Supply and demand how are you reacting?

In the UK, 60 per cent of storage and distribution logistics are outsourced to specialists. It is the highest level in Europe, and according to companies in the business, this is set to grow.

The higher costs needed to compete with specialist distributors, plus the extra burden for smaller producers with lower economies of scale, are driving the outsourcing trend.

Distributors can provide call centre services to manage the order process and give the extra support needed for exporting to a small customer abroad. Handling bulk storage for producers also reduces their regulatory liabilities.

But the existence of third party distribution depends on reducing costs to both producer and customer. This is being done in a number of ways in response to demand.

According to chemicals logistics specialist Nedlloyd, with the idea of distribution as a competitive weapon instead of an expense, producers are forcing partnerships with distributors to focus on `value-adding' activities, new distribution concepts, or other cost cutting exercises.

A range of extra finishing services for customers allows Norkem, a UK-based pan-European chemicals distributor, to offer a service which a producer would be hard pushed to match. This includes delivery in custom designed IBCs (intermediate bulk containers), the repackaging of products to suit the batch sizes of production plants, the granulating and pelletising of consignments to reduce the dangers of dust, and the liquefying of products for easier and safer handling.

An example of this service is the formulation and distribution of barium carbonate suspension (BAC 60) for the brick and tile industry. Techniques learned by the company during the development of BAC 60 are also being applied to other materials with the aim of offering products in a more user-friendly form. One such product is manganese oxide suspension, also for the brick and tile industry.

Hays Chemical Distribution is using stainless steel IBC's from Tycon Containers for the shipment of a range of solvents from its Liverpool storage and distribution depot.

Hays Chemical Distribution commercial director Mike West says, `stainless steel IBCs are preferable to their polyethylene equivalents due to the flammable nature of the material being distributed. With the potential risk of a build up of static electricity in plastic IBCs, Hays' policy is to fill solvents into stainless steel IBCs only.'

Pressures on producers to reduce the burden on the environment result in the development of new distribution concepts such as reverse logistics, where discarded products are returned to a central depot to be reused, recycled, or discarded in a safe manner.

Hays also uses a variety of purpose built containers including, IBCs, pressure bins, drums, and carboys which are all returnable, thus minimising any waste packaging and its environmental impact.

IBC's have been widely used at the Potter Group's Droitwich site for a number of years, and general manager Les Janes predicts only increased use of IBCs for the future.

The emergence of a 24-hour economy in which consumers want to order at any time is changing the requirements for chemicals delivery.

Nedlloyd finds that to accommodate ever more demanding customer service levels, players in distribution offer more precise delivery times, feeding further demand for distribution concepts such as over-night and in-night delivery. To reduce customer's inventories and stock running out, frequent, just-in-time (JIT) deliveries of small quantities are made, leading to a supply chain that is directly triggered by consumer demand.

Most of the Potter Group's internal communications are now electronic and a sophisticated IT system interfaces directly with client companies. Its Droitwich site now acts as a distribution centre for Ciba in North West Europe in a project which has seen lead times reduced from five days to a next day service.

All four Potter Group depots (Droitwich, Ripon, Ely and Selby) can receive orders electronically and a customer care programme provides digital photographs of damaged goods which can then be `e-mailed' to whoever it concerns.

Hays has developed a supply chain management system which allows customers JIT stock control and, ultimately, complete chemical management. In this way, customers and producers avoid the costs, space and regulatory considerations of storing chemicals on their own sites.

Passing the regulatory responsibility of storage, such as COMAH, from producers and consumers to distributors, has brought extra business to distributors.

`There is no doubt that top tier COMAH recognition and compliance with COMAH regulations has contributed to our growth,' says Janes of the Potter Group.

The urge among producers to reduce overall supply chain costs is focusing attention on inventory costs and the costs of holding stock - striving for zero stock, claims Nedlloyd. This forces a reduction in inventory levels and locations. This is becoming viable through concepts such as stock-in-transit, managing multiple stock points as a single inventory (regardless of location), and JIT deliveries. IT systems for supply chain management form the backbone of these concepts.

Dedicating The Potter Group's Droitwich site largely to chemicals has led to significant advances in its business. `We continually up-date our systems to meet any changes in legislation and, by remaining flexible, see considerable further growth in the chemicals sector for all of our depots,' says Janes.

As electronic commerce becomes more widespread, direct contact between producers and final customers increases. This, in combination with the search for reduction in inventory across the supply chain, may set in motion a tendency towards disintermediation, claims Nedlloyd. This is the process of cutting out links in the supply chain that add limited or no value. But as long as distributors cut costs at both ends of the supply chain through dedicated service, there will be a place for them in the market. PE