Operations Management in the Chemical Industry

17.04.2013 -

(Issue: CHEManager Europe 4/2013)            An international expert survey conducted by Merck Chemicals (Shanghai) and Technical University Munich provides new insights into the organizational structure of operations in the chemical industry (c.f. the full article including Figs. 1 and 2 on page 10 of this issue). The trend toward strategic value chain design and process management can also be recognized in the chemical industry. Fig. 3 illustrates the survey results of the different specializations of each value chain in the chemical industry.
A quality focus is clearly dominating the operations organization, which needs to handle the internal and external complexity of manufacturing and supply chain processes as well as the diversity of the business portfolio. The survey could reveal new correlations regarding these two factors, which are shown in Fig. 4. It implies that a higher degree of business diversity as well as operations complexity suggest the utilization of a decentralized structure.
Higher complexity often implies growth of a business and a larger portfolio, which requires professional resource management. Managing capacity with a view toward the fulfillment of customer expectations as well as efficient asset utilization is a complex task in the chemical value chain network. Ensuring smooth operational processes by providing enough technical capacity increases labor and costs.
An interesting point of the survey is the correlation between specific capacity models and the distinct organizational structure that is primarily associated with them, which is illustrated in Fig. 5. There is a tendency toward idle technical capacity if decentralization increases. Therefore, companies need to implement a more sophisticated capacity management, in order to lower and monitor an excess of resources.
This includes a higher focus on product life cycle management. The survey indicates that products and services possess different operations strategies in each stage of their life cycle, which is illustrated in Fig. 6. During the growth stage, the dominating organization is a functional structure. Sophisticated and clear processes for new products need to be established, which can be achieved by the traditional functional structure. In the maturity stage, the business grows and the formal structures tend to develop into a more decentralized structure.
A focus on transparent resource management during this phase helps to prevent the unnecessary buildup of capacity. During the saturation stage, the trend toward process standardization increases and there is a significant tendency toward centralized structures. A chemical company needs to be aware of this phenomenon and design its operations structure as well as available capacity adequately in advance.
For more information on existing organizational models, the efficient restructuring of operations management, the importance of operational excellence as a competitive factor regarding efficient value chain design, and comprehensive survey results, please refer to page 10 of this issue.