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„Industrialization ““““ ofthe Chemical Supply Chain:

Current Status andFuture Trends

Annual MeetingDüsseldorf, Nov. 28, 2013

Prof. Peter Klaus, D.B.A./Boston Univ.Friedrich-Alexander-Universität Erlangen-Nürnberg

<[email protected]>

© Prof. Peter Klaus:Industrialization Chemical Supply Chain

Düsseldorf, Nov. 28, 2013, Seite 2

FRIEDRICH-ALEXANDERUNIVERSITÄTERLANGEN-NÜRNBERG

Agenda:

• Background: The „Industrialization of Services ““““:

• A focus on „Chemical“ and the „ChemicalSupply Chain“: Facts from a recent study

• Into some detail: Industrialization developmentsin the European Land Transport Industry

• Beyond transport: Is there such a thingas „Supply Chain Industrialization“?

• What does this all mean: To Chemical IndustryShippers? To Logistics Service Providers?




I-1. The pioneers of Service Industrialization – in aca demia:Ted Levitt „Production Line Approach to Service ““““ 1972 and „The Industrialization of Service ““““ 1976




I-2. ... and the pioneers from the „real“ business world …

Clearly definedProducts

Economies of Scale„Mass Production ““““

Systems &Technology

Brand Marketing

Economies of Scale„Mass-Production“

Standardized„No Touch“Processes

• first Supermarkets 1950‘s

• McDonald ‘‘‘‘s

• American Express

now:

• Amazon

brought to transportand logistics by

• UPS (Parcels)

• McLean/SeaLand(Ocean Containers)

• many others:




Startindustrialisierung Konzentration Ologopolisierung

time

FTL -Industrializing

now

Intl. Air/OceanForwardingStart 90-er

Paket/ Global ExpressStart: Mid 70s

LTLNetworks

since late 80s

FMCG-DistributionStart 90-er

Ocean-ContainerNetworks

Indu

stria

lit´́́́za

tion

and

indu

stry

con

cert

ratio

n

I-3. ... followed by consecutive waves of „Industrializa tion“ in othersegments of the logistics industry

SCMContract Logistics?




Agenda:• Background: The „Industrialization of Services ““““:


• Into some detail: Industrialization developmentsin the Europea Land Transport Industry






II-1. The recent BVL-Fraunhofer study*) on Chemical Industry Logistics

• Chemical industry logistics (incl. mineral oil data)-> market overview

• Stages in the chemical industry value chainand related LSP business models

• State of supply chain optimization effortsand areas for future improvement

• Lessons learned*) available only in German © Prof. Peter Klaus:

Industrialization Chemical Supply ChainDüsseldorf, Nov. 28, 2013, Seite 8


II-2. Selected data on the chemical industry (Germany 2 012 data) *)

Total chemical industry sales„manufactured bulk and special chemicals“

€ 158 bill.+ pharmaceuticals ca. € 42 bill.+ mineral oil products ca. € 180 bill.

Share chemical exports in € ca. 51 %

Chemical goods wholesale revenues € 45 bill.

Value density manufct. goods €/ton ca. 1. 800

Sources: Destatis VAT –statistics 2011 = € 158 billVCI „Chemiewirtschaft in Zahlen“ 2013:36f -> lower at € 144 bill.




II-3. Global chemical industry sales (2012 incl. Pharm a – ca. 20%)

Sources: :VCI: Chemiewirtschaft in Zahlen 2013

Relationship „Germany vs. EU (30)“

-> the „Factor *4“ rule!




II-4. Current tonnage volume: some „roughcut“ estimate s

Est. total „outbound tonnage equivalent“of manufactured chemicals from German - est. Log-Cost

as % of sales-> est. producer sales (€ 158 bill./8% logcost) = 90 m ill. tons @ logcost/ton € 140 -> € 12,6 bill.-> + est. „multiple moves“ w/i prod. stage = 90 mill. tons-> est. wholesaler sales (€ 45 bill./5% logcost) = 30 mill. tons @ logcost/ton € 75 -> € 2,3 bill.-> + est import->export „transit volumes“ = 20 mill. tons

total ca. 230 mill. tons*)

Sources: „Top 100 Logistics 2012:451“ for Log-Cost percentages (Top 100 definition!).*) Tonnage-volume roughly reconciled with transport statistics BMVBS (2011:256);

of 230 mill carried, ca. 145 mill. tons moved via road.

