this issue in his book “End of the Line- A History of Railways in PNG”  where he quotes that conditions such as ‘public pride in infrastructure’ and ’secure long term land security over rights of way for transport corridors’ amongst the prerequisites for development of a rail system, all of which are limited or non-existent in PNG today.

Without a commitment to protect and develop the infrastructure of PNG, the willingness and ability for Papua New Guineans to improve the quality of life and pursue their own enterprises successfully will unfortunately remain limited.

Controlling excessive Consumption of Workplace materials

I recently had an experience at a remote worksite where the supply of Personal Protective Equipment was a continued challenge.  No matter how much was bought in,  Nil-Stocks kept appearing, and with a long supply chain the issues were easily compounded.  A quick look at usage patterns showed high levels of stock being consumed. Could a person really wear out 3 pairs of boots in a year? Could we really use 10 pairs of gloves in a week?

Many large operations, such as industrial sites, project sites and the like have what are known as ‘Open Stores’ or have relatively relaxed procedures for end users to request and receive stores from centralised warehouses.  The procedures to directly purchase an item from a supplier are in many cases stringent, but to draw on a ’stock’ item from the company’s warehouse is not.  Often, it will be readily issued (perhaps with a single sign-off online request) on the basis that it must be needed to support the operation and to add bureaucracy to the process would be inefficient or overly restrictive.

However, it might be surprising for organisations to learn that this relaxed system can be a black hole for cost control.  First of all, not all Supervisors or Managers are cost-conscious.  Secondly, human nature being as it is, if supplies can be readily obtained and the person requesting and receiving has limited accountability for the cost or budget, then a culture of misuse or wastage can quickly develop. Such an environment will  be increasingly difficult to address as we are now in the realm of changing culture.

What can be done to minimise and manage this control, without adding increased bureaucracy or limitation to the process:

• The Warehouse can provide routine cost/issue reports to all departments, on known waste areas, highlighting the overall costs or usage of ‘problem’ items from month to month.  This should be transparent… including data for all departments, but easily sorted. This gives Supervisors of particular areas the opportunity to take the lead on how they wish to manage the problem for their own department.  Transparent review is often more effective than extra approvals on individual transactions.
• Squirrel stores (local stockpiles outside of the warehouse) should be banned or have imposed limits and controls. These local ‘replenishment’ stores are often a source of wastage.
• Individuals that have drawn unusual quantities of stock should be queried, on the usage and requirement.
• Where goods are sighted as being left to waste, or not being correctly utilised, this should be challenged by a courageous leader in the workplace.

All companies have a general expectation that the Warehouse materials purchased are used efficiently (and definitely not misused) to support the profitability of the operation. Ensuring that the correct values and attitudes on this usage are in place is the first step in ensuring that this occurs.