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To the Customer and Back…

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To the Customer and Back…

A research study to identify cost saving possibilities within the physical distribution and

reverse logistics of a third party chemical distribution company in Argentina

William van Beuningen Student number 1240390

University Supervisors: Drs. H. van der Meulen

Dr. N.D. van Foreest Brenntag Supervisors: Mr. M.J.T. Rothuizen Lic. F. Perara Groningen, May 2007 Rijksuniversiteit Groningen Technical Business Administration

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To be able to carry out and finalise my technical business administration degree for Brenntag Argentina has been a pleasure. Not only is logistics a subject that has really caught my attention during studies, but this work placement also allowed me to pursue my interest of the chemical industry. Besides this, it was an amazing experience to be able to carry out such a work placement in Argentina. I would like to thank my distant cousin, Joris Peterich, for making this possible.

During the 5 months that I spent in Buenos Aires I learned a great deal about logistics and supply chain management. Besides this, I had the opportunity to see and live in Argentina. My Spanish has improved greatly and I took the chance to indulge in the culture. I think my time in Argentina was the perfect way to round off my studies.

I would like to thank Mr. M.J.T. Rothuizen and Lic. F. Perara for supervising me during these months and for giving me the opportunity to do my research study at Brenntag Argentina. I would also like to thank everybody at Brenntag Argentina for helping me during my internship and for making my time in Argentina unforgettable.

Furthermore, I would like to thank Drs. H. van der Meulen and Dr. N. D. van Foreest for supervising me during my research. Their feedback and criticism has been essential to help me view the aspects of this research in different ways, which has lead to a mature report. Last, but certainly not least, I would like to thank my parents for the constant support during my time in Groningen and Buenos Aires.

William van Beuningen Groningen, May 2007

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Executive Summary

As a third party distributor of chemicals it is necessary for Brenntag to strive for optimal performance in order to remain a competitive player on the Argentine market. Due to low cost of transport and labour in Argentina the performance of the logistics department has been underexposed in the past. The management of Brenntag would like to know whether cost savings can be achieved within the physical distribution and reverse logistics. Therefore, the objective of this report can be stated as:

“Identify and research the possibilities of cost savings within the physical distribution and reverse logistics activities of Brenntag”

The report begins by searching for existing problems through interviews and cognitive mapping. Initially, the lack of transparency in the logistic processes leads to difficulties in the measurement of performance. Besides this, the diagnosis reveals two main problem areas, namely:

• The deployment of sub-optimal truckloads • The neglect of the reverse logistics system

Conceptual model

The conceptual model clearly illustrates the steps that have been taken to tackle the problem. The model runs from the, less transparent, ‘messy’ situation to the ‘clean’ situation, eventually leading to cost savings. To gain more depth in the problem a “business process redesign” framework has been implemented. This framework identifies and analyses the processes related to the problem area in the As-Is situation. This

Product Performance (Cost & Process)

Product Performance (Cost & Process)

Cost & Process Analysis 1) ‘Messy’ 2) ‘Clean’ Physical distribution (PD) & Reverse logistics (RL) PD RL RL PD Customers Brenntag (BC Partners) Cost Savings As-Is To-Be Customers Brenntag (Bearing Capital Partners)

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warehouse and materials management, and transport. These sub-systems are controlled by the chief operations officer.

The analysis of the As-Is situation highlights the most significant problems are the two problems that have been highlighted in the diagnosis. They are:

1) The deployment of sub-optimal truckloads

The average outbound truckload that Brenntag deploys is 4.2 tonnes and the capacity of the trucks lies between 8 and 9 tonnes. The delivery time of 1 day that Brenntag offers, does not allow trucks to fill up entirely. Another cause of the low truckloads is the large quantity of small orders. (43% of orders are below 250kg).

2) The neglect of the reverse logistics system

One of the product packaging forms offered by Brenntag is the reusable Intermediate Bulk Container (IBC). Of these 24% are not returned. This results in a direct loss of $52k or 42% of the net profit of Brenntag over 2005. The current IBC return system is being neglected by Brenntag and its customers. This cost-problem is worsened by the fact that customers do not pay for the use of IBC’s. Brenntag pays hidden costs of $64.93 per IBC usage.

The conclusion of this report answers the research question, which states:

“How can Brenntag achieve cost savings in the physical distribution and reverse logistics activities that are equivalent to 30% of the net profit over 2005?”

The savings that can be realised are well in excess of 30% of the net profit over 2005. By introducing “temporal freight consolidation” (a change of the predetermined delivery time), from one day into two would create savings of almost $20k (13% of the net profit 2005). However, it must be taken into account that temporal freight consolidation has an adverse impact on the level of customer service. The introduction of a small order charge of $10.80 for orders less than 250kg will create savings of $28k (19% of the net profit 2005). This charge will push customers into larger weight ordering, which will lead to larger truckloads.

In the reverse logistics the introduction of a strict current account system will result in savings of $33k (22% of the net profit 2005). This will create more value awareness amongst the customers and will ensure a maximal return of containers. A further $105k (70% of the net profit 2005) can be saved by introducing an IBC-usage charge. Brenntag incurs a great deal of costs by offering an IBC service, however; thus far the customer does not pay for these costs.

