- the development of a digital procurement model Break-out session - - PowerPoint PPT Presentation

Break-out session “From municipal to private enterprise

• the development of a digital procurement model”

Break-out session The session started with presentations followed with a panel discussion including questions from the audience. Presentations (1) Dan Andersson (Chalmers University) started off with a discussion of environmental considerations, where gains are mostly public while costs are private, (2) Jon Williamsson (University of Gothenburg) followed by a presentation of innovations and constraints when new business models are introduced in the transport sector, (3) Olof Moen (University of Gothenburg) that leads up to development of a new digital procurement model based on transparency and open book accounting. Panelist Olof Moen, University of Gothenburg (moderator) Rickard Gegö, Managing Director, The Swedish Association of Road Transport Companies Petri Ekorre, CEO, Q3 – Forum for Sustainable Transportation Berndt Anderson, Manager Transport and Inbound Procurement, TAMRO AB Stefan Berg, National Coordinator Urban Freight, The Swedish Transport Administration

Presentation 1

Transportinköpspanelen

”Inköp av transporttjänster – idag och i framtiden”

xxx, xx

Dan Andersson

Purchasing transport services

Dan Andersson

VREF conference on Urban Freight 2016: Plan for the future – sharing urban space Gothenburg 18 October 2016

Handling the climat impact from transport:

Are we on track?

Källa: Trafikverket

The road towards sustainable transport starts with a purchase

The relative importance of different factors when selecting a transport solution

What did it look like 10 years ago?

51% 18% 23% 8%

2003

54% 16% 22% 8% Pris Transporttid Tidsprecision Miljöeffektivitet

2012 (2014) Price Transport time On time delivery Environmental efficiency

Environmental demands on transport providers

Green Leaf of a Bio Plant in Nature by epSos .de on Flickr

Most transport buyers have at least one environmental requirement

The most frequent requirement is environmental certification (63%) Few transport buyers have requirements

• n intermodal transport or alternative fuels

Duration of contracts and relationships

largest contract for each buyer representing ca 50% of the volume:

• contract length: 2 years
• relationship with the provider: 10 years
• 14% of respondents relationship > 20 years

Concluding comment

Need for environmental sustainability is widely acknowledged but environmental criteria have had limited impact on transport purchasing decisions

Presentation 2

www.handels.gu.se

Phd Jon Williamsson

Procurement and business model innovation for sustainable urban freight services

2016-10-30

www.handels.gu.se

Background

• Increasing awareness of the negative externalities caused by urban freight distribution

(Browne et al. 2012; Behrends et al. 2008)

• A resurgence of interest in procurement as a tool for supporting innovation (Balm et al.

2016; Rolfstam, 2009; Edler & Georghiou, 2007).

• Increasing interest in business model innovation as a means to reach sustainability related

goals (Bocken et al. 2014; Boons & Lüdeke-Freund, 2013).

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Urban freight

Goods vehicles, goods vehicle movements, service vehicle and vehicle trips for commercial purposes in an urban

• setting. (cf. Allen et al.

2000)

Business

model

”..how a business creates and delivers value..” (Teece, 2010)

Procurement

Purchasing, sourcing and procurement (cf. Miemczyk et al. 2012)

Four distinct and extensive fields of research

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Innovation

“Innovation is the multi-stage process whereby organizations transform ideas into new/improved products, service or processes, in order to advance, compete and differentiate themselves successfully in their marketplace” (Baregheh et al. 2009)

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Key challenges

• Legal

The actors have to move within the the confines of existing trade related frameworks such as WTO, EU etc.(cf. Edler & Georghiou, 2007)

• Political/Strategic

It can be difficult to set and prioritize goals as well as defining who those goals are for and when those goals should be met. Goals need to be routinely assessed and made tangible enough so that they can be fulfilled. (cf. Georghiou et al. 2014; Björklund & Gustafsson, 2014; Edquist & Zabala-Iturriagagoitia, 2012)

• Business related

Have to be find an attractive business case, i.e. business model for the involved stakeholders of each

• rganization (investors, suppliers, employees, users, citizens etc.). (Uyarra et al. 2014; )

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The standard case of electric vehicles in urban freight

• Procurer requests EV introduction from an incumbent transport service provider

with an identical business model as before

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Specific vehicle type Emission reduction by specifying vehicle Increased cost Increased price Using and reporting vehicle usage Shrinking customer base

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Introduction of electric vehicles in urban freight when considering potential business model modifications. Both procurer and service provider are open to changing business model.

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Specific vehicle type Desired vehicle technology Changed delivery routines (two shift,

night-time deliveries etc.)

Cost ”neutral” solution Vehicle usage and control New delivery routines Increased vehicle utilization = decreased fleet size Maintained or increased customer base City council i.e. urban stakeholders (acceptance of change – access and increased presence) Upstream actors – harmonization of production and delivery Need to better understand customer needs in

• rder to explore

potential options. Subsidies or regulatory support (access restrictions) or.. Tolerable price premium Harmonizing delivery routines with affected partners.

