CHEMICAL CATALYSTS

Chemical companies – amidst widespread belt tightening – are seeking out new approaches to solve their logistical problems. One of the world’s largest, Dow, which has manufacturing and distribution channels in literally every major market around the globe, has been intent on solving the logistics puzzle on a truly global scale – while signifi cantly reducing costs.

In particular, Dow had been unhappy for a long time with the standard model of logistics outsourcing. The US-based company was no longer interested in piecemeal capabilities strung together to give the appearance of a supply chain process. It had to be the real thing. While in the past Dow’s needs had only been accomplished on an inter-regional scale, the company now – in 2010 – wanted seamless global information management and transportation logistics to aggressively manage business costs.

[ Dow Chemical says that it realized hard cost savings for its Marine Packed Cargo business after engaging the services of logistics provider BDP. ].

Specifically, Dow wanted a lead logistics provider (LLP) that could deliver a supply chain strategy that combined technology, operations management and purchase order execution on a global basis for its Marine Packed Cargo (MPC) business.

Rick Gerardo, VP of Dow’s Supply Chain organization, thought that Dow needed “a logistics partner with a proven track record, the right industry expertise, a commitment to provide exceptional value to our customers, and extensive global reach and capabilities”.

With annual revenues of approximately US$1.6 billion, BDP International is one of the largest privately-held freight logistics/ transportation management fi rms. BDP was attractive to Dow as an LLP because of its core transportation, forwarding and customs brokerage services; access to global resources; a reputation for customer service; and an international trade information management system.

BDP’s implementation of “Step One” for Dow required transitioning the company’s North American operations, beginning with exports and the corresponding importing countries for those transactions. Within two months, implementation activities had been extended to Asia. Dow operations in Latin America were scheduled for integration next.

John Bolte, BDP’s chief operating offi cer, says that “BDP’s focus was on building the capacity to meet the needs of one of the world’s largest companies for a standardized international logistics process. It reflects our long-held belief that there is no ‘one-size-fi ts-all’ logistics solution. From the start, the goal…has been to drive value back to Dow through their global supply chain, through a strategic approach, metrics and metrics analysis initiatives, as well as transactional order execution functions.”

A centralized BDP LLP team oversees the Dow business activity and ensures that the processes for which BDP is responsible operate effi ciently and effectively within Dow’s overall supply chain across five primary service categories: logistics, communication, documentation, SAP entry and review, and customer service.

Day-to-day interface with Dow is handled by dedicated BDP Logistics Service Coordinators who are the core point of contact, responsible for orders between Dow and BDP systems for shipment prioritization, performance of key SAP functions, and assignment of carriers, vessels and rates.

[We have a substantial base of clients operating in the region, said BDP chief Richard Bolte, explaining the rationale for setting up the BDP Kanoo Chemical Logistics joint venture to serve the Middle East. ]

A cadre of global logistics management tools supports both Dow and BDP staff . In addition to BDP’s Customer Order Processing System, a suite of web-enabled customer service applications provides Dow global analysis and control of its supply chain process.

SmartTracking, a global tracking and tracing tool, monitors the transportation and documentation status and delivery of shipments, reports exceptions, and links all parties involved with a particular shipment. And Dow and BDP team members can access critical shipment data via the BDP Data Warehouse, which provides customized database tables for Dow covering key variables, including the specific flow of purchase orders.

Meanwhile, SmartDocs expedites air and ocean export transactions by generating and sending trade documents as paperless transactions via the internet. As a result, on-time deliveries are increased, waiting for documents is reduced, and errors eliminated. Dow also can use Customer Correct, an online corrective action tool, to reduce account problems.

Dow says that it has realized hard cost savings for its MPC business. For instance, more than 20 percent in savings have been achieved on airfreight logistics process costs.

Dow – and all other chemical companies – recognize that the peculiarities of specific regions are real – and need to be addressed. In response to this, Bahrainbased Kanoo Freight, a division of Yusuf Bin Ahmed Kanoo, joined forces in mid-2010 with BDP to form a new JV that serves the logistics and transportation needs of the Middle East’s chemical industry: BDP Kanoo Chemical Logistics, which is based in Dammam, Saudi Arabia.

Established over 100 years ago, Kanoo was one of the fi rst shipping and logistics agencies in Saudi Arabia and has grown to become one of the largest privatelyheld regional conglomerates in the Middle East. The company has also diversified across a number of complementary transportation enterprises, with an offi ce and warehousing network covering the entire Arabian Peninsula, including the Gulf, Red Sea, and Indian sub-continent.