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Contents

1 Introduction ...1

1.1 Introduction dissertation ... 1

1.2 Report structure ... 1

1.3 Reasons for research ... 2

1.4 The Brenntag Group... 3

1.5 Brenntag Argentina... 3

1.5.1 The business chain... 4

1.5.2 Customers ... 4

1.5.3 Products... 5

1.5.4 Product forms... 5

1.5.5 Packaging... 5

1.5.6 Value of Brenntag to customers... 5

1.5.7 Stock... 6

1.5.8 Warehouse and Handling ... 6

1.5.9 Transport... 7

1.5.10 Logistics department ... 7

1.6 Third-party logistics in Argentina ... 8

1.6.1 Threat of entry... 8

1.6.2 Threat of substitutes... 8

1.6.3 Bargaining power of the supplier ... 8

1.6.4 Bargaining power of the buyers... 9

1.6.5 Competitive rivalry ... 9

1.7 Competitor strategy of Brenntag... 9

2 Research Area ... 11

2.1 PH analysis... 11

2.2 Conceptual design... 12

2.3 Objectives and problem areas... 13

2.3.1 External and internal objectives ... 14

2.3.2 Logistic problem areas ... 14

2.4 Stakeholder analysis... 15

2.4.1 Bearing Capital Partners ... 15

2.4.2 Brenntag ... 15

2.4.3 Customers ... 16

2.5 Research Questions ... 16

2.5.1 Main research question ... 16

2.5.2 Sub questions... 16

2.5.3 Restrictions and limitations... 17

3 Methodology ...18

3.1 Research program ... 18

3.1.1 Diagnosis ... 18

3.1.2 Business Process Redesign ... 18

3.2 Data gathering ... 19

4 Literature review ...21

4.1 Problem areas physical distribution and reverse logistics ... 21

4.1.1 Customer service level ... 21

4.1.2 Physical distribution ... 23

4.1.3 Reverse logistics ... 24

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4.3 Conclusion ... 30

5 Qualitative As-Is situation...31

5.1 Distribution objectives Brenntag ... 31

5.2 Physical distribution ... 31

5.2.1 Stock... 31

5.2.2 Warehouse and materials management... 31

5.2.3 Transport... 33

5.3 Reverse logistics ... 34

5.3.1 Customer service level ... 34

5.3.2 Stock... 34

5.3.3 Warehouse and materials management... 34

5.3.4 Transport... 35

5.4 Management of the physical distribution and reverse logistics at Brenntag ... 35

5.5 Conclusion ... 36

6 Quantitive As-Is Situation ...38

6.1 Freight capacity ... 38

6.2 IBC reverse logistics ... 41

6.3 Re-fractioning to other packaging... 44

6.4 Qualitative performance ... 45

6.5 Conclusion ... 48

7 Cost Savings (To-Be Situation) ...50

7.1 Customer service level ... 50

7.2 Freight consolidation... 50

7.3 Small order charge ... 52

7.4 IBC return system... 53

7.5 Re-fractioning... 55

7.6 Conclusion ... 56

8 Conclusion and Recommendations ...58

8.1 Conclusions... 58 8.2 Recommendations ... 60 8.3 Reflections... 61 References ...63 Glossary ...65 Appendices………...66

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Abbreviations

i.e. Id Est (Latin); in this case

e.g. Exempli Gratia (Latin); for the sake of example n.d. No date for reference

EOQ Economic Order Quantity BPR Business Process Redesign IBC Intermediate Bulk Container PI Performance Indicator

Remarks

1. Argentine peso is equivalent to US$3.05

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1 Introduction

This chapter provides the reader with an introduction into the subject matter of this report. The origin of the research project is discussed and the structure of the report is specified. This is followed by a description of the activities and markets of Brenntag Group, Brenntag Argentina and eventually the Argentine culture in relation to distribution logistics.

1.1 Introduction dissertation

In today’s chemical industry pressure is growing in order to get a product for a competitive price, in the right place and at the desired time. This is where third-party logistics companies, such as Brenntag, can enter into the picture. Third-party logistics companies, like Brenntag, have a great deal of experience in the purchasing and sales of chemicals. They provide a facilitating service for the customer, at a competitive price.

Brenntag is continuously looking at ways to improve the manner in which chemicals supply is carried out, in order to provide customers with a more valuable product. In Argentina efficiency of warehousing and distribution logistics has rarely been studied, because this is only a small proportion of the entire product cost. In past years more attention has been put into growth activities by obtaining the product for a more competitive price as well as by acquiring additional customers. Now trends are highlighting the increasing importance of downstream cost minimisation.

1.2 Report structure

The report has been structured in a way to make it logical for the reader.

Figure 1: Report framework

In Figure 1 the report framework illustrates the sequence of the chapters. The chapters are allocated to a step in the report, which guides the reader from the problem identification through to the redesign

1. Introduction 2. Research Area 3. Research methodology 4. Literature review

6. As-Is situation: Quantitive

7. To-Be situation 8. Conclusions Identify and state the problem and objectives Redesign process Phase 1: Theoretical framework & research

Phase 2: Practical research

Phase 3: Advice

Chapter Steps

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Chapter 1 – Introduction

The report begins by identifying and stating the objectives and problems (chapters 1 to 4). This part of the report is explorative, and introduces methodologies and other key topics from the literature. This is followed by practical research (chapter 5 and 6), in which data have been gathered and analysed, describing the As-Is situation and highlighting the main problems. Next, the Redesign stage (chapter 7) discusses the changes that can be made to achieve improvement and how much impact they will have on the costs. Advice is provided on the implementation of the improvements and how they could be put in place. Finally, the conclusions and recommendations (chapter 8) sum up the findings and provide recommendations for future studies.

1.3 Reasons for research

The manager of Brenntag initiated this research because he wanted insight in the downstream processes of the company. Besides this, the manager had the impression that there might be room for cost savings within the physical distribution and reverse logistics of Brenntag. Hence, another reason for this report is to discover areas where savings can be made; analyse them and provide Brenntag with advice on how the current situation should be changed. The reasons for research are defined in the research objectives1.

The main research objective

The main research objective can be stated as follows:

“Identify and research the possibilities of cost savings within the physical distribution and reverse logistics activities of Brenntag”

Research objectives

The sub-objectives of this research have been derived from the main research objective, they are:

1. To provide Brenntag with transparency of the existing physical distribution and reverse logistics processes and the respective costs.

2. To identify and define the possible improvement areas in the physical distribution and reverse logistics processes of Brenntag. This objectives have been split into three parts:

a. To discover and analyse the possible improvement areas.

b. To make recommendations to achieve a cost saving of at least 30% of the net profit of Brenntag in 2005, ($45k).

c. To provide the management of Brenntag with an advice for implementation of the suggested improvements.

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1.4 The Brenntag Group

In 1874 Philipp Mühsam founded an egg-wholesaling business. This company has developed and grown to become the multinational Brenntag Group as we know it today2. Brenntag Group is a chemicals

distributor supplying the processing industry of Europe, North America and Latin America. In 2006 the Brenntag Group was fully taken over by the private equity firm Bearing Capital Partners.

Figure 2: Departments of Brenntag Group

Figure 2 shows all the offices of the Brenntag Group that are responsible for the distribution of chemicals. The activities of Brenntag Group are carried out in many more countries. Products are purchased from every continent. The shipping then relocates the product to where demand is. In 2005 the Brenntag Group turned over more than $6.8 billion.

1.5 Brenntag Argentina

Brenntag Argentina3 is a third-party chemicals distribution company delivering to customers throughout

Argentina. Brenntag facilitates the chemicals purchasing process offering ease to customers. The majority of the chemicals originate from foreign countries that may be located overseas. This often causes the chemicals logistics to become a very complex process.

