The global chemicals market is expected to double by 2035. Chemical companies know they have to rewire their supply chains to meet new challenges and demands. According to the 2017 Excellence in Chemical Logistics report, supply chain is an opportunity to deliver significant value.1
The typical outlook has been to view logistics and transportation as a cost centre. But the value and opportunity goes well beyond that — into improving service levels, enabling broader visibility and generating cycle time efficiencies.
The 2017 chemical logistics survey report shows chemical executives anticipating disruptive change on the horizon. They recognise the need for supply chain transformation. Mergers and acquisitions (M&A) and driving growth are top business concerns whereas, in the supply chain, visibility and transparency are the top priorities.
In the study of more than 100 chemical executives, two thirds don’t have visibility across all transport modes. Digging deeper, it appears that most chemical companies are still relying on traditional tools such as ERP or TMS that can only deliver silo views or thin slices of visibility. In other words, many are flying blind.
A great example of this is in segmentation. Seventy per cent claim their company is segmenting its supply chain based solely on customer needs or service. They are not taking into account cost to serve — most likely because they lack the visibility and data to do so. In these cases, companies don’t know if they’re optimised or even profitable!
On the positive side of the report, chemical executives see the need to change. Eighty three per cent agree that digital transformation initiatives are important. They recognise that more can be done in terms of interdepartmental collaboration. The report also recognises an over-dependence on third- and fourth-party logistics suppliers (3PLs and 4PLs). According to the report, 76% view logistics providers as critical. Sixteen per cent rely primarily on 3PLs/4PLs for visibility. Forty eight per cent rely on TMS.
Interestingly, 24% are relying on cloud platforms today. Perhaps what’s more encouraging is that chemical executives expect the use of cloud platforms to double during the next 5 years. Forty five per cent of those surveyed expect to rely on cloud platforms for visibility in the near future.
The industry report indicates a growing trend toward taking control and directly managing partner integration. More chemical companies are recognising that point-to-point solutions fall short in terms of delivering the visibility, agility and flexibility needed to serve customers and drive business growth. Items such as multimode visibility are important to 86% of companies; but, as mentioned, two thirds say they don’t have it. Only 9% are fully satisfied with their ability to fulfil demand. A growing number are deploying cloud platforms to help manage fulfilment. But the overarching theme is that there are significant opportunities for improvement in the chemical supply chain. The status quo is not sufficient. But change is clearly on the way.
Case study: making Dow Chemical move like a start-up
With more than a century of experience in manufacturing, the last thing one might expect to hear from Dow Chemical is that the company thinks of itself as a start-up. “If you’d asked us 5 years ago to describe Dow Chemical, we would have said that we’re striving to be the best chemical company in the world,” said Jeffrey Tazelaar, Global Supply Chain Visibility Leader at Dow Chemical, in his keynote at the Bridges 2016 supply chain conference in New York (NY, USA). “That vision has since changed. Change is in the air. Whether it’s technology or new business models, the way we do business has to change to meet the times that we’re in … and it has to change quickly.”
Today, Dow Chemical sees itself as an innovation and technology company at the intersection of the sciences. And it isn’t just a matter of branding, Tazelaar adds: “It’s a set of values that reflects the challenge of doing business in a world wherein competition can come from anywhere and no business is safe from disruption. As it translates to supply chain, Dow has made a number of moves in the last decade to modernise its technology and streamline processes across the board.
That change began about 10 years ago, when Dow began a global implementation of new ERP software from SAP. Although the project was a massive undertaking, getting the whole organisation on the same software was the first step to improving processes within the four walls of the enterprise.
But, as Tazelaar explains, a significant part of Dow’s vision was to look beyond its own processes and to improve its ability to collaborate with external partners and to orchestrate its supply chain end-to-end. After all, Dow works with 1650 service providers in 160 companies, brings in £110 billion annually from more than 4000 suppliers, and ships more than £130 billion of finished goods each year to more than 45,000 sites.
Dow turned to a cloud strategy to enhance visibility beyond the enterprise and to improve collaboration and overall agility throughout the supply chain. And although it’s only been 2 years since the chemical giant took that step, it’s already paying off. “We’ve seen a significant cycle time reduction in the ability to move our products,” Tazelaar said. “The value — and this is conservative — is an $85 million increase in value generated or created as part of this programme. That comes in a number of different forms.”
He points to a 4% increase in on-time deliveries for rail shipments — no small feat, considering Dow operates the second largest chemical rail fleet on the planet. “In rail, that’s a step change of improvement,” Tazelaar adds.
“Our cycle time improvement on when we send a train from one of our locations to a customer or a sister plant and back improved by more than 3 days.”
A network approach to visibility has led to one instance of true globality, giving partners, carriers, suppliers and customers a standard set of data from which to make decisions. It’s led to improvements in rail operations and ocean shipments, and has given Dow the ability to see and react to potential disruptions in the supply chain. It gets the right data in the right hands in the right business context, ultimately helping everyone in the supply chain to make better decisions, Tazelaar says.
And it’s helping position Dow to meet the supply chain challenges of tomorrow. “The Amazon effect of supply chain is impacting Dow Chemical,” Tazelaar adds. “Our customers have much more demanding requirements” than ever before. Meeting those customer demands requires the speed and agility of a start-up. Luckily, Dow is up to the task.
Reference
- www.gtnexus.com/resources/papers-and-reports/excellence-in-chemical-logistics-logichem-benchmark-report.
