Appendices
Appendix I - Region and zone maps for zone pricing system ... 67
Appendix II - Questionnaire used for external benchmarking... 68
Appendix III - The Economic Ordering Quantity continued ... 69
Appendix IV - Summary of the best IBC return systems ... 70
Appendix V - Stock Management at Brenntag... 75
Appendix VI - Stock holding costs and in-out costs ... 77
Appendix VII - Implementation of improvements suggested in this report ... 78
Appendix VIII - Temporal Freight consolidation calculations…...External CD
Appendix I - Region and zone maps for zone pricing system
Map 1: Region split-up of Greater Buenos Aires (X marks the location of the warehouse)
Appendix II - Questionnaire used for external benchmarking
University of Groningen
BENCHMARK INTERVIEW
General Company
How many tonnes do you sell annually?
In which parts of Argentina do you have offices/sell products? Exactly which services does your company offer to her customers? What are your company’s core competencies? Why?
Do you work together with other Argentine (distribution) companies? What are the main problems that your company struggles with? How is a typical order carried out by your company?
Packaging
Which types of packaging do you use?
How many units of packaging do you purchase per year? And which types? Do you come across problems with your packaging systems?
From which companies do you purchase packaging?
How does your company allocate packaging costs to products? Are any of these types of packaging reusable? If so, which?
Do you own all your reusable packaging? If not, where do you rent packaging?
How do you ensure that reusable packaging is returned? If deposits exist, how are they being used? And, who picks up the empty containers?
What would be the reaction of customers if a deposit were implemented?
Has your company ever contemplated other packaging systems? What was the result and why? Which companies do you use for cleaning and disposing of containers?
Do you offer fractioning and mixing? How do you carry out these processes?
Transportation
What are the main transportation problems that your company encounters? What is the location of your warehouse(s)?
Do you own or rent this/these warehouses? Which modes of transport do you use?
Do you combine transportation of you products with those of other companies?
Do you own any means of chemicals transport? If so, what are the advantages/disadvantages? How does your company allocate transport costs to your products?
With which transportation companies do you work?
Do you use a system to reduce dead freight? And when transport returns? How important is the ‘next day delivery’ for customers?
How do you ensure the optimization of transport?
General
What do you think is the most occurring supply chain problem that occurs in Argentina? How do you see the future of third party chemicals distribution companies in Argentina? Is the chemicals distribution sector posed with any threats for the future?
Appendix III - The Economic Ordering Quantity continued
Continued from paragraph 4.2.1, more depth is provided for the reader explaining why customers will always order the minimal amount.
Figure 1: Optimal ordering volume
To sum up the reasoning behind the EOQ, Figure 1 illustrates the optimal ordering volume for customers. The optimal ordering volume is dependent on the optimal balance between the storage cost per unit weight and the delivery cost per unit weight. It is possible to influence the customers EOQ by changing the delivery cost. The higher the fixed delivery cost the higher the optimal order quantity for the customer. Nevertheless, the delivery cost must not be such that it deters customers from buying.
The formula for the EOQ is:
H DS
EOQ= 2
Where,
EOQ = optimal (least cost) lot size D = average demand for a year S = fixed delivery cost
H = annual storage cost per unit volume
The equation above makes it possible to calculate the EOQ is provided above. This is needed to elaborate on the optimal order size and cost.
Volume C o st s p er u n it Storage costs Delivery costs Total costs 0
Appendix IV - Summary of the best IBC return systems
This appendix provides a description of the deciding factors that have been used to choose the most suited IBC return system for Brenntag. The results conclude that the current account IBC-return system is the most suited to the circumstances of Brenntag.
This appendix is split into a benchmarking part and an analysis part.
Benchmarking Internal benchmarking
The system utilised by Brenntag Peru and Brenntag Chile resembles the current account system and functions well. In this system the IBC’s that were delivered to the customer were signed for on a separate receipt by the truck driver and the customer. The receipts are stored and the IBC information is entered into a database. After one month the customer would be reminded that the IBC must be returned. When the IBC is returned the documents are yet again signed by both parties. If the IBC is not back after the predetermined period then an invoice is sent to the client to reimburse Brenntag for the full sum of the container that was not returned.
