Executive Briefings

Outsourcing Allows Pilot Chemical to Quickly Analyze Its Cost-to-Serve Issues

ChemLogix provided a specialty chemical company with the technology, visibility and control it needed to support the most complex customer requirements.

Pilot Chemical Company is a Cincinnati-based producer of specialty chemicals for a wide variety of industrial customers, including makers of household and personal care products, lubricant additives and detergents. It serves more than 500 customers worldwide from its network of five production plants in Ohio, New Jersey and Texas and distribution facilities in California and Europe. Several plants make unique products, while others make products dependent on intermediate chemicals produced at other company plants, which adds to the complexity of the company's outbound logistics. While the majority of domestic shipments move by liquid bulk that is trucked by independent carriers throughout the U.S, Pilot Chemical also uses other modes to globally transport product to customers and between plants, including dry van, less-than-truckload, rail tank car, barge and ISO ocean containers. The need for strict regulatory compliance to manage shipments of certain product lines that are considered hazardous substances just adds to the supply chain complexity.

The complexity of Pilot's network, product mix and modal requirements tends to mask the actual transportation costs for the 14,000 orders each year, so understanding the cost to serve each customer-and the profitability of each order-has been a challenge.

"For many years, we really did not understand what it cost to move a particular order, especially those orders that involved production at more than one plant before final delivery to the customer," says Michael Rohrbaugh, Pilot Chemical's supply chain manager. "A shipment might begin in Houston and then move to a plant in California for additional processing before shipment to the customer site. It was impossible to know the cost details of our logistics costs."

Part of the problem was that each plant traditionally handled its own transportation, including billing and invoicing. All transportation charges were just aggregated as "freight" with no transactional detail for each shipment. There was no central control or any ability to track or monitor shipments. Each site operated independently, and there was no system for mode comparison and limited ability to select the optimal carrier. Plants did things their own way, unaware of how they may be impacting Pilot's other plants.

Lacking centralized control, management relied on individual plants to provide data on freight costs. Updating data on a regular basis proved difficult as manufacturing personnel were primarily focused on making product, not data analysis. Without direct access or visibility to freight data at a corporate level, management could not accurately evaluate current and potential business operations.

As a result, the company could not account for the cost-to-serve elements of individual transactions. It could not determine if rising costs were a result of freight costs by carriers, fuel surcharges or other factors.

 "We didn't have the technology to efficiently update load status and capture ongoing, itemized costs for our logistics," says Rohrbaugh. "We also didn't have the resident expertise to effectively manage our logistics network. If costs went up during a year, no one really knew why or what to do about it. We had no control."

Pilot decided in 2006 that it needed to get a better handle on the high "cost-to-serve" issues with its vendors and customers. It considered three options:

• Continue to operate as a decentralized transportation operation with increased oversight at the plants added by purchased technology
• Manage transactional and carrier management as a hybrid corporate/plant responsibility with a best-of-breed transportation management system
• Outsource the transportation management to a 3PL that had an on-demand TMS in place.

A critical part of the analysis was how best to implement a state-of-the-art transportation solution that would improve management of freight and increase customer service. Pilot had several requirements for such a TMS:

• It must provide enhanced visibility to freight costs, including historical spend, available market pricing and competitive market intelligence
• The system must cascade or broadcast tenders and send updates and notifications to increase efficiency in load tendering and coverage
• It must offer the flexibility to consolidate all freight scheduling responsibilities to a single person at a centralized location.

Rohrbaugh and his team analyzed the costs and service implications for each option and how it could provide the technology to achieve the much needed cost visibility.

"Looking at the resources and the skill sets we had in-house, it was obvious that transportation was not a core competency for us," says Rohrbaugh. "We had to outsource to a 3PL."

But Pilot also wanted a 3PL that could help develop strategies to increase efficiency and outline opportunities for short and long-term savings. After evaluating several resources, Pilot Chemical chose to outsource its transportation management to ChemLogix, a 3PL specializing in the chemical industry. ChemLogix could also provide a web-based, on-demand TMS that would address all its logistics challenges. By outsourcing its transportation management, Pilot avoided the need to purchase and manage its own TMS implementation. It could implement a high-quality TMS with minimal impact on existing operating procedures. Pilot's selection criterion was based on the 3PL's capability to provide a solution that would:

• Control and provide visibility to accessorial costs
• Automate carrier selection and load tendering
• Address settlement and reporting
• Provide actionable freight data
• Be self-funding.

