Part Two of Five: Achieving Supply Chain Optimization for Dry and Liquid Bulk Commodities

Part 2: A Simple Supply Chain

Written by Phil Fisher, PLG Senior Consultant. 

Dry Bulk Batch Production via Seller-Managed Trucking and Export Terminal

Part Two of our blog series demonstrates a quite simple Supply Chain Optimization (SCO) example for a plant with truck deliveries of a batch-produced, dry bulk product to its own export terminal. This qualitative example illustrates basic principles of an SCO project by identifying the challenges and concerns of the supply chain followed by a Scope of Work and ultimately, recommendations for an action plan.

Existing Supply Chain*

Existing Supply Chain

*Note:  For simplicity, equipment age and condition, replacement capex budget schedule, practice vs. contract terms, future expansion, information sharing, and other elements typically included in an SCO study have been omitted.

Top SCO Challenges:

  1. High truck demurrage
  2. Occasional terminal book inventory errors, resulting in write-ups or write-downs to inventory on the plant’s balance sheet and subsequently charges to the income statement (e.g. Profit & Loss)
  3. No recent Best Practices review
  4. No recent Capacity Fitness review (are loading rates, unloading rates, storage capacities reasonable and consistent for various situations?)

SCO Study Scope of Work

  1. Identify the cause of high demurrage by analyzing demurrage bills and truck contract terms.
  2. Develop a history of batch frequency and how truck needs per shift are determined by plant operators.
  3. Review book inventory history to determine how often and what cost corrections have been made to balance sheet.
  4. Conduct Capacity Fitness review for both normal operations and various possible situations.
  5. Conduct Best Practices review.

Findings of the SCO Study

  1. Fragmented Management: It was clear from both Marketing and Manufacturing executives that neither was willing to give up control to a single supply chain manager, so this subject was dropped.
  2. Demurrage:
    • Truck contract terms bill demurrage if any truck on any turn has to wait for more than 30 minutes to load, even if the same truck on other turns on the same shift loaded in less than 30 minutes (e.g. no credit for faster loading on other turns during same truck shift).
    • Poor scheduling of trucks by plant operators occasionally required more trucks than needed. Interviews revealed that the truck scheduling was not considered a high priority.
  3. Book Inventory Impact: History of either adding to or reducing book inventory was infrequent and of minimal change to inventory value ($) in the balance sheet such that a modern side scanning radar system for terminal inventory could be not be justified.
  4. Capacity Fitness review: Truck loading rates at the plant, truck unloading rate at the terminal, terminal storage capacity, and ship loading rates were all consistent, reasonable and adequate both for normal operation and as determined by comparing Impact vs. Occurrence Risk of various possible situations that might affect the supply chain (e.g. weather, outages)
  5. Best Practices: The SCO study found that the terminal had both a longshoreman on the deck and an operator in the cab for ship loading.  Best practices at terminals found that one longshoreman with a remote-controlled joystick standing on the deck overlooking the holds operated the ship loading more efficiently than two people.

Recommendations:

  1. Demurrage
    • Require cumulative loading time per truck shift at next bidding of the contract which occurs next year.
    • Revise plant operator training and include operator performance measures for more accurate truck scheduling.
    • Conduct quarterly communication meetings between Marketing, the plant and the trucker to review recent history and develop action plans for resolving the demurrage and scheduling issues.
  2. Terminal Inventory
    • OK as is, no changes recommended.
  3. Best Practices
    • Implement Best Practice of one longshoreman overseeing the ship loading at the terminal if labor rules allow it.
  4. Capacity Fitness
    • OK as is, no changes recommended.

Coming Soon:  Part 3 of Achieving Supply Chain Optimization for Dry or Liquid Bulk Commodities

Example B:  SCO for a Liquids Pipeline

In our next blog series, we will share a simple supply chain example for a Liquids pipeline.  Stay tuned! 

Don’t Know How to Start Your Own SCO Study?  PLG Consulting can help!

The advantages of using PLG as a consultant:

  • PLG Consulting starts with your business objectives to ensure the project outcome delivers results.
  • Our team has decades of unique and specific expertise, including experienced professionals who have led the supply chain organizations of other major shippers. In other words, we have ‘walked the walk’ of senior executives looking to improve supply chain performance and lower costs, and specifically within the unique arena of dry and liquid bulk commodities.
  • PLG dedicates resources to provide analysis and solutions that are practical and actionable.  And, we can help you implement it. 

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