External Benchmarking
Competitor Arubras also uses the current account system which was rather interesting for this report. All their IBC’s are marked with the company name and a unique code. These data are permanent on the IBC. The IBC is delivered to the customer and the customer signs a separate receipt that the IBC will be ready for return in 30 days. After 30 days if the IBC is not yet back, Arubras tracks the IBC and warn the customer that they have to return it. If the IBC is not returned within 60 days an invoice for the full purchase price of the IBC is sent to the customer. If the customer does not pay the invoice no more business is done with that customer. The administration for this system is done in the office once a week.
The different IBC return systems System 1: Current account system
The current account system is the underlying theory in both of the above cases. The current account system is described and analysed in paragraph 7.4 of the main report. The analysis is compared to two other possible IBC return systems below.
System 2: Deposit system
The only benchmarked company that used a deposit system was Inmobal Nutrer. This company includes the deposit in the cost of the product and refunds the deposit in the form of credit when the IBC has been returned. Inmobal Nutrer does not purchase IBC’s alone, it only has the IBC’s which arrived with purchased chemicals.
In the literature the deposit system works as follows. The sender debits his recipient for the minimum cost of the container on receiving the product. Once the container is returned the deposit is refunded, or put on credit.
Using this system the customer is made aware about the financial aspect of the container stimulating a quick return of the container. The disadvantages of this system are that customers often refuse to pay a deposit and thus reduce the invoice by the value of the deposit. Another disadvantage is that broken containers are returned for the full price, this becomes the responsibility of the truck driver. A last disadvantage is that the retrieval, cleaning and maintenance remains the job of the sender.
A simple deposit system will function as follows, (see Figure 2):
Figure 2: Deposit system In this scenario the sender owns the containers.
Stage 1: The sender (Brenntag in this case) fills and transports the product to the recipient, R1. The recipient receives the product and uses it. The deposit costs are included in the invoice.
Stage 2: The recipient has one or more empty containers and would like the deposit back. The recipient notifies the sender of this (2). The sender will send out a truck for the pickup of the containers (3) and the deposit is refunded.
Annual costs Costs per IBC
Administration $1,724.00 $0.82
Cleaning $35,558.50 $16.89
New IBCs $34,200.00 $16.25
Maintenance $17,869.50 $8.49
Storage Empty containers $6,504.00 $3.09
Total $95,856.00 $45.54
Table 1: IBC costs using the deposit system
S R1 S R1 Stage 1 Stage 2 1 2 3 = Goodsflow = Information flow
System 3: Depot system
The third option that is considered is the depot (book) system. This system is widely used in Europe and the United States.
In this case the containers are owned by a central agency. The agency is responsible for the return of the container after it has been emptied by the recipient. The main prerequisite for such a system is that the customer bundles the empty containers, and stores them until a sufficient number has accumulated for cost-effective collection.
Containers that are not in use are stored in the container depot. From the container depot the sender is provided with the number of containers that he uses. The empty containers are collected and returned to the container depot. Here the containers are cleaned and maintained.
The container agency has detailed control of the flow of the containers. The sender has an account with the agency and the quantities involved are debited from the senders account. When the container is sent to the recipient, the quantity is credited in the sender’s account, and debited to the recipient’s. It is essential that the agency has all the necessary information in order to monitor movement of the containers.
The customer is yet again made very aware of the financial aspects of the container. The container systems that such service providers provide are of very high quality, offering top efficiency and all added services such as cleaning and maintenance. The retrieval work can also be carried out by the service provider. However, the costs are high.
The Depot system is described and illustrated on the next page.
Figure 2: Depot booking system
A S R d2 d1 = Goodsflow = Information flow 1 2 6 5 3 4 7 8
In this section the models are described in more detail. The sender, S, intends to send goods to a specific recipient R, and wants to use a returnable container to do so. The reverse logistics depot system with a deposit works as follows, (see Figure 2).
The sender notifies the agency, A, that he wants to use returnable containers (1). The agency then notifies the logistics service organisation (2). The logistics service distributes the desired number of containers from the nearest depot (3). The sender packs the goods and sends them to the recipient (4). After the recipient has received a certain number of containers he notifies the agency of this fact (5). Next, the logistics service is notified by the agency (6). The logistics service then collects the containers from the recipient and takes them to the nearest depot (d2). Before the containers are used again, they are cleaned, and, if necessary, also maintained.
The logistics service is responsible for having a stock of containers. Hence, if there is an imbalance transport is organised by the logistics service between depots (8).
