Increasingly hip though it is as a destination for tourists and young clubbers, the Belgian city of Antwerp has stronger reasons for being the location for the main event in chemical logistics in Europe. After all, the Port of Antwerp is the largest chemical cluster in Europe and claims to be the most diverse in the world, as well as being Europe’s largest distribution hub for basic and fine chemicals.
Over 300 different basic chemicals are produced here on over 7,400 acres of industrial land spanning the River Scheldt and Antwerp is also home to two of Europe’s ten largest oil refineries and four steam crackers. More than 30 international chemical producers have locations here, including most of the world top ten. It also houses the largest concentration of stainless steel tanks for liquid bulk in the world: 1,560, in 14 locations. Storage capacity is about to be expanded, with four new terminals being built recently and more to come.
Less than a mile away, the Hilton Antwerp in the heart of the old town was the venue for Logichem 2011, the tenth annual European bulk and speciality supply chain conference run by World Business Research, on 6-7 April. The conference also now takes place in both Asia and the Middle East each year in May, so the name strictly speaking is actually Logichem Europe.
The speakers and delegates at Logichem are mostly from the chemicals industry itself. There was consensus on many areas, but also a lively discussion on where chemical logistics are going next. Paradoxical though it may sound, delegates agreed that, whilst the challenges the supply chain faces now are unprecedented, the basic challenges never change.
The sector has been through turmoil in the past few years, thanks to an unprecedented combination of economic downturn and natural disasters. The financial meltdown of late 2008 led to a massive downturn in demand that was felt at all stages in the supply chain, while the upswing that has followed since mid-2009 has been equally challenging in its own way. And, just in case anyone was getting complacent about the good times being back, the possibility of a deep Euro-zone crisis was dominating the news in early April, even if the fear of a double-dip recession has receded.
Looking at natural events, Hurricane Katrina caused massive disruption to the industry in 2005, while the volcanic eruption in Iceland in April 2009 temporarily halted air freight to Europe – and also thinned out attendance at last year’s Logichem. The more mundane facts of high or low water on the River Rhine can have big impacts. More recently the political instability in the Middle East and the devastating earthquake and tsunami in Japan are still just beginning to show their impacts.
“I don’t think for one minute that we’ve begun to understand the challenge that lies before us as a result of events a few weeks ago,” remarked Roger Moore, European supply chain and customer services manager at Ineos Styrenics, in his opening remarks as chairman. “We must never forget the potential for nature to decide events in our industry.”
Like most parts of the chemicals industry, it seems, logistics is at once a big world and a small one. The attendees at Logichem 2011 mostly seemed to know each other and the event had been going on for long enough for recurrent themes and even in-jokes to have evolved. At Antwerp, much of this was about the use of ‘C’ words to summarise key themes down the years.
Past themes, Moore noted, had included ‘customers’ and ‘complexity’; perhaps, in view of recent events, ‘contingency’ should be this year’s, he ventured. ‘Cost’ – notably the costs customers are seeking to take out – and ‘cash’, others remarked at various points, are givens. Another, inevitably, is ‘change’, which is accelerating all the time, as the rise of the ‘BRIC’ countries globalises chemicals companies and their customers further still.
Mark Ridge, people and organisational performance director at Agility, went one better and themed his entire presentation about the ‘Brave New World’ of chemical logistics around words beginning with ‘C’ and other letters from ‘chemicals’. “’Chemicals’ is the most important ‘C’ word,” he suggested. “This is industry’s industry, it touches more than 95% of industry’s output in one form or another.” For this precise reason, the industry’s position in the supply chain is vulnerable as it is pulled and pushed one way or another by customer industries or the final consumer beyond.
“Another ‘C’ word is ‘crises’. We can’t see them coming but we know it’s highly probable that they will happen,” Ridge continued. “It is certain that in this Brave New World we will have more crises. ‘Change’ is inevitable too, simply because of the drivers of growing population and economic change. Supply chains will have to adapt to the new dynamic.”
‘Complexity’ is another ‘C’ word that will keep recurring. In the future, Ridge suggested, choices will sometimes have to be made between those supply chains that are more complex – and thus higher value, but more fragile and more exposed to uncertainty – and those that are simpler, less efficient but more robust.
