4c4chem

Cross-chain collaboration in the chemical industry

Project Proposal

Proposal prepared by Prof dr ir J.C. Fransoo

Eindhoven, 14 May 2012

Subsidy Application Form

A.  Project name and duration

Project name: / 4c4chem
Start date: / 1 September 2012
End date: / 31 December 2015

B.  Project applicant and project leader

Company / organization: / Technische Universiteit Eindhoven
Contact person: / Prof dr ir J.C. Fransoo
E-mail address: /
Phone number: / 040-2472681 / Mobile:06-48945790
Authorized to sign: / Ir H.P.J.M. Roumen
Financial administrator: / R.L. Jansen
E-mail address: /
Phone number: / 040-2474818 / Mobile: n/a
Applicant’s visiting address : / Den Dolech 2, Pav F 4
Postal code: / 5612 AZ / City: Eindhoven
Postal address: / P.O. Box 513, Pav F4
Postal code: / 5600 MB / City: Eindhoven
Bank account number: / 158249658 / Bank: Rabobank / City: Eindhoven

Project leader

Company / organization: / Technische Universiteit Eindhoven
Contact person: / Prof dr ir J.C. Fransoo
E-mail address: /
Phone number: / 040-2472681 / Mobile:06-48945790

C.  Partners in consortium

Organization’s name / Type of organization / SME
Technische Universiteit Eindhoven / Knowledge Institute / No
Shell Chemical Europe BV / Company / No
Dow Europe GmbH / Company / No
Sabic Petrochemicals / Company / No
Den Hartogh Logistics BV / Company / No
Cargogator BV / Company / Yes
VNCI (Association of the Netherlands Chemical Industry) / Association / No

D.  Signatures

By signing this form, I certify that all the required documents are attached and that I am familiar with Dinalog´s conditions and procedures.

Applicant’s organization: / Technische Universiteit Eindhoven
Authorized to sign: / Ir H.P.J.M. Roumen
Position: / Secretary of the University
City: / Eindhoven
Date: / 14 May 2012
Signature:

Submit to Dinalog:

-  E-mail, all documents in PDF, but also original Word and Excel documents to ;

-  Post, printed versions of all documents requested to
Dinalog Management, Princehagelaan 13, 4813 DA Breda


Project Plan

Summary

The chemical industry is a major industry in the Netherlands, making a positive contribution of almost € 20 billion to the balance of trade in 2010, which was 51% of the total balance of trade (goods) in the Netherlands. The chemical supply chain accounts for about 10% of the transport performance (tonkm) in the Netherlands transport flows. The far majority of these flows are international; 19% of all exported goods by weight are chemicals.
Current estimates of load carrying unit utilization are at about 60%. The causes for this less than full utilization lie in several factors, such as imbalance in location of production and consumption, empty returns, short-term focus in optimization, and limited flexibility for the carrier to plan shipments. While the first cause (imbalance) is hard to address from a supply chain and logistics perspective, the other three causes will be addressed in this project.
In this project, we will address this problem in 3 new and innovative ways along the supply chain planning process, namely in the improved forecasting and planning of transportation needs in the medium term and in better short term coordination between site logistics and off-site logistics (PLAN), in the sharing of inventory and railcar resources (COMBINE), and in the bundling of transportation flows (BUNDLE).
The design of the project is based on analysis and experimentation in parallel. Hence, we will not use a more traditional approach of first researching and then implementing, but we will build active business cases, which will be piloted if the business case is favorable. Simultaneously, a number of scientific challenges remain. These scientific contributions will need to be documented in research papers, such that also an impact on the global research community can be realized.
In the project, relevant decision support models and new operating concepts will be developed, evaluated and where applicable be tested:
1.  A business model for a logistics service provider to extend services in this sector allowing the LSP to operate at a higher added value level if certain controls are transferred to the LSP, for instance in the operation of or coordination with site logistics.
2.  In the framework of the competitive situation of the European chemical industry, we anticipate that the logistics capabilities and concepts are particularly relevant for the Netherlands chemical cluster due to the better opportunities to take advantage of this.
3.  Building on the successful concept of pipeline management, we believe there is a basis for establishing a similar joint venture for inventory pooling related concepts.
4.  An important general objective is to use this project to establish a supply chain innovation community in the Netherlands chemical industry and associated logistics services.
The project aims to realize a substantial increase in chemical bulk transport efficiency (5-10%), generate a competitive advantage for LSPs in the combination of site and offsite logistics, and provide the basis for a startup company for the management of shared inventories.
Results will be shared with the professional community through the common publications, but in addition, a number of best practice case studies will be made available. We will inform the academic community by a series of academic publications. The industry at large will be enthused at a concluding conference on horizontal collaboration in chemical industry logistics.