The sender pays a deposit for the containers received. Then the recipient is charged a deposit and finally the recipient regains the deposit from the agency, closing the “deposit loop”.
There is also just one such service provider in Argentina called CHEP. CHEP cannot offer the service because the volume of IBC’s that Brenntag uses is too small. A minimum of about 10,000 IBC’s must be in circulation to make the depot system lucrative for CHEP. For this reason the depot system is not taken any further.
The comparison of the IBC-return systems
IBC-return system Annual costs Savings/year
Existing situation at Brenntag $136,682.58 $0.00
Current account system $104,068.12 $32,614.46
Deposit system $95,856.00 $40,826.58
Table 2: Price comparison of IBC systems Table 2 compares the costs of the remaining IBC-return systems.
To compare the different IBC-return systems a Likert scale1 has been constructed to compare the quality
of the two options. A 5-point scale has been adopted as follows: 1. Extremely poor 2. Below Average 3. Average 4. Above average 5. Excellent 1 www.wikipedia.org
IBC-return system Costs Brenntag Costs Customer Customer satisfaction Ease for
Brenntag Final score
Current account system 4 5 5 3 17
Deposit system 5 3 2 4 14
Table 3: Ranking of the different IBC systems
The above systems will ensure a much higher percentage return of IBC’s. The Current account system scores the highest due to the costs being lower and because the customer is not preoccupied with the deposit of the container. Brenntag will have to carry out extra work in order to implement and enforce the system. The annual savings using the current account system will be almost $33k. As a result of the analysis, the recommended system for Brenntag is the current account system.
Appendix V - Stock Management at Brenntag
The purchasing and the sales department in the main office carry out stock replenishments. The purchasing department receives an order from the sales department when a product is low on stock. The sales department has a fixed restock level that is utilised in combination with their knowledge, the time of delivery and the actual stock information from the warehouse, to make an order.
Figure 3: Stock replenishment system at Brenntag
In Figure 3 the stock replenishment process has been illustrated. Reordering stock is further complicated by the fact that stock often comes from overseas. In some cases stock can take up to 8 weeks to arrive.
The inventory management system reorganisation (see paragraph 1.5.7 of the main text) has lead to minimal inventory levels. Often after an inventory reorganisation the situation tries to creep back to its former situation. For Brenntag it is very important in the primary stages of such a reorganisation to check to ensure the changes are not diminishing. Problems such as ineffective sales and operation planning, poor forecasting, inadequate product specifications, over planning, ineffective distribution scheduling, low quality, bottlenecks, long cycle times, product and process problems, high costs, poor vendors and wrong performance metrics can lead to a recuperation of the old situation. The inventory must stay low, the lead times at their shortest whilst the customers remain happy.
A regular check of the existing situation regarding inventory, lead times and customer satisfaction should be carried out. A checklist to assess the situation can be found on the next page (Donovan, n.d.).
Sales Introduction of stock Deployment of stock Knowledge of market Time for delivery Minimum inventory
Actual stock level Deposit Purchasing Producer Order stock Order stock = Goodsflow = Information flow
Foundation disciplines
1. Every product has a well-defined manufacturing and inventory deployment strategy.
oYes o No
2. We have clearly defined organizational accountability for the performance of each inventory segment. oYes o No
3. Our inventory record information is real time and 99 percent-plus accurate. oYes o No
4. Our bills-of-material are 100 percent accurate.
oYes o No
5. We create little to no inventory obsolescence as a result of engineering changes.
oYes o No
6. Our forecasting process has the demand variability integrated with a service-oriented inventory deployment strategy.
oYes o No
7. We have a comprehensive and effective sales and operations planning process that is management’s handle on sales, production, lead time and inventory plans.
oYes o No
8. We start the assembly process without any material shortages. oYes o No
9. We use distribution requirements planning (DRP) to plan inventory for distribution centers.
oYes o No
10. We have a comprehensive,
dynamic inventory performance monitoring system that pinpoints inventory
investment problems before they occur.
oYes o No
Advanced strategies
11. The impact on inventory from cycle time reduction has been properly analyzed and quantified.
oYes o No
12. We have mapped all supply chain processes and clearly identified value-added and non-value-added activities, bottlenecks, queues, cycle times, etc.
