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Inventory Weighing You Down?

BELLEVUE, Wash. ," Leanness, especially in today's difficult economy, is critical to every manufacturer's bottom line. The lean manufacturer, according to the Plymouth, Mich.-based Michigan Manufacturing Technology Center, produces "the maximum sellable products or services at the lowest operational cost, while optimizing inventory levels."

Judging by its inventory levels, however, the chemical sector just might be leaning the wrong way.

Richard J. Schonberger, president of Bellevue, Wash.-based Schonberger & Associates Inc. and the author of numerous manufacturing-related books, said the chemical industry came in 32nd out of 35 industries in his recent leanness studies. Moreover, the pharmaceutical sector came in even lower, at number 33. Because chemical and petrochemical plants generally have much lower margins than pharmaceutical companies, however, inventory levels are an even more critical concern.

For the studies, Schonberger tracked inventory trends for 1,000 publicly traded companies in 35 industries.

Although some chemical companies, including Sterling Chemicals and Rohm and Haas, are performing extremely well in the inventory area, Schonberger said, 72 percent of those included in the studies exhibit "patterns of poor inventory performance." And inventory performance, he maintained, is essentially a symptom of other problems in lean manufacturing initiatives.

"Inventory really is there because of failures," noted Schonberger. "You don't maintain your equipment properly; therefore, you have to have a buffer stock of inventory just in case. Your quality isn't dependable, yields aren't dependable; therefore, you have to have a lot of inventory just in case."

Compounding the chemical industry's predicament is the fact that process-oriented industries tend to have inflexible equipment that produces in only large batches, said Schonberger. "It's very hard to change over to another model or product or formula," he added. In addition, plants often stockpile products as a way of dealing with equipment downtime related to maintenance and repair.

Can the industry relieve the symptoms responsible for inventory overload? Yes, insisted Schonberger, but more than a bit of effort will be required.

First, said Schonberger, companies should factor total productive maintenance (TPM) into the lean manufacturing equation. "It's turning over a good share of the maintenance responsibilities to the frontline employees instead of staffing it off to a maintenance department," he explained, "so they keep everything clean and well lubricated on a daily basis and learn how to help with overhauls."

Total quality also plays a part, emphasized Schonberger. "That's documenting proper processes ," the right way to do things ," and doing them that way every time. Quick changeover of equipment is very important," he added, "and it makes a big difference and doesn't cost a lot of money in most cases."

Another area ripe for improvement is the product line. "Some companies just have way too many different items competing for capacity," noted Schonberger. "When you try to do too much, nothing gets done well."

Finally, looking to the future, chemical companies would be wise to build more flexible plants, said Schonberger. These changes depend on a new way of thinking; for example, facilities could construct several smaller reactor towers instead of one giant tower, he stressed.

To learn more, send an e-mail to Schonberger at

Kathie Canning

Chemical Sector Bucks the Trend in Foreign Investment

NEW YORK ," The U.S. chemical," pharmaceutical sector led the nation in foreign direct investment (FDI) in 2002, generating 56 percent of total investments, according to a study recently released by Deloitte Research.

The sector's strong showing is at odds with most other U.S. industrial sectors, which saw their FDI plunge significantly. In fact, overall FDI by U.S. companies, said Deloitte Research, fell 37 percent in from 2001 figures.

"Generally speaking, chemicals and pharmaceuticals took more than half the total investments in 2002 ," a very significant piece," said Deloitte Research Director Peter Koudal. "They've been holding up pretty steadily over the last three years, which is also pretty impressive."

Although SARS virus threats and the lingering weakness in the international economy played a role in the FDI downslides of many other sectors, such threats apparently were not enough to keep the chemical,"pharmaceutical sector away. The sector's long-time global standing and a restructuring of business opportunities ," or "smarter" consolidation," likely are behind the sharp rise, maintained Deloitte Research.

"Chemicals, in particular, has been one of the most global industries," said Koudal. "It started first and has a huge stock of investments overseas. That [reality] automatically generates a lot of foreign direct investment."

Smarter consolidation, said Koudal, has replaced the sector's global mergers of the past, which once played a big part in FDI numbers. "Now I don't see as many of those big mergers anymore," he stressed. "It tends to be more spin-offs of divisions. So I think across the industry there's more of a sort of consolidation, but perhaps a smarter consolidation. So rather than take over the entire company, they actually agree to buy a division of yours that fits into [their] portfolio."

Europe, Latin America and Asia are key destinations for the U.S. chemical," pharmaceutical sector, noted Koudal. Unlike some other sectors, this sector is not looking to circumvent high labor costs by manufacturing overseas, he stressed, but instead is building to be close to its markets.

Kathie Canning

Grant Furthers PHA Plastic Development

CAMBRIDGE, Mass. ," Metabolix Inc.'s research into the use of microbial fermentations in polyhydroxyalkanoates (PHA) plastics, an alternative to petroleum-based plastics, received a boost from the U.S. Department of Commerce's Advanced Technology Program (ATP). The biotechnology company announced that it will receive an ATP award worth $1.6 million, which will enable its scientists to reengineer the central metabolism of E. coli for highly efficient conversion of renewable sugars into PHA plastics.

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