"We chose ChemLogix based on their reputation, best-in-industry technology and the expertise that its seasoned professionals can bring to the table," says Rohrbaugh. "Having maintained our freight payment and billing since 2001, ChemLogix already had established a close, trusting working relationship with us and understood our business and people."

ChemLogix provided Pilot with its fully customized On-Demand TMS solution that combined logistics expertise with advanced transportation technology powered by Sterling Commerce's best-of-breed Nistevo TMS. With this web-based system, Pilot Chemical did not need to add servers or databases. And by using ChemLogix to implement and manage the system, the company could tap into the 3PL's resident expertise to provide strategic and tactical directions for supply chain strategy and execution.

After Pilot Chemical installed a new enterprise resource planning system system in the beginning of 2007, ChemLogix designed, built, integrated, tested and implemented the company-wide TMS in less than four months. Orders that are input into the ERP system are immediately transmitted to ChemLogix. The 3PL runs each order through its TMS, determines which carrier under contract can provide the best service at the best price, and then dispatches the order to that carrier.

Since implementation in 2007, the web-based system has optimized Pilot's freight operations in several key areas such as carrier management, route guide design and compliance, tender management, and vendor compliance. It provides full visibility into freight spend through online access to data and custom reports.

ChemLogix handles all domestic transportation tasks for Pilot from the time the 3PL gets the order until the product shows up at the customer's location. The only domestic transportation function still handled in-house is dock scheduling for inbound and outbound shipments.

International transportation is still an evolving process, according to Rohrbaugh. Export moves are still handled in-house, as are those import orders that are purchased on delivered basis where the supplier handles the transportation. ChemLogix increasingly routes imports after they arrive at a U.S. port.

ChemLogix has not only been able to solve Pilot's cost-to-serve dilemma, but it is also helping the company deal with other supply chain issues, including transportation cost optimization and service performance improvement.

"With our complex supply chain, transportation is a significant cost element that needs constant review," says Rohrbaugh. "Also, our plants run a tight production schedule, so trucks have to show up when they are supposed to with the right, clean equipment. Any failure will result in cascading problems at the plant."

ChemLogix has been extremely helpful on both accounts because the data they provide has implications for the entire operation. For example, ChemLogix discovered that too much money was being spent expediting short lead-time orders, and it was able to show that such orders were far in excess of industry norms. With the highly detailed data that ChemLogix provided, Pilot's management was able to see which customers, products and plants were at issue.

"We were able to take action to eliminate most of the short lead-time orders," says Rohrbaugh. "By taking these actions, we not only saved transportation dollars, but we improved plant efficiency as well."

As a 3PL specializing in the chemical industry, ChemLogix also provides ongoing assistance with regulatory compliance issues. Hazmat regulations and documents are constantly changing and must be complied with, so ChemLogix monitors these changes for all of Pilot's products. It also monitors all carriers for their compliance and audits their performance. Because certain customers have special compliance requirements as well, ChemLogix monitors carrier operations to make sure these special requirements are met.

ChemLogix is increasingly playing an important role in making sure imports flow smoothly through U.S. ports, where expensive delays can be triggered for many unforeseen reasons ranging from customs glitches to documentation problems. Demurrage for an ocean vessel can cost tens of thousands of dollars a day, so ChemLogix is increasingly monitoring imports to expedite ocean imports off the vessels and move them inland as quickly as possible.

Using ChemLogix's on-demand IT capabilities, Pilot has developed a series of reports supported by the TMS data that provide enhanced visibility of Pilot's key operational elements and their associated costs. For example, the company created a monthly Top 10 accessorial cost report by plant to drive continuous cost improvement. In addition to identifying these cost items, Pilot's managers use the reports as the basis for monthly conference calls with the plants. The reports help focus attention on the high-cost items, so the plants can find ways to reduce or eliminate them.

Other reports depict detailed client level transportation data by cost per pound, mode, and lane. This enables Pilot management to determine the cost to serve their clients. In the past, Pilot's assumptions for moving freight were well below actual cost, resulting in high freight cost variances.