In this part of the report Brenntag will be introduced in the context of this research. This will enable the reader to become familiar with the company.

2 www.Brenntag.com

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Chapter 1 – Introduction

1.5.1 The business chain

Figure 3: Business chain (based on Van Goor, 1999)

In Figure 3 the build-up of the business chain is illustrated. The role that Brenntag plays in the chain is illustrated. Brenntag supplies the manufacturing and the processing industry. The chemicals are then used by the customers to make semi-finished and finished goods. The dashed line in Figure 3 shows the boundary of this report.

1.5.2 Customers

The chemicals that Brenntag distributes can be split into several specialised categories:

• Oil and gas • Home care • Personal care • Food • Silicones

• Paint, coatings and solvents • Metal treatment

• Mining

The customers of Brenntag range from large multi-nationals to sole traders. The bulk of the customers are located in the region of Greater Buenos Aires (see maps in Appendix I). This is the region where the largest part of Argentina’s industry is located. The remainder of the customers are scattered around the

Supplier

Manufacturer

Raw materials Semi-finished goods

Semi-finished goods Finished goods Central warehouse Wholesaler Retailer Customer

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1.5.3 Products

Brenntag delivers industrial and speciality chemicals. Brenntag defines industrial chemicals as chemicals that are used frequently by industrial companies. These chemicals are generally sold in large volumes and can be handled with a degree of ease. Speciality chemicals are defined as chemicals that are less common, which require a great deal of informative work and specialist knowledge. The order volumes of speciality goods are usually small.

1.5.4 Product forms

Brenntag delivers the chemicals to the customer in the desired product form. This is crucial because customers handling capabilities may be limited. Brenntag sells “dry products” and “bulk products”.

The definitions of the two product forms are as follows:

• Dry products4: Any product that is sold in packaged form

• Bulk products: Products that are not packaged, i.e. chemicals that are shipped straight to the customer in tankers

This report does not consider the logistics of bulk products.

1.5.5 Packaging

Dry products are shipped in different forms of packaging. They consist of:

• Intermediate Bulk Containers (IBC’s)…. holding 1000kg

• Drums ……… holding between 180 and 250kg • Bags……… holding 25 or 50kg

• Pails……… holding 10 to 35kg

Drums are by far the most frequently used packaging. Drums can be either plastic or steel, depending on the product content. The IBC is also used frequently. Brenntag only makes use of reusable plastic IBC’s. Bags and pails (or jerry cans) are the packaging that Brenntag uses the least. The packaging forms that are sold are always full, i.e. no partially filled drums are sold.

1.5.6 Value of Brenntag to customers

It is vital that a third-party chemicals distributor provides the customer with an easing utility. Once an order has been placed, Brenntag takes care of out the remainder. Eventually the product, accompanied by

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Chapter 1 – Introduction

one invoice, is the service that is delivered. Thus, the purchasing, the storage, the packaging, the fractioning, the mixing, the distribution, and the administration of chemicals are the tasks that Brenntag arranges for the customers.

Figure 4: Operations carried out by Brenntag

The main activities that Brenntag carries out in relation to the customers are illustrated in Figure 4. Brenntag can be split into four main departments; purchasing; sales; administration; logistics. The former three are located in the main office of Brenntag. The logistics department is located in the warehouse office of Brenntag (marked as X on the maps in Appendix I). The logistics department is, amongst others, responsible for the physical distribution and the reverse logistics.

The area of research of this report has been shaded in Figure 4. It shows that the focus is on the distribution logistics and reverse logistics of Brenntag. These two activities have been split into stock; warehousing and materials handling; and transportation (see paragraph 4.1.2).

1.5.7 Stock

The storage of chemicals is a value added service that Brenntag offers. This allows customers to purchase products that come from overseas and receive them within a matter of days. Brenntag stores chemicals in the warehouse, which is situated just outside the central region of Greater Buenos Aires (marked as X on the maps in Appendix I). The purchasing of stock is an essential activity and is a combined effort by the sales and purchasing department, whom receive data from the warehouse.

In 2004 the complete inventory management system was reorganised to reduce working capital, in the form of stock, to a minimum. Now only safety stock is kept back in order to maintain order processing in a minimal amount of time. As a result of the reorganisation the average stock level has dropped significantly making the purchase of chemicals a much more delicate task with stricter procedures. The change was very effective and significantly increased the return on assets ratio. Especially in Argentina the working capital should be held at a minimum due to the high interest rates that exist5.

1.5.8 Warehouse and Handling

The main function of the warehouse is storage; however, fractioning and mixing are also carried out in the same building. The latter two are value added services that Brenntag offers customers.

Customer Brenntag Purchasing Administration Sales Logistics Order

Product delivery (road transport)

Invoice Supply

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The operational staff of Brenntag, (see Figure 5), supported by the staff of Fizbay are responsible for remaining handling activities in the warehouse. Fizbay is the company that owns the warehouse that Brenntag uses, and supplies Brenntag with extra staff when required.

1.5.9 Transport

This report studies the deliveries to customers in Greater Buenos Aires. On a daily basis trucks are dispatched from the central warehouse, delivering chemicals to customers over the entire region of Greater Buenos Aires. The driver, together with the customer is responsible for unloading the product.

Reverse logistics transport strives to return all the reusable containers that Brenntag has despatched. The reusable containers return in the same trucks that carry out the deliveries. The returned containers have to be cleaned and repaired to allow for reuse.

1.5.10 Logistics department

The logistics department is responsible for the warehouse, the physical storage of chemicals, and the handling and movement of chemicals. Thus, once an order arrives in the logistics office the order is entirely processed by the logistics department.

Figure 5: Organisational hierarchy logistics department of Brenntag

Five people work full time in the warehouse office, see Figure 5. The Chief Operations Officer communicates directly with the General Manager of Argentina and the regional Logistics manager6. The

chief operations officer is also responsible for the management of the entire logistics department. The two supervisors are responsible for coordinating the orders and two operational workers carry out the handling of the products.

6 The regional department is named the Cono Sur and consists of Brenntag’s departments in Peru, Bolivia, Chile and Head Mixing, &

Fractioning Chief Operations Argentina Supervisor Orders Purchasing and Deposit Supervisor General Manager Argentina Operator Logistics Manager Regional Department

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Chapter 1 – Introduction

1.6 Third-party logistics in Argentina

To equip the reader with an indication of the Argentine chemicals market and the players that have impact on Brenntag the “five forces framework” (Johnson, 2005) has been provided. In this framework (see Figure 6) relevant cultural aspects of Argentina that differ from the European business culture will become apparent.

