VIEWS: 412 PAGES: 4 POSTED ON: 3/7/2010
READER SURVEY Supply chain A wide-ranging survey of crunch cited the rising cost of energy and fuel as one of the most dramatic changes faced chemical producers and by chemical companies over the past three logistics providers by ICIS years. e resulting impact on raw material costs and transport and distribution costs and J&M Management has raised senior management’s attention to supply chain and logistics issues and their Consulting shows that high role in improving business performance. “ e recent rapidly rising energy and fuel energy and fuel costs are costs, and knock-on e ects through business sharpening industry focus value chains, have probably given companies a taste of things to come, particularly as oil on the supply chain prices fall back again in the short term”, notes James Black, chemical sector head at J&M. “For some companies, this has helped HELGE KOENIG/MANNHEIM crystallize their longer-term strategic plans and the importance of end-to-end supply GIVEN TODAY’S climate of high energy chain management, while for others, they and fuel costs, active supply chain manage- continue to treat this as an operational issue ment in the chemical industry is becoming that has gone away again for the meantime.” increasingly important. Over 88% of the survey’s respondents is is the main nding from a recent mentioned that the business priority for sup- ICIS and J&M Management Consulting sur- ply chain and logistics had now moved up to vey of producers and logistics providers (see become a top business priority in their com- box), carried out to discover and understand panies, along with safety, health and envi- the leading issues in the sector today. ronment (generally viewed as a fundamental Of those responding to the survey, 84% licence to operate) and other key business WHAT ARE THE PRIORITY FOCUSES FOR WHICH ISSUES ARE MOST IMPORTANT? SENIOR MANAGEMENT? Very Important Fairly important Rising fuel costs Finance Lack of capacity, ie rail or road Quality Security Global trade issues Sales & marketing Improving utilization of transport Materials handling/ batch traceability Production Access control to production/warehouse Supply chain Reach and other regulations and logistics Disaster recovery planning PHOTOLIBRARY Innovation Outsourcing/insourcing and R&D of logistics services 0 10 20 30 40 50 60 70 80 90 100 0 20 40 60 80 100 SOURCE: ICIS Percentage SOURCE: ICIS Percentage 30 ICIS Chemical Business | December 1-7, 2008 | www.icis.com “ STUDY METHODOLOGY BE BRAVE AND CREATIVE This study of chemical industry logistics issues issues to be examined in more depth. was carried out by ICIS and J&M Management Consulting using a two-stage approach. The survey and interviews were undertaken under a conﬁdentiality agreement and all “We need to make First, readers of ICIS Chemical Business comments are therefore nonattributable. certain as logistics service were surveyed in April, at which point 283 Initially, the study was positioned to focus companies with an average revenue of $3.9bn on logistics issues. However, one of the ﬁrst providers (LSPs) that ( 3bn) responding to an online questionnaire. ﬁndings was that this terminology means our perception is aligned Some 24% of respondents were typically senior different things to different companies. This managers (CEOs, chairmen, or vice presidents) ranged in some cases from “logistics solely with that of the chemical with some 75% made up of general managers and functional managers with responsibility for means transport,” to more typically “logistics is a fundamental part of supply chain and should be companies. Equally, supply chain, logistics or purchasing. seen as supply chain and logistics,” or “supply chemical companies need Second, the survey results were chain including logistics.” complemented with over 20 face-to- For the purpose of this analysis, the to give us the freedom face interviews carried out across Europe terminology has been adapted to refer to “supply and openness to become by J&M consultants, to enable a number of chain and logistics” issues. involved in their business” “ priorities, such as nance, quality, market- An emerging theme here was the concept ing and sales, production, and research and of increased reliability in terms of reducing innovation. However, supply chain and logistics are still not seen as the top priority variability of supply and thus reducing the requirements for bu er/work in progress “A number of LSPs are issue by senior management. and inventory. looking to do more and From detailed interviews carried out to complement the online survey of ICIS read- VALUE CREATORS be more creative and ers, it became apparent that the response of ese companies are making a proactive move beyond the ‘trucks individual companies to the increased focus review and adjustment to the overall busi- on supply chain and logistics fell roughly ness value chain and their o er to clients to and sheds’ mentality. within three groups. Black comments: “We typically found optimize pro t. is involves adjusting the balance between the customer value propo- While – and if – that a couple of similar approaches to this sition (o er) and service levels, with asset mentality continues to increasing energy and fuel cost scenario. e majority of companies were looking utilization and e ectiveness (production and distribution network) and inventory levels. prevail, the bigger logistics proactively to continue to optimize costs Within this group, pragmatic examples companies are going to through the chain; some were looking include: building up end-to-end full activity- beyond this proactively to leverage value based costing and pro tability by customer look at chemicals as a less creation and pro t impact jointly with cus- tomers; and a small amount were continuing and product; planning reductions in product and packaging complexity; reducing agreed important sector than to take an incremental reactive approach.” response times and service levels with retail or automotive for COST OPTIMIZERS customers; agreeing more bu er inventory at customer locations; and changing produc- example where people are ese are companies that take a proactive tion run lengths. prepared to be braver” “ approach to