"When shipping chemicals, especially commodity products, a variance of one cent per pound can mean the difference between a profit and loss," says Rohrbaugh. "With a granular view of individual activities, Pilot Chemical can better control costs for each specific customer."

Advanced carrier contract management functionality offered by the ChemLogix On-Demand TMS provides for highly accurate, real-time freight accruals for accurate reconciliation. In the past, freight costs were often inaccurately estimated, resulting in errors in freight accruals. With wide variances between the estimated and actual cost of freight, Pilot Chemical was often surprised when closing its books at the end of each month. With event-driven freight accrual information uploaded from the TMS, reconciliation between estimates and invoices are more consistent, eliminating surprises with cost variances.

Automatic tracking of freight activities also has improved carrier performance from a low of 90 percent to 98 percent. By tracking and managing carrier activities on a daily basis, ChemLogix maintains higher levels of performance from Pilot Chemical's transportation vendors.

Through the industry knowledge offered by ChemLogix logistics experts, Pilot Chemical also has exceeded its goal for carrier reporting compliance. ChemLogix's expertise in handling hazardous materials in all modes of transportation has resulted in a reduction in liability exposure for Pilot.

"In many situations, Pilot Chemical was unaware of all the risk and liability issues associated with specific modes of transportation," says Rohrbaugh. "Our logistics subject matter experts understand and build contingencies to deal with the compliance requirements and risks associated with transporting products in all modes and geographic regions. Armed with that knowledge, we are able to provide our clients with a comprehensive process that will be utilized to ensure outstanding customer service while minimizing risk."

Pilot Chemical has gained substantial savings through the level of control, management and visibility offered by the ChemLogix TMS solution. More than proving to be self funding, this web-enabled transportation management solution has significantly exceeded Pilot Chemical's cost-savings goal while improving customer service and enhancing its ability to gain control over its logistics operations. In essence, Pilot Chemical was able to outsource a TMS with the added value of an expert logistics team at no additional cost.

"We set savings targets when we started with ChemLogix," says Rohrbaugh. "We have exceeded these targets, and we have the data to show the benefit."

RESOURCE LINKS:
ChemLogix, www.chemlogix.com
Sterling Commerce, www.sterlingcommerce.com

Pilot Chemical Company is a Cincinnati-based producer of specialty chemicals for a wide variety of industrial customers, including makers of household and personal care products, lubricant additives and detergents. It serves more than 500 customers worldwide from its network of five production plants in Ohio, New Jersey and Texas and distribution facilities in California and Europe. Several plants make unique products, while others make products dependent on intermediate chemicals produced at other company plants, which adds to the complexity of the company's outbound logistics. While the majority of domestic shipments move by liquid bulk that is trucked by independent carriers throughout the U.S, Pilot Chemical also uses other modes to globally transport product to customers and between plants, including dry van, less-than-truckload, rail tank car, barge and ISO ocean containers. The need for strict regulatory compliance to manage shipments of certain product lines that are considered hazardous substances just adds to the supply chain complexity.

The complexity of Pilot's network, product mix and modal requirements tends to mask the actual transportation costs for the 14,000 orders each year, so understanding the cost to serve each customer-and the profitability of each order-has been a challenge.

"For many years, we really did not understand what it cost to move a particular order, especially those orders that involved production at more than one plant before final delivery to the customer," says Michael Rohrbaugh, Pilot Chemical's supply chain manager. "A shipment might begin in Houston and then move to a plant in California for additional processing before shipment to the customer site. It was impossible to know the cost details of our logistics costs."

Part of the problem was that each plant traditionally handled its own transportation, including billing and invoicing. All transportation charges were just aggregated as "freight" with no transactional detail for each shipment. There was no central control or any ability to track or monitor shipments. Each site operated independently, and there was no system for mode comparison and limited ability to select the optimal carrier. Plants did things their own way, unaware of how they may be impacting Pilot's other plants.

Lacking centralized control, management relied on individual plants to provide data on freight costs. Updating data on a regular basis proved difficult as manufacturing personnel were primarily focused on making product, not data analysis. Without direct access or visibility to freight data at a corporate level, management could not accurately evaluate current and potential business operations.