Figure 6: The five forces framework (Johnson, 2005)

1.6.1 Threat of entry

New entrants in the Argentine third-party chemical logistics sector have few entry barriers. The regulations in Argentina allow all competitors to enter the market as long as they abide by the administrative and safety regulations. The result is a vast amount of competition. Ten large players have a stake in third-party chemicals logistics in Argentina. These ten companies are of a similar size to Brenntag. The smaller entrants come and go depending on the opportunities of the market. Competitive pricing and maximal quality are vital to make a distinction in this fierce market. Experience and previously built up distribution channels are some of the several other strengths that Brenntag uses to deter entrants.

1.6.2 Threat of substitutes

In-house purchasing is the only substitution for third-party chemical logistics companies. Potential customers of Brenntag should pose themselves the question; is it more lucrative to outsource purchasing or to keep it in-house? Purchasing is often outsourced by companies of which purchasing is not a core-activity. This way, the purchasing activities do not interfere with their core-competences. However, if the price of outsourcing is too high, or the added value is not adequate, the decision for the customer to outsource will be considered.

1.6.3 Bargaining power of the supplier

The suppliers of Brenntag are situated all over the world. They are often conglomerates that are not

Potential Entrants Substitutes Buyers Suppliers Competitive Rivalry Bargaining power Threat of substitutes Bargaining power Threat of entry

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the suppliers prefer to leave the localised distribution to third-party logistics companies that purchase bulk quantities, split and resell to smaller players.

When the chemicals supplier is the only provider of a product the bargaining power of the supplier will be high. Otherwise the suppliers do not have a great deal of bargaining power against the third party distributors. When local demand exists for chemicals, third party distributors are often aware. A third party distributor will combine the local demand and order large volumes directly from the wholesale supplier. The prices offered result in cost advantages for both the supplier and the distributor.

1.6.4 Bargaining power of the buyers

Buyers are the reason for the existence of the third-party chemical logistics companies and have a great deal of bargaining power. In Argentina the price is by large the dominant factor in the decision for a customer to buy. This is especially true for the smaller companies of Greater Buenos Aires whom tend to avoid loyal business relationships. Larger companies, that must guarantee higher quality and specifications, tend to be increasingly loyal.

Another high priority for the Argentines is the ‘next-day delivery’ service that Brenntag and other third-party logistics companies offer. However, this is rarely as important as the price. The business culture in Argentina is such that customers buy ‘just-in-time’, keeping stocks at a minimum. Once Brenntag is the exclusive supplier of a certain chemical, the bargaining power of a buyer is significantly less.

1.6.5 Competitive rivalry

The direct competitors of Brenntag offer almost equal services and provide near enough the same products. It is difficult to make a clear competitive distinction and for that reason both price and service are of utmost importance.

1.7 Competitor strategy of Brenntag

Brenntag utilises a “strengthening strategy” (Johnson, 2005). This is a combination of the two competitor strategies stated by Porter, (Johnson, 2005); the differentiation and the overall cost leadership strategy.

• The differentiation strategy assumes that customers will become loyal by building up a strong brand and that price will have less impact on the customer buying behaviour.

• The overall cost leadership strategy states that the price is the deciding factor. This means that a company is constantly searching for cost reductions.

Brenntag is one of the companies in a competitive environment of ten large players and a vast amount of small players. The strengthening strategy is relevant to Brenntag because the customers require at least

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Chapter 1 – Introduction

minimum service. Once this service level has been met, extra service and the price will act as the deciding factor for customers.

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2 Research Area

In this chapter the initial problems in the logistics activities of Brenntag are identified. This is followed by a description of the course that this report takes. The problems that will be looked at are stated and the method of action is studied. This chapter finishes by determining the questions that will be answered by this research.

Speaking to the actors involved in a PH-analysis discovers the initial problems. The conceptual model will illustrate the course of this project from the questions to the answers.

2.1 PH analysis

The PH-analysis (Leeuw, 2000) has to result in a comprehensible answer to the following questions; who has problems with the functioning of the (sub) systems in the organisation and what are they? The answer should give rise to the relationships between the problems. The analysis is carried out by interviewing employees at different levels in the organisation to obtain the different views of the problems occurring. These levels are strategic, tactical and operational.

General Manager (Strategic level)

1) The general manager finds it difficult to define the performance of the physical distribution and reverse logistics at Brenntag. This makes it impossible to ensure that the performance is optimal.

2) The clarity within the logistics activities is sub-optimal. The physical distribution and reverse logistics processes are unclear and the respective cost transparency is low. The two are necessary to increase the efficiency of these processes. The general manager assumes that significant cost savings can be made in this area. This gives rise to a sub-optimal efficiency problem.

Chief Operations (Tactical level)

1) The loss of IBC’s is a problem. Due to the reusable nature of IBC’s, Brenntag assumes that these containers will be returned and reused. For the same reason the use of IBC’s is free of charge. The reusable container system that Brenntag uses is not functioning; causing hundreds of IBC’s to go missing every year.

2) Products are not always in stock in the container that the customer desires. When a customer places an order and the product is in stock, the order will always be processed even if the product is not in stock in the right container. Re-fractioning of the product must take place in order to transfer the product to the right container.

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Chapter 2 – Research Area

3) Every day Brenntag deploys trucks to ensure that customers will be supplied within 24 hours of ordering. This leads to great inefficiencies in the usage of truck capacity. Truckloads that are far below full capacity are frequently deployed.

List of main problems

The PH-analysis has revealed several problems. The main problems in the physical distribution and reverse logistics have been summarised as:

2.2 Conceptual design

The research objectives have been stated in the introduction (see paragraph 1.3). These are combined with the problems stated in the previous paragraph to reach a conceptual model.

Conceptual model

A technique that is frequently used to translate the research objectives into a research question is a conceptual model. By visualising the objectives it is easier to get a clear view of the situation and the path that will be followed to answer the question.