Another, looking into an uncertain future is ‘crystal ball’. “The key thing is to dealing with uncertainty is to influence what is in our power to influence and to understand what is not. The best crystal ball is a well-grounded supply chain strategy, Ridge concluded.
“Certainly, though, I can’t see a future where sustainability is a nice-to-have, an optional extra. This is not something that governments and NGOs can deliver. It must be in the genetics of everything we do, collectively and collaboratively.”
“Big isn’t necessarily better,” warned the conference co-chairman Yves Letange, managing director of logistics firm BDP International. “Big can also mean slow. Slow companies lose global coverage. Big is less important than flexibility; a fixation with leveraged assets like ships and warehouses can lead you to take your eyes off the ball.”
BDP, Letange added, had learned some important lessons in what customers want: more visibility, more customised compliance services and process improvements, more flexibility in the supply chain, more educational services – in all, more compelling reasons to reduce their overheads and outsource non-core competencies like logistics. This led BDP to become faster and more flexible, more open with customers.
Complexity, all agreed, is an inescapable fact of the modern chemicals industry. As they have globalised, so have companies become ever more complex in their structures, sometimes mind-bogglingly so. Their supply chains have inevitably gone the same way, multiplying in scale and complexity over the past ten years.
Dow Chemical, for instance, is one of the largest companies in the world. By virtue of that, Dow is the largest bulk chemical shipper in the USA and has the world’s second largest private railcar fleet. It takes in over 4.5 million tonnes/year in raw materials and makes 3 million outbound shipments to 45,000 customer sites. This involves staging at 450 warehouses and 150 terminals globally, with 20% of its shipments requiring customs clearance.
All of this happens 99.97% incident-free, observed Rob Kiefer, global supply chain director for the EMEA region at Dow. However, that is not enough, given that the remaining 0.03% could include the incident that wrecks the company’s image or business. To ensure that this does not happen in the increasingly rarefied world of the modern supply chain involves addressing several important challenges:
- The transportation infrastructure
- Growth in rapidly developing economies
- Capacity constraints and congestion
- Escalating energy and freight costs
- Leaner business processes and lower inventories
- Limited supply chain visibility and control
- The changing nature of threats
- Emerging public policy issues
How Dow has addressed – and will continue to address – such issues by creating a more sustainable supply chain that is “profitable, safe, resilient, socially responsible and environmentally efficient” formed the rest of Kiefer’s paper. Many of his themes were echoed in papers from some of Europe’s other major chemicals companies.
BASF, the largest chemicals company in the world has transformed, has also its supply chain operations over the past ten years, as was documented in two papers. The chain is no less complex than Dow’s. BASF has about 40,000 suppliers, about 380 production sites, 70,000 products and 135,000 ordering customers. Inter-regional trade has increased by 50% since 2004, massively so in some cases (Figure 1).
Global supply chain director Mary Scheibner described a journey “from functional excellence to strategic partnership”, that began with getting the basics right and has moved towards full supply chain integration with customers. As she remarked at the outset, “logistics is about much more than trucks and warehouses”.
All this began in 2002, with a benchmarking exercise that established that BASF was generally below average in most key internal and customer-facing metrics with regard to supply chain and was mainly sweating the IT assets it had built up in anticipation of the ‘Millennium Bug’. The company has progressed in different business units ever since, culminating in beginning the strategic dialogue with customers to take the supply chain to the next level.
Stefan Künzli, vice-president of strategic supply chain management, went on to describe an ongoing process improvement system that began in 2007 with nine-month strategy definition process and a six-month planning phase, followed by execution in 2008-10. A team of nearly 400 has been involved and are now ramping this down to hand over to the divisions and then define and implement a follow-up organisation, while also consolidating global SAP and e-commerce systems.
Brian Trewhitt, global head of demand and supply chain at DSM Nutritional Products, described a similar journey in his company. It had been taking place on a smaller scale than at BASF, though with a no less globalised supply chain – seven sites and three global distribution centres – and complexity of product mix.
