The surfeit of mergers and acquisitions in the business community has left many a CIO in a pickle - trying to 'mix and match' disparate systems. Instead, P&O Nedlloyd opted to 'pull the plug' on one set of systems.
It's sink or swim in the turbulent container shipping business. And as Darwinian survival of the fittest carves up the industry - either forcing the little fish under, or swallowing them up - even the mighty are scrambling to make positive returns in response to the pressures of global competition, consolidation and deregulation.
One way to reduce costs is through global alliances and mergers, and last September British company P&O Containers tied the knot with Dutch company Nedlloyd. The merger shot the new company into the top three position in the world container market, and equipped it with the world's largest container ship fleet and diversity of trade routes. But in line with the prevailing business climate, the merger was intended as a savings mechanism rather than a beefing up exercise, and the majority of the savings anticipated by the P&O Containers and Nedlloyd merger will hinge on prompt rationalisation of information systems and business processes.
According to Barry Warnes, originally with P&O Containers, and now P&O Nedlloyd's Asia-Pacific hub manager, both companies had pooled extensive development resources into specialised freight industry information systems, which posed the tricky question of whether to integrate both systems, or choose one over the other and extend it across the new organisation. It wasn't a lengthy deliberation. Hot on the tail of the merger, the new management team decided that in order to achieve the union in the slimmest time frame possible, there would be no attempt to integrate the P&O and Nedlloyd systems.
"Although P&O Containers had successfully mixed and matched a variety of information systems through acquisitions in the past, in this case the P&O Nedlloyd systems were clearly each too tightly integrated to attempt merging them in the time frame provided, and reap the necessary business savings," says Warnes.
However, Warnes adds that technology itself was by no means the core criterion in deciding which way the axe would fall.
"What was considered most important was the business processes the applications supported in relation to how the new managers that had been appointed wanted to run the business. So Price Waterhouse was contracted to do a worldwide audit of both operations, and supply its recommendations to the new management team.
"Price Waterhouse consultants spoke to business managers of the new company, existing customers, users, and then gave a recommendation of which system would best fit the requirements of the new company.
"That period went for two months and during this time we were on tenterhooks, not knowing what the outcome of the selection would be. At the same time we were doing huge amounts of work to support that process; feeding them all the information they needed about the operation of our systems," says Warnes.
At the end of last year the news broke that P&O systems would become the prevailing system and it was renamed the P&O Nedlloyd systems.
"When the decision was handed down, we were only 80 per cent of the way through a global roll-out of a number of our own new systems, so that put us on a bit of a back foot. But the critical - and deciding factor - was that our system was aimed more at the business principles of the new company. It also had very heavy financial controls built into it. This came out very strongly during audit process."Added to this, a great deal of flexibility had been built into the P&O Containers systems to accommodate the possibility of future expansion, Warnes says.
Nedlloyd was going through a similar global application roll-out to P&O Containers', but because Nedlloyd had started [development] during the late eighties it had been completed, he explains.
"So it also came down to timing. If the selection had come 12 months before, quite clearly Nedlloyd systems would have been the way to go. But our systems have been built with the view that changes such as mergers were going to happen. Development of the P&O systems began in the early nineties, when the company felt the pressure to move to an open system environment, standardised throughout its global operation.
Warnes says at the heart of the anticipated savings was cutting duplication out of the system - the majority of which the management team expects to reap by the end of the year. "This impacts on everyday things like office integration - where there are huge potential for savings costs. The ramifications are massive," he says.
With the stopwatch ticking for the end of year deadline, Warnes says P&O Containers will aim to roll out the majority of its in-house-developed applications, within this narrow time frame.
The roll-out will include GFMS - a Global Financial Management System, based on Coda but heavily modified for the freight industry. It runs in parallel to DRS - the Documentation and Revenue System which covers all documentation and revenue data from vessel set-up to balancing the books. Bayplan is a suite of systems linked to DRS to provide information on the precise loading of a vessel. It details where containers will be placed during shipment.
STARS/CTS and SDIS are systems designed to service customers with special needs in order processing, and VES is a vessel scheduling system for tracking vessels and routing consignments.
Additionally GTS is a global tracking system built to support the day-to-day business of container management. It provides operational data which is used for tracking and monitoring P&O Nedlloyd's worldwide container fleet, and includes forecasting and financial reporting.
