Executive Briefings

Best Practices in Use of Railcar Fulfillment Systems

Nearly everything in our lives is impacted by rail, from food products to chemicals and energy. Total U.S. weekly rail freight traffic for one week in January 2015 was 548,055 carloads and intermodal units, up 4.1 percent compared with the same week last year, as reported by the Association of American Railroads.

Best Practices in Use of Railcar Fulfillment Systems

Rail is used to move freight in North American and across Asia more so than within Europe. Shipping via rail is the lowest-cost way to transport freight. Companies can ship large amounts of fluids or dry goods via rail as each railcar can hold 180,000 pounds (or 90 tons) of raw materials, which is equivalent to four trucks. Also, rail is four times as energy-efficient as truck transportation, making it one of the greenest ways to move product long distances.  

Over the past decade, the combination of horizontal drilling and hydraulic fracturing has allowed access to large volumes of shale gas that were previously uneconomical to produce. Because shale gas is growing in popularity, finding efficient transportation capacity can be a company’s greatest obstacle for delivering product to end customers. This increased focus on rail is putting a strain on railway systems, causing shippers to become more efficient with how they use the transportation systems they have.  

Another issue in bulk logistics and distribution deals with the general cost of maintaining a railcar. Companies don’t want to own railcars because of the expense, so they rent them instead. The cost for a new railcar can be in the six figures, while monthly rentals for a liquid railcar ranges has risen from $500 to  $1500 to $2000 per liquid railcar, according the Wall Street Journal article, “Railcar Shortage in U.S. Pushes Up Lease Rates.” The article explains that, “During the 2008 recession and its aftermath, car owners scrapped thousands of cars after customers decided not to renew leases. When demand picked up recently, car owners were short-handed.” Therefore, companies need to ensure their railcars are fully utilized. Automated systems are the best way to optimize rail car management.

However, many bulk distributors traditionally manage their logistics processes manually, using spreadsheets. This can lead to an increase in administrative headcount and hours, along with an increase in errors, as humans make mistakes. A common challenge when emailing spreadsheets is keeping track of which one is the most up to date. Another is not realizing the spreadsheet has a bad formula in it.  

Sub-optimal management of logistics processes can also lead to higher costs in inventory and working capital. If, for example, distributors need to have 12 railcars on location ready to go to fulfill an order, they may actually need to have 18 in their inventory – with three in route and three empties returning to keep an average of 12 on location. This overlap of inventory can drive asset costs through the roof. If a railcar costs $1500 a month to rent, by keeping six extra cars to ensure you always have 12 on site, you are adding an additional $9000 a month to transportation costs. If you add the cost of raw material to this process, you have millions of pounds of working capital idling in the rail yard.

Some facilities such as oil refineries or large process manufacturing operations may be best served by a pipeline or tank farm, but where none exists, they may consume 20 to 50 railcars each day. Efficiently managing these rolling stock inventories keeps plants running.

How does a rail car fulfillment system work?

Instead of using spreadsheets, an optimization system can monitor the status of railcars and, based on planning parameters, trigger the supplier’s ERP system to ship another railcar. These types of systems keep track of each railcar from the time it leaves the raw material supplier to the time it arrives at the manufacturing facility. The system is notified of each departure and arrival, giving the distributor visibility to where the railcars are at all times. Since it often takes two to three weeks for a railcar to come from the supplier to manufacturing, railcars can easily be late or arrive early. These systems monitor status of all railcars every 30 minutes and automatically adjust the flow of railcars in the system to keep the exact number of cars needed at the right facility.

The level of safety stock needed to keep the plant running can be entered by the bulk distributor or shipper, and this value is an input to the planning decisions. Historic trends can be reviewed, which allows the system to optimize the number of railcars needed to keep the factory up and running. You can look at how accurate the rail delivery system is and fine-tune your parameter to keep everything running smoothly at the optimal cost. The railcar system keeps management aware of what is happening at all times so they can make changes and adjust volumes if needed.

Part of a railcar fulfillment management system is to optimize inventory, time fences, planning horizons, etc. The system needs to track products to the level of a SKU, shipping plant, and receiving plant. Each combination of the three needs to identify lead time, safety stock levels, and cross-referencing information. The system needs to handle different ways the data comes into the system, whether it is EDI, XML, flat file, or manual entry through a portal. Additionally, the solution needs to be very flexible with respect to data cross-referencing – it needs to address the situation where the buyer, seller and rail carrier systems each have their own unique product identifier. The system needs to interpret and match these values.  