Figure 7: Conceptual model of this report

Product Performance (Cost & Process)

Product Performance (Cost & Process)

Cost & Process Analysis 1) ‘Messy’ 2) ‘Clean’ Physical distribution (PD) & Reverse logistics (RL) PD RL RL PD Customers Brenntag (BC Partners) Cost Savings As-Is To-Be Customers Brenntag (Bearing Capital Partners)

1. The lack of clarity in the logistics processes 2. The inadequacy of the IBC return system 3. The constant need to re-fraction

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The conceptual model in Figure 7 shows that this research will work from the ‘messy’ situation, on the left hand side, to the ‘clean’ situation. The desired ‘clean’ situation will provide more transparency in the processes together with a redesign that reduces the logistics cost of Brenntag. The researcher has chosen to split the downstream into two main operations, namely, physical distribution and reverse logistics. The key stakeholders that have been taken into account (Customers, Brenntag and Bearing Capital Partners) are external inputs who state restrictions, requirements and desires that will act throughout the model.

Initially a good understanding of the physical distribution and reverse logistics costs and the processes in the existing situation will be gained. The performance of this situation will be evaluated and inefficiencies will appear. A view of the existing situation, highlighting the main problems will present itself providing the ‘messy’ scenario.

Subsequently, the physical distribution and reverse logistics input will be split. Using literature and benchmarking, the current situation will be analysed, compared and evaluated searching for improvements. This will lead the research model to the improved design stage, named the ‘clean’ scenario. 2.3 Objectives and problem areas

The objective stated by Brenntag is:

“Identify and research the possibilities of cost savings within physical distribution and reverse logistics activities of Brenntag”

This objective can be transferred into a logistic concept. A logistics concept is created as a result of unsatisfactory functioning within the logistics activities of a company.

Figure 8: Logistic concept (Verstegen, 1989)

In Figure 8 the logistics concept structure is provided. It is a method that can be used for several purposes:

Logistics objectives: why?

External Internal

On-time delivery

Flexibility Low stocks High capacity

usage

Logistics problem areas: how?

Physical layout and planning

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Chapter 2 – Research Area

• Devising an integral vision on the management of the supply chain • Offering a framework for structured action

• Creating a more logistics awareness within the company

A distinction has been made between the objectives and the problem areas. The internal and external logistics objectives are the initial part of this analysis. Once this has been carried out the different logistics problem areas are highlighted and analysed.

2.3.1 External and internal objectives

The external objectives on-time delivery and flexibility, relate to the customer service-level. These factors are essential for the strengthening strategy that Brenntag employs; however this report does not focus on these objectives. Instead, the limitations of this report are set by the external limitations.

The internal objectives have been divided into low stocks and high capacity usage. Brenntag is working with very low stock since undergoing the warehouse reorganisation (see paragraph 1.5.7). Therefore this report assumes that Brenntag cannot make further stock improvements. Efficiency is the focus of the high capacity usage objective. Efficiency can be defined as the accomplishment of, or ability to accomplish a job with a minimum expenditure of time and effort7, resulting in optimal costs. The problems that have

already been identified are related to efficiency and as a result high capacity usage is the main focus of this research paper.

2.3.2 Logistic problem areas

To give the reader a broader view than just the operational view, four logistics problem areas have been identified. The four logistics problem areas are briefly described below. In the description of the current situation at Brenntag (chapters 5 and 6) the logistics field has been divided into these logistics problem areas.

1. Physical layout and planning

This problem area concerns the warehouse activities at operational level. It looks at the physical characteristics of the warehouse such as the handling, movement, storage of products and warehouse location. All the characteristics except the warehouse location are studied, searching for efficiency improvements. The warehouse location has not been taken into account in this dissertation because the opportunities are diminishing. Safety restrictions for chemical warehouses are high and therefore this report assumes that the location of Brenntag’s warehouse will not change. This means that in this report the distribution channel will remain direct from the warehouse to the customer.

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2. Control

The management of the logistics activities will be covered in this problem area. The manner of control of the primary activities is highlighted and the problems concerned are studied.

3. Organisation

The interaction between logistics and other parts of the company stands central to this problem area. A balance between the interactions is observed.

4. Information

The need for information in a logistics system is a necessity. It has a major effect on the planning of the logistics activities. The effects of information on the logistics activities of Brenntag are looked at. 2.4 Stakeholder analysis

The stakeholder analysis clarifies the system barriers of this research project (De Leeuw, 2000). This analysis will also help to identify the sources of the performance indicators.

The questions that should be answered in the stakeholders analysis are:

• Who is the stakeholder and which function does the organisation require of him? • To which extent is this function (according to the stakeholder) fulfilled?

• Which wishes and desires do the stakeholders have?

The key stakeholders that have been taken into account in this research paper are Bearing Capital Partners, Brenntag and the Customers.

2.4.1 Bearing Capital Partners

As a typical investment firm Bearing Capital Partners expects Brenntag to continue to grow in order to reap maximal financial benefits. Therefore it is necessary that the logistics activities of Brenntag keep up with the growth of the company. The efficiency of the logistics department is a key factor in achieving maximal financial benefits.

2.4.2 Brenntag

The desires of Bearing Capital Partners will stipulate the Brenntag’s desires. Hence, the focus is on growth of market reach, and maximal profit. Harmony of the main office with the downstream department is also a key concern.

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Chapter 2 – Research Area

2.4.3 Customers

The sales representatives of Brenntag are the front office of the company and speak to the customers regularly. Therefore, information about the desires of the customers was gathered by interviewing the sales representatives of Brenntag. The researcher chose to interview in this manner because the vast amount of customers would be impossible to interview. The results of the interviews are stated below.

1. Very few complaints are received from customers. Damaged packaging in which the product arrives is the most frequent complaint.

2. Customers have three main desires: Price

Price is the most decisive attribute of a product for the majority, (about 80%), of customers in Greater Buenos Aires.

Quality

The quality of the product is a combination of the product itself and the quality of the packaging that it arrives in. The quality of a product can be more important than the price, depending on the customer. Brenntag must maintain the reputation of a company with high quality.

Service

The services include the speed of delivery, the reliability of delivery, the customer contact and the communication with the customer. Amongst these the speed of delivery is the most important. Customers generally work on a just-in-time ordering basis and for that reason delivery must be quick. All of Brenntag’s main competitors visited guarantee delivery within 24 hours. Brenntag offers the same service.

The order of importance does vary depending on the customer. However, most of the customers can be seen as ‘price seekers’.

2.5 Research Questions

Now that the objectives and main problems have been clarified, the research question can be formulated. The aim of this research is to provide the best possible answer for the main research question, given the restrictions.

2.5.1 Main research question

“How can Brenntag achieve cost savings in the physical distribution and reverse logistics activities that are equivalent to 30% of the net profit over 2005?”

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2. Where are the cost savings made in physical distribution and reverse logistics of reusable packaging?

