Logistics in the walls
North America's largest gypsum products maker continuously shapes supply chain.
By Chris Gillis
If walls could talk, they may have an interesting logistics story to tell.
Most residential and commercial building interiors are covered by drywall, a rigid material with a chalky gypsum core and faced with a paper coating. If mishandled or left exposed to moisture, these boards, also called wallboard or plasterboard, are easily damaged.
United States Gypsum Co. has spent more than 90 years perfecting the distribution of its drywall, known commonly by its trademarked brand Sheetrock, from its plants to construction sites throughout North America and the world. To minimize handling, the company has traditionally kept its distribution centers next door to its plants.
USG operates 17 drywall plants in the United States, and another 14 plants that manufacture related joint materials used for drywall installation, making it the largest producer and seller of gypsum-based products in North America.
The company also maintains a highly integrated supply chain. USG sources gypsum rock from 14 mines and quarries across the United States, Canada and Mexico, owns and operates its own fleet of dry bulk ships, and produces wallboard paper from five paper mills.
However, constantly fluctuating construction trends and developments here required USG to continuously assess nearly every aspect of its logistics management, including transportation to and from its plants, scale of its warehouses and inventory levels, and market penetration. USG has even looked outside its walls to third parties to assist with these changes.
By the end of the 1990s, USG's Port Reading, N.J. joint compounds plant had started overrunning the space of its onsite storage facility.
'The plant grew but not the warehouse,' said Tim McVittie, USG's director of logistics, in an interview. 'We started storing product outside when the season permitted.'
He explained that USG by 2004-2005 had 'cobbled together a network of small ad-hoc warehouses' throughout New Jersey to accommodate the Port Reading plant's output. 'It wasn't the most efficient way. Some warehouses were nearly 40 miles away from the plant,' McVittie said.
USG reached out to Chattanooga, Tenn.-based Kenco Logistics Services to help find a more efficient way to manage its Port Reading plant inventory.
| Juhl |
'Kenco helped determine the size we needed for a warehouse and worked with a developer in the area to find a location in close proximity to the plant to minimize transit costs between the plant and warehouse,' said Rob Juhl, USG's senior manager of logistics.
The 342,000-square-foot warehouse is located a half-mile from the Port Reading plant. In addition to palletized capacity for pails of joint compound, the facility sits along a rail spur and allows for indoor offloading of drywall bundles from center-beam railcars.
'It was a great experience for us,' Juhl said. 'Kenco definitely brought its warehouse expertise to the table.'
Kenco has provided freight handling services to the construction and home improvement industries for about 50 years. Prior to its work with USG on the Port Reading warehouse, Kenco helped USG support short-term gypsum product inventories in the Chattanooga area. The product was transported by rail from USG's plant in Sperry, Iowa, to a warehouse picked by Kenco.
'If there's an area of the country where we don't have a direct presence, we'll enter into a third-party relationship,' McVittie said. 'Kenco identified a suitable warehouse and hooked us up.'
Juhl added that while USG conducts its own searches for third-party warehouse operators, 'we'll even talk to the carriers that operate out of our plants to find out who they recommend.'
McVittie said USG was also attracted to Kenco for its 'corporate safety culture.'
In 2005, the U.S. construction boom peaked. That year, USG produced about 11.3 billion square feet of wallboard. Since then, the market has dropped off significantly with the global recession. By 2008, USG produced only 7.2 billion square feet of wallboard, compared to 9 billion square feet in 2007 and 10.8 billion square feet in 2006. By the end of the first nine months of 2009, the company estimated that it had only produced about 3.7 billion square feet of wallboard from its plants.
With its wallboard plants now running at about 50 percent capacity, USG faces new logistics challenges. In late 2007, the company decided to shutter its 87-year-old Boston plant, one of the oldest in its operations.
'We had to make some difficult decisions about capacity,' McVittie said. What made the Boston plant's closure especially sensitive to the company was its proximity to its Boston area customer base, which includes big box retailers, commercial building materials distributors and lumber yards. 'It was a unique situation because we were located in the middle of this market and 10 to 15 minutes away at most from our customers at large,' McVittie said.
USG once again selected Kenco to help it find and manage a suitable distribution center to handle inbound gypsum products to continue serving the Boston market.
'We needed to make sure all ours boards look the same as they leave the warehouse as they would have directly from the former Boston plant,' Juhl said. 'Kenco understood this well.'
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| Smith |
USG provided the systems needed to properly operate and manage the inventory within the 156,000-square-foot warehouse, now located in Ayer, Mass. However, Kenco will provide shippers with use of its own warehouse management systems, if necessary, Kenco President and Chief Operating Officer Andy Smith told American Shipper.
'As an engineering-based company, we try to help customers lean out inventory and give them models to execute,' said Trace Spiers, vice president of operations at Kenco.
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| Tom McVittie director of logistics, USG |
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| 'If there's an area of the country where we don't have a direct presence, we'll enter into a third-party relationship. Kenco identified a suitable warehouse and hooked us up.' | |
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McVittie noted that Kenco knew the importance of ensuring that the move included a smooth transition for USG's primary Boston plant trucker Catalano Bros. 'For 87 years, this trucking company has been in direct contact with our customers. We wanted to retain that strength in the marketplace,' he said.
Boston remains a highly lucrative market for USG. 'A year and half after implementation, we still enjoy strong relationships with those customers,' McVittie said.
Domestic wallboard competition for market share, although severely retracted, remains fierce with the likes of USG, American Gypsum Co., CertainTeed, Georgia-Pacific, Lafarge North America, National Gypsum Co., PABCO, and Temple-Inland involved in the market.
David Caines, Kenco's senior vice president of logistics, believes the building materials market is on the slow road to recovery, showing 'steady month-to-month increases' in business.
'I think the worst is over, but it will be rather flat in 2010,' Smith added. 'Everyone is still very cautious.'
The U.S. wallboard market has also been challenged in recent years by an influx of imports from China. However, news reports in early 2009 about high concentrations of sulfur in Chinese-made wallboard emitting 'rotten egg' smells and corroding copper pipes and wiring caused widespread panic among homebuyers, lawsuits, and a federal investigation led by the Consumer Product Safety Commission.
The Chinese wallboard was sold in the United States in 2005-2006, and the primary company in question is Knauf Plasterboard (Tianjin) Co. Ltd., according to the CPSC and news reports.
USG assured its customers in a Dec. 1 statement that all of its gypsum wallboard 'is and always has been manufactured exclusively in the United States (and Canada) ' In the approximately 90 years that USG has been making and selling wallboard in the U.S., we have not had homeowner complaints about our wallboard similar to the ones now surfacing regarding Chinese drywall.'