The railcar fulfillment system needs to let the user easily see the status of all railcar shipments and the associated planning information. This allows the user to maintain optimal inventory levels and respond quickly and efficiently to changing customer demand patterns. Based on a single external feed, such as daily railcar status, you can automatically generate fulfillment orders to achieve a specified number of active railcars and schedule new shipments for railcars when they are “emptied and released.”

Some customers may want you to keep an inventory of railcars full of their products on their site. They will unload the product when they need it, and they expect you to figure out that a railcar is now empty and needs to be replenished with a new one.

A rail fulfillment solution needs to have built-in flexibility to handle single and multi-line orders and standard or consignment orders. This gives users the ability to work the way they want to without changing their procurement processes.

Another aspect of railcar fulfillment systems is the case where there are volumetric changes in material used in a process. Caustic treating process is one example. Caustic can be used to remove sulfur from certain petroleum chemical processes. The used caustic needs to be recycled – dumping it into the water system would be costly waste and an environmental disaster. This means the railcar fulfillment process needs to not only keep the right amount of full containers on site, but also send extra empty containers in the right proportion to handle the volume increase. For example, every three full railcars need one empty car. 

The material from the three full railcars is loaded into the process unit. And the four empty cars are staged to receive “spent” caustic containing sulfur. In this case the railcars are transported full of dirty caustic to a caustic regeneration facility where the sulfur is removed by a different process and then reloaded into the washed railcars. The orchestration of railcars through the process is key to the operation of multiple plants.  

What if I don’t have scales?

Railcars weigh a lot and you do not always know precisely how much product has actually been loaded into one since not all loading spots have scales. Does the railcar contain 173,343 pounds or the full 180,000 on the order? In many cases the railcar needs to be transported to a different location with certified scales. Only after the order has been “delivery noted” from the ERP application and shipped does the shipper find out the actual amount loaded. This impacts inventory records, invoices, and paper work. 

A highly automated railcar fulfillment solution will contain the necessary electronic messaging capabilities to update the ERP and planning algorithms with most recent scale information to ensure proper planning and accounting occur.

A well-designed railcar fulfillment system has bottom-line implications for your business by keeping your factory up and running with a continuous supply of raw materials. Materials arrive promptly at their destination, reducing the number of emergency shipments required. By automating the fulfillment process, you increase the accuracy of data in your ERP systems and eliminate data latency by getting orders into the system instantly. Working capital is reduced by keeping the optimum number of railcars on site at any one time, eliminating stock-outs that can lead to customer dissatisfaction. These efficient fulfillment systems save time, resources and money, while providing a clear competitive advantage.

Source: Elemica

Rail is used to move freight in North American and across Asia more so than within Europe. Shipping via rail is the lowest-cost way to transport freight. Companies can ship large amounts of fluids or dry goods via rail as each railcar can hold 180,000 pounds (or 90 tons) of raw materials, which is equivalent to four trucks. Also, rail is four times as energy-efficient as truck transportation, making it one of the greenest ways to move product long distances.  

Over the past decade, the combination of horizontal drilling and hydraulic fracturing has allowed access to large volumes of shale gas that were previously uneconomical to produce. Because shale gas is growing in popularity, finding efficient transportation capacity can be a company’s greatest obstacle for delivering product to end customers. This increased focus on rail is putting a strain on railway systems, causing shippers to become more efficient with how they use the transportation systems they have.  

Another issue in bulk logistics and distribution deals with the general cost of maintaining a railcar. Companies don’t want to own railcars because of the expense, so they rent them instead. The cost for a new railcar can be in the six figures, while monthly rentals for a liquid railcar ranges has risen from $500 to  $1500 to $2000 per liquid railcar, according the Wall Street Journal article, “Railcar Shortage in U.S. Pushes Up Lease Rates.” The article explains that, “During the 2008 recession and its aftermath, car owners scrapped thousands of cars after customers decided not to renew leases. When demand picked up recently, car owners were short-handed.” Therefore, companies need to ensure their railcars are fully utilized. Automated systems are the best way to optimize rail car management.

However, many bulk distributors traditionally manage their logistics processes manually, using spreadsheets. This can lead to an increase in administrative headcount and hours, along with an increase in errors, as humans make mistakes. A common challenge when emailing spreadsheets is keeping track of which one is the most up to date. Another is not realizing the spreadsheet has a bad formula in it.  

Sub-optimal management of logistics processes can also lead to higher costs in inventory and working capital. If, for example, distributors need to have 12 railcars on location ready to go to fulfill an order, they may actually need to have 18 in their inventory – with three in route and three empties returning to keep an average of 12 on location. This overlap of inventory can drive asset costs through the roof. If a railcar costs $1500 a month to rent, by keeping six extra cars to ensure you always have 12 on site, you are adding an additional $9000 a month to transportation costs. If you add the cost of raw material to this process, you have millions of pounds of working capital idling in the rail yard.

