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Building a global footprint

Building a global footprint

Mainfreight CIO Kevin Drinkwater espouses management by ‘walking around’, proving that working with teams across the world is no deterrent to applying this philosophy.

Management by walking around (MBWA) is a big part of Mainfreight, and critical in the success of the ICT team, declares Kevin Drinkwater, chief information officer of the supply chain logistics provider. “One of our great philosophies is to visit our branches to gain an understanding of the business at the branch and finding out the issues that our team members have. So we watch what they are doing and ask them whether the systems do what they need. It has been amazing the improvements we have managed to create out of team members’ problems.

“The key is getting out there with the users,” he says. “It is very important that we all involve ourselves with the business, talk to the people out there and find out what is going on.”

For Drinkwater working with a global team is no deterrent to practicing this philosophy, even though the company has 165 branches throughout New Zealand, Australia, Asia and the US. He is a firm believer in the merits of regular face-to-face interaction with both managers and general users. “There are so many good ideas that are untapped by the people who do the job every day, they know [best],” he says.

“We try to be creative in what we do and the best way of being creative is to gauge or ask the opinions of the people who are actually doing the job.

“It is also one of the reasons that we try to employ a majority of our IT team from within the business.”

Two years ago, Drinkwater was in the Los Angeles office of CaroTrans, a Mainfreight subsidiary, and wanted to schedule a meeting with one of the key managers. But the manager said she was too busy to speak with him. On enquiring what was taking up so much of her time, she showed him the amount of effort that was required to create hazardous goods declarations for the ports and steamship lines. “The degree of effort required was something I was unaware of and our system did not cater for what they needed. So they were doing it offline using Excel and manually capturing the information for each bill of lading. So out of that short conversation we built a pretty fabulous hazardous goods declaration system, which has revolutionised our ability to deal with hazardous freight.

“The entire process has been changed and the information flows automatically through the entire process from the time we accept the booking, through its movement across the US to export ports.”

This, says Drinkwater, is just one example of how MBWA can bring enormous benefit to the business.

The CIO as CFO and vice versa

Drinkwater’s corporate experience differs from most of his executive peers, who came from either the technology or the business side of the organisation. His business and information technology skills were honed simultaneously, after joining the freight and logistics company in 1986. He qualified with a Bachelor of Commerce from Auckland University. After graduating he worked for two-and-a-half years locally, starting with Whangarei City Council that had provided him with a scholarship for his studies.

He then worked as an internal auditor for Winstone before leaving for his OE in the United Kingdom, where he gained further experience in systems implementation, mainly on the accounting side.

Three years later, he returned to New Zealand and saw a newspaper advertisement placed by Mainfreight for a “computer/accountant”. Drinkwater met with the company founder Bruce Plested, who is now the executive chairman, for what turned out to be a five-hour interview. He employed Drinkwater to firstly select and implement their first computerised accounting system and then take charge of the finances of the business.

Drinkwater’s long tenure at Mainfreight is unusual in today’s shifting business environment, particularly within the ICT executive arena. It has been an “exciting ride” he says, having been assigned to various companies owned by the group, taking on a range of executive positions from general manager Mainfreight Logistics, CFO, CIO and sales manager, including a two-year posting in the US.

A forum for ideas

Drinkwater likes to exchange ideas with others — regularly inviting CIO colleagues from other industries to Mainfreight’s premises to explain what they do. Developers from the company’s ICT providers have attended the week-long induction course required for all Mainfreight team members so they can gain a better understanding of our business. They also invite them to go out in a truck or work in the warehouse from time to time. “This makes a big difference and means they are not programming in isolation to our business needs or culture,” says Drinkwater. The presentations to other CIOs, on the other hand, are “all about having a cross-fertilisation of ideas”.

In the same manner, Drinkwater visits other companies in New Zealand and offshore, as well as those outside the logistics and supply chain sectors.

Important lessons

“One of my philosophies is not to limit yourself to your own industry, as you can learn some very important lessons from other industries,” he says.

Mainfreight, for instance, utilises a lot of key statistical information, and when he wanted to improve this for Mainfreight logistics, he looked to a very different industry that also heavily deals with statistics — the health sector. “We learned [some] very good methodologies from the health industry for keeping key performance indicators.”

For warehousing he uses the finance sector as a model. The banks are “the best stock keepers in the world”, he explains. “They keep their products [currencies] in warehouses and follow a very rigid procedure for their storage and release.”

