Outsourcing for Optimum Supply Chain Effectiveness

Outsourcing for Optimum Supply Chain Effectiveness


An Industry in Flux

The chemical industry’s complex logistics needs, safety and security concerns, and regulatory issues make outsourced logistics, transportation, distribution, and warehouse services an important part of its supply chain.

Third-party logistics (3PL) providers working with the chemical industry offer a wide range of services in different levels of integration, from providing a single service to functioning as a virtual logistics department. Chemical companies using 3PLs can reap the benefits of that supply chain expertise while focusing their time and energy on manufacturing and selling chemicals.

The benefits of a good outsourced partnership can be numerous and far-reaching in scope, notes Taylor Nicks, manager of global 3PL C.H. Robinson’s ChemSolutions division. The company invests in people, processes, and technology to help shippers achieve optimal supply chain functionality.

“Chemical companies need to focus their efforts and time on research and development, new markets, and building key relationships with customers. We focus our time and energy on driving the best-in-class performance of their supply chains,” Nicks explains. “We provide chemical shippers with increased control; better cost and service visibility; improved efficiency; improved risk management; and the ability to leverage industry and supply chain best practices.

“By offering those services, our chemical customers can focus their working capital and valuable resources on their business instead of on building overhead to manage risk, developing IT systems that aren’t their core business, or hiring people who aren’t focused on driving R&D, new markets, and core relationships,” he adds.

Turning to 3PLs

The market’s uncertainties may also drive some chemical companies to seek outsourced partners. The need for flexibility and scalability in the industry is great. Depending on a company’s size and demand patterns, it does not always make sense to expend capital on assets such as trucks and distribution facilities that may go underutilized at times—or may fall short at peak times.

“The chemical industry tends to be cyclical, and we can handle those peaks and valleys for our customers,” says Rob Kriewaldt, director of marketing for WSI, an Appleton, Wisc.-based 3PL that operates 14 million square feet of industrial real estate across the United States. “One company may be in a valley, while another customer in a different part of the industry may be in a peak—so it levels off for us.

“Rather than a company tying up money in infrastructure that isn’t being fully utilized, we can help them cut that capital expenditure,” adds Kriewaldt, who also cites the ability to get product closer to customers, and increased speed to delivery, as added assets of working with a 3PL.

Avoiding underused investments is one factor that drew R.E. Carroll, an Ohio and New Jersey-based chemicals distributor and re-packager, to partner with WSI.

As a 27-employee company serving the chemical process industry, R.E. Carroll didn’t want to invest in hiring and safety-training employees when it expanded to the southern United States several years ago. Instead, the company—which provides raw materials, fillers, extenders, and petroleum products—decided to utilize WSI’s existing Dallas facility for logistics purposes.

“WSI acts as the ‘boots on the ground’ for R.E. Carroll, handling all the logistics aspects of our re-packaging,” explains Brett Bixenmann, western sales manager for R.E. Carroll. WSI receives product from bulk trucks, then re-packages it into smaller drums and totes, and readies them for pickup on behalf of R.E. Carroll.

Safety a Top Concern

Safety is of paramount importance to R.E. Carroll and WSI (and all chemical manufacturers and their providers)—and the companies’ similar approach to safety compliance has helped the partnership thrive.

“WSI has excellent safety processes in place, and so do we,” Bixenmann notes. “We made sure those processes overlapped completely before even starting this partnership.

“Safety is the top concern when selecting outsourced providers, and the first question we ask—before cost—has to be, ‘Are you operating in the safest way possible, and are you meeting all the government standards?'” he says.

While most chemical producers are intimately familiar with federal chemical regulations, the nuances of state and local standards in different regions may not be as familiar. This is another safety area where outsourced providers can be key partners.

“Most states have significant regulations that impact chemical shipments,” says Kriewaldt. “Multinational companies with locations all over the globe have a hard time keeping track of this information, and we can help supplement their knowledge at a local level.”

Training DC employees on safety procedures and compliance needs can be an expensive and time-consuming job, which is another reason many chemical producers turn to outsourced providers for distribution assistance.

“For smaller chemical manufacturers to ensure their DC employees are properly trained, certified, and in compliance can be costly,” says Jim Emmerling, vice president of operations for Weber Logistics, a West Coast-based provider of warehousing, freight, and logistics services. “With a facility such as ours, which meets the distribution needs of more than 40 other chemical companies, customers get the value of compliance. Their risk management team can walk through the facility, and know they will be compliant.”

That compliance and safety value is also important to large companies such as The Dow Chemical Company, for whom Weber provides warehouse services, product storage, and shipping and inventory control at its Santa Fe Springs facility.