A.  Orientation and Project Goals

Motivation

The chemical industry is a major industry in the Netherlands, making a positive contribution of almost € 20 billion to the balance of trade in 2010, which was 51% of the total balance of trade (goods) in the Netherlands. The chemical supply chain accounts for about 10% of the transport performance (tonkm) in the Netherlands transport flows. The far majority of these flows are international; 19% of all exported goods by weight are chemicals. Furthermore, the Netherlands accounts for 27% (63€ billion) of the total external trade of chemicals and related products from EU27 countries (235€ billion).
Due to tight margins, a lot of these transport flows have received considerable attention of shippers and carriers and hence have been optimized to a substantial extent. For instance, the share of rail and barge transportation is much higher than in other sectors. Exact numbers for the Netherlands do not exist, but in Europe, road transport represents 44% of the total chemical continental transport performance (tonkm) compared to 73% for the European average across all sectors.
Three issues drive the need to further improvement
1.  Due to other sectors also moving cargo to the intermodal supply chain, capacity on intermodal links is more difficult to obtain, and further volumes need to be bundled in order to make these modes of transportation effective.
2.  Due to a drive towards sustainability in the entire supply chain, and the large environmental footprint of the chemical industry, most companies in this sector have formulated explicit sustainability targets. The targets that can be affected in this project include reduction of carbon emissions by more efficient use of transportation resources and potential modal shifts, and a reduction of industrial waste due to a reduced need to clean load carrying units.
3.  The thin margins in the industry have lead to considerable pressures on inventories, causing still substantial volumes to be transported via road at less than full utilization of the load carrying unit (LCU).
Current estimates of the LCU utilization are at about 60%. The causes for this less than full utilization lie in several factors:
•  Imbalance in locations: producing and consuming locations may have a strategically different location, causing empty rides.
•  Empty returns: due to cleaning requirements for non-identical products, there is a cleaning cost and time involved. For carriers, this may imply that it is better to return empty to the same shipper for the same product, rather than cleaning the truck and finding a return load.
•  Limits to shipment optimization: due to short term changes in demand, shipments are typically optimized on a day-to-day basis, and little information is available ahead of time. Especially due to inventory reductions, short-term fluctuations have increased. General management of buffers tends to be short term oriented (see, e.g., Puijman, 2011, for a study on the ability to reduce short term movements by better management of buffers)
•  Limited flexibility for the carrier to plan the shipments. Due to optimization of site logistics facilities, carriers are faced with very tight time windows. As a consequence, carriers have very limited ability to change and combine shipments (see, e.g., Sarikaya, 2010, for a study at Dow Chemical and Den Hartogh on short term planning requirements).
While the first cause (imbalance) is hard to address from a supply chain and logistics perspective, the other three causes will be addressed in this project.
In this project, we will address this problem in 3 new and innovative ways along the supply chain planning process, namely in the improved forecasting and planning of transportation needs in the medium term and in better short term coordination between site logistics and off-site logistics (PLAN), in the sharing of inventory and railcar resources (COMBINE), and in the bundling of transportation flows (BUNDLE).

