Gavin Parnell, Director of Go Supply Chain Consulting Limited, discusses the complexities of the chemicals industry, and the challenges this presents to supply chain and logistics operations.
Storing and transporting packaged and bulk chemicals is both a high risk and complex process. Complex because the sector is highly regulated and there are many raw materials and manufactured products that need to be handled in specific and unique ways. Products are high risk because they can be corrosive, volatile, hazardous and expensive to store and move.
Some chemical products are dangerous to public health; they can easily get spoiled or contaminated or may spontaneously combust. Special protocols have to be applied to manage these problems including using designated or pre-defined methods for storage and transportation.
According to the European Chemical Industry Council (CEFIC) in their Vision 2020, the key trends that we should be concerned with are:
- Longer supply chains due to geographical concentration of facilities and not enough horizontal or vertical integration
- More congestion due to a lack of investment in infrastructure
- An increasing focus on safety and security, sustainability and reducing emissions
All of these trends need to be considered when making decisions about outsourcing and the use of third party logistics suppliers. We need to answer questions like: how can the overall logistics function contribute positively to the bottom line rather than add additional costs.
Often the logistics function in a large chemical manufacturer or distributor is regarded as a potential headache and a cost centre rather than an opportunity to add value and leverage competitive advantage. A disastrous event, especially one with a safety or reputational impact, will immediately turn the board’s attention to logistics. It may not have been regarded as a priority or even been on their radar. If this has been their approach, they are missing a real opportunity.
Chemical companies can improve their financial success and return on investment by enhancing supply chain and logistics capability. The complexity, volatility and potential disruption of today’s chemical industry cannot be tackled with old-school thinking. This is the essence of a recent industry study sponsored by DHL which resulted in a White Paper* providing guidance on how to turn logistics into a significant contributor to profitability in the chemical industry.
Companies need to employ a strategic approach to establish real competitive advantage. The DHL study concluded that there are five levers that can be pulled to achieve this:
- Standardise end-to-end safety policies and procedures.
- Invest more efficiently in logistics assets and apply them intelligently
- Free up more capital for inventory management by managing working capital in logistics better
- Optimise logistics costs through more than trying to trim pricing. Look at other elements such as storage, packaging , handling and processing costs and focus on Total Cost of Ownership (TCO)
- Use differentiated logistics services. Apply a collaborative strategy in-house across business divisions, segments and products.
Many chemical companies use a third party logistics provider to handle their warehousing, inventory and transportation of their products, including hazardous ones. These specialist service providers understand the ever-changing landscape of regulations and manage technical issues such as compatibility of products in shared loads and specialist driver training. Whether road or rail or both modes are used, accurate labelling is vital and there is a widespread and growing use of tracking technology and driver monitoring.
It seems that some other industries have been more assertive in extracting more value from their logistics services and that chemical industry executives have not exploited this area enough. The complexity and volatility of the chemical industry provides opportunities for smart and focused Supply Chain teams to work out how to gain advantage. As they say, where there is challenge, there is opportunity.
* Supply Chain in the Boardroom 5 levers to boost a chemical company’s bottom line.
By Kompetenzgruppe Chemielogistik. Sponsored by DHL. 2015.
Gavin Parnell is a Director of Go Supply Chain Consulting, a specialist in optimising logistics in chemical supply chains.