By Steve Banker, ARC Advisory Group

In Part I, I talked about how a Warehouse Management System (WMS) could be used not only to drive operational efficiencies, but also to enforce many of the compliance guidelines chemical warehouses face.  But how often are WMS solutions used for this dual purpose?

To answer this question, it is important to distinguish between Chemical manufacturers, distributors, and Logistics Service Providers (LSPs).

Let’s begin with distributors.  First of all, chemical distributors’ operations differ in the degree of complexity they must handle.  At one end of the spectrum are distributors who take whatever containers their suppliers ship to them, and then reship these containers (often drums) when an order is placed.  These distributors are known as Factory Pack Distributors.  At the other end of the spectrum are distributors that get bulk shipments of chemicals, often in tank cars, and they repackage and/or blend these bulk chemicals into a variety of different containers.

If you were to walk into a more complex chemical warehouse, you would find racks filled with drums, but also other forms of containers specially designed for chemicals.  You would see workers using forklifts, but also wearing various forms of protective equipment (aprons, special gloves, even air masks) when working at the filling and blending stations.

ARC interviewed several distributors and other experts about how chemical distributors are using Supply Chain Execution technology.  Because these conversations involved “compliance”, which is a sensitive issue, all conversations with distributors were off the record.

It is clear that compliance is a huge task in chemical warehouses for both warehouse and compliance managers.  First of all, chemicals need to be properly segregated (see Part I).  If you have flammable chemicals, you need to have a designated room that contains a sprinkler system and wide aisles.  Warehouses also need to be designed to ensure waste streams are contained in case of an accident.

Managers must prepare for a number of inspections.  A local fire department will put a facility through an annual Superfund Amendments and Reauthorization Act (SARA) inspection that takes about three hours to complete.  Similar inspections are done by the state (in New Jersey it is every three years, for example).  Sprinklers need to be flow tested once a year.  Fire alarms also need to be inspected by an outside certified company at least annually.  All chemical companies need to have Master Data Safety Sheets (MSDS).  In some states, even if you have electronic MSDSs that can be displayed on a computer or hand held, hard paper copies need to be used as well.  There are inspections on the respirators.  And companies that do blending need to have their tanks inspected for corrosion on a regular basis (every 5 years for mineral oil, for example).

There are also training rules.  Forklifts operators need to be recertified, which means retrained, every 3 years.  Floor level workers also need Hazardous Materials (Hazmat) identification and handling training every 3 years, and discharge and clean up (Hazwaste) training once a year.  They have 2 drills per year where they must evacuate the warehouse to meet Homeland Security regulations.

Managers also must do background checks before hiring new warehouse employees; make sure that returnable containers are cleaned correctly (based on the type of chemical in the container); make sure the proper processes for stacking containers are followed; and ensure that carriers have sufficient insurance (this was one manager’s biggest headache).

All of the managers I talked to were from companies that had received Responsible Distribution certification.  Responsible Care is the chemical industry’s global voluntary initiative under which companies, through their national associations, work together to continuously improve their health, safety, and environmental performance; and to communicate with stakeholders about their products and processes.  In the US, the key trade organization representing chemical distributors is the National Association of Chemical Distributors (NACD).  Their version of Responsible Care is known as Responsible Distribution and is focused on “product stewardship and responsible distribution in every phase of chemical storage, handling, transportation, and disposal.”  Companies that have received Responsible Distribution certification are operating at a higher level of safety and environmental standards than companies that are merely complying with the law.

To achieve certification, distributors need to have a detailed and documented process for responsibly managing the logistics associated with chemicals. They also have to provide ongoing training, and have a continuous improvement process that identifies and corrects the root causes of any incidents that occur.  A key requirement of Responsible Distribution, and a condition of membership in NACD, is verification of members' RDP policies and procedures by a third-party firm.

All the companies I interviewed are certified Responsible Distributors.  As a result, and because a WMS could help them demonstrate to third party certifiers that many of the pertinent safety and environmental policies were not only in place, but also enforced, I expected most of these distributors would be using WMS.  None were.  Further, I talked to one of the executives at NACD and the president of Datacor, an enterprise software supplier widely used by chemical distributors.  Neither source could name any distributor they knew of using a true WMS (a real time system using RF scanners, Voice, or RFID).

Instead these companies were complying with laws and Responsible Distribution standards through manual processes.  One manual process, for example, involves inbound inspections.  When a truck arrives it is inspected to make sure that there are no leaking drums.  If there are bags that have been stretch wrapped, they are inspected.  If it looks like the bags have shifted on the pallet, the pallet is broken down, the bags are inspected, and then it is re-palletized.  Following this check, at one facility they hand off the paper work to clerks to enter the inventory into the computer.