The local and regional focus, Trewhitt said, led to silo thinking throughout the supply chain, with different planning activities taking part in different parts of the organisation, nine different SAP R/3 systems leading to unnecessary complexity and multiple inventory and data planning systems. Thus, for instance, there was very little global alignment in sales forecasting, with some sites looking six months ahead, some 12.
“There were clear shortcomings in the system,” said Trewhitt. “Forecasting, execution and performance measurement were based on different data across the global organisation, with monthly inventory reporting only and inconsistent master data with regard to material numbers and quality status.” The business impacts were frequently negative:
- Unexpected stock-out and overstock situations, sometimes simultaneously in different regions
- High inventory levels and difficulties in predicting product availability
- Difficulties in predicting working capital and cash flow
- Significant management resources being tied up in troubleshooting
The company therefore aligned processes, organisation, systems, master data and performance metrics globally (Figure 2) under a specially appointed supply chain leadership team. This was implemented over a two-year period. Demand planning was changed regionally in Q4 2009 and Q1 2010, while replenishment planning was designed, tested and trained ahead of a global ‘big bang’ on 31 May 2010, prior to roll-out at the second priority sites into 2011.
Production planning went from template design in Q1 2010 to testing and training, with the first factory going live in October 2010, followed by global roll-out. Change management has been through a process of change since late 2009, ending in operational supply chain management at present. Global supply chain platform meetings are planned for late this year. Benefits were realised all along the supply chain.
“Managing change was key to the success of the project,” Trewhitt concluded. “Despite a clearly recognised need for change, a big effort was needed to support the transition. Common goals and vision were essential, as was senior management buy-in. And it is only the start of an even longer journey towards supply chain excellence.”
Alongside the conference was a small table-top exhibition, inhabited mostly by suppliers of traditional logistical services – such as Agility, BDP International, DFDS, Damco and TDG – plus supply chain software companies, like GT Nexus, OM Partners, WAM and Descartes. Many of these were showcasing existing collaborations with major players in bulk and speciality chemicals.
For instance, BDP helped Isochem start export management operations from scratch at its North American site, handling all of the logistical and transportation needs of an operation that had no previous experience in the field. This included documentation, regulatory and security compliance services, customs clearance and data management, process improvement, performance management and hazardous materials handling.
In related fields, WAM documented how it has supplied then extended its supply chain management software to Evonik Carbon Black across a network of production sites in 11 countries, thus helping to reduce inventory and improve customer services. Using this as the central hub for supply chain planning across the sales force, business managers, customer service organisation and production schedulers, WAM claims, Evonik Carbon Black managed to increase sales forecasting accuracy and thus on-time shipments. Lonza and Arkema have been other WAM customers.
Some interesting presentations, indeed, came from chemicals companies who have worked together with providers of supply chain services. For instance, Thomas Dieckmann of agrochemicals giant Bayer CropScience (BCS) detailed how BCS had worked successfully with Camelot Management Consultants on sustainable inventory management, rolling out across multiple plants after a pilot project at one site in France.
Meanwhile Ralf Kahre of BASF discussed how it and Elemica had developed a collaborative slot optimisation system at its Antwerp site over the past two years, considerably improving visibility and control over such key parameters as the required resources per loading place, in-time loading and the delegation of shipments. It also greatly reduced demurrage costs. The company now plans to roll this out at other sites.
Speaking alongside Dominique Pronnier of Rhodia, Paul Simon Thomas of GT Nexus discussed how the two were implementing ‘cloud’ computing to integrate Rhodia’s supply chain. The ‘cloud’ is a much-hyped phenomenon but boiled down to basics, means that IT systems are fully integrated and open right along the supply chain, instead of one-to-one connections. It stands, he suggested, much as Facebook does to email and succeeds through a mixture of neutrality, confidentiality, shared costs, no barriers to boarding and multi-industry, multi-stakeholder community.
“Global enterprises don’t compete company-to-company any more, but together, with their partners, value chain-to-value chain,” said Thomas. “Traditional software systems were designed to operate within the four walls of a company, providing stability rather than agility. In the future, we will use cloud technology to operate a supply chain community more effectively.”
