Supply Chain Agility
How To Meet Volatile Market Demand?
Unpredictability - The chemical supply chain management is facing an increasing volatility, both on the market and supplier side. This is caused by the effects of global networks and the emerging markets, price fluctuations and changing customer buying patterns after the recession. The upswing has increased demand in many cases beyond production output and shortages within the value chains are amplifying the effect towards the end customers. However, nobody knows how long this will stay.
To meet these challenges and ambitious growth targets, companies need to become more agile. How can this be achieved without just adding cost and inventory? Focusing on the area of supply chain and operations, there are three different levels where change has to happen: execution, planning and structure.
If companies want to realize more short term improvements to master the current challenges, improvements in the area of execution and planning will be first choice. However, in order to achieve long term and sustainable performance increase, structural and process design changes need to follow.
As in everyday life, agility comes with attributes like quick, slim and well trained. To achieve this in the supply chain, we can transfer and apply well proven approaches like LEAN and Six Sigma in order to remove waste and to increase process stability. The key is to focus on the end-to-end value chains and to enhance responsiveness and flexibility.
- End-to-end streamlining - supply chain agility starts in production
Regarding agility of execution, supply chain depends on the characteristics of the production processes and the availability of the precursor materials. Quite often, the improvements can be achieved with much less effort and cost at the beginning of the process chain. Leaving supply chain on its own means in many cases the buildup of additional buffer stocks to support flexibility. And in current days, when production capacity may not be sufficient to satisfy customer demand, these additional buffer stocks will remain a pipe dream.
- Increase responsiveness - reduce cycle times
Time is money: This is still true especially in supply-chain management. Long cycle times along the value chain do not only freeze cash as inventory; long lead times also block quick response to changing market requirements. On basis of an as-is process mapping, the opportunities for acceleration can be efficiently identified and realized.
- Enable flexibility - create transparency
A key to support flexibility is the transparency of the information like changed demands, stock levels on a regional level or the status of the customer order for all players in the order to cash process chain. Real-time information supports quick decisions in case of product shortage and enables rerouting of material according to changed customer orders. State of the art business warehouse / business intelligence solutions, linked to enterprise resource planning and advanced planning systems, deliver this transparency.
Having optimized the execution level, the next step is to be aware that execution is in fact relying on what planning anticipated. In order to create the best basis for execution, it is necessary to apply the same thinking to the planning level.
- End-to-end streamlining - segmentation to allocate the best suitable planning approaches
Until the last recession, make to forecast was dominating as the planning approach in chemical industry. Meanwhile, the application of pull strategies is seen as a valid alternative. On the basis of segmentation principles, the allocation of the best-fit planning strategy can be derived on an objective basis. Decoupling buffer stocks segment the supply network in manageable pieces. The focus of the planner is on the profitable but critical materials, supported by alert functionality.
- Increase responsiveness - apply pull strategies
Planning information in the chemicals industry environment is quite often not reliable enough to derive the stock-keeping unit (SKU) mix. Responsiveness to changing market requirements needs a direct and robust link into planning. Pull strategies synchronize the fine planning of the production runs on SKU level with the depletion of the warehouse due to recent customer orders.
- Enable flexibility - quick and efficient decision making processes
Flexibility in planning is driven by an efficient decision making process on basis of transparent information. The classical S&OP process needs to be transformed into an integrated business management platform. Financially evaluated scenarios deliver the basis for quick, margin oriented decision making. This can be realized by integration of advanced planning solutions with business warehouse / business intelligence solutions.
Planning processes anticipate future developments and optimize the performance within the boundaries of structural design and according constraints. To overcome these boundaries, the approach has to be applied to the structural design.
On the structural level, it is crucial to understand how agile a chemical company actually needs to be tomorrow, considering future price, demand and supply trends. Next question to be answered is which options are feasible to increase and ensure agility. Following measures need to be evaluated: complexity management of product portfolio; transparency across the value chain including customers and suppliers; flexibility of the capacity allocation as well as the supply chain risk management. These topics are mandatory for the today's agenda, to be well prepared for the challenges of a future growth or an economic downturn.
The Potential Of Pull
Pull strategies have a considerable potential for improving inventory levels and in parallel customer service. However, not every chemical product is suitable to pull strategies. This depends on the level of demand fluctuation as well as on the characteristics of the production setup. Therefore the introduction of pull principles in chemical production is not just a simple shift of a one size fits all approach from ‘make to forecast' to ‘pull'. This transformation is a supply chain planning redesign that is based on upfront product segmentation.
Pull is one of the main principles of "lean process design." Camelot does not only apply the pull principle but the complete, well-proven lean process approach to supply chain management. This approach puts external and internal customers in the focus and derives the value creating factors. These factors are the fundamentals to shape the supply chain process design.
Having done this, design meets production reality. Due to technical and production process constraints, the chemical process industry is not as flexible as discrete manufacturing. The alignment of the design draft with the production facts finally leads to a realistic allocation of planning principles and parameter sizing.
Looking at the range of products being manufactured on one production line, it shows that they are linked to the whole variety of production scheduling policies. This needs to be handled in an efficient way in the daily and monthly planning routines.
Our technology partner Camelot IT Lab has developed an according solution and delivers a state of the art integration of these principles into advanced planning systems like SAP APO. In order to ensure a sustainable implementation, the company has added an integrated tool to calculate inventory trigger points and safety stocks based on ERP data and direct update of the according master data settings. This facilitates the essential adjustment of the system settings to the moving business reality
Case study from specialty chemicals
A central finishing plant delivered a perfect "pull case." A complex product portfolio led to a considerable waiting queue in the classical planning approach. Due to a low changeover and shut down effort, the pull approach could reduce the work in process inventory by more than 50%.
For standard chemical production plants, one can still expect benefits between 10% and 25% inventory reduction while maintaining the service level. The inventory reduction can be harvested as cash release or be "reinvested" to increase agility for high profitable materials.
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