Fawzi Ahmed Kanoo, board director of Yusuf Bin Ahmed Kanoo Group, and chairman of Kanoo Freight, thinks that “with the emergence of the Middle East as a global logistics hub, customers in the chemical and petrochemical sector place a great deal of importance on reliable on-time supply; BDP Kanoo is designed to focus on delivering against or exceeding these expectations”.

Richard Bolte, BDP president, says, “With significant investments in the downstream petrochemical industries and abundance of feedstocks, the Middle East, and Saudi Arabia in particular, is becoming the epicenter of the global petrochemical industry.

“We have a substantial base of clients operating in the region which stand to benefi t from our strong presence in the global chemical and petrochemical sector complemented by Kanoo’s deep expertise in regional and local trade and regulatory practices.”

Based on World Trade Organization (WTO) fi gures, Saudi Arabia’s petrochemical exports topped US$14 billion in 2008. And while petrochemical production was down 12 percent in North America and six percent in Europe last year, Middle East production grew 14 percent, a trend which is forecast to continue. Indeed, industry analysts forecast that within 10 years, led by Saudi Arabia, the Middle East will account for approximately 75 percent of the world’s petrochemical exports.

Tharin Walker, BDP’s Asia Pacifi c regional manager for global chemicals sales, looks at the big picture “mega-trends“ which are reshaping the chemical logistics business, especially as they’re seen from the standpoint of the customer: “The inescapable reality is that the US. and EU markets are quite large and likely to remain so, but they are not growth markets.”

Therefore, Walker thinks that emerging markets understandably attract the most attention from companies looking to expand sales. “That means these companies will have to compete on the ability of their supply chains to serve customers in Latin America, Asia, Africa, the Middle East or wherever,” he explains.

However the logistics infrastructure in these regions is also largely subpar, especially if products are being sourced from the other side of the world. The most strategic consideration for the global chemical industry is how to meet this challenge: by local production; regional distribution centers; local partnerships; alternative supply chain strategies; or other means.

According to Suzie Mitchell, head of business development for energy & chemical at DHL Supply Chain Asia Pacific, “DHL is seeing a large-trend reshaping the market as new production sites are being built and commissioned in Asia Pacific.”

In that context, she and her team have noticed that “supply is moving closer to the consumer demand”. From the perspective of a DHL customer, the companies may be looking to move their manufacturing base to countries which could have a less developed supply chain infrastructure.

[ According to Suzie Mitchell of DHL Supply Chain Asia Pacific, providing batch level visibility of stock, warehoused or in-transit, allows customers to make confident decisions during the planning process. ]

Mitchell is adamant about the fact that DHL Supply Chain understands the criticalness of material flow, whether it’s supporting a lean manufacturing production or getting finished-product to market.

In practical terms this means several things to DHL, including the use of superior IT systems to provide batch level visibility of stock regardless of warehoused or in-transit “so that our customers can make confi dent decisions every step of their planning process”.

While some supply chains require a dedicated temperature control network, recent innovations inside DHL, which took hold during the recession, included what Mitchell calls “the enhancement of multi-user hubs in countries like China and India, and multi-modal transport off ering between and from the hubs”.

Suzie Mitchell defines success as “having control over the supply chain where obstacles such as multiple service providers or suppliers/customers stipulating the logistic flows can prevent full roll-out of a coordinated network approach. Overall cost reduction and speed of cargo can be increased via systematic management of the goods movement through the supply chain”.

During the recent recession, customers have sought new and better ways to reduce delays and ineffi ciencies. There are a number of operational solutions to make a supply chain more robust, and the details of the situation will dictate which ones are most appropriate in each set of circumstances.

However, Walker argues that all rely on one key factor – visibility. “You can’t improve supply chain performance if you can’t measure it, and you can’t measure it without consistent global data. Supply chain visibility is the single most valuable tool for expediting and measuring the literally thousands of logistics-related activities that BDP handles on a weekly basis”. This includes ocean, air and land transport, storage and distribution and customs clearance, among others.

Walker says that all of BDP’s clients are being aff ected by the boom-bust cycle of the ocean transport industry. From the low volumes and large losses of last year, carriers began this year with “slow steaming”, intentional capacity scarcity and greater cargo selectivity, particularly with regard to hazardous materials.

Everyone wants to see the carriers return to profi tability, but not at the expense of efficient global trade including, of course, the chemical sector.

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FIVE REASONS TO PARTNER

CHEMLOGIX outlines five key benefits that chemical shippers should derive from their business relationship with a 3PL.

Chemical shippers contract third party logistics providers (3PLs) to gain additional resources, technology and assets unavailable in their own logistic departments to optimize and automate supply chain operations. More than vendors who merely provide certain contract services, 3PLs should serve as long-term partners in helping customers eff ectively manage their supply chain processes.