No bank, he says, will give you $500 now and tell you to submit the withdrawal slip later. “And that is the example of how we manage customers’ products. We are responsible for any variances, so when they utilise our warehouses, we agree on a process with the customer and they must keep to that process. They have got to follow all the processes. Move away from that and costly mistakes will inevitably occur.”

In 1989, Mainfreight decided it would create a freight tracking system [software] to sit in front of the accounting systems they developed in 1986, and the result, says, Drinkwater, was ahead of its time.

“We were using barcodes and we built that for the princely sum of $50,000 and we just blew our customers away at that time. Overnight we went from taking up to seven days to produce a proof of delivery, to being able to give information on all the key aspects of freight movements in 30 seconds.”

In 1990, Mainfreight also introduced an interactive voice system to complement the system Tracey — a derivative of TRACE Your Freight — that took them even further ahead of competitors. Customers could dial in and enter their consignment number and were told where their freight was.

The system was the start of Mainfreight’s “customer focused systems” and has helped the company pick up a lot of business.

Critically, the customers got the same information as Mainfreight. “We don’t filter the information. The customer gets the same information we get, whether it is good or bad.”

It was, he says, a major “philosophical decision” for Mainfreight to take. This “warts and all approach” approach, he says, gives Mainfreight the opportunity for customers to see things as they really are and it gives us an opportunity to fix any issues earlier. “Tell the customers what the real situation is and if there is a problem, don’t lie, don’t cover up, just fix it.”

Interestingly, when the system was being built, Drinkwater was both CFO and IT manager, with an IT department of two. “I was into the nuts and bolts,” he recalls. “I would do the back-ups, the saves and the systems administration.”

In 1996 he moved away from finance and IT to become general manager of a new division called Mainfreight Logistics, which was a separate profit centre. He headed this until 1999, when he was asked to move to the US to work at CaroTrans, which Mainfreight had just purchased. He was based in New Jersey for two years, where he was charged with the task of an emergency rebuild of their operational system from scratch for Y2K. He was also the company’s group financial controller. This system has gone on to be acknowledged as one of the best in the NVOCC (non-vessel operating common carrier) segment that CaroTrans operates in.

He returned to New Zealand to take on the role of CIO/global IT manager. The position, he says, has grown significantly since then because of Mainfreight’s acquisitions through the past three years.

These acquisitions mean Mainfreight is now a $1 billion company, with more than 3200 team members. New Zealand accounts for 35 per cent of its revenues, all the rest are from the US (36 per cent), Australia (25 per cent) and Asia (4 per cent).

Information technology has an annual spend of over $17 million and has teams in Australia (16), New Zealand (20) and the US (20). All major systems including email for Australia and New Zealand are hosted in this country. New Zealand hosts some of the systems for the US and Asia.

This means Drinkwater spends at least 10 weeks a year traveling and undertaking MBWA. He says the critical enabler of his ability to travel is the strong teams and managers he has in each country.

Going for growth

As CIO, Drinkwater is involved in due diligence of potential acquisitions, while keeping an eye on day to day running of the business. As Mainfreight’s appetite for expansion grows, this is taking up more of his time. “One of the key aspects in our discovery process is to determine how good the business systems are. How do we feel about their accounting and operational systems, infrastructure and disaster recovery [systems],” he explains.

“However, we have some very good systems that we can introduce if their systems are not up to standard and we have proved we can introduce them into acquisitions very quickly if we need to.

“We can scale our systems quickly. Where we think the systems are good, we leave them in place until we have had time to fully assess them.

“The great thing we find in looking at other companies around the world is that our systems are very robust. It is heartening. We get a lot more bang for our buck in New Zealand.”

While other large companies in the same industry are reported to spend 3 to 4 per cent for ICT, Mainfreight spends around 1.8 per cent, of which 55 per cent goes to development or “new stuff”. The rest goes to “keeping the lights on”.

Drinkwater says one of the challenges for Mainfreight is dealing with the different rules and regulations in different countries for international and domestic freight. “Our strategic goal is to have each business segment, no matter where in the world, running the same system.” This means that all its retail international freight businesses will use a system best suited to their needs and our domestic freight businesses will use another system best suited to domestic freight. “This, however, becomes a challenge as we expand around the world,” says Drinkwater.

Velocity and visibility

Mainfreight works with two outsourcing partners, Sandfield and Designer Tech in New Zealand where 80 per cent of development is undertaken. Sandfield, a key supplier since 1989, creates all Mainfreight’s back-end operational systems and DesignerTech, a key supplier since 1990, is in charge of the customer facing systems and intranets.

“We use a best of breed approach. We haven’t tried to build one enormous system that does everything for us.”