improvement in existing sup- ply chain and logistics operations. ey are INCREMENTALISTS seeking to increase e ciency and e ective- ese are reactive companies trying to keep ness to improve delivered costs, reduce work business as usual by continuing with exist- “Everybody is battening in progress and nished product inventory ing supply chain operations, while looking down the hatches, but requirements within the existing supply for minor incremental changes. Examples chain operations. here included: reviewing credit terms and now is the time to be is approach includes examples of improving the distribution network footprint; payment risks; proactive increases in pricing pass-through; use of swaps; and ongoing brave and creative” Head of chemicals at major third-party logistics service provider improving planning e ectiveness; changing business operation consolidations. delivery drop frequencies; improved segmen- From this grouping and the increased Another point to note is the increasing tation of the supply chain for make-to-order focus on the relative importance of supply awareness of the need for expert/experi- versus make-to-stock; and closer operational chain and logistics, it is interesting to note enced supply chain management skills with coordinating of commercial, manufacturing that only one in three of the companies has a holistic point of view. e majority of com- and supply chain management leadership and supply chain and logistics represented at panies felt they had probably underinvested decision making. board level through a direct reporting line. in developing or hiring appropriate capabil- www.icis.com | December 1-7, 2008 | ICIS Chemical Business 31 READER SURVEY ity and viewed developing experience in at the moment, 42% of those polled also “ GET THE BALANCE RIGHT this area as being fundamental to the career mentioned utilization of transport as being progression and development of future busi- very important. is, too, is directly linked ness leaders. to the increased fuel cost issue. “The fundamental role of e sector in which responding companies Better use of transport and logistics the supply chain does not operated also colored their responses. Some 43% said they are active in specialty chemicals, resources would, as a consequence, in part contribute to solving the problem of fuel change throughout the while 58% are active in petrochemicals and costs. Examples of activities being taken in polymers. Activities in ne chemicals and these areas include: petrochemical cycle. The pharma were also identi ed by 39% of respon- ensuring fully loaded transport equipment objective remains as ever dents, with 28% in agrochemicals/fertilizers reduction in part load orders and commodity inorganics. optimization of delivery frequency to to provide safe, optimized ose companies operating in specialty maximize full loads logistics to facilitate chemicals acknowledge that their supply chains are facing the dilemma between consolidation of the number of suppliers increased frequency of reviewing fuel commercial activity “ ongoing pressure on costs, on the one hand, surcharges to support supplier’s viability and the need to be increasingly exible to reviewing and changing the total customer requirements on the other. Within distribution network design to factor in “That said, as business this group, however, the majority said the increased costs of energy and logistics were increased fuel costs improving driver training to improve challenges increase, forcing them fundamentally to review their e ciency of delivery costs versus shortest the balance between position as di erentiated specialty chemical providers, or to become more basic chemical delivery time. One or two companies are exploring logistics ﬂexibility and cost or commodity providers. improved coordination with other chemical producers to jointly leverage value. Examples reduction, shifts. I believe EFFICIENCY DRIVE here included coordinated rail transport that successful logistics A lot of sacred cows are being reviewed in this area – with about half of companies activities, joint storage and improved joint jetty facilities, joint pipeline facilities and managers will be those starting to split their businesses into di er- consolidation of road transportation, includ- that get this balance right” entiated and commodity groupings. Having ing backhauling. “ made this distinction, di erent tactics are Besides fuel costs, other important being deployed, including divestment strat- issues for today’s supply chain manager egies for noncore business; creating stand- included environmental issues, the lack of “The relationships held alone commodity businesses; and changing logistics capacity, security, and global trade with strategic logistics the business o ers (value proposition) and physical supply chains for the two types of issues such as compliance and credit. e environment was commonly mentioned service providers are vital the businesses. as becoming a more strategic issue for While 64% of participants ranked the high availability of licences for new facilities to achieving this goal” cost of fuel as the most important issue fac- and also for declaring the original point of Mervyn Williams, supply chain manager, INEOS Oleﬁns ing supply chain and logistics departments manufacture. Meanwhile, lack of capacity WHICH ARE INCREASINGLY IMPORTANT? WHICH ISSUES ARE YOU ADRESSING? Currently tackling Medium term plans No plans to address Rising fuel costs Rising fuel costs Environmental issues Reach and other regulations Reach and other regulations Environmental issues Global trade issues Improving utilization of transport Security Global trade issues Improving utilization of transport Access control to production/warehouse Lack of capacity, ie rail or road Security Disaster recovery planning Lack of capacity, ie rail or road Access control to production/warehouse Disaster recovery planning Materials handling/ batch traceability Materials handling/ batch traceability Outsourcing/insourcing Outsourcing/insourcing of logistics services of logistics services 0 20 40 60 80 100 0 10 20 30 40 50 60 70 80 90 100 SOURCE: ICIS Percentage SOURCE: ICIS Percentage 32 ICIS Chemical Business | December 1-7, 2008 | www.icis.com was viewed largely as not