Some facilities such as oil refineries or large process manufacturing operations may be best served by a pipeline or tank farm, but where none exists, they may consume 20 to 50 railcars each day. Efficiently managing these rolling stock inventories keeps plants running.

How does a rail car fulfillment system work?

Instead of using spreadsheets, an optimization system can monitor the status of railcars and, based on planning parameters, trigger the supplier’s ERP system to ship another railcar. These types of systems keep track of each railcar from the time it leaves the raw material supplier to the time it arrives at the manufacturing facility. The system is notified of each departure and arrival, giving the distributor visibility to where the railcars are at all times. Since it often takes two to three weeks for a railcar to come from the supplier to manufacturing, railcars can easily be late or arrive early. These systems monitor status of all railcars every 30 minutes and automatically adjust the flow of railcars in the system to keep the exact number of cars needed at the right facility.

The level of safety stock needed to keep the plant running can be entered by the bulk distributor or shipper, and this value is an input to the planning decisions. Historic trends can be reviewed, which allows the system to optimize the number of railcars needed to keep the factory up and running. You can look at how accurate the rail delivery system is and fine-tune your parameter to keep everything running smoothly at the optimal cost. The railcar system keeps management aware of what is happening at all times so they can make changes and adjust volumes if needed.

Part of a railcar fulfillment management system is to optimize inventory, time fences, planning horizons, etc. The system needs to track products to the level of a SKU, shipping plant, and receiving plant. Each combination of the three needs to identify lead time, safety stock levels, and cross-referencing information. The system needs to handle different ways the data comes into the system, whether it is EDI, XML, flat file, or manual entry through a portal. Additionally, the solution needs to be very flexible with respect to data cross-referencing – it needs to address the situation where the buyer, seller and rail carrier systems each have their own unique product identifier. The system needs to interpret and match these values.  

The railcar fulfillment system needs to let the user easily see the status of all railcar shipments and the associated planning information. This allows the user to maintain optimal inventory levels and respond quickly and efficiently to changing customer demand patterns. Based on a single external feed, such as daily railcar status, you can automatically generate fulfillment orders to achieve a specified number of active railcars and schedule new shipments for railcars when they are “emptied and released.”

Some customers may want you to keep an inventory of railcars full of their products on their site. They will unload the product when they need it, and they expect you to figure out that a railcar is now empty and needs to be replenished with a new one.

A rail fulfillment solution needs to have built-in flexibility to handle single and multi-line orders and standard or consignment orders. This gives users the ability to work the way they want to without changing their procurement processes.

Another aspect of railcar fulfillment systems is the case where there are volumetric changes in material used in a process. Caustic treating process is one example. Caustic can be used to remove sulfur from certain petroleum chemical processes. The used caustic needs to be recycled – dumping it into the water system would be costly waste and an environmental disaster. This means the railcar fulfillment process needs to not only keep the right amount of full containers on site, but also send extra empty containers in the right proportion to handle the volume increase. For example, every three full railcars need one empty car. 

The material from the three full railcars is loaded into the process unit. And the four empty cars are staged to receive “spent” caustic containing sulfur. In this case the railcars are transported full of dirty caustic to a caustic regeneration facility where the sulfur is removed by a different process and then reloaded into the washed railcars. The orchestration of railcars through the process is key to the operation of multiple plants.  

What if I don’t have scales?

Railcars weigh a lot and you do not always know precisely how much product has actually been loaded into one since not all loading spots have scales. Does the railcar contain 173,343 pounds or the full 180,000 on the order? In many cases the railcar needs to be transported to a different location with certified scales. Only after the order has been “delivery noted” from the ERP application and shipped does the shipper find out the actual amount loaded. This impacts inventory records, invoices, and paper work. 

A highly automated railcar fulfillment solution will contain the necessary electronic messaging capabilities to update the ERP and planning algorithms with most recent scale information to ensure proper planning and accounting occur.

A well-designed railcar fulfillment system has bottom-line implications for your business by keeping your factory up and running with a continuous supply of raw materials. Materials arrive promptly at their destination, reducing the number of emergency shipments required. By automating the fulfillment process, you increase the accuracy of data in your ERP systems and eliminate data latency by getting orders into the system instantly. Working capital is reduced by keeping the optimum number of railcars on site at any one time, eliminating stock-outs that can lead to customer dissatisfaction. These efficient fulfillment systems save time, resources and money, while providing a clear competitive advantage.

Source: Elemica

Best Practices in Use of Railcar Fulfillment Systems