Welcome to the Winter 2011 edition of LOGISTICS TEAMtalk, the Newsletter and Digest of the Expense Reduction Analysts’ Logistics Team. As well as our usual selection of topical comment to help keep you informed of some of the underlying factors affecting the cost of moving and storing goods for British Industry, we are pleased to announce our new website:

www.eralogisticsteam.co.uk

Within the site, you will find more comment on the sector, case studies of the Logistics Team’s successes in driving down Client costs, a complete archive of blogs and other articles by the team, and a contact and comments form.

All of the topical articles below are available to be read in full on the website, as well as our monthly market reports on the logistics sector.

Get notifications of new articles and reports by following us on Twitter @eralogistics

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Fuel Consumption is getting worse !

That is one of the most surprising key findings from the Office of National Statistics latest report into the Road Haulage sector in the UK.

The Report also shows that there has been marked growth in goods movement across all sectors, which is rather opposite to general perceptions today. Admittedly, the statistical base is now nearly one year old. Read more at www.eralogisticsteam.co.uk or click here

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Export success is leading to increased costs.

Suddenly the traditional imbalance between imports and exports is changing. This is having a significant impact on exporters costs, just as they are beginning to see volume growth. Kevin Fryer reviews the situation at www.eralogisticsteam.co.uk – click here

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Large warehousing projects have high failure risk.

Fergus Smith has been reviewing the inauspicious track record of warehouse initiatives, and offers some tips on how to reduce the risk exposure when your business has to make changes.

There have been a number of high profile warehouse implementations that have seriuosly impeded the ability of some UK businesses to function. Read more at www.eralogisticsteam.co.uk or click here

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How do carriers plan networks in recessionary times?

Kevin O’Neill explains some of the strategic process of adapting depot networks to reducing volumes and a more competitive marketplace  – read the full story at www.eralogisticsteam.co.uk or  click here

In a recent survey of IT professionals by Lieberman Software some startling insights were revealed into security practices particularly in the area of password management. Portions of the survey focused on the numbers of passwords in use, sharing of privileged passwords, organizational security and other areas. The respondents to the survey worked in organizations ranging from fewer than 100 to more than 10,000 employees.

The data reveals a fundamental lack of IT security awareness particularly in the area of password control and privileged logins. For example, 42% of the 300 plus IT professionals surveyed said that in their company two or more IT staff shared password access systems or applications. Whenever passwords are shared in this way there is no way to attribute loss of data or other damaging changes to any one individual.

Moreover, almost 50% of the administrator passwords for a system, network device or application were going unchanged for more than 90 days. There is a risk that within these organisations they may be non-compliant with common standards such as PCI DSS the information security standard for organisations that handle cardholder information for the major debit and credit cards.

Possibly more worrying was the finding that 25% of respondents said that privileged account passwords used to grant “super-user” access to systems and applications are sometimes less complex than normal user network logins. These organisations core systems may be less well protected against malicious intruders and malware than are the organizations’ normal users!

Nearly half of the respondents commented that they had worked for a company whose network had been breached by a hacker.

It would seem that unless the board of directors of a company pay far more attention to IT security policies and procedures they are running the risk of major data losses and reputational damage and may be in breach of their responsibilities as a Director.

If you would like help in forming or reviewing your IT policies and procedures our auditing your compliance Expense Reduction Analysts IT Solutions and Services offers this as part of our portfolio of Strategic IT Advisory services.

The laptops contained the details of 958 Ealing Council clients and 698 Hounslow clients, according to the ICO. One of the laptops was issued by Ealing, while the other was a personal laptop belonging to the employee. Both were password-protected, but not encrypted, despite this being forbidden by both councils. The failure of both councils, whose out-of-hours service is provided by Ealing Council, to encrypt the laptops was in breach of council policy.

There is no evidence to suggest that the data held on the computers has been accessed.

Ealing Council was penalised £80,000 and Hounslow Council £70,000. Ealing Council breached the Data Protection Act by issuing an unencrypted laptop to a member of staff in breach of its own policies. This method of working had been in place for several years and there were insufficient checks that relevant policies were being followed or understood by staff. Hounslow Council breached the Act by failing to have a written contract in place with Ealing Council. Hounslow also did not monitor Ealing Council’s procedures for operating the service securely.

The ICO said that both councils had since tightened their security policies, contacted the individuals affected by the unencrypted data mistake and they have agreed to consider an audit by the ICO.

ICO deputy commissioner David Smith said “Both councils have paid the price for lax data protection practices, I hope all organisations that handle personal information will make sure their houses are in order – otherwise they too may have to learn the hard way.”

The steep growth trajectory of software functionality between the mid-1980’s to late-2000’s often placed an emphasis on ‘future-proofing IT’ purchases. Buying the highest specification equipment available helped cope with demands on hardware from new software and extend the usable life of equipment.

