Having recently attended the LogiChem EU 2019 event in Amsterdam, the Netherlands, LLamasoft's Dr Madhav Durbha shares his insights from the chemical industry’s supply chain community
One: The digital agenda is ambitious … but there are hurdles to overcome: robotic process automation (RPA), AI/ML, big data and, of course, the obligatory topic of blockchain were all major topics of conversation. There are certain digital capabilities that are benefiting from wider adoption in the industry, including
It is also very clear, however, that the most dominant planning system of record for chemical companies is still Microsoft Excel. The broader end-to-end digitalisation use cases were somewhat lacking.
The exception, perhaps, was a presentation by Jan Bruening, Cluster Head of Smart Supply Chain at BASF, on the work they are doing in the area of horizontal integration with their customers. Here, they are planning across a connected value stream network in a holistic manner.
From the other presentations and from experience with LLamasoft’s customers in this space, it is fair to say the digital agenda is ambitious and that the gulf between the ambitions and the realities is larger in the chemical industry compared with other industries. But … the industry should look at this as an opportunity!
Two: Blockchain hasn’t yet emerged from pilot mode: there was plenty of conversation around blockchain. Jens-Mario Burggraf, Area Logistics and Customer Service Leader at Braskem, discussed a collaboration with innoBlock, a start-up in the blockchain space, to simplify and maintain visibility into internal and external transactions.
He explained the reason for opting to go with a start-up as opposed to an established company, which allowed Braskem to focus on learning as opposed to starting with a prescriptive, templatised approach (as recommended by the established consulting players).
The knowledge that the partner brought to the table helped them to work faster while getting educated about the distributed ledger technology of blockchain. Although the Braskem team was successful in proving the application of the technology, questions on the current net value and return on investment remain unanswered.
Interoperability is also a challenge. Chemicals make their way into nearly every physical product we consume, from food and clothing to cars, homes, fuel, etc. If each of their downstream customers/industries apply their versions of a private blockchain, interoperability will be a challenge.
In relation to this, there was a general consensus amongst attendees that a public blockchain is a more viable option than a private blockchain. These discussions served as a reminder that there remain weak links in the blockchain story.
Three: Sustainability is more a by-product, rather than core to the supply chain agenda. Given that chemicals are present in nearly every physical product, many would expect supply chain professionals to lead the charge in driving sustainability.
However, through some roundtable discussions — as well as several one-on-one conversations with the attendees — it was clear that sustainability is more a by-product of productivity improvements and efficiency gains through the core supply chain agenda of cost reduction, rather than front and centre for the attendees.
Disappointing as it may sound, this tension between managing costs and sustainability was reflected in a research report that LLamasoft published in collaboration with the Economist Intelligence Unit. In a very passionate presentation on promoting a clean Earth, Steven Beddegenoodts, Sustainability Lead at SABIC, spoke about Operation Clean Sweep, an international programme designed to prevent the loss of plastic granules (pellets) during handling by the various entities in the plastics industry and their release into aquatic environments.
He encouraged the attendees to get familiar with the initiative. Also, regulation is tightening around the chemical industry in general. However, rank and file supply chain professionals are clearly prioritising their department objectives instead of sustainability initiatives. As one attendee commented: “Sustainability cannot be the job of supply chain alone, but should be integral to the practices of the entire company.”
Four: Should we get rid of forecasting altogether? In an extremely provocative and highly entertaining Oxford-style debate moderated by Dr Frank Jenner of EY, Tim Bett, former Head of Supply Chain at Archroma, and Yasser Bin Sabir, Head of Global IBP at Arlanxeo, made passionate arguments for and against, respectively, on the topic of “Forecasting for S&OP does not work in the current environment and we should abandon it.”
Tim’s contention was that organisations are forced to forecast down to customer-SKU level. With thousands of SKUs in the portfolio, they will inevitably get it wrong and, hence, it’s a waste of time.
Yasser made the counter argument that wanting certainty shouldn’t obviate the need for forecasting. He spoke about the tremendous gains he experienced in his career making “agile forecasting” an S&OP discipline — defining it as breaking the traditional weekly/monthly cadence of forecasting and instead using event-driven forecasting wherein information triggers the need to adjust forecasts as it emerges.
He also talked about the need for blending hard data from the past with new, predictive information and create scenarios to stress test this. I tend to side with Yasser’s side of the argument and so did about 78% of the audience in an interactive poll, a number that remained the same from beginning to the end … essentially making the debate a tie.
Speaking from first-hand experience, in LLamasoft’s recent work with customers across a variety of industry verticals, it’s been observed that algorithmic forecast accuracy can be improved by up to 15–20% by bringing in external causal factors and leveraging machine learning to extract seasonality and trends, and applying correlations with external factors.
In a highly engaging presentation, Christian Backaert of Solvay spoke about how they are significantly improving forecasting accuracy through their own independent work … by bringing in leading indicators. The production of rubber and plastic products, motor vehicles, trailers, medium high-tech products and crude oil were some of the leading indicators considered in their analysis. Needless to say, Yasser’s comments extended beyond algorithmic forecasting, bringing in human inputs in the IBP context.
Five: Becoming a shipper of choice in a highly capacity constrained environment. There was a lot of talk around how shippers and carriers will need to collaborate more closely in an environment in which transportation capacity is heavily constrained because of driver shortages, equipment availability and, in case of ocean shipping, heavy consolidation that took place in the recent past.
In a sign that the tables have turned in the favour of carriers, Pablo Nosti, Manager Logistics Procurement and Operations for DuPont, shared the following tips on how to become a manufacturer of choice for carriers:
All in all, LogiChem encouraged high-quality discussions and demonstrated the industry’s desire to share and learn from each other. Top of mind for several attendees were rapidly shifting buying behaviours, Brexit and US-China trade wars resulting in a significant shift in flows, prompting them to look for opportunities to improve their supply chain design competency.
Mat Woodcock of LLamasoft, along with few of our other colleagues, organised an interactive workshop titled “Margin at Risk.” The attendees adopted roles in finance, sourcing, pricing and logistics in a game of collaboration for a fictitious oil products company trying to balance purchases, inventory, distribution costs and pricing to maximise the overall profit.
In a stepwise fashion, participants progressed across the stages of independent working, chaotic collaboration and synchronised collaboration, with profits increasing with each stage. The participants were so involved that they wanted to continue playing even after the time was up!
Once again, LogiChem provided industry professionals with a great opportunity to make new connections that will last for many years to come. After all, the supply chain community is a small world! The chemical industry as a whole has great digital aspirations; and, although the realities of legacy technologies, business complexities and regulations will need constant attention, there is a very optimistic view about what the future holds for the industry.