Gartner research finds that chemical companies have a strong orientation to design their supply networks, maximize innovation in their product portfolios and emphasize functional execution. Yet competition, complexity, risk and uncertainty require new approaches that better match the supply response to demand. Three recurring insights from our research include:
Differentiated supply response capabilities. The diversity of chemical industry supply chains reflects various and complex combinations of product portfolios and value chains within each company. The most prominent scenarios are:
- Continuous and semi-continuous production emphasizing low-cost, reliable supply of bulk products for which multiple suppliers compete on price and service. Demand shaping is critical to optimize the profitable matching of demand to supply network capacity.
- Batch and semi-continuous production of differentiated products that compete based on performance and value addition. Demand visibility and translation to an agile supply response are critical to supporting successful new product introductions and high service levels for profitable growth.
- Integrated value streams have interdependencies between low-cost, reliable upstream supply and agile downstream operations which vary depending upon details of the demand portfolio and supply network. Companies must make choices between autonomous optimization of individual assets and product lines or more complex, ongoing balancing and optimization of trade-offs across the full value chain.
- Integrated solutions stem from marketing strategies that combine products with services customized to the specific needs of a customer. This is a more complex delivery model, required often in response to product commoditization and requires project management capabilities that orchestrate product, people and equipment to achieve promised outcomes.
Chemical companies operating two or more of these supply chain models must architect complex process, technology, organization and governance structures.
Integrated demand execution processes. As companies aspire to pursue more analytics-based decisions such as supply optimization and cost-to-serve analysis, the transactional foundations of order-to-cash and procure-to-pay must be re-engineered and re-implemented with greater levels of integration and automation to capture data for cost allocation and process measurement that makes precise analytics possible. This requires a heightened, sustained effort of process integration, master data management, vision and change management that goes beyond promoting the efficiency and compliance benefits of transactional excellence.
Management of constraints and decisions. While companies have increased their attention to comprehensive, aligned supply chain metrics, there are opportunities at the front end of the performance management cycle. Chemical companies operate in the face of many constraints, more than can be analyzed and balanced through informal decision making. One important consideration is that commercial commitments to customers and suppliers, as well as corporate and business directives such as reducing emissions or working capital, are constraints to determining an optimal operating plan. Supply chain optimization in chemicals requires that constraints be identified, analyzed and eliminated or mitigated through governed decisions across appropriate time horizons. This requires decision support modeling, transparency, review and improvement of decision capabilities to continuously approach the vision of supply chain optimization.
In 2014, we expect to see continued diversity in the chemical industry with continued disparity across geographic regions and product line segments. Organizations that establish a layered set of governance processes for the design, planning and operations of their supply networks will find it possible to approach optimization through the development of demand insights, careful design of supply networks and the management of constraints and decisions.