The use of business software today is much more varied; ranging from robust but simple to costly and complex. In particular, the growth of mobile computing and smartphones is shaking-up the software market and places emphasis on software usability, not complexity.

These, and other factors, make implementing an optimised “IT replacement strategy” a critical activity and source of operational cost advantage.

Consider the following IT cost reduction ideas when assessing how to reduce costs in IT hardware and software:

1. Have a full assessment conducted of the hardware and software inventory across your network.
2. Profile user types and detail usage patterns. Seek cost-effective external assistance if required to do this accurately and succinctly.
3. Track and assess historic cost trends and subsequent value for money so future purchasing decisions can be made that better optimise value in your organisation.
4. Invest in hardware and software that is optimised for user requirements.
5. Confirm licensing compliance – a large bill from Microsoft or other software providers can negate any cost savings made.
6. Improve asset utilisation – ensure that the IT assets that you use are being used effectively by the way they are currently allocated.
7. Rationalise complex networks to reduce maintenance costs.
8. Reduce energy costs by considering the total life costs of hardware when purchases are made. Energy usage over the life of the asset can be more costly than the original capital investment.
9. Seek to ensure that IT and Finance work in tandem to deliver an optimised approach to procurement
10. Conduct reviews regularly to ensure that all the steps you have taken are being conducted effectively. Review the cost-effectiveness of your IT procurement activities against the market on a monthly or quarterly basis. Review asset utilisation on at least a monthly basis.

Click here to download a 1-page PDF summary of the ways Expense Reduction Analysts assists its clients to reduce costs in IT hardware and software and click here to download your copy of the recently publish Expense Reduction Analysts Cost Reduction Guide, which focused on other IT Cost Reduction Ideas, including greening IT, alternatives to Microsoft Office, hosted IT and service management and technology business management.

The Tilney Group is a dedicated fund-management house with a network of offices around the UK, but with its roots firmly in Liverpool. With over 160 years experience in financial services and in excess of £5billion of client funds currently under management, the fund management expertise within the group was never in doubt.

However, Tilney’s management had for some time toyed with the idea of externally reviewing its overheads, and following an introduction to Expense Reduction Analysts’ consultant Steve Rhodes and Neil Cullen, Tilney’s Financial Controller Mike Walsh-Clayton asked Expense Reduction Analysts’ to review the areas of stationery, computer consumables and print.

Having established many long-term supplier relationships, Tilney was reluctant to change any suppliers without good reason and was very keen, where possible, to support business in the Merseyside area. Giving due consideration to this requirement, the initial reviews identified savings of 31% on stationery, 28% on computer consumables and 28% on print, with minimal change to supplier arrangements. Further reviews identified savings of 15% on couriers and 32% on electricity. Total annual savings achieved for Tilney now stand at approximately £140,000.

Mike Walsh-Clayton of Tilney says, “Naturally I am very pleased with the level of savings achieved as a result of Expense Reduction Analysts’ profit improvement reviews. Furthermore I am impressed by the level of professionalism and customer support provided by Expense Reduction Analysts through the implementation process and beyond.”

What’s the issue ?

EU Directive 2009/30/EC introduces a requirement that, from 1^st January 2011, all gas oil (commonly known in the UK as ‘red diesel’) marketed for use in non-road mobile machinery (NRMM) must contain no more than 10 milligrams of sulphur per kilogram of fuel (virtually ‘sulphur free’). NRMM includes tractors, other agricultural equipment, forestry equipment, construction equipment, forklifts, portable generators, railway engines, and inland waterway vessels. In the case of gas oil for use in rail vehicles the introduction of sulphur free gas oil will be one year later (1^st January 2012).

Why will this cause confusion?

The new specification applies to NRMM, and not other Gasoil uses such as heating boiler-fuel, static plant, etc. Therefore companies who currently use the existing specification Gasoil will have to decide on how to order their fuel after 1^st January. Their consideration will need to take into account what the intentions are of their incumbent suppliers. Some suppliers have already stated that in order to meet the NRMM requirement, they will supply Road-specification diesel (which already meets the requirement) as Gasoil, after adding red dye in order for it to have Gasoil duty rates applied. Moreover, some have also indicated that they will discontinue supply of non-NRMM.

However, Road-specification diesel has by law to include a proportion of bio-diesel (min 3.5%, and up to 7%) This has a serious impact both for the storage of the product, and potentially its use in older equipment and associated maintenance regimes. We have also had anecdotal evidence of firing problems when bio-diesel or bio-gasoil has been used in older boilers.

“Bio” fuels present particular problems for storage and fuel-lines and filters, because of a tendency for algae growth. They are also reportedly more aggressive in degrading seals, gaskets, etc.

What are the effects on my fuel pricing?

On the international markets, Road-specification diesel is currently about 1 pence per litre more expensive than Gasoil (before duty is applied). We can therefore assume that NRMM Gasoil will be at least 1 pence per litre more than current supply, irrespective of any commodity market price variations. Users will also need to budget for increased costs of service and maintenance.