Domestic (D)

applying the „Factor +4 rule“ for EC(30) volumes: ca. 800 mill. tons /€ 60 bill.




II-5. Revenues of „top 20“ chemical logistics service pr oviders(Germany, data as of 2011)

Sources: BVL/SCS report p. 20 © Prof. Peter Klaus:Industrialization Chemical Supply Chain



II-6. The chemical industry Supply Network

Sources: BVL/SCS report p. 22

Agr

icul

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dust

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Bui

ldin

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onst

ruct

.

Gen

eral

In

dust

ry

FM

CG

/H

ouse

hold

Pha

rmac

.

Raw Mat‘s

BulkChemicals

B2B Chem.Wholesale

FinishedChem. Prod.

OtherIndustries

B2C Wholes/Retail

FinalConsumers

WholesalersHelm, Brenntag etc.

Spec.Chem.

Spec.Chem.

Pharm.

Bulk Chemical ProducersBASF, Ineos, Dow etc.




Agenda









III-1. Transport Industrialization widely accomplishe d:

For further details see: Klaus „Industrialization of Transport“ (2011)

Container transport




III-2. Transport Industrialization (widely) accompli shed: the EuropeanCEP and LTL network service providers

HUB

EOL

Pick upcycle

Line-haul

move

Line-haul

moveSorting

Deliver ycycle

Sorting

SortingEOL

Company

EU ca.

rev M€

2011/2012

DB Schenker2900Dachser

2500DHL

2300Kühne & Nagel1700SNCF-Geodis Group1650DSV

1375TNT

1000System Alliance910CargoLine

700Mory/Ducros700"Top 10" total:

15735Source: „Top 100 Logistics 2013:71“ © Prof. Peter Klaus:

Industrialization Chemical Supply ChainDüsseldorf, Nov. 28, 2013, Seite 16


III-3. ... moving forward now: The European truckloa d („FTL“) serviceprovider industry on its path from the traditional „craft ““““ operationsmode to Industrialization ...

• Competitive Pressures:• Eastern European Low Cost Providers• Moves by diversified large LSPs to

build specialized „Asset Based“ operations• Competition for drivers

• Shifting Demands:• Shipper industry concentration and• Network consolidation• Consolidation and Direct Load („Milkrun“)

trends in logistical systems designs• Long haul growth due to EC integration

• New Regulatory Pressures• New EC driver hours restrictions• Road tolls and ecological concerns• ...




III-4. ... adopting some characteristics from US „Advan ced Truck LoadFirms (ATLF) ““““ usiness Modell means:

• Geographically distributed customer base• Geographically distributed fleet and ops bases• yet: „Single-Point ““““ customer contact• computer assisted dispatch, satellite based

localization, driver (and trailer) control• Standardized equipment

• also: intelligent pricing• Option of cross-selling „Packages ““““ with

„Dedicated ““““ Fleets, Contract Logistics,Administrative Services (Freight Payment )

Economies of Scale through „Network effects ““““:




III-5. ... especially: leveraging „scale“ effects fro m focus on regularizedfreight flows along „power-lanes“ and evolving networks

• Making trade-lanes „origin-destination pairs“ the basic unit for managing thebusiness and profitability

• Offering single point responsibily fortransport moves on given trade-lanes

• Eliminating settlement issues betweenterminals/profit-centers involved

• getting to full dispatcher concentrationon balanced „rotations“ of equimentand trade-lane loop efficiencies




III-6. ... developing and professionally maintaining l arge subcontractorresource bases ...




