The logistics outsourcing market is growing—that much is clear. A survey by PURCHASING Magazine in late 2001 found two-thirds of buyers expecting to see an increase in their organizations' logistics outsourcing in 2002. A recent report from market researcher IDC says the market for worldwide logistics business process outsourcing was $140 billion in 2001 and will grow at 17% per year through 2006. The U.S. market is predicted to nearly double over that period from $83.5 billion to $161 billion.

One company that has put a new spin on outsourcing is Eastman Chemical of Kingsport, Tenn., which is farming out its entire logistics function to, in a way, itself. Eastman is a major chemicals company and purchases more than $2.5 billion worth of materials, energy and services per year. It ships products from 45 production sites worldwide. Eastman began looking into outsourcing its logistics to a third party in 2000 so it could focus on its core competencies. As part of that review, Eastman evaluated the logistics technology offerings being used by third-party logistics providers and the one that impressed Eastman the most was from G-Log, a new e-logistics technology firm.

But simply implementing the G-Log technology internally would bring more responsibility to Eastman's logistics staffers in the short-term, further distracting Eastman from its core business. Eastman wanted to get the benefits of the new technology without carrying a huge staff and infrastructure for its logistics operations. The solution Eastman came up with was to spin off a new company that could handle its logistics operations using the G-Log technology but also take on the logistics operations of other chemicals shippers to gain the benefits of scale.

The resulting spin-off venture is now named Cendian (formerly ShipChem) and includes about 100 of Eastman's internal logistics staffers who provide chemicals industry expertise. The G-Log technology helps to optimize business processes. According to Terry Begley, vice president, global customer supply chain at Eastman, there are three major advantages to starting the new venture instead of outsourcing to an existing provider: volume leveraging from a multishipper network, network optimization to improve asset utilization, and technology integration for business process improvement and visibility.

Today, Cendian has more than $1 billion worth of chemical logistics services under contract, handling everything from palletized chemicals on LTL carriers to ocean parcels in as many as 80 countries worldwide.

"We typically focus on mid-sized chemical companies between $1 billion and $5 billion in revenues where we can bring them the power of scale," Cendian CEO Mark Kaiser tells PURCHASING . "A typical chemical company spends up to 12% on its supply chain but the best-of-breed chemical companies spend only about 6%. We've got all the purchasing power to help companies access that power of scale."

Kaiser says chemicals companies are looking for three qualities in outsourcing partners: ability to help them compete in slow markets, ability to help open new markets and gain market share, and safety and security. "This is really a business of market share. Opening new markets is important internationally and we can really help there."

Eastman approached its move to Cendian in late 2000 like it would any other outsourcing project. It divided its logistics by modes and geography, and began moving its North American bulk truckload to Cendian first because the majority of Eastman's personnel were in North America.

"We knew there would be a lot of customer-specific requirements on bulk chemicals and plastics delivery and we wanted to make sure Cendian could hit the ground running with those requests," says Anne Kilgore, director of global supply chain process services organization. "Also, we had a limited number of carriers and service providers in bulk truckload, so we could start with them and cooperate closely to make sure the handoff was smooth."

From there, LTL was brought up, then rail, air, small parcel and marine. "Marine came last because it is primarily outbound marine into our regions, so it is typically long shipments that cross multiple service providers," Kilgore says. "You have a lot of disparate pieces of information you're trying to pull together." Currently, Eastman is focusing on bringing its European operations onto Cendian and Asia and Latin America will follow by the end of this year, if all goes according to schedule.

There are some major differences in Cendian's processes from the way Eastman used to do things, primarily the emphasis on software technology based on G-Log's transportation and logistics management system. From that base technology, Cendian built a series of interfaces so when its goes live with services, the company trains the users and carriers and then simply turns on the technology. Cendian has logistics managers available for exception messages, but once cleared, a shipment gets automatically tendered via the Internet to all service providers approved for the service. Providers are given a certain time to respond and the system optimizes the bids and moves and awards the business. Shipping documents are generated and sent to the customer, Eastman, and the carrier, if requested.

"It has really taken time and labor out of the system and changed the process significantly from how we used to do it," says Kilgore.

Carriers working with Eastman are beginning to see benefits of using Cendian because they can work with other chemical shippers on Cendian to optimize shipments and minimize empty backhauls. "There are the powers of scale in getting more volume," says Kaiser. "We do like to partner with our preferred carriers because we can save them a lot of money too. There is a lot of inefficiency in the system and our best relationships have us working closely with carriers to find win-wins. With added volume we can move from LTL to truckload, utilize backhauls, fill empty containers the carriers have, and, in return, they can give us better prices as we help them improve their margins."