As a result, the company could not account for the cost-to-serve elements of individual transactions. It could not determine if rising costs were a result of freight costs by carriers, fuel surcharges or other factors.

 "We didn't have the technology to efficiently update load status and capture ongoing, itemized costs for our logistics," says Rohrbaugh. "We also didn't have the resident expertise to effectively manage our logistics network. If costs went up during a year, no one really knew why or what to do about it. We had no control."

Pilot decided in 2006 that it needed to get a better handle on the high "cost-to-serve" issues with its vendors and customers. It considered three options:

• Continue to operate as a decentralized transportation operation with increased oversight at the plants added by purchased technology
• Manage transactional and carrier management as a hybrid corporate/plant responsibility with a best-of-breed transportation management system
• Outsource the transportation management to a 3PL that had an on-demand TMS in place.

A critical part of the analysis was how best to implement a state-of-the-art transportation solution that would improve management of freight and increase customer service. Pilot had several requirements for such a TMS:

• It must provide enhanced visibility to freight costs, including historical spend, available market pricing and competitive market intelligence
• The system must cascade or broadcast tenders and send updates and notifications to increase efficiency in load tendering and coverage
• It must offer the flexibility to consolidate all freight scheduling responsibilities to a single person at a centralized location.

Rohrbaugh and his team analyzed the costs and service implications for each option and how it could provide the technology to achieve the much needed cost visibility.

"Looking at the resources and the skill sets we had in-house, it was obvious that transportation was not a core competency for us," says Rohrbaugh. "We had to outsource to a 3PL."

But Pilot also wanted a 3PL that could help develop strategies to increase efficiency and outline opportunities for short and long-term savings. After evaluating several resources, Pilot Chemical chose to outsource its transportation management to ChemLogix, a 3PL specializing in the chemical industry. ChemLogix could also provide a web-based, on-demand TMS that would address all its logistics challenges. By outsourcing its transportation management, Pilot avoided the need to purchase and manage its own TMS implementation. It could implement a high-quality TMS with minimal impact on existing operating procedures. Pilot's selection criterion was based on the 3PL's capability to provide a solution that would:

• Control and provide visibility to accessorial costs
• Automate carrier selection and load tendering
• Address settlement and reporting
• Provide actionable freight data
• Be self-funding.

"We chose ChemLogix based on their reputation, best-in-industry technology and the expertise that its seasoned professionals can bring to the table," says Rohrbaugh. "Having maintained our freight payment and billing since 2001, ChemLogix already had established a close, trusting working relationship with us and understood our business and people."

ChemLogix provided Pilot with its fully customized On-Demand TMS solution that combined logistics expertise with advanced transportation technology powered by Sterling Commerce's best-of-breed Nistevo TMS. With this web-based system, Pilot Chemical did not need to add servers or databases. And by using ChemLogix to implement and manage the system, the company could tap into the 3PL's resident expertise to provide strategic and tactical directions for supply chain strategy and execution.

After Pilot Chemical installed a new enterprise resource planning system system in the beginning of 2007, ChemLogix designed, built, integrated, tested and implemented the company-wide TMS in less than four months. Orders that are input into the ERP system are immediately transmitted to ChemLogix. The 3PL runs each order through its TMS, determines which carrier under contract can provide the best service at the best price, and then dispatches the order to that carrier.

Since implementation in 2007, the web-based system has optimized Pilot's freight operations in several key areas such as carrier management, route guide design and compliance, tender management, and vendor compliance. It provides full visibility into freight spend through online access to data and custom reports.

ChemLogix handles all domestic transportation tasks for Pilot from the time the 3PL gets the order until the product shows up at the customer's location. The only domestic transportation function still handled in-house is dock scheduling for inbound and outbound shipments.

International transportation is still an evolving process, according to Rohrbaugh. Export moves are still handled in-house, as are those import orders that are purchased on delivered basis where the supplier handles the transportation. ChemLogix increasingly routes imports after they arrive at a U.S. port.

ChemLogix has not only been able to solve Pilot's cost-to-serve dilemma, but it is also helping the company deal with other supply chain issues, including transportation cost optimization and service performance improvement.

"With our complex supply chain, transportation is a significant cost element that needs constant review," says Rohrbaugh. "Also, our plants run a tight production schedule, so trucks have to show up when they are supposed to with the right, clean equipment. Any failure will result in cascading problems at the plant."

