August 10, 2011
A chase for cheap transportation rates or survival strategy in uncertain times? Andrew Piazza, managing director of the Centrx consultancy of BDP offers some thoughts
Some specialty chemicals companies have been reluctant to outsource their logistics activities beyond enlisting aid to find the cheapest transportation rates for moving goods around the world. The reasons given – often unsupported by the facts – range from “Logistics are too important to outsource” to “No third party is qualified to provide the handling required by speciality chemicals shipments”.
Various developments in recent years have brought about a sea change in how logistics executives in the chemicals industry view outsourcing, however. Increasingly complex supply chains are now under the scrutiny of CFOs, who seek sustainable cost savings. The financial crisis of the 2008-2009 and the subsequent global recession made many more aware that they had to shed some non-core competencies to survive, let alone succeed, in the so-called ‘New Normal’ economy.
This required developing a strategy to differentiate between core competencies to be retained and non-core competencies to be outsourced. With so much money tied up in their supply chains and the growing complexity of complying with myriad trade, security and environmental regulations, chemicals companies have increasingly been looking outside their own ranks for help in streamlining and driving costs out of these networks.
This is being achieved not by seeking the least expensive transportation rates – an increasingly futile exercise, since they are basically commodities – but by taking a more holistic approach to reducing overall costs, decreasing cycle times, improving asset utilisation, improving customer service and ultimately increasing productivity and profitability, as the following two case studies will show.
A major German-based chemicals and pharmaceutical company with operations in virtually every country in the world and more than 100,000 employees determined that its supply chain processes could be made more efficient through better use of its SAP system, specifically for execution of international purchase orders.
When BDP assumed responsibility for the system, we streamlined its functionality, taking over both domestic and international sales and purchase order fulfillment, customer service, inbound and outbound logistics, warehousing and transportation coordination. As a result, the company was able to redeploy 30 supply chain employees more productively.
The company also relies on BDP for assistance with regulatory compliance, vendor management and information management, notably the visibility of international purchase order execution. To provide that visibility, we use two of our own business intelligence programmes.
The first is a comprehensive on-line customer service portal called BDPSmart, which provides visibility – upstream, midstream and downstream – for both tactical and strategic decision-making and proactive communications supporting management-by-exception, all via a single, web-based interface.
BDPSmart tracks and monitors the critical milestones of a shipment, based on original input and updates from carriers and other supply chain nodes, including the company’s own plant and warehouse operations. When the information is not forthcoming, the tool prompts BDP to follow up. Users can view the data by export, import or both and select from a range of search criteria. They are automatically notified of changes between actual and scheduled events, so corrective action can be taken.
The second programme, BDPSmart Vu, provides procurement and inbound logistics managers upstream visibility of the status of purchase orders, including the critical initial stages, which can contain inaccurate data with regard to handling, shipment contents and classification, breaches in the specifications of purchase order agreements and inefficient use of transport equipment.
These tools not only allow the company to monitor transactions and manage by exception at the tactical level, but also provide performance metrics for each node in its supply chain.
It estimates that it has saved more than $3 million since outsourcing its logistics three years ago, by moving to a smart platform that resulted in a meaningful head count reduction, a sustainable logistics fee structure, cost avoidance and continuous improvement.
Just as the recent economic downturn began, a Dutch chemicals company turned to BDP for supply chain services to address the challenges it posed, particularly in terms of the company’s ability to maintain world-class customer service levels. Like the German company, it is a global enterprise operating business units throughout the world. In true silo fashion, each unit handled its own ocean transport and related logistics activities, working with multiple carriers and forwarders.
This resulted in non-uniformity and difficulty of access to relevant information dispersed across multiple systems, making meaningful comparison of carrier performance impossible. Recognising this problem, the company instituted ocean transport standards to provide greater transparency, optimised processes and reduced costs.
Based on our global presence, experience and expertise handling chemicals shipments, and advanced technology, BDP was assigned responsibility for managing the company’s global transport function. We took over freight forwarding, import customs clearance, documentation, invoicing and some transportation procurement. A key part of the decision to take on BDP was the company’s need to support logistical activities at the local level, even though both it and BDP are active globally.
The first order of business was to establish a central IT control tower connected to the company’s far-flung business units to improve global shipment visibility and optimise its supply chain processes.
Connected to ocean carriers, our online customer service portal provides an overview of the company’s entire supply chain, allowing it to see the status of any shipment in near real-time. It also allows the company to assess how the various nodes in its supply chain, including but not limited to carriers, are performing.
In addition, we mapped all of the company’s standard operating procedures and supply chain processes, which resulted in significant efficiency improvements. Today we handle all of its global sites, delivering both hard savings in transport management costs and providing end-to-end visibility of its entire supply chain.
BDP has also developed a service called BDPSmart Tower to improve management of industrial tanks used for shipping chemicals and other industrial liquids and gases, literally thousands of which never find their way home. Designed to improve the visibility and utilisation of tank assets, this provides end-to-end logistics including reverse mode to assure the timely return of empty tanks. Also included are proactive management by exception, plus centralised management, monitoring and global visibility of equipment, including daily movements and asset availability, as well as coordination of preventive maintenance and repair.
No doubt some chemicals companies will continue to retain certain logistics functions in house and others will insource some of the activities they outsourced for a variety of reasons. Yet many are enjoying the benefits of successful outsourcing, allowing them to focus on their core competencies, reduce costs, improve accuracy, gain access to global networks and superior technology, improve service, and perhaps most important, remain competitive in the New Normal of an uncertain global economy.
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This article was taken from Specialty Chemicals Magazine