He says other companies have adopted this approach and found it very complicated and expensive.

“If we had started out knowing that the business was going to develop in the way it has, we may have tried to build one system that does it all, but we now believe this would have been the wrong approach. At first, our focus was on developing the best domestic freight system as that was our core business.

“We then built our own international system utilising the same platform. After a series of acquisitions, we decided on working on a package system for the international retail businesses that was common to the companies we acquired. This was mainly driven by the fact that each country had its own set of customs requirements and it is very expensive to build your own customs package.

“Our warehouse management system was originally a package. However, we ended up driving the package enhancements so much we decided it was better to take over the development ourselves.”

During the 1990s, Drinkwater says the company formalised their best of breed approach towards developing their systems. When he returned from the US in 2001, “I had to decide whether we should continue with this best of breed approach or develop one big system,” he says.

“The world and our business had changed considerably by then and we now had major operations in Australia and the US, and they had begun selling supply chain solutions across multiple countries. We had no problem physically providing these services. However, the key to making them work for our customers and ourselves would be visibility. Separate systems, even though they are best of breed, hamper visibility.

“However, a large ‘gynormous’ system hampers your ability to be fast and flexible, which has always been an overriding requirement in the business and with our systems,” Drinkwater explains. At that time, the company estimated the cost to build one system would be around $25 million and take up to three years to complete. “It had a very large risk factor,” he says. “So we began searching for a way to provide the visibility we needed while keeping the best of breed approach and the flexibility and speed that came with it.”

Microsoft was then releasing the beta for VisualStudio.Net and DesignerTech demonstrated the product and its capabilities. “We knew straightaway that utilising web services to drill down into our unique databases, and connecting the information together into a single view for the customer, would give the visibility we needed while still maintaining the flexibility of best of breed.

“This project became the product Mainchain, which today allows hundreds of customers a day to make thousands of queries on all aspects of our supply chain services — whether it is with one division or country, or across multiple divisions and countries.”

Mainchain was recognised in 2003 by Microsoft, becoming a case study for the company’s as one of the 50-best .Net applications in the world.

Mainchain has been responsible for bringing in a lot of business around the world. When sales people visit potential customers in the US, Europe and Asia, they show them the Mainchain tool and its visibility instantly attracts their attention. “They can track their international freight movements, look at their inventory levels at any warehouse worldwide. They can even create an order on the fly from an internet café if they want,” he explains. “That wins them over all the time.”

Drinkwater says the best of breed approach combined with Mainchain has proved to be very successful and allowed them to integrate their acquisitions faster. The best example, he says, was with the acquisition of Owens, which was then two-thirds the size of Mainfreight. “We had them running on our freight systems within six weeks of taking control, going live two weeks before Christmas — our busiest time of the year!”

He says the key to Mainchain is that it does away with the “silo effect” for customers who could not previously see across the supply chain. The information for a shipment in China, for instance, may go to four different databases; but the customer can view all this information through Mainchain. “One of my phrases is velocity and visibility — we are driven to make the information visible as fast as we can and as open as we can.”

Formula for success

Drinkwater subscribes to the Parreto principle, also known as the 80/20 rule.

“Although we keep users ultimate desires in mind we don’t work to produce everybody’s dream system to start with. What we do is we build for 20 per cent of the effort and 80 percent [of the result],” he says.

This allows the enterprise to get the benefit quickly, with a reasonable amount of time spent and value input. “Basically it is all about getting the biggest bang for the buck — whether the buck is time to get to release, and/or money spent,” he explains.

“The last 20 per cent of functionality is always the hardest to achieve and if you try to build this in at the time, it will delay the release and add to risk considerably.

“Concentrating on the primary 80 per cent of the benefits allows you to quickly produce a working product that can be released to users to get the majority of benefits immediately and then reconsider where they want to go from there.

“Often, once they have the base system, users change their minds on how they want the final 20 per cent to work, or move their priorities to another module or product as they are quite happy with what you have delivered.

“So using the Parreto method means you can satisfy more people quickly. It also means that if you have gone down the wrong track to any extent, you find this out much quicker and less expensively than if you had tried to build everything upfront.”

If ever there was a critical lesson from his years in the industry, it is this: “Anything is possible”.

“You don’t have to spend millions of dollars. You can make anything possible by being creative and innovative,” says Drinkwater.

“I think the ability to do that is still alive and well in New Zealand. It is a culture and a philosophy to be able to do that. Many of our global opposition use a sledge hammer to crack a nut. We try to work the problem through. We get the people together who work in and understand the operation, and come up with the best solution.”

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