ChemLogix has been extremely helpful on both accounts because the data they provide has implications for the entire operation. For example, ChemLogix discovered that too much money was being spent expediting short lead-time orders, and it was able to show that such orders were far in excess of industry norms. With the highly detailed data that ChemLogix provided, Pilot's management was able to see which customers, products and plants were at issue.

"We were able to take action to eliminate most of the short lead-time orders," says Rohrbaugh. "By taking these actions, we not only saved transportation dollars, but we improved plant efficiency as well."

As a 3PL specializing in the chemical industry, ChemLogix also provides ongoing assistance with regulatory compliance issues. Hazmat regulations and documents are constantly changing and must be complied with, so ChemLogix monitors these changes for all of Pilot's products. It also monitors all carriers for their compliance and audits their performance. Because certain customers have special compliance requirements as well, ChemLogix monitors carrier operations to make sure these special requirements are met.

ChemLogix is increasingly playing an important role in making sure imports flow smoothly through U.S. ports, where expensive delays can be triggered for many unforeseen reasons ranging from customs glitches to documentation problems. Demurrage for an ocean vessel can cost tens of thousands of dollars a day, so ChemLogix is increasingly monitoring imports to expedite ocean imports off the vessels and move them inland as quickly as possible.

Using ChemLogix's on-demand IT capabilities, Pilot has developed a series of reports supported by the TMS data that provide enhanced visibility of Pilot's key operational elements and their associated costs. For example, the company created a monthly Top 10 accessorial cost report by plant to drive continuous cost improvement. In addition to identifying these cost items, Pilot's managers use the reports as the basis for monthly conference calls with the plants. The reports help focus attention on the high-cost items, so the plants can find ways to reduce or eliminate them.

Other reports depict detailed client level transportation data by cost per pound, mode, and lane. This enables Pilot management to determine the cost to serve their clients. In the past, Pilot's assumptions for moving freight were well below actual cost, resulting in high freight cost variances.

"When shipping chemicals, especially commodity products, a variance of one cent per pound can mean the difference between a profit and loss," says Rohrbaugh. "With a granular view of individual activities, Pilot Chemical can better control costs for each specific customer."

Advanced carrier contract management functionality offered by the ChemLogix On-Demand TMS provides for highly accurate, real-time freight accruals for accurate reconciliation. In the past, freight costs were often inaccurately estimated, resulting in errors in freight accruals. With wide variances between the estimated and actual cost of freight, Pilot Chemical was often surprised when closing its books at the end of each month. With event-driven freight accrual information uploaded from the TMS, reconciliation between estimates and invoices are more consistent, eliminating surprises with cost variances.

Automatic tracking of freight activities also has improved carrier performance from a low of 90 percent to 98 percent. By tracking and managing carrier activities on a daily basis, ChemLogix maintains higher levels of performance from Pilot Chemical's transportation vendors.

Through the industry knowledge offered by ChemLogix logistics experts, Pilot Chemical also has exceeded its goal for carrier reporting compliance. ChemLogix's expertise in handling hazardous materials in all modes of transportation has resulted in a reduction in liability exposure for Pilot.

"In many situations, Pilot Chemical was unaware of all the risk and liability issues associated with specific modes of transportation," says Rohrbaugh. "Our logistics subject matter experts understand and build contingencies to deal with the compliance requirements and risks associated with transporting products in all modes and geographic regions. Armed with that knowledge, we are able to provide our clients with a comprehensive process that will be utilized to ensure outstanding customer service while minimizing risk."

Pilot Chemical has gained substantial savings through the level of control, management and visibility offered by the ChemLogix TMS solution. More than proving to be self funding, this web-enabled transportation management solution has significantly exceeded Pilot Chemical's cost-savings goal while improving customer service and enhancing its ability to gain control over its logistics operations. In essence, Pilot Chemical was able to outsource a TMS with the added value of an expert logistics team at no additional cost.

"We set savings targets when we started with ChemLogix," says Rohrbaugh. "We have exceeded these targets, and we have the data to show the benefit."

RESOURCE LINKS:
ChemLogix, www.chemlogix.com
Sterling Commerce, www.sterlingcommerce.com