Chemical Reactions

There’s risk in all supply chains, of course. But the chemical supply chain has a set of dangers unlike any others.

“The two biggest differences within the chemical supply chain are safety and regulations,” said Taylor Nicks, Manager of the ChemSolutions division of C.H. Robinson Worldwide Inc. “Many of these commodities are potential dangers toward health, safety, security and the environment. And, in addition to safety risks, many can be heavily regulated at the federal and state levels. Supply chain must execute a series of defined processes with multiple communication points and handoffs for the safety of the general public, the environment and the people working with those products.”

Loading and unloading of trucks is another concern. It must be done as efficiently as possible—as with all products—but the variable and dangerous needs of chemical handling adds another tier of risk.

Then there are the tanks and trucks that store and transport the chemicals. One area of concern is prior content. If a tank isn’t cleaned out properly, the next chemical can be ruined, said Rich Katz, Chief Technology Officer at Elemica. “If you’re sharing certain types of chemicals, you’ve got to be careful what you put in there or you can destroy a $200,000 load. We’re working on a system to integrate carriers and cleaners to manage this efficiently. There can be a lot of spoilage, so we track previous loads to minimize spoilage.”

Nicks described the case of a C.H. Robinson customer, a global chemical manufacturer, who had difficulty managing product spikes. They needed to find tankers that didn’t have prior restrictions (a commodity that conflicts with the one that must be shipped). They had excess product to meet the spikes, so the challenge, because of reduced capacity, was getting their product shipped. ChemSolutions came up with the idea of providing exclusive capacity with a select use of equipment and drivers. It was very flexible—the company might have needed 15 trailers one month but 50 the next. The problem is finding drivers.

On the road

Driver training requires very specific training that varies with the shipper or commodity. And to complicate matters even more, a new tanker definition is being put into place in 2014 that bases the definition of a tanker by the amount it can hold. Drivers must have a tanker authorization on their Commercial Drivers Licenses (CDLs).

The regulation reads: “Tank vehicle means any commercial motor vehicle that is designed to transport any liquid or gaseous materials within a tank or tanks having an individual rated capacity of more than 119 gallons and an aggregate rated capacity of 1,000 gallons or more that is either permanently or temporarily attached to the vehicle or the chassis. A commercial motor vehicle transporting an empty storage container tank, not designed for transportation, with a rated capacity of 1,000 gallons or more that is temporarily attached to a flatbed trailer is not considered a tank vehicle.”

“We’ve been working with our customers and carriers to identify those areas where, in the past, the shipment wasn’t classified as a tanker, but will be [under the new regulation],” said Nicks. “We’re working with them to identify carriers and to get drivers’ certified. That regulation was introduced two years ago, but will be fully implemented in all 50 states by 2014.”

An efficient supply chain also means getting the product to the customer on time.

“As you get closer to the retailer, you pay a lot more attention to the demand signal,” Katz said. “Eight to 10 years ago, a lot of planning was typically monthly. Now we’re seeing it weekly when they plan production runs. There’s a lot of real-time, what-if analysis coming from CPG customers [who need chemicals in their manufacturing processes]. They demand a lot out of the chemical manufacturers, who now put the same level of responsiveness and forecast sharing on their suppliers.”

He pointed to a large European paint manufacturer that established a forecast 10 weeks out, but sends daily updates to its suppliers and expects them to send confirmations that they will meet production.

A different animal

The specialty chemical supply chain brings its own issues to the game, explained Martin Woodward, Managing Director, ToolsGroup U.K. [the supply chain software company is based in Boston]. “The bulk chemical industry [supply chain] is very much commodity driven. It’s all about effectiveness when running. It’s demand [that is] controlled by price. It’s relatively simple. Cost a penny less and you sell everything. Cost a penny more and you won’t sell a thing. They run 24-7 and churn out everything they can.”

“It’s different with specialty chemicals,” Woodward added. “In my experience it’s more batch driven, running multiple products down the lines. They do have the same issues around contamination, but there’s a lot more diversity in pack sizes and containers. The key is different influence on demand and the way that shapes the supply chain.”

One of ToolsGroup’s chemical customers is BP Castrol, which operates in 23 countries. Most slow-moving products had excess inventory and fast-moving products often were out of stock, leading to uncertainty and waste at times.

“Our approach to forecasting is the same wherever we are, whatever the industry,” Woodward said. “The closer we can get to the consumer demand, the better we can create a forecast that eliminates the bullwhips throughout the system—people making subjective judgments.”

“With BP, a combination of signals comes into the factories. What we’re doing is taking those signals, looking at how people are placing orders, how demand is being taken from customers and we’re looking at patterns, behaviors, volumes, monthly and weekly ordering. If it’s 12 a year, how are they ordering? Is it one a month for 12 months, or one order of 12? The safety stock will be completely different depending on the situation. We start from the beginning of the supply chain and get as far upstream as possible with the data; the closer to the pure demand signal, the better we can do the inventory levels throughout the system.”

It paid off. Over a two-year period, BP Castrol’s aggregate forecast accuracy improved by 15 percent on average and total network inventories were reduced by 20 percent in the first year after implementation and another 20 percent the following year.

In a C.H. Robinson whitepaper entitled “New Ideas to Strengthen the Chemical Supply Chain,” it stated that “the way a chemical company responds to supply chain risks can ultimately determine their success...With the right infrastructure, chemical manufacturers can optimize their delivery of goods to customers while maintaining a high level of compliance and customer service.”

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