Some were using an ERP inventory system with locator codes to print out Bills of Lading for picking tasks, and a fair bit of manual checking by drivers or dock managers to make sure the SKU number matched the right lot number.  Pickers need to learn what zones match the labels (for example, a Class 3 Diamond label would mean a particular zone) and how high they can stack different types of chemicals.  With enough manual checking, a high level of inventory accuracy can be achieved, even without a real-time software system.  Two of the respondents had good inventory accuracy.  Others did not seem to have any metrics surrounding inventory accuracy.  Some follow up questions about whether or not customers ever ordered product that did not end up being in the warehouse indicated that, in at least a few cases, the inventory accuracy was poor.

The amount of paper work is astounding.  One manager said “I feel like more of a clerk than an operations guy.”  A different executive described the detailed process for safely loading and securing loads on their trucks.  There are detailed written procedures.  Every time a truck pulls up, a form must be filled out that contains the name of the person securing the truck, the date, the truck number, the trailer number, and a checklist.  This form is attached to the outbound shipment as part of the receipt.  They also save a copy for their files as proof that the correct process was followed.  This paper based “checkpoint” system is how they prove that they have detailed processes and that they are following them.

Similarly, the cleaning of reusable containers works off of serial numbers on the containers.  These serial numbers allow you to understand the chemical that was in the container and what sort of cleaning is needed based on the chemical/container.  Again, this is a surprisingly detailed process all enforced with manual paper based processes.

While none of the folks I talked to had a WMS, one company was looking for low cost, centrally hosted (so it can work across sites) shipping systems to help them automate outbound shipments.  They report that some customers are looking for bar codes on deliveries.  However, there is no industry standard for how a SKU should be labeled.  Different customers are using different formats.  Consequently, each customer has their own SKU number which some want not just on the pallet, but also on each drum, bag, or container.

One reason so few distributors use WMS is because the great majority of chemical distributors are small, with less than $100 million in revenues.  Facilities operated by chemical distributors also tend to be small - usually less than 50,000 square feet.  They also have far fewer workers - perhaps 5 at a blending warehouse and often only 2 in a Factory Pack warehouse - than in most Distribution Centers, with limited need for more sophisticated picking strategies.  They also tend to have far fewer shipments than a typical Distribution Center would.  One manager mentioned having only 15 to 18 daily shipments.

As a sidebar, managers reported that they had little turnover in the warehouse.  This is probably due to the less hectic pace, and the fact that they tend to pay more than most other types of warehouses (because of the background checks).  Drivers are paid more than warehouse workers and stay even longer.  Part of the reason for the higher pay, at some companies, is that drivers are also expected to play an active role in the sales process when they deliver goods to a customer site.

Further, another reason managers are reluctant to purchase a WMS is because RF Scanners are viewed as being too expensive.  In the zones containing flammable gases, vapors, or liquids, scanners need to be certified as arc and spark free.  A couple of respondents quoted a price of $10,000 per scanner.  (In actuality, the cost of scanners has come down.  Intermec sells theirs for under $6,000.)

In contrast, these companies are purchasing new technology for their truck operations.  Two distributors had purchased Global Positioning Systems (GPS) for their trucks.  Both had purchased Xata.  They purchased this solution partially because they were convinced that the US government would eventually mandate over-the-road traceability and GPS allows them to see where all their trucks are at all times.  For example, if a truck has been sitting at a rest area too long, and they can’t reach the driver on the cell, they can call the police and ask them to check it out.  But that visibility can also be used to understand the efficiency of their operators.  For example, they can see how long it takes a driver to unload a truck.  Xata also largely automates the process of writing Department of Transportation logs and fuel reports.

When I talked to warehouse managers that worked for distributors, I heard relatively little about how they achieve warehouse efficiencies.  One warehouse manager I talked to said he does not expect his workers to "hustle", he does expect them to be safe.  If they can get the day's work done in 8 or 9 hours, "great!"  "If not, there is always tomorrow."

When one considers the consequences of spilling dangerous goods - potential injuries or even death to workers, a warehouse evacuation, an emergency visit by the fire department, special clean-up processes, reports to the government - this is an understandable philosophy.

In contrast to distributors, LSPs and manufacturers are far more likely to use a WMS to automate work while ensuring compliance.  The specific processes automated, and the reasons for this, will be described in Part III of the Chemical Warehouse.