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Central issues between procurer and service provider

• Dominant logic (Prahalad & Bettis,1986)

– Mental and resource related cost of finding and switching business model, i.e. high degree of path dependency (Tikkanen et

• al. 2005).
• Information asymmetry (Akerlof, 1995;

Kim & Netessine, 2013) – Low potential to assess what the other party is able and willing to change.

• High perceived risk influenced by product

& service specificity, length and timing of contract, market scale, regulation etc. (Uyarra et al. 2014)

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Procurer Service Provider

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Sources

Akerlof, G. (1995). The market for “lemons”: Quality uncertainty and the market mechanism. In Essential Readings in Economics (pp. 175-188). Macmillan Education UK. Allen, J., S. Anderson, M. Browne, and P. Jones (2000). A framework for considering policies to encourage sustainable urban freight traffic and goods / service flows. Transport Studies Group, University of Westminster, London Baregheh, A., Rowley, J., & Sambrook, S. (2009). Towards a multidisciplinary definition of innovation. Management decision, 47(8), 1323-1339. Behrends, S., Lindholm, M., & Woxenius, J. (2008). The impact of urban freight transport: A definition of sustainability from an actor's perspective. Transportation planning and technology, 31(6), 693-713. Björklund, M., & Gustafsson, S. (2015). Toward sustainability with the coordinated freight distribution of municipal goods. Journal of Cleaner Production, 98, 194-204. Bocken, N. M. P., Short, S. W., Rana, P., & Evans, S. (2014). A literature and practice review to develop sustainable business model archetypes. Journal of cleaner production, 65, 42-56. Boons, F., & Lüdeke-Freund, F. (2013). Business models for sustainable innovation: state-of-the-art and steps towards a research agenda. Journal of Cleaner Production, 45, 9-19. Browne, M., Allen, J., Nemoto, T., Patier, D., & Visser, J. (2012). Reducing social and environmental impacts of urban freight transport: A review of some major cities. Procedia-Social and Behavioral Sciences, 39, 19-33.

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Sources

Edler, J., & Georghiou, L. (2007). Public procurement and innovation—Resurrecting the demand side. Research policy, 36(7), 949-963. Edquist, C., & Zabala-Iturriagagoitia, J. M. (2012). Public Procurement for Innovation as mission-

• riented innovation policy. Research policy, 41(10), 1757-1769.

Georghiou, L., Edler, J., Uyarra, E., & Yeow, J. (2014). Policy instruments for public procurement of innovation: Choice, design and assessment.Technological Forecasting and Social Change, 86, 1-12. Kim, S. H., & Netessine, S. (2013). Collaborative cost reduction and component procurement under information asymmetry. Management Science, 59(1), 189-206. Miemczyk, J., Johnsen, T., Macquet, E.M. (2012),"Sustainable purchasing and supply management: a structured literature review of definitions and measures at the dyad, chain and network levels", Supply Chain Management: An International Journal, 17 (5). 478 – 496 Osterwalder, A., & Pigneur, Y. (2010). Business model generation: a handbook for visionaries, game changers, and challengers. John Wiley & Sons. Prahalad, C. K., & Bettis, R. A. (1986). The dominant logic: A new linkage between diversity and

• performance. Strategic management journal, 7(6), 485-501.

Rolfstam, M. (2009). Public procurement as an innovation policy tool: the role of institutions. Science and Public Policy, 36(5), 349-360. Tikkanen, H., Lamberg, J. A., Parvinen, P., & Kallunki, J. P. (2005). Managerial cognition, action and the business model of the firm. Management decision,43(6), 789-809. Uyarra, E., Edler, J., Garcia-Estevez, J., Georghiou, L., & Yeow, J. (2014). Barriers to innovation through public procurement: A supplier perspective.Technovation, 34(10), 631-645.

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Presentation 3

From municipal to private enterprise

• the development of a digital procurement model

The VREF Conference on Urban Freight 2016 Plan for the future - sharing urban space

Olof Moen University of Gothenburg

• The trend of urbanization and densification reduces space for all modes of transport
• With increased population increases the need for freight transport
• Increased focus on environmental issuses
• Contradiction between agreed

measures and policy instruments and Swedish climate targets by year 2030 and 2050

• Choice of local government as

as traffic regulating authority;

• Continue market orientation
• Increase regulation

Urban freight - Situational analysis

(Swedish Transport Administration Report 2014:137)

• Municipality as traffic regulating authority (citylogistics)
• Municipality as buyer of transport services (shipper)
• Public sector in Sweden purchase 6 percent of total food sales

Municipal co-distribution of goods

• Purchase with free delivery

Purchases with co-distribution of goods

• Driving force 1: To reduce negative environmental impact and meet the municipality's

environmental goals

• Driving force 2: Increase the proportion of locally produced food in the context
• f the Swedish Public Procurement Act
• Driving force 3: It is ultimately the municipality’s procurement process and a

requirement to separate between;

• Procurement of transport (terminal, vehicles, logistics)
• Procurement of goods (food, office supplies, equipment)

New challenges that changes the procurement process

Specification based on route optimization with:

• sequenced routes
• kilometers per route
• hours per route

Tender based on;