3. What is the current status of physical distribution and reverse logistics of reusable packaging at Brenntag?

4. How much financial impact does the waste have on Brenntag?

5. Where can the physical distribution and reverse logistics of reusable packaging processes be adapted in order to create cost savings?

2.5.3 Restrictions and limitations

Restrictions and limitations have been applied to this research to ensure that strict boundaries are made. Brenntag has agreed to the constraints. They have been stated as follows:

• This research must be of academic level.

• This research only takes into account the physical distribution and return logistics processes carried out by Brenntag in Greater Buenos Aires.

• The research covers the sales of dry products only.

• The supply of the products is not the subject of this research. • Brenntag will carry out implementation of suggested changes.

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Chapter 3 – Methodology

3 Methodology

This chapter studies the framework of this report. The building blocks are provided and discussed and eventually the method of data gathering is described.

3.1 Research program

The research program has been built up out of two methodologies. It commences with a diagnosis and changes to a business process redesign methodology.

3.1.1 Diagnosis

In this report the research objectives together with the diagnosis are used to derive the main problem. The main problem acts as the underpinning for the research questions, (see paragraph 2.5.1). The diagnosis can be viewed as all the activities that are carried out to obtain a starting point for (re-) designing, even if no specific problems have previously been stated (de Leeuw, 2000).

The main diagnostic tool that is used in this report is the PH analysis (see paragraph 2.1). It provides an overview of the problems stated by different key actors at Brenntag. During qualitive and quantitive analysis of the existing situation other problems may appear.

Once the problem is clear the literature review provides the theoretical groundwork of the problem (chapter 4). This chapter is also important to add structure to the report. It gives insight into the problem areas and indicates improvement areas that are frequently found.

3.1.2 Business Process Redesign

BPR is the methodology that has been implemented to redesign the processes. These chapters guide the reader from the current (As-Is) situation to the desired (To-Be) situation. It uses literature and other techniques to reach optimal improvement. “BPR is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, service and speed”, (Hammer and Champy, 1994). The typical reengineering process proceeds through three stages:

1. Fact finding (chapters 1 and 2)

2. Identifying areas for improvement (chapters 4,5 and 6) 3. Creative improvements (chapter 7)

The key to the first step is placed on separating facts from opinions. The facts must be analysed, giving rise to improvement areas. The logistics processes are the main focus of this analysis. After identifying the

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information flow. The outcome of the creative phase will fundamentally change both the nature of the work and how it is performed.

3.2 Data gathering

The question that must be asked for this part of the research is, which data is available and where can it be found? The research must be feasible instead of looking for information for a long amount of time without results. Sources and usage techniques are provided in Table 1. Initially, the data was gathered throughout the logistics department. During the period of research the focus has been laid on the physical distribution and reverse logistics.

Stage Activity Sources of data Optional techniques

Reality Process flowcharting

People Interviews

Documentation Cognative mapping

Cost information Cost modelling

People Interviews

Literature Benchmarking

Cost information Value analysis

Brainstorming Process modelling Comparative analysis

Cost modelling

Reality Interviews

People Cognative mapping

Documentation

People Brainstorming

Literature Comparative analysis

Process modelling To-Be situation Management To-Be situation Stock, warehouse and materials handling, Transport As-Is situation As-Is situation

Table 1: Data collection

Table 1 provides a guideline for where to look for the information and how it can be used. Several data-gathering techniques have been elaborated in the paragraphs below.

Benchmarking

Benchmarking is a method used; in which organisations evaluate various aspects of their processes in relation to the best practice, usually within their own sector8. This research makes use of internal and

external benchmarking. Internal benchmarking studies the processes within own company. I.e. the processes of several regional departments of Brenntag Group were benchmarked internally. External benchmarking studies the performance of processes of companies outside Brenntag.

Quantitive information

The quantitive data in this report has been gathered from the database and documentation of Brenntag, and from customer documents.

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Chapter 3 – Methodology

Qualitative information

Qualitative data can be gathered using various different methods. In this report the data has been gathered through interviews, documents and by participant observation. The documents that were used originated from Brenntag, the library or from the internet.

The interviews that were carried out were all semi-structured. In semi-structured interviews the interviewer has a set of questions, (see Appendix II), as a guideline but is willing to elaborate and add extra questions.

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4 Literature review

The literature review will provide the reader with a brief explanation of the literature that is used in order to answer the research question. This will help to explain and support that have been choices that are made in the chapters to follow.

Descriptions of the logistics sub-systems are given, highlighting several different problem areas. This is followed by the literature relating to cost savings in physical distribution and reverse logistics.

4.1 Problem areas physical distribution and reverse logistics

The logistics problem areas that are found in the literature are described in this section. The problem areas are:

1. Customer service level 2. Physical distribution 3. Reverse logistics 4. Management 5. Information

4.1.1 Customer service level

Customer service level is a measure of the effectiveness of the logistics system in creating time and place utility for a product (Stock, 2001). The level of customer service determines whether existing customers will remain customers and also how many potential customers will become actual customers. Thus, customer service has a direct impact on the firm’s market share, its total logistics costs, and ultimately the companies’ profitability. For this reason, it is necessary that customer service be an integral part of the design and operation of any logistics system.

The customer service level has an impact on all of the aspects of the physical distribution. A low customer service level is likely to send customers looking for other suppliers. For this reason a well-defined customer service level is essential before changes are implemented within the logistics department.

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Chapter 4 –Literature Review

Figure 9: The relationship between customer service and logistics costs showing profit contribution (based on Ballou, 1992)

In Figure 9 Customer service level has been set off against the incremental logistics costs. The higher the customer service level the higher the logistics costs. Towards the top of the customer service level a slight increase will be very costly. At this point the costs will rise and customers look for other suppliers. The balance between customer service level and logistics costs is a trade-off that a company must consider carefully. The aim is to implement a customer service strategy that will maximise profits. For any given level of customer service, the goals within the logistics should be to minimise the total costs of providing that level of service. A formula can be provided for the logistics objective (Ballou, 1992):

Minimise total costs given the customer service objective where Total Costs = Transportation costs + Warehousing costs + Order processing and information costs + Lot quantity costs + Inventory carrying costs.

There are several key elements of customer service related to the physical distribution:

• Availability

Inventory availability is the most important measure of customer service. It can be measured by the percentage of orders that are delivered within a specified amount of time.

• Order cycle

The order cycle is the time that elapses between placing an order and the time of delivery. The speed and consistency of the order cycle are key factors in the supply chain design. The majority of customers prefer consistent service to fast service, since the former allows them to plan inventory levels.

