Chemical Companies Need to Take Supply Chain and Sales/Operations Planning More Seriously
How mature are chemical companies in terms of unlocking the potential of sales and operations planning (S&OP)?
Peter Robinson: Based on my exposure to a number of chemical companies and looking at their inventory profiles (raw material and finished goods), most of them are not at all advanced in S&OP. They are not taking seriously the need for an S&OP process and not getting the end-to-end supply chain involved in operations planning. Ultimately they need a single game plan that all stakeholders buy into so that true discipline may be imposed on what is manufactured. More importantly, the game plan must reflect what they sell: chemical products. Not manufacturing them. That is how working capital and inventory are optimized.
What is the barrier?
Peter Robinson: Professionals in the chemical industry have very strong technical abilities but often the practical skills needed to manage the supply chain, particularly in demand sensing, are missing. Many may vehemently disagree with that statement but I bet that some self-examination on the subject would change minds. The quality of output in chemical companies and their ability to organize themselves within the manufacturing process is good. However, too often the need to satisfy customer demand seems to be less of a priority.
Is that shortcoming related to talent or organizational/structural issues?
Peter Robinson: The chemical industry primarily employs process engineers and chemists, who rise through the ranks to management. They have remarkable technical skills and unmatched ability to manufacture high-quality products. However, as a rule, the demands on their time prevent them from hands-on involvement in the S&OP process.
In general, there are two fundamental problems in the sales and operations processes: excess inventory (both raw and finished goods) and an inability to get on a different path to prevent the inventory problem from recurring. In that situation, an external perspective can be very helpful.
Regarding equipment usage, maintenance, and working capital management: How well do chemical companies optimize equipment usage and manage turnarounds?
Peter Robinson: In a chemical company, equipment is generally operating 24 hours a day, seven days a week. Optimization is incredibly important to properly maintain expensive machinery and minimize unplanned, inefficient stoppages. Maintenance activities must be a part of the S&OP process and integrated into the production plan to avoid unnecessary downtime.
Aside from ensuring ongoing equipment optimization, chemical companies need to improve their plant turnaround methodology. The process can cost millions of dollars or euros a day, so there is a tendency to throw resources at the problem in order to shorten the period. Often we see contingency upon contingency being built into the process, driven by a fear of not being in control. Companies need to exert better planning and control of turnarounds. The good news is that with the right kind of expertise, there's a tremendous opportunity to reduce costs.
Benchmarks in the industry are generally defined as 'What we did last year'. While there is some opportunity to learn incrementally, based on accumulated knowledge, it's very important to be able to stand back and assess what is the true cost of the current system. There needs to be a direct relationship between what must be achieved and the required resources. Preparing estimates, developing work standards, and ensuring proper monitoring and control throughout the process are paramount. Turnarounds are an iterative process where, with the application of the right knowledge and discipline, improvements can be dramatic and continuous.