To date, Rhodia has GT Nexus’s NeMO (New Marine Organisation) as a neutral, web-based platform for its sea-borne logistics and is piloting ChemLogix’s Elites for land flows in the US. NeMO, said Thomas, has already given the company massively improved visibility throughout the supply chain, enabling all partners to see what was going on.
“The Japan earthquake and tsunami, tragic as it was, was a good illustration of the system at work,” Pronnier said. “Within five minutes, Rhodia was able to check, visualise the effects on all of its shipments to and from Japan and define their status and the risks to them.” The company is now implementing a new functionality called Advanced Shipment Notice, which will enable stakeholders to track and trace the contents of cargoes right down to individual box level.
Perhaps the most illuminating contribution of all came from a company that was – until relatively recently – an outsider to the chemicals industry. Norbert Dentressangle is the largest road haulier in Europe but had been minimally involved in chemicals until a week before Logichem, when it acquired TDG. This will bring chemicals to about €500 million of a turnover of €3.6 billion/year, as well as making freight forwarding a third leg of its business.
Group managing director Hervé Montjotin was in Antwerp to ask if the chemicals supply chain is “ahead of or behind the game”, when compared to other sectors. Chemicals, he stressed, is a different industry with its own challenges, but comparisons with others were revealing.
In the automotive sector, for example, Norbert Dentressangle has to contend with daily collections of some 800 million parts from the Central European plants that increasingly dominate sub-supply after timed cross-docking to 12 West European assembly plants, in a 15 minute delivery window and with a 99.5% service level. Or take retail, where in Paris alone it is charged with daily deliveries to 745 high-street shops before 7 a.m. for full on-the-shelf availability.
The structural supply chain challenges facing the chemicals industry, said Montjotin, are “no less critical”. These include massive volumes being transported between or within hubs and clusters of production, the rising importance of ports for imported products, compounded with the need to deliver almost anywhere at almost any time.
All this has taken place against a background of rising raw material costs, tighter regulations, uneven growth, ever longer upstream supply-chains and customer demand for more flexible service.
“The pressure is compound by transport industry challenges,” Montjotin continued. The transport sector is not very attractive and it is suffering insufficient investments in infrastructure, in fleet and in human resources. Meanwhile, there is rising complexity in operations in every mode of transport road, rail or short-sea, related to tightened regulations and environmental pressure and a growing imbalances in industrial flows in Europe that is impacting profitability.
As a supply chain provider, Norbert Dentressangle sees a lot of broad general trends in the chemicals industry. ‘Safety first’ is a given, understandably and will always be. That said, there are many parts of the chemicals supply chain that will surely have to change, starting with its very segmented approach “Each segment of the logistics chain is usually treated separately and independently: storage, warehousing, intermodal, inter-site, FTL, LTL, freight payment; there is very little interface between them,” noted Montjotin. He also noted the yearly lane per lane transactional tenders in transport, the still very limited EDI or data transfer usage on status of products to be moved or stored and reluctance among logistics providers to collaborate horizontally on operational aspects.
Whilst it may be difficult to bring in a model from outside, Montjotin suggested that the chemicals supply chain might learn from real world examples Norbert Dentressangle has been involved in. In snack foods, for example, it has evolved a collaborative system based around common transport plans and information systems to help its customers avoid the penalties that retailers increasingly impose on them for late delivery.
Collaboration can also go beyond a single customer or sector. Norbert Dentressangle’s new subsidiary TDG and LPR had worked together with Weetabix and Kimberly Clark in a horizontal collaboration based on their common product characteristics and similar delivery points, bringing cost and environmenta benefits all round.
There is nothing wrong, Montjotin added, with purely transactional relationships and that still works for some flows but there is an increasing need for collaboration and this is the area of the industry that is moving fastest.
“Ahead or behind the game – that is not the question,” Montjotin concluded. “Rather it is about how we can best work together and when we start concerting more time and efforts. It is a journey that takes time to categorise needs, flows, customers, service levels, to share experience and capabilities and to build trust, but this is a journey we have already begun with some major chemicals companies.”