The chemicals industry has seen a number of significant changes over the past five years. The sector has been re-shaped by consolidation and an influx of private equity funding, which will inevitably demand greater supply chain flexibility and waste minimisation. Furthermore, the changing shape of the international marketplace and the worldwide economy has seen many chemical businesses adopt pan-European or even global manufacturing strategies, while still relying on localised logistics solutions.

Attempts to bring further efficiencies to the supply chain have traditionally been focused around consolidation of all logistics under the aegis of one central third party logistics provider (3PL). Alternatively, the adoption of a silo mentality is commonplace, delivering optimisation in individual and fairly specific units of the business, without really looking at the bigger supply chain picture.

A typical chemicals operation can involve hundreds of individual cargo flows being undertaken by a variety of handlers, with little high-level co-ordination and limited visibility throughout the supply chain. In such a situation, producers are reduced to steering the process rather than exercising any real control.

Many commentators agree that the chemicals sector needs innovative LSPs more than it might realise itself. For as supply chain capacity grows ever tighter, it becomes more evident to LSPs that there are many other sectors that offer a lower risk and higher returns when sizing up new logistics markets. In short, more logistics companies are asking themselves why move around potentially hazardous materials at wafer thin margin when there are far easier picking (with higher margins) in the FMCG market, for instance.

Many chemicals businesses may shy away from the prospect of a first principles review, yet it represents the most effective way to achieve genuine improvements and efficiency.

The most effective method of delivering this value is through a process of collaboration that has been extensively proven in the automotive and fast moving consumer goods (FMCG) sectors, amongst others. Sometimes referred to as the 4PL approach, the model sees one 3PL acting as the fulcrum or ‘control tower’ for the entire logistics function, managing the scheduling of inbound and outbound flows through a centralised management system, providing total visibility at every step of the process and working to a strict set of key performance indicators.

"The philosophy, while well tested in other markets, is a new concept in the world of speciality chemicals. However, as the cost of raw materials and energy prices continue to rise globally, it is an area of the business that producers cannot afford to overlook.

It is vital, however, that as part of this process the lead logistics partner (LLP) and customer embrace all opportunities to add value. To a certain extent, this will involve the customer relinquishing aspects of its operations to its 4PL partner in order to focus more closely on its core competencies. This allows the LLP to bring its sector knowledge and experience to bear on the complex issues that modern supply chain modelling can involve.

A comprehensive understanding of the global and continental logistics markets will allow the LLP to identify asset based suppliers in various regions and play to their relative strengths.

Adding value across the supply chain

The skills base in the chemicals production sector is one that is not necessarily geared towards the management of complex supply chain models and, all too often, the selection of a logistics partner is seen as a procurement driven process, with the lowest cost option being the right balance sheet decision. Chemicals manufacturers should avoid viewing logistics as simply an additional cost and aim to optimise their business operations at both the tactical and strategic levels to truly add value.

The key to the effectiveness of the philosophy is that it is built around the clear and consistent flow of information. This allows the model to comprehensively cover contracts involving high levels of complexity, taking in broad geographical spreads, multi-modal operations and even varying volume profiles, from parcels to full truck load (FTL) consignments.

Obviously, this level of global control and understanding requires a certain level of investment and state-of-the-art integrated IT systems are required to underpin the entire operation. But, once in place, these systems are able to deliver a level of control and visibility that is simply not possible in a fragmented operation involving a number of separate suppliers, each operating differing software to plan and track cargo movements. Any initial outlay into suitable systems is more than compensated for in the cost savings that they can bring to an organisation.

By enabling total visibility of the supply chain at every step of the way, the LLP is perfectly placed to deliver efficiencies across an organisation’s logistics function. Better supply chain visibility allows companies to review and re-engineer their manufacturing footprints, often enabling businesses to review production strategies on a pan-European basis, rather than on a country by country basis.

We have seen instances where procurement costs have been reduced by double digit percentage figures following the introduction of the control tower approach, through measures such as consolidation of shipments, careful selection of the most appropriate mode of transport and an overall decrease in transport rates due to economies of scale. Similarly, centralised planning and state-of-the-art IT systems allow for management costs to be reduced by anything from 5 to 10 per cent. Across the board, from inventory management to asset holdings, the 4PL approach allows chemicals businesses to identify and eliminate the inefficiencies that operating with a raft of different suppliers can bring.

In order to make efficiencies of this sort possible, however, chemicals manufacturers must be prepared to allow their LLPs to have input into the strategic and planning process. The discipline of logistics has been elevated to boardroom status in many organisations due to the huge role it plays in defining the success of a business – and the impartial and expert counsel that an external provider can offer can significantly transform the profitability of a supply chain.

Properly implemented, the strategic benefits that the control tower approach can bring to an organisation are endless. With a single point of contact for all logistics requirements, rather than having several 3PLs servicing separate parts of a manufacturer's requirements, and a single bulk invoice to the customer, administration is significantly reduced. Similarly, visibility across the entire operation is enhanced, allowing the customer to accurately assess the state of a shipment at any time through accurate, transparent and up-to-date information.

Manufacturers should look to their providers for more than the simple movement of goods from one place to another. The 4PL approach is one way that suppliers can genuinely add value, reduce administration and increase efficiency for their customers and those that do not embrace it could well count the cost further down the line." v

Stuart Carlyon is Head of Chemicals, DHL Exel Supply Chain (Industrial UK), Whitwood, Castleford, West Yorkshire, UK. www.dhl.com