• price per kilometer,
• price per hour
• price per kg (goods)

Reverse billing based on

• tendered price
• multiplied total km
• multiplied total hours

New procurement process for transport

• The procurement process constitutes

the "interface“ between stakeholders

• Digital information at all stages of the

supply chain

• Complete transparency at all stages of

the procurement process

• Negotiations and contract based on the

principle of "Open Book Accounting“

• Monitoring of driving routes with GPS

registration as the basis for reverse billing

General requirements for a digital business model

“Femstegsmodellen - Affärsmodell med ruttoptimering för ökad transporteffektivitet vid urbana godstransporter” Författare: Olof Moen Rapporten beställas genom Trafikverkets webbutik https://trafikverket.ineko.se/

Trafikverket Rapport 2016:100 Article in English

Moen, O. (2016) The five-step model – procurement to increase transport efficiency for an urban distribution

• f goods. Transportation Research

Procedia 12:861 – 873.

• Shift of power from transport company to buyers of transport services
• Digitization brings automated business processes replacing manual routines
• A new business model changes the cost structure and earnings capacity of actors

The power of the supply chain

(Hassall & Welch, 2014)

Digitization and business models in different transport networks

Parcels 1-100 kg General cargo 100-1000 kg LTL 1000-5000 kg

B2C

(express- delivery )

Uberfication

(freight exchange)

Consolidation

(static and dynamic routes) Walking Bicycle Public transport EV Car Light truck (3.5 tons Urb-it UberRUSH ”Meal kit” (Linas matkasse) Delego Cargomatic Five-step model FTL Över 5000 kg

Platooning

(long-haul, high-capacity) Automotive industry Heavy truck Foodstuff

• n-line

(Mathem.se)

Five-step model

Traditional transport procurement process Define specificatons Select supplier Contract agreement

Savings by 25 percent in VKT, fuel, vehicles, drivers

STEP 1 SITUATION ANALYSIS STEP 2 SIMULATION NEW ROUTES STEP 3 TENDER STEP 4 OPEN BOOK PRICING STEP 5 REVERSE BILLING

Vehicle monitoring Geododing Business information Routes seq./km/hh Routes seq./km/hh Simulation new routes Simulation baseline Define specifications Procurement document Select supplier Joint review

• f routes

Open book negotiation Contract agreement Obtaining invoice

DATA CAPTURE

Data, terms, conditions Data, terms, conditions Vehicle monitoring Payment per km/hh/kg

Case study

Situation analysis Optimization 1 Optimization 2 Description Driving routes according existing transport planning Existing transport planning,

• ptimized route sequence

Driving routes according to route optimization (%) compared with

• (Situation analysis)

(Situation analysis)

• No. of deliveries

324 324 324

• No. of driving routes

18 18 (0%) 13 (-28%)

• No. of tours

28 28 (0%) 17 (-39%) Total VKT 2 135 km 1 836 km (-14%) 1 251 km (-41%) Total driving time 61 hh 53 min 57 hh 13 min (-8%) 47 hh 5 min (-24%) Total work hours 126 hh 23 min 121 hh 42 min (-4%) 105 hh 4 min (-17%) Fill rate per vehicle 53 % 53 % 87 % (+34%) Deliveries per route 18,00 18,00 24,92 (+38%) VKT per route 118,61 km 102,00 km 96,23 km Driving time per route 3 hh 26 min 3 hh 11 min 3 hh 37 min Work hours per route 7 hh 1 min 6 hh 46 min 8 hh 5 min

Results from case study

Traditional business model Five-step model Cost base 18 vehicles Reduction 28 % Allocation model 1) Proportion transport buyer X % 2) Proportion intermediate level* X % 3) Proportion transport operator X %

* Freight forwarder, 3PL

Joint review

• f routes

Open Book negotiation Contract agreement Cost base 13 vehicles Example case study

Five-step model STEP 4

Open Book negotiations will bring changes to cost structure and earnings capacity Generalization;

• Transport buyer reduce cost
• Intermediate level reduce turnover/margin
• Transport operator increase revenue*

* operators that remain, surplus operators are eliminated

Traditional transport procurement process vs. Five-step model

Evaluate tender Open book negotiation Negotiation price/service RFQ

1 2 3

Price Time/year

Five-step model Traditional transport procurement process

Update tender Adjustment price Negotiation price/service Changes in routes Simulation new routes Changes in routes Monitoring routes km/hh Simulation Situation analysis Payment reverse billing Payment fixed price per stopp/dy Tender 1 2 3

Summary and outlook

• Environmental concerns and the threat of global warming drives development.
• Digitalization only started in urban freight transport compared to other sectors.
• Its no win-win situation when new business models increases the fill rate.
• Authorities will increase regulation and control of urban freight transport.
• More transparency and Open Book Accounting requires greater procurement skills.
• The transport sector is challenged by new players (ICT) and automated processes.
• Automotive thinks technology when new business models thinks systems.
• Digitization of today manages single pick-ups (freight exchanges) and static planning.
• Digitization of tomorrow (Big Data) manages dynamic planning and consolidation.