III-7. Synchronization between shipper-process-, load -, vehicle-, andcrew planning




III-8. ... with quite a few options for further Industria lization developmentswhich have not been fully explored yet

(Equipment, Personal, Rechte)

„Private Fleet ““““

(Werksverkehr)

„Dedicated Contract Carriage ““““

(Kontrakt -Flotten)

„Specialized Truckload ““““

(Spezialisierter Ladungsverkehr)

„Brokerage ““““

(Agenturgesch äft mit Owner -Operator und kleineren Transportunternehmen)

Walmart,Coca Cola

Schneider Logistics/P&G ,Hunt/Conagra

Sirva/Allied Van,ATS, Unigroup ,

Schneider Nat.Swift, Werner

CH Robinson

„SC

M/T

rans

port

M

anag

emen

t Ser

vice

s““ ““

(Kon

trak

t-T

rans

port

man

agem

ent)

„Asset Light General Truckload ““““

(““““Abfertigungsspedition ““““)Landstar

Ryd

er,

Tran

spla

ce „Asset Based Dry Van Truckload ““““

(Nicht -spezialisierter Ladungsverkehr)

Asset intensity and length of amortization periods

(Equipment, Personnel, Rights)

„Private Fleet ““““

(Werksverkehr)

„Dedicated Contract Carriage ““““

(Kontrakt -Flotten)

„Specialized Truckload ““““

(Spezialisierter Ladungsverkehr)

„Brokerage ““““

(Agenturgesch äft mit Owner -Operator und kleineren Transportunternehmen)

Num

ber

and

„tig

hnes

s of

cus

tom

er r

elat

ions

hips

low

high

Walmart,Coca Cola

Schneider Logistics/P&G ,Hunt/Conagra

Sirva/Allied Van,ATS, Unigroup ,

Schneider Nat.Swift, Werner

CH Robinson

„SC

M/T

rans

port

M

anag

emen

t Ser

vice

s““ ““

(Kon

trak

t-T

rans

port

man

agem

ent)

„Asset Light General Truckload ““““

(““““Abfertigungsspedition ““““)Landstar

Ryd

er,

Tran

spla

ce „Asset Based Dry Van Truckload ““““

(Nicht -spezialisierter Ladungsverkehr)

high

low




III-9. and more innovative, proactive, precisely targ eted„revenue“ (or „yield“) pricing policies and support ...

• systems supported price differentiation for ...

- Regularity of loads/shipments offered- Bonus for extended pick-up and deliv.ery time-windows- Bonus for eextende time-windows for loading-/

unloading operations(espec. with „Vendor Managed Inventory“)

- ... for preloaded trailer/swop-body operations




Agenda:









IV-1. Stages and elements of „Supply Chain Thinking“ .. ..

Ven

dors

/Sup

plie

rs

ProductionEnd-of-LineInventory

CentralPick/Pack

Outbound Transport

RegionalPick/Pack

DeliveryTransport

RetailStock

Con

sum

ers/

End

-Use

rs

The Physical Fulfilment Flow

Order Flow

The Payment-Flow

InboundTransport

Order-Processing

Order-Entry@POS

MaterialsInventory

CentralWarehse.

RegionalWarehse.

Order-Assignment

Payment

ReceivablesInvoicing

Forecasting

DRPMRP Master-Prod.Schedule

The Supply-Chain Control-Information-Flow

After SalesServices

ReverseLogistics

O rder-

St i mul at i on

from the„order-to-payment S ““““

Cus

tom

ers

Pri

mar

y S

uppl

iers

Cus

tom

ers

= C

ompo

nent

M

an.

Czu

stom

er

= O

EM

Man

uf.

= Fi

nal

Use

rs

= R

etai

l

Information

Product/Service

Money

PrimaryProd./ Parts, OEM-Produc ts Distribution Final Use

Raw Materials Components Consumtion

To the „extended ““““

supply chain

““““Supply chain management encompasses the planning and manag ementof all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordinationand collaboration with channel partners, which can be supp liers, intermediaries, third party service providers, and cust omers. In essence, supply chain management integrates supply and demand manag ementwithin and across companies. ””””

Source: CSCMP, see <www.cscmp.org> 1




IV-2. .. some „standard“ approaches and tools to SC Indu strialization ....

Sources: BVL/SCS report p. 38

Ven

dors

/Sup

plie

rs

ProductionEnd-of-LineInventory

CentralPick/Pack

Outbound Transport

RegionalPick/Pack

DeliveryTransport

RetailStock

Con

sum

ers/

End

-Use

rsThe Physical Fulfilment Flow

Order Flow

The Payment-Flow

InboundTransport

Order-Processing

Order-Entry@POS

MaterialsInventory

CentralWarehse.

RegionalWarehse.