Customer service level

L o g is ti cs c o st s $ Maximum incremental profit Revenue Logistics costs Profit contribution curve

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• Communication

Communication refers to the firm’s ability to supply timely information to the customer regarding such factors as order status, order tracking, backorder status, order confirmation, product-substitution, product shortages and product information requests. The use of automated information systems usually results in high-quality communication.

4.1.2 Physical distribution

Figure 10: Physical distribution system (Van Goor, 1989)

The management of physical distribution should result in equilibrium between the three sub-systems shown in Figure 10. These different sub-systems can be viewed as three problem areas that are interlinked and controlled by the logistics management. Within the three sub-systems decisions are made to improve the efficiency of the logistics.

Stock management

Stock management decisions are made to ensure that optimal restock volumes are purchased at the right time. The choice of order system and how demand forecasting takes place are two key decisions in this process. The aim is to keep stock to a minimum given the security needed to fulfil the desires of customers. In effect good stock management is a way to keep the working capital at a minimum.

The logistics department does not carry out the stock management at Brenntag. Instead, the sales and purchasing departments obtain information from the warehouse. They use this to carry out the stock management. The stock levels have been minimised by the reorganisation (see paragraph 1.5.7).

Warehouse and materials handling

The physical distribution sub-system concerned with the warehouse focuses on the optimal location of the warehouse; however, this is not studied in this report (see paragraph 2.3.2). Materials handling involves order picking, incoming products, outgoing products and ‘value adding’ activities that are carried out in the warehouse. Warehouse & materials handling Transport Stock management of finished product Physical distribution management

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Chapter 4 –Literature Review

The materials handling activities for a warehouse can be divided into four sub-systems, (Goor, 1989): 1. Handling in

Handling in consists of the reception of the goods and subsequently places them in the desired place in the warehouse.

2. Storage

Storage is defined as the physical storage of products, the internal transport and the maintenance of the warehouse and the products.

3. Handling out

Handling out consists of the order picking process and loading products to prepare them for delivery.

4. Value added

This entails all the activities that take place in the warehouse to create extra product value. Transport

This sub-system studies the decisions that have impact on the external transport of the products. The main factors involved in this sub-system are the choice of transport mode, the choice of outsourcing transportation, the method of route preparation and the capacity planning.

4.1.3 Reverse logistics

The function of “reverse logistics is found as either a subset of a closed loop system or stand alone. This includes full coordination and control, physical pickup and delivery of the material parts, and products from the field to processing and recycling or disposition, and subsequent returns back to the field where appropriate” (Blumberg, 2000).

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Figure 11: Typical closed loop supply chain model (based on Blumberg, 2000)

A model of a typical closed loop supply chain is provided in Figure 11. The model can be used for reusable containers with the shaded arrows depicting the reverse logistics flows.

A container is supplied to the customer through distribution logistics. The product is used and an empty container remains. Once the container has been recovered from the customer the container will be reused or sent for qualification, to decide whether it is fit for reuse.

The activities contained in reverse logistics have been identified as the same sub-systems as in physical distribution (see paragraph 4.1.2). Therefore, the same sub-systems have been regarded; stock management; warehouse and materials management and transport.

In Figure 11 the reverse logistics sub-systems have been added in italics. The sub-system transport becomes a reverse product stream. Warehousing and materials management and stock management remain the activities in the warehouse.

The main reason for reverse logistics is the cost savings due to the reduction in purchase and waste disposal costs of one-trip packaging. The other benefits of standardised reusable packaging can be more important (McKerrow, 1996): M a n u fa ct u re r/ su p p li er E n d u se r F ie ld s er v ic e u se r o f O E M /D ea le r Repair, clean or refurbish/ dispose? Warehousing and materials handling ___________ Stock management Repair & Cleaning Initial distribution Recovery & return Delivery from manufacturer

Qualification of non-repairable whole units and components and sub-assemblies Qualification Reuse D is p o sa l

Reverse logistics & repair Direct/forward

Logistic

distribution

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Chapter 4 –Literature Review

• Reduced product damage

The use of higher quality more durable packaging leads to a reduction in damage of products

• Improved vehicle utilisation – especially for mixed loads Freight will be able to fill up return capacity

• Standardization of storage facilities

The storage facilities can be tuned to suit the reusable packaging

• Ease of handling and stacking at break-bulk stage

The possibilities for handling and stacking increase due to more knowledge of the packaging

• Ease of handling direct into retail display or point of use in manufacturing

The containers have been designed to suit the distributor and the customer. Ease of use for the customer of packaging is an advantage

4.1.4 Management of physical distribution and reverse logistics

The objective of physical distribution is to satisfy to the demand of the market (Goor, 1999). The right places at the right times are the two most important parameters for the distribution function. The process should run as efficiently as possible. Hence, the management of physical distribution is not only materials orientated, but also capacity orientated.

The management system is responsible for collecting information and carrying out actions to ensure that the physical distribution and reverse logistics activities are carried out correctly. The chief operations officer can be seen as the managing actor, (see Figure 12), that controls the operational level below (the managed actor). Besides this, objectives and limitations are also passed down from the superior management level.

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Figure 12: A distribution management system (based on De Leeuw, 2000)

Figure 12 shows what is needed to make objective decisions within the physical distribution. Reverse logistics has been added to the figure in italics to include the reusable packaging information stream. The reverse logistics stream can be added, providing that the same actors carry out both the reverse logistics activities and the physical distribution.

The information that the logistics management receives includes order entries, stock levels, objectives and limitations and any other relevant information that is needed to control the operational activities. The orders are passed down to operational level and processed.

Three levels of distribution management are stated below (Goor, 1999):

• Management information stream

This is the highest level of information. It includes overall financial information, logistics performance indicators and customer service performance. Higher management uses this information to set out the company strategy.

• Logistic information stream

The second information level manages the operational activities. This can be carried out both internally and externally. Internally the order processing, stock management and expedition occurs. Externally, data is interchanged with suppliers and customers.

• Operational

The lowest level of management is the operational level. This is handling work and traditionally the

Chief Operations officer (Managing actor) Operational Employees (Managed actor) Objectives, Limitations Products to be distributed Capacities External action Distributed products External information Internal data Internal action Returned packaging Packaging to be returned

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Chapter 4 –Literature Review

4.1.5 Importance of information

Information streams are important throughout logistics companies. It is of prime importance that the entire organisation has up to date information and that information is passed on rapidly in order to enable emergency orders or to process time shortages.

