Case Study: Specialty Chemical Company

Specialty Chemical Company (SCC) was

established in 1953 to explore the

potential of custom blended chemicals.

SCC is now the leading recognized brand

for custom blended chemical products,

providing performance-enhancing

solutions to serve the diverse needs of

more than 250,000 customers worldwide.

Sixty Percent of Specialty Chemical

Companys annual sales are outside the

United States.

When it comes to image, SCC is seen as

a high quality, innovative and Reliable

market leader with good customer

service and technical support. SCC rates

higher than its next global competitor

does on key image attributes.

History with Logistics Worldwide

SCC has been a customer of Logistics

Worldwide (LWW) for more than 15 years

and a primary logistics partner for almost

10 years. They became LWWs first $100

million account in 2005. LWW provides

air and ocean freight forwarding,

customs brokerage and compliance,

warehousing, distribution, and consulting

services for SCC on a global basis. LWW

currently accounts for approximately

50% of SCCs global logistics spend.

Over this time period, LWW has

developed a global infrastructure to

support SCC. For Staffing, LWW has 150

full time equivalents (FTEs) focused on

freight forwarding and 100 FTEs for

warehouseing. In 2003, the Relationship

began to change. SCC began to have

their procurement team become involved

with the logistics process. A long-time

SCC employee from the UK was brought

in to head up the global procurement

process, and logistics and procurement

began reporting up through the same

vice president at SCC.

LWW was also going through changes

and growing quickly. SCC was being

used as a research and development

account for LWW to help fill out its

service offerings to other customers.

LWW continued to develop new tools,

reports, and services for SCC.

At the same time, SCC procurement

people attempted to keep LWW from

becoming too entrenched with SCC so

that they could de-couple LWW very

easily.

These changes created conflicts between

SCC procurement, SCC logistics, and

LWW. While procurement began

exercising more influence over logistics,

logistics professionals were leaving the

area, and were being replaced by

engineers with little or no logistics

experience. LWW continued to do

business as usual with SCC; not realizing

how the new approach to logistics was

changing the way they needed to do

business with the account. They were

not on the same page and

communication was strained.

LWW did a poor job of showing their

value to SCC and subsequently, SCC took

them for granted. Procurement was

attempting to drive down the cost of

logistics and looked at LWW as a

commodity that needed to be taken out

to bid on a regular basis to keep LWW

honest. The procurement manager felt

that LWW was over charging and not

providing value added services to SCC.

SCC had the right to audit LWW invoices

from the carriers to see that SCC was

getting the best rate possible, but SCC

procurement still felt that LWW was

somehow getting unwarranted money

from SCC. Customer business reviews

became contentious.

The Disruption

In an effort to help SCC keep their

logistics costs low and service high, LWW

had utilized one core ocean carrier, Deep

Blue (DB) to move ocean freight globally.

LWWs goal was to aggregate and

leverage the SCC ocean business. SCC

ships approximately 20,000 TEUs per

year with LWW.

In the spring of 2006, DB was purchased

by a European ocean carrier, Royal

European (RE) and the two companies

were merged with one another. The

merger was managed poorly and the

service received by SCC suffered. RE did

not have a robust implementation plan

and decided to use their track and trace

system, shutting down DBs system. The

problem with that decision was that there

was no visibility of the old shipments in

the DB system. Consequently, the new

company had no idea what containers

were where, what vessels those

containers were scheduled to move on or

when they would be moved.

Another major issue with the merger was

the handling of the hazardous material

shipments. SCC ships numerous classes

of hazardous material but the two main

classes are flammable liquids and

corrosive materials. RE handled all their

Hazardous shipments out of either Port

Elizabeth, NJ or Norfolk, VA. However

Norfolk sailings were reserved for the US

Government munitions shipments. All

other hazardous materials were shipped

out of New Jersey.

