Improve your supply chain

A study of global chemical industry best practices provides insights on how.

By Christopher F. Lange

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For many businesses today, the supply chain is an increasingly important factor in driving both efficiency and competitiveness — and the chemical industry is no exception. Indeed, executives at chemical companies see the supply chain as critical and their companies have devoted significant effort to improving their supply chains in recent years. However, those efforts aren’t always producing lasting improvements and sustainable results. They often are hampered by fragmented approaches and a lack of sophisticated tools, which can lead to inaccuracy, inefficiency and missed opportunities to achieve higher levels of business performance.

Those observations are based on findings from Accenture’s “2007 Global Chemical Industry Supply Chain Best Practices Study.” The second in a series — the first study was done in 2005 — this research was conducted under the guidance of a steering committee of representatives from major chemical manufacturers.

The results of this research clearly underscore the growing importance of the supply chain in the industry. Faced with challenges such as global competition and global customers, increasingly complex operations and rising logistics costs, a growing number of chemical companies are focusing on the supply chain. In the 2007 study, more than three-quarters of respondents said that the supply chain is a driver of operational excellence or a significant source of competitive advantage. That view is supported by other Accenture’s research, which shows that solid supply-chain-management capabilities can be key to enhanced business performance. In addition, a team of researchers from Accenture, Stanford University and the French business school INSEAD found that the average market capitalization of companies that utilize supply-chain best practices outpaced the industry average by 7% to 26% over a three-year period.

With this growing importance of the supply chain in mind, the “2007 Global Chemical Industry Supply Chain Best Practices Study” looked at a broad range of supply chain topics, including several that are especially relevant to chemical manufacturing operations. These include demand planning, supply and materials planning, demand/supply balancing, production scheduling, and inventory target setting and deployment.

Demand planning. Like the 2005 study, the 2007 research found that chemical companies are using a wide variety of tools to perform demand planning, and are seeing varying degrees of effectiveness. Nine percent of respondents said their firms rely on basic rules of thumb to plan, while 36% cited simple models that extrapolate historical demand, and 40% legitimate forecasting techniques. In terms of technology used, demand planning is frequently performed as a spreadsheet exercise. Forty-six percent of the participants indicated that they manage demand planning using tools such as Excel or Access, while another 24% rely on off-line forecasting tools that draw on structured, downloaded Enterprise Resource Planning (ERP) data. Twenty-seven percent said that their demand planning tools are fully integrated with their ERP.

The study also looked at planning accuracy at various levels of detail, such as product family, product and location. Not surprisingly, the research found that the ability to forecast accurately falls off quickly below the product level, with error levels of 25% to 35% at the product/customer, product/package and product/package/supply-point levels. Nevertheless, more than 85% of respondents said that they are attempting to forecast at the product/customer level. A better approach would be to use the more-accurate aggregate forecast and then apply business rules to that forecast to develop lower-level demand plans.

Collaboration gets a lot of attention in the supply chain arena but 16% of respondents indicated that they don’t collaboratively plan with their customers at all. More than three-quarters of those who said they do plan collaboratively with customers also said that they don’t have any means of measuring the benefit of such collaboration.

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