Christopher, (1998) defines information as the replacement for stock. This refers to situations where there is more, and quicker, information. The result of more information is that the risk of running out of stock is lower and therefore the safety stocks can be further reduced. This cost reduction can be made without having impact on the customer service level.

4.2 Cost savings

This section describes the literature that could result in cost savings for Brenntag in the physical distribution and reverse logistics. It has been split into two areas of cost savings:

1. Truck capacity

2. Reusable packaging systems

4.2.1 Truck capacity

The truck capacity is a common area to look for cost reductions. In the literature the methods of cost reduction by improved truck capacity usage are freight consolidation and the introduction of a small order charge.

Freight consolidation (Ballou, 2004)

Consolidating small shipments into large ones is the primary way to achieve lower transportation costs per unit of weight. Freight consolidation is normally achieved by one of the following four methods:

Inventory consolidation

Orders continually arrive and the demand for products increases. Eventually the demand is such that a truck can be filled. At this point a full truckload is deployed. Large and even full shipment-loads may result from this method but the frequency of deployment is uncertain.

Vehicle consolidation

If the deliveries involve less-than vehicle load quantities, more than one delivery is placed on the same vehicle for more efficient transport. Vehicle routing and scheduling exploit this kind of economy.

Warehouse consolidation

The essence of warehousing is to facilitate the transportation of large loads over long distances and short loads over small distances. This type of consolidation occurs in every distribution company.

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Temporal consolidation

Orders from customers are kept back with the intention that larger shipments rather than smaller shipments are deployed with longer predetermined time intervals. Economies of transportation are achieved by improving the per-unit-rates as well as by routing efficiency. The drawback of this type of consolidation is that the customer service level deteriorates. The savings easily identified, whereas the effect n the service is more difficult to quantify.

Small items charge (Ballou, 2004)

The economic theory states that the more goods that are handled during a single transaction, the lower the cost on a per-unit basis. This principle is known as economies of scale, where fixed costs are spread over a large number of products reducing the per-unit costs.

Making use of private allows to clearly divide the costs, i.e. the distribution of 10kg in a truck will have the same transportation cost as the distribution of a full truckload of 8 tonnes. Therefore, it is necessary to stimulate customers to order large quantities at infrequent time intervals.

The EOQ is a theory that describes the purchasing behaviour of customers. This provides an explanation for the excessive number of small orders. The EOQ is a vastly used theory that gives the lot size that most economically satisfies the forecasted demand for a given period of time. It helps to minimise the delivery costs and the storage costs over a specified period.

The equation below sums up the EOQ formula:

min [total cost = total delivery cost + total storage cost]

If the delivery cost is proportional to the product price, (like the system at Brenntag), there is no incentive for a customer to purchase a larger volume. In fact, customers that use this model to determine the optimal order quantity will always order the smallest possible unit. The reason for this is that no additional cost per order delivery is added to the price. The formula without a delivery cost is equivalent to:

min [total cost = total storage cost]

By using this formula the customer has no incentive to order large quantities. The customer will therefore always order the minimum amount, i.e. the charge to customers for ordering three barrels of product X on one day will be equivalent, per unit of product, to ordering three barrels of product X on three consecutive days. It is obvious that the second scenario would cost Brenntag more.

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Chapter 4 –Literature Review

In Appendix III more detail is provided on how a customer determines the EOQ.

4.2.2 Reusable packaging system

Several reusable packaging systems have been defined in Appendix IV. These systems are as costly as the company proposes them to be. The most common problem with reusable packaging systems is that the system procedures which govern the return of reusable containers are neglected.

“Probably the most difficult step of all is, the often-forgotten step, from having packaging, which can be reused, to having packaging which is actually reused” (McKerrow, 1996):

Disposable →Recyclable →Reusable →Actually reused!

“All too often, the move to reusable packaging has been only a move to more expensive one-way packaging because too small a proportion of the reusable units found their way back to the beginning of the distribution circuit” (McKerrow, 1996).

4.3 Conclusion

In this chapter important literature that is utilised in the remainder of the report is described.

The chapter sets out by explaining the importance of the customer service level in relation to the pursuit of cost savings within the physical distribution. Next, the physical distribution and the reverse logistics are divided into sub-systems that are controlled by the logistics management. These sub-systems are stock, warehouse and materials handling and transport. The management of the sub-systems shows how the information streams run through the company to ensure control. Furthermore it shows how important the information is in the field of logistics study. The information from the first part of this chapter has been used in the description of the As-Is situation, (chapters 5 and 6).

The second part of this chapter identifies methods to achieve cost reductions. Initially, methods to increase the truck capacity, namely; by freight consolidation and by the introduction of small items charges are described. Then reusable packaging is studied in order to reduce costs. This information has been used in the To-Be chapter, (chapter 7).

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5 Qualitative As-Is situation

In this chapter the As-Is situation within the physical distribution and reverse logistics is described. It will help the reader identify the relevant building blocks that these processes consist of. The result will be a framework that functions as the basis for redesign.

To outline the existing situation a variety of techniques have been put to use. The processes have been split into the sub-systems shown in the literature review and the data is gathered by interviews.

5.1 Distribution objectives Brenntag

Brenntag has set one fixed objective with respect to the physical distribution transport:

All orders will be processed as efficiently as possible and delivered the next day, given that the order has been placed before 15:00 hours. This objective is true for all the customers in Greater Buenos Aires and assumes that enough stock is available in the warehouse. This report only very briefly regards the replenishment of stock and assumes that out of stocks do not exist.

5.2 Physical distribution

The physical distribution and reverse logistics have been split into the different sub-systems, which are stated in paragraph 4.1.2 and 4.1.3. This is followed by a description of the management in the logistics department of Brenntag.

5.2.1 Stock

The stock management has undergone a reorganisation (see paragraph 1.5.7) and this report assumes that the stock management is optimal. A description of the stock management is provided in Appendix V. Orders

Once an order has been placed, the sales office sends a fax to the warehouse with all the details. In the warehouse the order is manually fed into ‘Avion’, Brenntag’s inventory control program. The logistics department takes the order and the stock is located. Then the order is prepared ready for next day despatch. If the order enters the office after 15:00 hours the order is postponed for one day, unless it is an emergency, in which case exceptions can be made.

The order process is very much fixed and does not give rise to problems. The system is simple and effective. A more IT-integrated program could lead to possible improvement for the future.

5.2.2 Warehouse and materials management

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