Outsourcing: A Chemical Reaction | Article

Chemical OutsourcingBlame it on Barbie dolls.

In 1966 Robert Walther was running a trucking company. One of its key accounts was hauling Barbie dolls and needed a warehouse to store the doll’s component parts. Could Walther help him? So the entrepreneur formed Brook Warehousing Systems in Bridgewater, New Jersey, to accommodate his customer.

Over the years the East Coast warehouses stored everything from Girl Scout cookies to barbecue grills. But the biggest demand came from the packaged chemical industry. In 1985 the company made a strategic decision to specialize in packaged chemical distribution, even though it is not child’s play. Currently, the company operates 1 million square feet in New York, New Jersey and Pennsylvania.

Today, Walther says more and more chemical companies are outsourcing their warehousing needs. If a company decides to build its own warehouse, it either doesn’t have enough space or has too much. “The big reason to outsource is economic,” says the CEO.

The problem becomes magnified if the business is a seasonal one. Walther says Frigidaire, an air conditioning client, goes from zero space in February to 150,000 square feet in May to zero square feet in November. “You only pay for what you use,” says Walther.

Brook Warehousing typically has between six and 26 clients in a single warehouse sharing services and space. Its warehouses range from 100,000 to 300,000 square feet.

Distribution Centers as a Core Competency

Outsourcing the storage of hazardous chemicals is not the core competency of Brook Warehousing’s clientele; they manufacture and sell products. “They don’t know much about running distribution centers,” he reports.

Outsourcing the warehousing operation allows chemical companies to enjoy a quick market penetration whenever they want to develop a new region. And outsourcing preserves precious capital. “Manufacturers don’t want to put dollars into warehouses because it’s a non-productive area for them,” says Walther. “Those dollars are more wisely spent in new product development.”

Another plus to outsourcing is that the vendor assumes the legal liabilities. If there is any negligence in the handling of the products, the vendor’s insurance company handles the claim. “Our clients transfer the risk to us,” points out Walther. If a buyer made a mistake in his own facility, “the company would have to eat the cost,” he continues.

Then there are the federal regulations regarding the handling of hazardous materials. “You can make one mistake and suddenly not have a building,” Walther says matter-of-factly. He reports that his warehouses store flammable materials, corrosive materials and everything in between. The forklift operators need special training so the building doesn’t disappear in a flash.

His buildings must meet national and local fire codes. The electrical system must be spark-proof. The sprinkler system must also be able to contain the run-off so the water doesn’t spread to other parts of the building.

The buildings must be built so if there’s an explosion, it will explode instead of implode. Don’t forget the pollution insurance to cover the fall out from an explosion.

Given these strictures, Walther says he felt “not a lot of people were interested in handling chemicals, so we had a niche.” The corporate thinking was: “We could pick up a premium on the risk/reward ratio,” continues the founder.

Understanding Exactly What the Buyer Wants

With few competitors, Brook Warehousing has been able to attract top talent for its staff, a blessing in today’s tight labor market. The company has 125 employees who service 60 clients, including Rhodia, Air Products and National Starch.

Brook Warehousing has taken a world-wide marketing approach. Currently, half of all the materials the company stores comes through the Ports of New York or New Jersey. “This is a growing part of our business,” says the CEO. Europeans have gotten over their fears of outsourcing, he reports. Rhodia, for example, is a French company.

After the company negotiates its rate, it interviews the client to understand exactly what the client is hiring the vendor to do. Staffers then pen an operating manual which the client reviews, then approves. “We want to be clear about their expectations before we take in the first truckload,” he notes.

After 60 days, buyer and vendor review the operations manual again, making amendments now that they can factor in experience. Walther estimates 10 percent changes at this time. “Then we’re off to the races,” he says. Buyer and vendor meet a few times a year to review the operating procedures to make an additional amendments.

To support their service level agreements (SLA), Brook Warehousing takes statistics daily. Walther says each client has its own hot buttons, so what the BPO provider measures is different for each buyer. Walther says every time he gets a complaint, his staff researches it “to prevent it from happening again.”

He says the company sets up its facilities on an incentive basis. “That keeps everybody’s head in the game,” he explains.

The Buyer Must Understand Its Business

Walther reports he has walked away from business. Typically the liabilities made the risk too high. “Worse case scenarios can come true,” he says. To date, the worst thing that has happened was a flood. “We didn’t have a very happy client, but the contract governed. Everyone needs to remain open and fair minded when trouble arises,” he says.

Brook Warehousing tries to establish a partnership relationship with its buyers. He tells his prospects at the outset that he will provide superior service at a rate that guarantees a fair profit for his company.

Walther says the biggest factor contributing to outsourcing success is the buyer’s knowledge of its business. “Most of our problems come from the client not understanding what’s going on in his shop,” observes the CEO. If the client also has clear goals for the outsourcing relationship, “that leads to huge success.”

Lessons from the Outsourcing Primer:

  • Outsourcing relationships work if the buyer understands the inner workings of its business and is clear about its outsourcing goals.
  • Outsourcing warehouse operations makes sense because it is not a profit center for manufacturers.
  • Chemical warehouses met the special requirements for hazardous materials and assume the liability.
  • Establishing an operation manual before consummating the relationship helps manage buyer expectations.

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