oYes o No
13. We have specifically defined the barriers that prevent us from achieving increases in service and reductions in inventory, and are actively removing
the barriers. oYes o No
14. We have organized and trained multifunctional teams that are working aggressively on improving information and material flow to achieve a high-velocity supply chain. oYes o No
15. We have decreased our manufacturing and vendor lead times by at
least 50 percent over the past three years.
oYes o No
16. Our lot sizes and set-up times have been reduced by at least 50 percent over the past three years.
oYes o No
17. We have reduced queues and
work-in-process inventories by 50 percent or more over the past three years. oYes o No
18. Our processes perform to a level where no inventory buffers are required to protect against quality problems.
oYes o No
19. We have agreements with key vendors for short cycle deliveries and mutually agreed-upon goals for continuous improvement.
oYes o No
20. Our approach to supply base management has each critical vendor’s processes certified to a no-inspectionrequired status.
oYes o No
21. We use an e-supply chain approach for communications and transactions with our suppliers. oYes o No
22. We know our precise lead time for customer deliveries or to replenish inventories.
oYes o No
23. We have an active, on-going program for vendor-delivered, pointof- use inventories.
oYes o No
24. Our production supervisors spend little to no time expediting materials or firefighting due to parts or material shortages.
oYes o No
25. Our primary performance measurements and reward system are heavily
weighted towards short cycle times and quick response with minimal inventories.
Appendix VI - Stock holding costs and in-out costs
Packaging type Monthly warehouse
storage cost In-Out cost
Tolva $ 5.00 $ 5.00 Barrel $ 1.00 $ 1.00 Bag $ 0.16 $ 0.16 Pail $ 0.12 $ 0.12
Appendix VII - Implementation of improvements suggested in
this report
The implementation different changes that are suggested in this report are briefly described below. They are:
1. Implementation of temporal freight consolidation 2. Implementation of a small order charge
3. Implementation of the current accounting system 4. Implementation of an IBC-usage charge
5. Implementation re-fractioning
1) Implementation of temporal freight consolidation People involved
The entire logistics department is responsible for the implementation of a temporal freight consolidation.
Communication
The sales department must also be aware of changes to remove the chance of double bookings occurring. Furthermore customers are made aware of the changes. At this point it is very important to know what the effect of the changes will have on the customer service level.
Preparation and resources
Besides good communication the system requires several other preparations: • The date of implementation has to be fixed
• The inventory system may need to be changed to ensure accurate up-to-date stock information is available
• The warehouse system to ensure delivery within the pre-determined time has to be organised • The warehouse system to remove the chance of double bookings must be organised
Planning
Once all the preparations have taken place the implementation can be carried out from one day to the next.
Implementation and piloting activities
The implementation of a temporal freight consolidation is the riskiest of the suggested changes in this report. It is likely to result in a reduced customer service level. Before the implementation Brenntag must be sure that the adverse effects are considered.
If Brenntag decides to implement temporal freight consolidation, it is essential to frequently check the effects of the change on the customer service level. The sales department is able to acquire this information by speaking to the customers.
The logistics department will be responsible for ensuring that the orders are delivered within the designated time, (this report suggests two days). It is, above all, important that no double bookings can exist in the new system. This can be overcome by placing containers that have been ordered aside, or by clearly marking them. Once a product has been ordered it must be immediately removed from stock lists that the sales department use.
2) Implementation of a small order charge People involved
The introduction of the small order charge is the responsibility of the sales staff.
Communication
The sales department must be aware of the intention of the small order charge, namely; to cover for the high costs that are incurred due to the small orders; and to promote the sale of larger lots. The customers must also be made aware of the extra charges and what the reason is for the introduction of a small order charge.
Preparation and resources The preparations are:
• The date of introduction has to be fixed
• Changes must be made on the invoices, to include a small order charge
• The sales department should be able to automatically include the small order charge in the price calculations
Planning
Once all the preparations have taken place the introduction can be carried out from one day to the next. This report suggests that customers are charged $10.80 for orders less 250kg.
Implementation and piloting activities
To begin with the introduction of the small order charge will have to be evaluated regularly. It is especially important to observe the reaction of the customer and the change in order size.
3) Implementation of the current accounting system (for IBC’s) People involved
One or two employees in the office are made responsible for the administration of the system and receive time to carry out the necessary tasks, (calling customers, tracking the data and sending fines). The same employees will be responsible for the implementation. It is important to present the new guidelines to the other key players who are involved, namely; the sales staff who will make the customer aware of the
change; the logistics department who will have more returned IBC containers; the truck drivers who must be aware of the change in paperwork.
