Managing a port is a complex task. Its diverse activities include vessel traffic monitoring, dock and locks maintenance, dredging and tug services, to name but a few.
In the past, the City of Antwerp managed all of these activities for the port more or less independently from one another. “The Antwerp Port Authority was established in 1999 to optimise these activities,” says Bob Willemstein, manager of business controlling at the Antwerp Port Authority.
However, the new organisation did not have sufficient information regarding the business processes already in place, their interactions or the related costs. This made it difficult to identify weaknesses and improve processes.
Generating a realistic view of all cost flows
The Antwerp Port Authority felt a distinct need for an activity-based management (ABM) system which would provide this insight, and made its technology choice in 1999.
ABM identifies and registers each activity a business performs. Valuable insight is created when the resulting data from each activity is retrieved and analysed and compared with the other activities' data.
On top of that, the Antwerp Port Authority was confronted with another challenge, says Tim Bellemans, controller at the management control department.
SAS provides a strong calculation engine that is able to generate a realistic view of the entire cost flow of our organisation and its individual departments
Tim Bellemans, Antwerp Port Authority
“Since the issue, in 1999, of the 'Havendecreet' [decree regulating the activities in the port], it has been stipulated that the Antwerp Port Authority is responsible for the operational side of activities, whereas the Flemish Government is in charge of funding.
“To provide the government with an accurate view of the cost of all operations, an activity-based costing tool was required. The alternative would be to use Excel spreadsheets and a distributive code which would only be an approximation of the actual costs. This is how most other Belgian ports work,” says Bellemans.
Wanted: flexible yet all-encompassing software
The Antwerp Port Authority started off with a system of its own in 1998, combining Microsoft Excel and Access. But this soon turned out not to be flexible enough to cover the complexity of the port's needs. So the team set off on a quest for a better answer.
This led the authority, in 2004, to software from Oros, a company that was subsequently acquired by SAS. The Oros engine is still more or less the same as when the port authority purchased the software, but the user interface has evolved over time, with the addition of more functions and insights.
“SAS’s ABM is a robust and flexible tool that was easy to integrate into our self-developed data warehouse. It also provides the analytical structure necessary to integrate data from our different databases,” says Bellemans.
The ABM software is continuously updated with data from dozens of operational systems, including job orders, information on shipping traffic and data from SAP HRM.
“More importantly,” continues Bellemans, “SAS provides a strong calculation engine that is able to generate a realistic view of the entire cost flow of our organisation and its individual departments. That includes direct and indirect costs, as well as all external invoices and internal cost allocations including recursive loops. The latter means that it takes into account two-way costing traffic between various departments, whereas most other tools assign costs in just one way, such as from department A to department B.”
Enhancing the performance of activities
At first, the software was merely used to report on all activities for top management – which activities are profitable, which are loss-making, and so on. But gradually this information was used by the various division managers to improve or turn around their activities.
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“As the system can calculate the profit or loss of each department, this has created an entirely new business culture,” notes Willemstein. “We now have a solid basis for making sound strategic and operational decisions. This is not compulsory, but many division managers have started using the ABM reports as a key performance indicator and acting on them.”
The organisation also uses the system to perform economic value-added analyses, which enables the determination of whether a service delivers a return that exceeds capital cost, including all investment costs.
“We are now able to identify services that under-perform from an economic perspective,” says Willemstein.
Improving the profitability of internal activities
The Antwerp Port Authority also wanted its managers to get a more detailed picture of the profitability of their internal activities. So in 2012, it incorporated transfer pricing in our ABM system.
“Basically, we use ABM to calculate a transfer price for each activity that a department performs for another department. This enables us to calculate the profit or loss for that specific activity by the end of each reporting period and, if necessary, optimise the transfer price or activity,” says Bellemans.
“In a next stage, we will also benchmark certain transfer prices against market standards to determine our competitiveness. This will enable us to identify points for improvement and organise activities in a more efficient way,” he adds.
Calculating profitability by customer
Along with calculating the profit and loss for each of its departments and activities, the Antwerp Port Authority has been looking into the possibility of using the ABM system for calculating the profit or loss by customer.
“Although this is technically complex because of the number of subcontractors involved, we have taken the first steps to implement this at the level of the port terminals,” says Bellemans.
Many division managers have started using the ABM reports as a key performance indicator and acting on them
Bob Willemstein, Antwerp Port Authority
“We already had a clear idea of our revenues from each terminal, but not of our real cost per terminal. For example, we need to incorporate costs for the maintenance of the quay sides, the dredging of the docks, the harbour master’s office, and so on. Currently, the concession rates we charge cover our costs as a whole. The insight that SAS ABM can deliver is the measure in which this is also the case on a terminal level,” he explains.
“Thanks to SAS, we can easily integrate these and other new features. This makes us confident that we will be able to continuously improve our entire business.”
Future plans: the addiction of insight
It is an age-old story: once you get insight in certain areas, you only get inspired to find more insight. You could call it addictive.
At Antwerp Port Authority, that same desire to know has struck the business control department as well as the entire management team. “Our next projects will be more outward-focused,” says Willemstein. “We plan, for instance, to compare our own salary administration costs with what a social accounting secretariat would charge, not to outsource these activities but to gauge how well we are performing, cost-wise.”
That same technique can also be used for the entire Port of Antwerp, he concludes: “We will face some fierce competition from other harbours in the coming years. To assess our chances compared with the competition, it would be good to know how well we are performing cost-wise compared to our competitors.
“The next step is to evaluate our current price when compared to our competitors and to our actual costs. This entire picture will enable us to set the right price and to ensure a maximum competitiveness.”