The case for cross-dock

As offshore oil & gas operations move into more challenging environments, service providers are employing more sophisticated methods to deliver the goods. Russell McCulley talks to Halliburton's John Vogt about the science and strategy behind the company's logistics.

Goods have no value unless they are available to the customer,' says John Vogt, Halliburton's VP of global logistics, summing up his profession's philosophy in deceptively simple terms. ‘So we drive ourselves to be able to deliver goods repeatedly, regularly and consistently.'

Global logistics, of course, is a far more complex process than many people realize. ‘In an international move,' he says, ‘there are, on average, 25 different entities working together to make that move happen.' Those entities include the manufacturer or supplier, the client, and a host of parties in between: shipping companies, forwarders, insurers and various government agencies that require documentation and inspection at each stop in the journey.

Multiply the process by the approximately 1.4 million moves that Halliburton makes each year, and the complexity of getting goods to the customer on time appears daunting.

Logistics ‘is a highly technical discipline', says Vogt, who joined Halliburton in 2006, when the company had a staff of fewer than a dozen in Houston conducting logistics by maintaining oversight of numerous forwarders. ‘It is a challenging and demanding field. It's exciting. And you have to be a little bit weird to work in it at this level of intensity.'

True, perhaps, if extreme attention to detail can be considered weird. ‘It's a commitment,' he says. ‘It's happening 24 hours a day, seven days a week, 365 days a year, somewhere in the world.'

Over the past few years, Halliburton has sought to streamline its logistics by assuming more control over the process. Most critically, it has set up a network of strategically located crossdocks to receive and process orders to and from any point on the globe. The cross-docks – essentially flow through warehouses where goods arrive and depart but are not stored, but merely staged to build economical loads – are located in Houston, Rotterdam, Dubai and Singapore, each an important stop on the world's major east-west shipping lanes.

The cross-dock strategy is not new to logistics: companies have employed similar systems since at least the 1980s, when US retailer Wal-Mart adopted the method to sort and ship products from many different vendors to its network of retail stores. In Halliburton's case, where it is probably the first to use this in an internationally linked logistics chain, the system has helped speed the movement of goods and given the company greater ability to know exactly where a piece of equipment is at any point in the shipping process.

The company uses a simple bar code tracking system to monitor movement. There are more technologically advanced tracking methods, such as GPS-enabled satellite tracking and radio frequency identification, or RFID. But much oil & gas activity takes place in remote locales, where such sophisticated technology is useless. ‘The problem with advanced technical answers, such as RFID, is that they are not deployed in many countries and it's not feasible for Halliburton to install the necessary infrastructure,' Vogt says. ‘So the common methodology that is easy and simple and economic to use is a bar-coded reference number that tells us everything that is in the box and tells us its location. It allows us to manage the whole process from start to finish, from pickup all the way through final delivery, and to have reasonable visibility – to know where things moved, and the time it took to move them.'

Onshore North America, an advanced system such as GPS-enabled satellite tracking ‘is perfectly feasible', Vogt continues. ‘The problem is if you send a box from Gabon to the east coast of India, satellite tracking won't work, because [the box] goes into a container or a metal warehouse.' While the bar code system requires direct visual contact, it has the advantage of being usable in any of some 80 countries that Halliburton may be shipping from. ‘How do you get something that works in 80 countries at any time?' he says. ‘In my opinion, there isn't any technology in the short term that will service all of these countries and all of the products that we move. The simple fact is, a bar code is known, it gives us complete visibility, and a scanner can be put in Mozambique or Malaysia or anywhere. And people can use it. 

‘Our business is not to do this in the most esoteric way, but to get the greatest value from it.'

Halliburton and other international suppliers have less control over myriad regulations and customs rules that vary widely among countries around the world, some of which can tie up orders for weeks. The World Bank publishes individual country statistics on the average time goods take to clear customs, as well as a Logistics Performance Index rating countries on a scale of one to five.

‘We try to beat those numbers significantly,' Vogt says, by handling much of the process internally and working closely with a limited number of professional service companies. ‘We have our own systems, we carry the operations, we're responsible for the processes that we use in SAP' – the enterprise management software system – ‘and we carry our own financial team, so that we are paying the correct amounts and have oversight and control over it.'

Global logistics is aided by the International Chamber of Commerce's set of International Commercial Terms, known as Incoterms, which set out clear roles and responsibilities for the various parties involved in the supply chain: who does booking, paperwork and customs; who carries risk; who obtains insurance.

Still, the cycle time varies considerably by country. In the US, for example, customs entry and clearance is normally completed in two days at most, Vogt says. The same process can take up to two months in a West African nation.

‘Some of these customs brokerage processes are challenging,' he says. ‘They've made them complex. But if we can measure them – when we give goods to them, when they do the submission, when we get the release to move the goods out – we can look at how to make our processes and their processes more efficient, and therefore deliver goods more frequently and more consistently to our customers. Added to that we set ourselves to maintain the highest standards of adherence to regulations, both USA and the countries in which we work,'

Halliburton's logistics team has expanded along with its scope; about 300 people now work under Vogt, most of them transferred from within the company to his department. ‘We have exchanged costs from some forwarders and brought it inside the company where we need to effect control,' he says. ‘We have not increased the costs, but what this has done is allow us to have greater control of our total processes.

‘Really, all we've done with the strategic network is exchange the costs we would have seen with the forwarders, say eight forwarders in a country, all warehousing goods that somebody needs to keep track of. It is much simpler and easier if it is in our own computer system, in one facility, that is under our control. It's all about the ability to manage and control and achieve speed and reliability in an economic manner.'

There have been two major, if not particularly high-tech developments in logistics in recent times, Vogt says: the use of containers for ocean carriage and pallets for air cargo. Continued cost savings and efficiency will be achieved through less obvious means. ‘We will see some developments in consolidation and methodologies [but] we will not reinvent the wheel' any time soon, he says. ‘Systems, track-and-trace, the capturing of data, the ability to manage and report on the performance of lanes and service providers – that remains the area of focus and value for any logistics company.'

With Halliburton's four cross-dock strategic network, he adds: ‘We are now in a position to move regularly, repeatedly and consistently any goods, from any place in the world to any part of the world. And strategically, that is a great advantage to us.' OE