Communication
The sales representatives and the truck drivers are responsible for making the customer aware of the new IBC return system. The information about IBC that enter and leave the warehouse must also be communicated directly and kept up to date.
Preparation and resources The preparations are:
• The date of implementation has to be fixed
• The exact procedures must be put into words to avoid mistakes
• The IBC tracking spreadsheet/database has to be ready for use. An example is shown in the table below, see Table 5.
Return IBC no. Customer
name
Contact number
Date of
deployment 1st call date Called?
2nd call
date Called? Return date
Date fine
sent Date fine paid
HCI0001 Customer X 44445555 5/17/2006 6/16/2006 yes 7/11/2006 6/30/2006
HCI0002 Customer Y 44446666 5/17/2006 6/16/2006 yes 7/11/2006 yes 7/20/2006 8/30/2006
HCI0003 Customer Z 44447777 5/18/2006 6/17/2006 7/12/2006 6/15/2006
General information Contact Fine
Table 5: Tracking spreadsheet
• The receival note that is legally binding has to be designed on carbon paper. Included should be a similar statement to:
“I hereby declare that the Intermediate Bulk Container with the number(s) shown below is/are owned by Brenntag. The containers have been lent free of extra charges. The container(s) will be returned to Brenntag Argentina within 30 days. If the container is not returned, my company will refund the full cost price of the Intermediate Bulk Container(s) to Brenntag.”
• A folder for the receival notes must be organised for administration purposes.
• All the containers that are in the warehouse will receive a visible code. This can be accompanied by a count of the IBC stock in the warehouse.
• The tools to number the IBC’s must be kept at hand for new IBC’s that enter the warehouse.
Planning
A timeline for the full implementation of the procedures should be devised. The starting date that every IBC that is deployed is tracked has to be fixed. Once the implementation is successful, customers will start to understand that Brenntag is serious about the system and the procedures are likely to run more smoothly.
Implementation and piloting activities
The receival note must be signed by the customer on receival. The receival note will be kept by both parties, a copy for Brenntag. On return the receival note will be signed by the truck driver and the customer. The customer retains a copy. The data is then entered directly into the spreadsheet/database.
4) Implementation of an IBC-usage charge People involved
The sales department is responsible for the introduction of the IBC-usage charge.
Communication
The sales department must know the reason for the introduction of this charge, namely; to cover for the hidden costs; and to close the gap between the cost of packaging of IBC’s and other packaging forms. The sales department can communicate this information to the customer.
Preparation and resources The preparations are:
• The date of introduction has to be fixed
• Changes must be made on the invoices, to include the IBC-usage charge
• The sales department should be able to automatically include the IBC-usage charge in the product price calculations
Planning
Once all the preparations have taken place the introduction can be carried out from one day to the next. This report suggests that customers are charged $49.44 per IBC usage.
Implementation and piloting activities
The reaction of the customers towards the IBC-usage charge must be continually evaluated. The number of IBC that are ordered must be observed will indicate a reaction from the customer.
5) Introduction of a re-fractioning charge
The implementation of the re-fractioning charge could be introduced if the IBC-usage charge is not going to be introduced. The reason for this is that they are dependent on one another, i.e. if the IBC-usage charge is introduced there remains little reason for the re-fractioning charge. This is because the cost gap between IBC packaged and drum packaged chemicals has become almost insignificant.
People involved
An employee is made put responsible for the implementation of the change and he or she should monitor the effects during the start-up phase.
Communication
All the actors involved must be aware of the change that is implemented and the reason for it, namely: The extra work that is necessary to put the chemical in the container desired by the customer. Customers can also be informed.
Preparation and resources The preparations are:
• The date of introduction has to be fixed
• Changes must be made on the invoices, to include a re-fractioning charge
• The sales department should be able to automatically include the re-fractioning charge in the product price calculations
• Up to date stock and packaging form information must be available.
Planning
Once all the preparations have taken place the introduction can be carried out from one day to the next. This report suggests that the extra charges to the customer are $13.24 per drum and $69.10 per IBC re-fractioned to.
Implementation and piloting activities
To begin with the introduction of a re-fractioning charge will must be evaluated several times. The charge should result in a minimal amount of re-fractioning.