The company has also developed a Freight Control Module for estimating and disseminating international freight rates. "During the Price Waterhouse audit, P&O Containers' Freight Control Module (FCM) scored pretty well. It allows freight rates to be automatically propagated around the world as a request system, allowing the trade manager complete control of freight rates," says Warnes.
While developing these systems, P&O Containers decided the only way to roll out quickly and at a reasonable cost was to concentrate resources into a small number of locations to support the whole organisation. The company standardised on East Rutherford in New Jersey, London and Sydney - which supports the Asia-Pacific region.
"These locations work very closely with the intention of keeping everything standard, as well as sharing ideas and development. Before these systems were developed, P&O Containers ran on disparate platforms worldwide. For instance, in Australia we ran AS/400s, NZ ran on an old mainframe, and Europe had a number of big mainframes. Each of the applications was written in whatever was appropriate to that platform. The only common exchange mechanism was a single file which we batched up and just fired off when the ship left. All this information was then transmitted to the destination," says Warnes.
"Ten years ago that worked fine but nowadays ships do a lot more trans-shipping which, for example, would see a ship transport cargo from Australia to Singapore where it is reloaded onto different ships for new destinations. Our systems weren't adequately dealing with that operation and there was a lot of manual processing required to manage with the trans-shipments," Warnes says.
For P&O Containers, this environment started to become increasingly difficult to manage, with only limited means of dealing with amendments once the data was sent.
"With the DRS, the information is much more progressive, much more itemised, and can be distributed to a central pool where is then sorted and distributed to an appropriate destination based on cargo characteristics such as where it's going, where it's going to be trans-shipped, and where it's going to be paid for," says Warnes.
"Certainly there is a view within the shipping industry that small players are going to disappear and the big ones will remain, inevitably leading to mergers and acquisitions. So the flexibility to be able to expand systems so they can grow and grow was also inherent in our architectural design.
"Because P&O Containers had been growing and entering into new areas of the container business so quickly, the information systems have been built to react. For example, we have the flexibility to increase database sizes quite substantially, with few architectural limits in case it had to be ramped up quickly.
"On the hardware side we've got IBM's RS/6000 SP, which is a MPP machine that we can continually add further nodes to, really without limit. And we've configured our applications so we can add one of these nodes into whichever application requires the extra power.
According to Warnes, the company is also using a Pyramid Nile 150 as a database server, to provide added capacity. But in order to handle even larger capacities in centres such as Europe, the company is also attempting to split the applications across multiple database servers.
With its own information systems roll-out still not complete, the com-pany's task at hand has suddenly grown enormously, Warnes says.
"Our main objective is to have Nedlloyd's systems decommissioned by the end of 1997, and add all their volumes onto the now renamed P&O Nedlloyd systems. Until a full migration is complete, bridges will be built between the P&O and Nedlloyd systems.
"By mid year we hope to migrate the largest components of the business using the 80/20 rule. These are sites like Hong Kong, China, Singapore, Europe and North America. After that we will address trades that go to Japan and South America. Places where there are not such big savings to be made will be left to the end of the year. Because the companies are largely equal in size, we're faced with a doubling of our volumes."He says that to accommodate the Nedlloyd operations, the task at hand will involve ramping up hardware, re-examining the new applications and network bandwidth to ensure it can support the new volumes, as well as stress testing and physical expansion of the computer room.
"In the interim, as far as new technological innovations such as electronic commerce go, we have to keep our blinkers on. But Nedlloyd built an extensive Web site and that is one development of theirs we do intend to utilise, taking the work they've done and linking it up with our systems. But with so many other developments going on right now, we can't afford to be side-tracked.
The Shipping News
The merger of P&O Containers and Nedlloyd has given birth to a real world force in the freight industry. Now boasting the world's biggest container ship fleet of 112 owned and chartered ships and 540,000 owned and leased container boxes, the company will have more direct ports of call and a wider range of trade routes than any other operator in the world.
Barry Warnes, P&O Nedlloyd's Asia-Pacific hub manager, says: "The global shipping and container shipping business is really struggling. There are new players coming into the market all the time and rates are falling, fuelling a big trend to lowering costs everywhere.
"Consolidation and rationalisation are happening on an international scale and both P&O Containers and Nedlloyd have gone through big cost cutting exercises.
According to Warnes, merging the two operations will allow far greater container volumes to be handled at much lower costs with savings of $200 million already identified by management. These will be realised through a reduced joint workforce, as well as lower inland costs and terminal expenses resulting from freight network efficiencies, and improved IT systems.
(Louisa Bryan in the News editor of ComputerWorld)
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