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Supply chain READER SURVEY Supply


Supply chain

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									                 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
                                                                                                                      Lack of capacity,
                                                                                                                         ie rail or road
                                                                   Quality                                                      Security

                                                                                                                    Global trade issues
                                                                 Sales &
                                                               marketing                                          Improving utilization
                                                                                                                          of transport
                                                                                                                    Materials handling/
                                                                                                                     batch traceability
                                                                                                                     Access control to
                                                             Supply chain                                                   Reach and
                                                                                                                     other regulations
                                                             and logistics
                                                                                                                     Disaster recovery

                                                               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 |
 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
                                                    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-

                                                                                 | December 1-7, 2008 | ICIS Chemical Business                    31

                                                            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
                                                                                                                    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
                                                                                        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 |
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   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.

                                                                                    | December 1-7, 2008 | ICIS Chemical Business    33

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