Relation to Dinalog´s innovation themes

This proposal contributes to the core objective of the program, namely an increase in supply chain control and coordination, leading to increased added value in transportation in view of the decrease in the number of resources (transport capacity and people), and new business in supply chain control (both for bundling and for combined inventories.
Furthermore, it specially fits to the current call due to the involvement of the chemical industry with the program of Dinalog, and the renewed emphasis on sustainability in the call. Due to the substantial flows of transport in the chemical industry, the contributions of the ideas that will be developed in this project are impactful.
It should be noticed that chemical transport flows are primarily European and not national. Consequently, the impact of this project is well below the Dutch transportation volume and movements, and directly relates to the added value in exports that is provided by the leading transportation service providers, and it provides opportunities for expanding the concepts to a European scale if successful.
Note that the third project will be a basis to further include the chemical sector in a synchromodal transportation system. While rail connections are currently used extensively, the use of barge is limited, and the interchange between the various modes of transport at short notice is barely there due to widely different cost structures. Hence, the current project is an important step to enabling the inclusion of the chemical sector in synchromodal networks.
Finally, this project also serves as a cross-sectoral approach with the top sector Chemicals. The Netherlands government has encouraged cross-sectoral collaboration. The Netherlands chemical cluster is a very powerful cluster, but in the coming years, overcapacity is foreseen in the petrochemical sector due to increased efficiencies in production and a limited increase in demand. Consequently, across Europe petrochemical facilities are closed and limited investments take place. Well-managed transportation connections are increasingly a decisive factor in decisions on closure or expansion of petrochemical facilities. The current project will further strengthen the position of the Netherlands chemical cluster.

Objectives and goals

The design of the project is based on analysis and experimentation in parallel. Hence, we will not use a more traditional approach of first researching and then implementing, but we will build active business cases, which will be piloted if the business case is favorable. Simultaneously, a number of scientific challenges remain. These scientific contributions will need to be documented in research papers, such that also an impact on the global research community can be realized.
For PLAN, business case developing, piloting, and research will be needed.
For COMBINE, an actual pilot is unlikely, and the objective of the current project is to result in a business case, based on which a company could be started. The actual launch of the company might be brought in as part of a Dinalog experimental development project in a later stage (although this is not part of this proposal and we are aware that any awarding of an experimental development project is a separate decision by Dinalog). These will include (1) a very detailed analysis of how ARG works, not so much technically, but more operationally, governance-wise and financially; (2) a translation of the ARG concept into a setup whereby we continue to sell & distribute a chemical commodity (SM or PO instead of Ethylene) amongst several industry players but now under the situation where the logistics infrastructure is not continuous anymore (pipeline) but fragmented (separate tanks or railcars with logistics infrastructure); and (3) an expansion of the ARG concept by considering new value propositions for its participants (shippers but also customers!), e.g. “borrow” and “sellback”. This deliverable requires quite some thinking in terms of how you would construct such value propositions in a sense that they really add value while being open, transparent and compliant with anti-trust
For BUNDLE, we expect that current scientific results are mostly there, so that focus will be more on innovation and piloting.
Apart from the direct project deliverables, we expect the following output for dissemination:
1.  Each of the business cases will result in a written industry case study that can be used in industry (easily accessible) and for teaching purposes at universities and polytechnics. The current very popular ESCF case study series will serve as an example.
2.  A conference will be organized by the VNCI in which the results of the projects will be presented. VNCI will also work with the government and with the EU to take away any potential legal doubts.
3.  The research work will result in academic publications, to impact the worldwide academic community. It is expected that four research publications can be completed (academic papers)
4.  If the implementations are successful, we intend to submit the work for the Franz Edelman Award, which recognizes excellence in business analytics and operations research implementations.
An important element is the development of a web-based prototype, such as some start-ups have now developed for general applications. One of those startups, namely Cargogator, is part of the project to develop such a proof-of-concept.

Expected results