What should we be doing now?

Users of older equipment would be well advised to test whether it can operate successfully with a bio-blend. If not, a plan needs to be in place to ensure that supply of the older specification Gasoil will be available from either their current supplier or alternatives.

Where maintenance is undertaken in-house, consideration needs to be given to reviewing service and inspection intervals, and additional maintenance action that may be needed to discourage, and if necessary, flush algae development in fuel tanks, lines and filters.

Mixed application users (ie a combination of mobile plant, static plant, and/or heating boilers), may wish to give consideration to having two sets of storage equipment for the different uses, especially if they have older equipment with reasonable economic life left.

Where equipment is in use, which is found to be unsuitable for a bio blend, processes need to be in place to ensure that all staff who order fuel understand the differences in Gasoil, and which specification needs to be delivered.

See all Logistics Team Blogs

On the 1^st April (perhaps not the best date !) Ofcom announced that this charge is to be reduced to 0.5 pence and should come into effect in the first half of 2011.

This is undoubtedly good news in general for users as most will see a cost reduction, but it is very unlikely that the mobile phone operators will just accept this reduction in profit margin. Most mobile contracts come with free handsets or a significant hardware fund which are in essence a subsidy of the monthly costs. In the future these subsidies may become less generous. Similarly each handset is subject to a fixed monthly service charge and this may increase.

The overall impact on users will be complex and all the operators will find different ways of implementing the change to protect their revenues and to make it as difficult as possible to compare the offerings from the networks. However for those wishing to move networks, there is some good news as Ofcom also announced that they are making it quicker to transfer mobile numbers, cutting the time period to just one working day rather than the current two.

Following a concerted and coordinated effort from groups of customers focused on IT cost reduction, SAP’s Enterprise Support package will no longer be mandatory for all customers as had originally been planned. Instead, the company will offer a tiered support model, effectively allowing customers to keep their existing support contracts. The reversal may have wider implications for software license agreements across the industry.

“We welcome this news from SAP and are delighted that it is offering greater choice to its customers and our members,” said Alan Bowling, chairman of SAP’s UK & Ireland User Group. The company says the option of standard support for software license agreements will still be available, albeit at an increased rate of 18%. The vendor is also to cancel proposed price increases for this year. It is a step in the right direction for IT managers keen to reduce IT costs.

According to a statement, the software license agreement for Standard Support includes legal updates, problem resolution, knowledge transfer and quality management to keep SAP systems running, while Enterprise Support adds “business continuity, business process improvement, protection of investment and accelerated innovation, and reducing total cost of operations (TCO) of a customer’s IT landscape”. With a focus on IT cost reduction, decision makers will be relieved that they retain control over making the additional investment decision or not.

In a blog post, SAP market commentator Helmuth Guembel said the decision was down to a potential huge fall in revenue and it could well see an increase in moves by customers to renegotiate software license agreement terms they expect from their service providers in the industry as a whole. “CIOs from SAP’s premium customer network gave feedback that is hard to print and by November, SAP was facing a certain maintenance income loss of over 200m Euros for 2010. The list of accounts that SAP in an internal analysis marked as ’maintenance at risk’ was long, much longer than anybody had expected,” he wrote.

Could 2010 prove to be the year when the pendulum of power may favour those focused on IT cost reduction through structured and co-ordinated negotiations?

As well as being a means to achieve IT cost reductions, improved governance of software assets throughout their lifecycle enables your organisation to mitigate risk, respond more quickly to change and manage complexity within the organisation. Software asset management, and the control and protection of software assets throughout their life cycle, is a critical component to any organization’s ability to successfully manage and reduce costs in IT.

The implementation of many IT processes, including configuration, release, or change management, is dependent on the organization having accurate knowledge of its IT assets. IT cost reduction is seriously compromised when an organization does not know what software assets it has, where they are deployed, how the assets are configured and how or by whom they are used.

In recent months there have been significant changes in Microsoft’s licensing frameworks and application footprint. It is a constant source of amazement and bemusement to colleagues and clients who do not have a direct involvement in IT procurement and software asset management that Microsoft’s licensing can be so incredibly complex that Microsoft needs to have extensive professional training courses on choosing licensing options.

Licensing is part of the ‘Microsoft Certified Professional’ development programme, part of which includes designing and providing Microsoft volume licensing solutions to small and medium organisations. Companies that are confused by the variety of Microsoft products, product licenses and pricing options can take advantage of are well-advised to seek professional software asset management support.

The fact is, buying out of the box is quite straightforward. But unless your organisation is no more than just you and a few other colleagues, you need to give careful consideration to how you license your Microsoft product requirements. If you are keen to explore how your organisation can better avail itself of effective software asset management to achieve IT cost reductions, please do contact me for informal or formal advice.