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Remarks of Commissioner Dye to the Commission FMC – Innovation Teams Initiative Update

Supply Chain as System

The conclusions of our work with the Supply Chain Innovation Teams reinforce the arguments in favor of applying new information technologies in the “ecosystem” of international supply chain networks to transform our American freight delivery system. To accomplish this, all supply chain actors—from ocean carriers to cargo owners—must be willing to change the way they think and act in the international shipping system—and adopt a perspective that responds to the challenges of an increasingly complex American freight delivery system.

Complex systems are dynamic, with changing elements, and unforeseen, simultaneous interactions. As systemic complexity grows, the solutions to supply chain operational challenges often are less obvious.

This slide is from the Applied Physics Laboratory at Johns Hopkins University. They have an ongoing project on maritime supply chain mapping. I used this slide in team discussions to illustrate maritime system complexity and to emphasize that no one should question the obstacles to removing supply chain bottlenecks in our supply chain.

Process Innovation and Small Team Engagement

To clarify the aims of this project, we focused on the supply chain system as an entity– not just on the ports or port congestion. The overarching goal of our three import and three export teams was to improve the reliability and resilience of the U.S. international shipping supply chain.

Our innovation teams contain industry leaders from port authorities, marine terminals, liner companies, cargo owners (importers and exporters), ocean transportation intermediaries, drayage trucking companies, warehouses, and longshore labor. They are an impressive group and we very much appreciate their willingness to be part of our initiative.

Last year, an official from another Federal agency asked me how we chose our team members. Of course, I replied, “they chose us.” They came to us anxious to engage on the issues and address problems together.

The foundation of our project rests on two basic concepts: process innovation and small team engagement. Process Innovation: incremental improvement on past operational success; and Small Team Engagement: no more than 12 members to a team, direct engagement with a specific goal. The team members were senior industry leaders, with the broad-based experience that allowed them to engage knowledgeably on a broad range operational and management issues.

From a team leadership perspective, this working model was extremely effective. The Teams quickly developed camaraderie and trust that is essential for productive teamwork. The FMC “set the table”: We identified team goals, provided leadership (not just facilitation), and encouraged the teams to actively engage — not just “collaborate.”

In my experience, facilitated “collaboration” without leadership is unproductive. We were obsessive about the size of the teams and the need for industry leaders as team members. This approach was successful, and I would recommend this model for future discussions on supply chain issues.

Team Challenge: One Significant Operational Innovation

We encouraged our Teams to “step out of their enterprise silos” and choose one significant operational innovation that would improve supply chain reliability and resilience. Infrastructure and port performance metrics were “off the table.” One team member did point out, however, that “IT is the new infrastructure.”

We asked the teams to keep in mind that the international shipping supply chain — for both imports and exports — is a complex system that consists of interrelated components that continually affect one another. As illustrated by the Applied Physics Lab supply chain mapping slide, there are lots of interdependent pieces. With that in mind, our teams agreed that dramatically increasing supply chain visibility among major supply chain actors is the operational innovation that would make the greatest improvement in overall supply chain system performance.

Critical Information Visibility

Our initiative is different from other IT projects that you may have heard discussed lately — most of which focus on gaining efficiencies from digitizing specific individual business operations. Our teams focused on using information technology to provide critical information visibility to major supply chain actors, allowing them to act in harmony, not at cross purposes, in the supply chain “ecosystem.” Improved supply chain visibility requires identifying ways to provide the critical information needed by each supply chain actor. Critical information — not maximum data.

Critical Information Not Maximum Data

Large data bases exist and may be useful to ports, terminals and liner companies for their own business purposes. But what the Teams focused on in their face-to-face discussions and debates was the key information they needed to interact effectively. To support our Teams’ discussions, I spoke with many consultants. It’s very “current” to stress the need for more information sharing in our ports. One consultant emphatically insisted that: “They just need to learn to share information!”

But the more important question is: “What information?” and “For what purpose?” The IT system infrastructure that promotes information sharing is extremely expensive. So our Teams’ challenge was to define the types of information (not data) they needed to share and discuss what would change if they received the information when they needed it.

It is important to understand that defining critical information is not as easy as it sounds. It requires supply chain actors, especially cargo owners, to carefully identify what they need to know, when they need to know it and how it will improve operations. For example, we found that for U.S. importers a key question is: When can I pick up my container from the marine terminal? For exporters, the questions are: When and where can I get an export container, and when is the best time to deliver the full container to the marine terminal?

Those seemingly simple and straightforward questions can be surprisingly difficult to answer. To tell a cargo owner when an import container is available for pick up, for example, a marine terminal operator must know about chassis availability, terminal yard operations, customs clearance and other relevant port activities—for each shipment. These underlying operational challenges have to be addressed before critical information on shipment availability can be made available.

Final Conclusions

When we release the report soon, we’ll include a few examples of critical information “dashboards” that would provide a type of “rolling forecast” for cargo availability. For example, shippers want more advanced forecasting information on container availability. Many work on an 8-12 week forecast, but information to support advanced planning of this type is not available today.

Marine terminal operators need open communication between the terminal and the shipper to identify “hot boxes” or “dwell” boxes, for efficiency of terminal operations. They also need dynamic chassis availability information. End-to-end supply chain visibility is the goal, with controlled access to information that is specific to a transaction.

This chart illustrates one of the most interesting observations we have made about our freight delivery system: When direct commercial relationships exist in the supply chain, things work, not perfectly, but there is a vehicle to address customer concerns. But when no commercial relationship exists, there is no vehicle to work out normal commercial issues, like price and service, and the system may have to compensate. Note the commercial relationships, and the lack of those relationships, in our supply chain.

There were other pieces of the project that were extremely valuable: We interviewed the port directors from the America’s largest container ports, and they all “get it.” They are anxious to find ways to reach beyond the port gates to address supply chain breakdowns. Also, one of our Export Teams had a very productive meeting on export container availability, exploring a linkage between container commitment at booking, and no-show bookings.

The Future

What now? We intend to complete the final report on the project soon and I’ll bring it each of my colleagues for their review before we publish on our website. We certainly don’t claim to have found all the solutions to supply chain bottlenecks, or to have developed a new supply chain IT information system. But we are pleased with the results and the support we have received from our team members, trade associations, and Congressional Committees.

And we are closely watching the port projects in this area, especially the Port of Los Angeles/GE supply chain information project. We also hope to obtain authorization for a concept design for the seaport information portal and more fully develop the work of the Innovation Teams.

I believe that increasing supply chain reliability and resilience through critical information visibility, coupled with removing unnecessary compliance costs from the supply chain by repealing obsolete regulations, will strengthen the performance of our international freight delivery system and provide a strong boost to American economic growth. We’re pleased to have laid the ground work for a new, more effective way to address supply chain issues in the United States freight delivery system.