Order-Assignment

Payment

ReceivablesInvoicing

Forecasting

DRPMRP Master-Prod.Schedule

The Supply-Chain Control-Information-Flow

After SalesServices

ReverseLogistics

O rder-

St i mul at i on

from the„order-to-payment S ““““

Cus

tom

ers

Pri

mar

y S

uppl

iers

Cus

tom

ers

= C

ompo

nent

M

an.

Czu

stom

er

= O

EM

Man

uf.

= Fi

nal

Use

rs

= R

etai

l

Information

Product/Service

Money

PrimaryProd./ Parts, OEM-Produc ts Distribution Final Use

Raw Materials Components Consumtion

To the „extended ““““

supply chain

““““Supply chain management encompasses the planning an d management of all activities involved in sourcing and procurem ent, conversion, and all logistics management activities. Importantly, it al so includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and deman d management within and across companies. ””””

Source: CSCMP, see <www.cscmp.org> 1




Agenda:






„ Industrialization““““ of

the Chemical Supply Chain:

Current Status and

Future Trends




V-1. Precondition for successful shipper-sideSupply Chain Industrialization: Viewing the entire netw ork ...

to improve Supply Chain segmentation and focus by ...

• production volumes• product handling

characteristics• demand patterns/

cyclicality• distribution network

characteristics• value density• security/

regulatoryrequirements

• ...

for perfectanalysis, re-engineering andintegration of

• information flows• goods flows• money flows

Agr

icul

t.In

dust

ry

Bui

ldin

g/C

onst

ruct

.

Gen

eral

In

dust

ry

FM

CG

/H

ouse

hold

Pha

rmac

.

Raw Mat‘s

BulkChemicals

B2B Chem.Wholesale

FinishedChem. Prod.

OtherIndustries

B2C Wholes/Retail

FinalConsumers

Wholesalers

Spec.Chem.

Spec.Chem.

Pharm.

Bulk Chemicals Producers




to leverage opportunities for

• upstream/downstreamservice expansion/integration

• specialization and closermatch with specificsupply chain demands

• achieving scale/network effectsin critical logististical functions(efficiency pricing)

• Exploring informationand money flow opportunities

V-2. Precondition for successful LSP business developme nt:Viewing the entire network ... ...

Agr

icul

t.In

dust

ry

Bui

ldin

g/C

onst

ruct

.

Gen

eral

In

dust

ry

FM

CG

/H

ouse

hold

Pha

rmac

.Raw Mat‘s

BulkChemicals

B2B Chem.Wholesale

FinishedChem. Prod.

OtherIndustries

B2C Wholes/Retail

FinalConsumers

Wholesalers

Spec.Chem.

Spec.Chem.

Pharm.

Bulk Chemicals Producers

Thank you! FRIEDRICH-ALEXANDERUNIVERSITÄTERLANGEN-NÜRNBERG




Selected Sources and Readings:

BVL Bundesvereinigung Logistik e.V. (2011): Studie Chemielogistik. Bedeutung, Strukturen, Dynamik. DVV Media Group, Hamburg.

Kille/Schwemmer (2013): Top 100 in European Transport and Logistics Services.DVV Media, Hamburg (also previous editions 2012, 2011)

Klaus, Peter (2011), “"The Industrialization Process in the Transport Industry”. Unpublished Paper EU-MARATHON Project, available on request from [email protected]>.

Levitt, Theodore (1972), „Production-line approach to Service“ in: Harvard Business Review, October-November, Vol. 50, pp. 41-52.

Levitt, Theodore (1976), “The Industrialization of Service” in: Harvard Business Review, September-October, Vol. 54, pp. 63-71.

Müller, Stefanie und Peter Klaus (2009): Die Zukunft des Ladungsverkehrs in Europa. Ein Markt an der Schwelle zur Industrialisierung? Schriftenreihe DVZ Praxis. DVV Media Group, Hamburg

VCI (2013)Verband der Chemischen Industrie e.V. : Chemiewirtschaft in Zahlen. VCI Frankfurt.

BMVBS (2011)Bundesministerium Verkehr : Verkehr in Zahlen. DVV-Verlag, Hamburg




Appendix: voluntary logistics industry initiatives rel ated toreporting, employee motivation, education, intelligentuse of availabletechnology …

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