so bad as last year, incentives from government, with logistics well established chemical industry.” when there was something of a hiatus in service providers and the chemical industry “Our chemical clients typically split into supply. is has been overcome by produc- working closely together. two camps: those that try to negotiate a short- ers working closely with their logistics sup- Astonishingly, only a few companies term tough deal, forgetting this is becoming pliers to reduce this risk. mentioned that they were addressing the an increasingly short-margin, unattractive e lower ranked issues faced included subject of their “CO2 footprint” and envi- business; and, those who have learned from disaster recovery planning and regulatory ronmental sustainability as part of their shortages last year and are taking a longer- issues linked to the EU’s Reach chemical supply chain and logistics e ectiveness and term relationship position with us, and even regulation. e lowest ranked issue, surpris- e ciency actions. is could have been due starting to look for joint investment linked to “ ingly, was outsourcing/insourcing of logistics to the pro le of the interviewees and survey longer-term commitments. It’s becoming a respondents – but if true, it contrasts sig- strongly polarized environment.” ni cantly with the actions of some of their “What does this... mean for downstream customers and their supply WHAT OF THE FUTURE? chains (for example automotive, FMCG e subjects of rising energy and fuel costs the importance of priorities and electronics). and e cient operation have been determin- for end-to-end supply One or two companies were exploring opportunities for any rst mover competi- ing the debate and increased focus on supply chain and logistics e ciency and e ective- chain management? tive advantage in green supply chain man- ness. e additional emerging nancial James Black, chemical sector head at J&M agement – but most considered it more of a market pressure, commercial credit crunch compliance issue. and volatility will further increase pressure services – and here, the eld was mixed, with Looking at the business through each oth- on key items like cash, terms of payment, some companies believing they had reached er’s eyes might bring opportunities for better credit risk and probably lead to further the limit of outsourcing operations, others partnering and alliances for both logistics ser- partnering with trusted peer group chemical believing they could do a better job in-house vice providers (LSPs) and chemical providers. companies, suppliers and customers. and should develop it as a core competence, We noticed a few interesting opposed beliefs: Everyone who was asked expected and others believing they could learn a lot “It would be great if our LSPs worked further industry consolidation in terms from other industries like automotive and more closely with one another to bring us of the number of both producers and fast-moving consumer goods (FMCG), but joined-up logistics solutions, instead of the number of viable logistics provid- feeling they were too conservative as an o ering standard o ers by themselves” ers. Within Europe, the question of the industry to explore these further. “We are looking to reduce the number of future ow of products from more cheaply In passing, it was clear that the major- LSP relationships so we can focus on devel- sourced raw material producers in the ity of those we interviewed were unsure if oping longer-term relationships, commit- Middle/Far East will probably be the the correct stimulation was being given to ments and commercial arrangements with longer-term additional stimulus for the the industry to develop higher integrity, fewer companies.” industry to work more collaboratively and environmentally friendly and lower-cost ese statements compared with: “Some for governments to stimulate increased solutions to logistics by moving volume of our chemical clients are still quite collaboration and e ectiveness to protect from road networks to pipeline, rail, inland academically aloof, or even arrogant, and essential levels of employment. waterway and multimodal options. believe all we can o er are simple trucking So, did people see the glass as half full or e common belief was that signi cant solutions. ey do not realize that we have half empty? On the whole, it is still being focus and investment had now been given to highly educated people in our organization viewed as half full, with opportunities to establishing the rules, regulations and com- and could help them with wider supply improve, but the industry needs to start mov- mon standards and that the next stage would chain solutions. It’s nearly as if we are viewed ing forward together decisively and quickly. require coordinated action, investment and as second-class citizens, compared to the Black concludes: “If this is a true taste of things to come, then the interesting question ABOUT ICIS AND J&M at this time of year – with everyone in the midst of their budgeting and strategic plan- The survey is part of a series of offerings from IT solutions, it enables clients to achieve strategic ning cycles – is: what assumptions are they ICIS custom publishing, headed by global goals faster and with sustained success. J&M’s using for cost/price of oil/energy in their editor John Baker, formerly editor of European expertise includes supply chain management one-year, three-year, ve-year scenarios? Chemical News and ICIS Chemical Business. For and all associated business processes, including And what does this subsequently mean for more details, please contact email@example.com distribution, marketing, R&D, ﬁnance and control. the importance of priorities for end-to-end Helge Koenig is head of the supply chain operations & logistics consulting division J&M, with ofﬁces across Europe and in Shanghai, at J&M Management Consulting. China, combines management consulting with He has 10 years’ experience of consulting for industrial IT consulting. By optimizing business processes enterprises and logistics service and supporting their performance with modern providers and previously worked in industry for several years. www.icis.com | December 1-7, 2008 | ICIS Chemical Business 33
"Supply chain READER SURVEY Supply"