“We visit the Weber warehouse quarterly to ensure our product is being safely stored, and verify the uncompromising quality of storage, inventory, and other services provided to Dow businesses and customers,” says Joe Tovar, zone outplant specialist, Dow.

Understanding how to handle and store chemical products is another aspect of the safety equation—and chemical manufacturers such as Dow must ensure their warehouse providers have that knowledge.

“Some of our products are temperature-sensitive, so they need to be kept in a cold or warm room, and some products are kept at room temperature,” Tovar says. “Understanding the requirements of each product, and placing it in proper storage as soon as it is received, is very important—each must be handled correctly to ensure product integrity.”

Knowing their products will be transported safely and securely is another benefit chemical producers obtain from outsourcing their transportation function. Again, the idea is that companies specializing in chemicals transportation can offer greater safety, assets, infrastructure, expertise, and capacity availability than chemical companies could achieve by handling transportation in-house.

Transportation providers serving the chemical industry know that finding—and retaining—safe and qualified drivers is of key importance to their customers. Drivers who understand the safety and compliance mandates involved in transporting chemicals are valuable assets.

“If you have to keep hiring new drivers, you can’t offer the safety, reliability, and deep knowledge base that is so important for chemical shippers,” says Earnie Seibert, vice president of sales and marketing for Dupré Logistics in Lafayette, La., noting that the company maintains one of the industry’s lowest turnover rates. “Our ability to retain trained drivers is also critical in being able to provide capacity for our customers.”

Dupré Logistics received numerous safety awards from the American Trucking Associations (ATA), and its safety director, Al LaCombe, was recognized as ATA’s 2011 National Safety Director of the Year.

“Our organization has a culture of safety,” Seibert says. That culture means measuring drivers’ CSA scores daily and taking violations seriously.

Check, Check, and Re-check

Making sure drivers comply with Hours of Service rules and obey speed limits is also a key safety benefit offered by A&R Logistics, a leading provider of bulk plastic and dry flowable transportation. “‘Check, check, and re-check’ is our safety mantra—everything we do is safety first,” says Kenneth Pate, A&R’s vice president of safety.

The 3PL operates its own non-conformance initiative, self-reporting to customers any issues such as driver violations, late pickups, incorrect shipments, accidents, and spills. “We meet with our customers quarterly to discuss non-conforming issues,” Pate says.

A&R is also diligent about equipment safety in order to offer its chemical shippers peace of mind that their goods are being transported optimally. Before a shipment goes out, the company verifies hose connections are correct, and equipment has been thoroughly cleaned so contamination cannot occur.

After hauling a load of clear polypropylene, for instance, they must make sure the trailer and hoses are entirely free of clear pellets before loading up the next shipment of, say, colored polypropylene.

“Contamination is expensive for our customers and for us, so we make sure to do the right thing the first time,” Sweeden explains. “Chemical shippers know we set industry standards for service, cleanliness, and safety. If they come to us, they don’t have to worry about any of those transportation aspects.”

An Industry in Flux

In addition to the complexity inherent in chemical products, the nearly $3-trillion global industry is cyclical in nature, and closely tied to the ups and downs of the global economy. It is also highly evolving and heavily regulated.

The industry is an important one, too: In the United States, the chemical industry employs nearly 800,000 people and constitutes roughly 12 percent of the nation’s exports, aggregating $187 billion annually.

Because the industry is heavily linked to the economy, the past few years have kept its players on uneven terrain.

Global chemical production (excluding pharmaceuticals) grew by 2.6 percent in 2012—significantly slower than the previous year’s 3.8 percent, according to chemical company BASF’s 2012 annual trend analysis. And an upswing in demand expected for the second half of 2012 failed to appear.

The report attributes this slack in demand to “weak economic development in the industrialized countries, and restrained growth in many emerging markets.

“Also, in anticipation of decreasing prices, many chemical products consumers showed caution in restocking their inventories,” says the report.

Industry growth has generally been slower in the United States and Europe, so many chemical producers are looking to expand in other high-growth markets, notes Taylor Nicks of C.H. Robinson’s ChemSolutions division, which offers chemical shipping expertise, bulk equipment, and a global technology platform.

“Chemical shippers are working to rationalize their current portfolios; looking to tap into new feed stocks; and starting to look beyond their product portfolios for value-added services to create deeper relationships with key customers,” Nicks explains.

And while demand seems to be retuning in 2013, capacity has remained scarce, causing a new set of headaches.

“We see encouraging signs from shippers that volumes are returning, but capacity is not returning at the same pace,” explains Mike Challman of ChemLogix. “Capacity is tight, so carriers are getting selective about which companies they choose to work with. A lot of loads are out there, giving carriers many options.”

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