DB shipped their hazardous shipments

out of the same two ports, but SCC

shipments shipped mainly from Norfolk

so that they would be loaded on the

vessel early in the voyage. At the time of

the merger there were many SCC

shipments sitting in the container yard in

Norfolk that were not being loaded onto

RE vessels. To add to the bad situation,

RE did not notify LWW of this change and

the number of Hazardous shipment

continued to build up as SCC shipments

continued to be routed to Norfolk instead

of New Jersey.

LWW was now in a pinch. They should

have been more on top of the situation at

the time of the merger and should have

monitored the merger more closely.

They now had over 100 containers sitting

on the docks in New Jersey and Norfolk.

In addition, there were 10 more

containers shipped every day to Norfolk

and most were considered hazardous.

LWW demanded that RE move all of their

containers to the port in New Jersey and

loaded on to the next available vessel.

SCC estimated that they spent more than

$1 million dollars in additional airfreight

due to poor service. LWW could identify

half that amount in direct impact and

offered $500,000 in compensation based

upon an air impact study. SCC was also

concerned about an increase in inventory

carrying costs. Each container has an

average value of $200,000. SCC does

not share this information directly, but it

is assumed that their cost of capital was

10%.

Status of the Relationship

This poor service occurred at the same

time as a new director of logistics was

taking over the reins at SCC. When he

realized that there were over 100

containers sitting at the docks or in

transit, he called a meeting with LWW

senior management to find a solution.

LWW laid out what had caused the

problem, what had been done to fix the

current issues and what would be done in

the future to ensure that it would not

happen again.

Because of this situation, SCC ended up

taking their customs brokerage, air and

ocean business out for bid in the fourth

quarter of that year.

As a result of the bid, SCC found out that

LWW was actually providing a better

service at a very competitive rate. Once

it was realized the extent of services that

LWW was providing to SCC, it became

evident that this was not a commodity

service that could be replaced easily.

From the bid, it was learned that LWW

service levels were better than the

competition for a nominally higher price.

LWW provides Key Performance Indicator

(KPI) reports that are superior to

anything the competition was offering,

and LWW had learned to

speak their

language

in the last year. LWW did not

come out completely unaffected, though.

SCC awarded 5% of its business to two

other Third Party Logistics companies.

This was done to give LWW some

competition and to ensure that SCC did

not have

all its eggs in one basket.

The Relationship with SCC has improved

tremendously since the bid. Due to the

response and presentations, SCC on a

global basis was surprised to learn all

that LWW did for them. The attitude

toward LWW has improved significantly.

This was quantified in the recent

voice of

the customer

survey. LWW approval

ratings for core services increased to an

average of 80%, up from 60-70% the

year before. When asked if they would

recommend LWW, 83% of the SCC

respondents said yes. This was an 8%

increase compared to the previous year.

Forward Plans

LWW still needs to address some major

challenges with SCC in the future. They

have developed a new set of KPIs to drill

down further into the SCC business. This

will drive new processes and provide

better service. For too long, LWW

operations just entered information into

the operating systems, and did not pay

much attention to accuracy. LWW will

continue to push their operations to

focus attention on those details, and they

will continue to improve accuracy.

As part of this strategy, LWW has

implemented process improvement

projects where LWW and SCC country

operations sit down and map out a local

process (e.g. imports, exports, and

brokerage); identify touch points

between the two companies; and look for

waste in either time or money. From

there, they look for strategies to improve

the process, and they create an

implementation plan.

As a final action, the LWW account

management team is developing a

business continuity plan so that if there

are any changes to our team, they will

have a history of the account available.

This will ensure that they do not forget

the lessons of the last few years and

avoid repeating the mistakes made

previously.

It was a turbulent experience. The

process and outcomes, however, have

made both companies much stronger,

wiser, and on many levels, much more

collaborative.

Questions:

1. What would you have done differently to avoid or minimize the risk with the

SSL merger

2. What was the impact to SCC?

3. What would / could you do to avoid this happening in the future?

4. Would changing the Terms of Sale (TOS) or INCO terms have helped?

5. What was the impact of the mismanaged merger (use the data to quantify)

a. Consider excess transportation

b. Inventory carrying costs

c. Good Will

d. Other