Here are five key benefits that chemical shippers should derive from their business relationship with a 3PL:

1. Ongoing cost containment strategies

Going beyond the terms of a contract to manage specific freight activities on a monthly or cost-per-transaction basis, 3PLs should proactively present cost management ideas as part of their services.

After becoming familiar with customer operations, 3PLs should be able to identify areas in the supply chain where costs can be contained. Ideas can range from optimizing weight per shipment through load consolidation, spot bidding on more cost eff ective carrier lanes, or even initiating a freight reduction project to reduce inbound transportation costs.

2. Access to transportation management technology

Incorporating the latest transportation management system (TMS) technology to optimize supply chain operations was typically not an option for small- to mid-size shippers who could not aff ord the upfront investment or ongoing maintenance.

But 3PLs now offer best-in-class transportation management technology that does not require large investments in hardware, software or even additional personnel. On-demand transportation management systems can be connected to customers’ existing ERP systems in as little as six months. Customers should seek additional capabilities such as online RFQ tools and global order tracking.

Most recently, ChemLogix began offering its customers an iPhone application as part of its TMS capabilities that gives users mobile access to shipment data.

3. Ensure orderly review process

Rather than wait for problems to arise, a 3PL should lead a periodic review of supply chain processes with appropriate personnel to discuss new transportation solutions, specific cost reduction ideas, service levels, and any issues that the client may have with current operations.

By reviewing data pertinent to different supply chain elements such as on-time deliveries, costs, customer service issues, etc, the 3PL can discuss which objectives have been met, if there are any problem areas and set new goals for the next operating period.

4. On-line visibility

In addition to automating many processes, a 3PL should give customers online, real-time visibility to supply chain operations including freight, invoices, routing guides, carrier service records and more.

With visibility to in-transit data, shippers can determine at any point during the supply chain process if shipments will be delivered on time and when to notify plants and customers of impending deliveries and shipments.

5. Support in-boardroom discussions

Getting the funds from executives to implement and/or expand transportation services and systems sometimes takes the assistance of 3PLs who can provide detailed explanations of the longterm benefits of specific supply chain strategies.

Experienced in providing transportation solutions to customers in the same industry but with varying scenarios, 3PLs can readily provide informed answers to the questions posed by executives and give examples of the successes and pitfalls associated with certain actions. 3PLs, essentially, become a part of the logistics team when presenting ideas and updates to the board room

ChemLogix provides consulting and transportation management services to the chemical industry (www.chemlogix.com).

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OUTSOURCING OPPORTUNITIES

Handing over logistics responsibility to a third party provider proved to be profi table decision for a global supplier of chemical products.

[Outsourcing the logistics function enabled the chemical company to pursue its growth strategy, realize cost savings, and improve service to customers. ]

Following a strategic review of its operations, a leading European refiner and supplier of specialty hydrocarbons, specialty chemicals and advanced automotive fluids, including screenwash, de-icer and brake fluid, determined that logistics was not a core business strength. However, it also recognized that supply chain excellence and fl exibility was a priority in an increasingly competitive environment and a key support element in its ambitious growth strategy.

As a multi-faceted and complex enterprise, each business unit has different multi-modal requirements and load sizes from 25 liter cans to 10,000 tonne shiploads. In total each year, they move in excess of one million tonnes of product around the world and spend in excess of £16 million (US$23 million) on logistics.

Logistics provider Agility worked with the client to analyze what their service requirements were and what the current logistics picture looked like. It then proceeded to defi ne a number of modal improvement projects and put in place an operating structure to ensure rapid delivery of service and commercial gains.

Agility says that its scale and presence in the market presented an opportunity to leverage previously unavailable procurement savings, with its knowledge and processes raising the profile of the chemical company’s entire logistics operation. Outsourcing this function has enabled the client to pursue its growth strategy and provided it with significant competitive advantage, including projected cost savings of over £1million and the improvement of its service package to customers.

In terms of specific deliverables, Agility redesigned bulk transport services, took on board all global bulk and container shipping operations, and implemented management systems for all other logistics activities have now been implemented. The logistics provider says that it has also has delivered further integration and coordination projects to gain additional optimization benefi ts across the breadth of the client’s supply chain.

“Agility has brought its logistics and supply chain skills, competencies and leverage to every part of our business, challenging all aspects of our logistics function. The company has changed the paradigms and thinking of our existing logistics operations and has delivered tangible and measurable competitive advantage for our businesses,” said the refiner’s supply chain & operations director.

Agility is a global provider of integrated logistics services (www.agilitylogistics.com).