Four Keys To Reduce Your Supply Chain Vulnerability
Product scarcity, delivery delays and lengthy lead times are frustrating customers — and providing a powerful reminder to chemical makers and other manufacturers that they need to redouble their efforts to build a more-customer-centric supply chain. Indeed, many companies now realize they should put customers at the center of supply decision-making.
Supply chain planners on the whole apparently grasp the critical importance of customer focus. A recent report from Oxford Economics, Oxford, U.K., based on a survey of 200 supply chain planning executives noted “increasing customer satisfaction” was most frequently cited as the top organizational goal. Yet despite those good intentions, supply disruptions continue to plague industries from chemicals to automobiles to lumber. In a notice to customers about potential product delays as a result of raw material shortages from severe weather, Roger Lee, North American president of Ellsworth Adhesives, Wilmington, Mass., called the supply crunch in the chemicals industry “an unprecedented situation, unlike any supply chain challenge” the company has seen in its 40+ years, and blaming potential delays on “causes beyond our reasonable control.”
However, when it comes to building a customer-centric supply chain, there is much that chemical companies — and suppliers in many other industries for that matter — could and probably should control. Our extensive experience working with chemical businesses around the globe to build more robust and responsive supply chains indicates that real customer centricity depends on succeeding in four areas: greater visibility, integrated and intelligent insights, a strong business network, and a focus on sustainability. So, let’s now look at each of these.
Greater Visibility
The more visibility that suppliers have into the needs of their customers, and the needs of their customers’ customers, the better equipped they’ll be to understand and align with their customers’ business interests and strategic priorities. Today, however, that level of visibility appears elusive. In the Oxford Economics survey of supply chain executives, just 27% said they have full visibility into customer behavior.
Leveraging digital capabilities to connect suppliers more effectively with their customers (and customers’ customers) would go a long way toward addressing that visibility gap, particularly within sales and operating (S&OP) processes. Today we see many chemical companies doubling down on demand planning capabilities and advanced forecasting that enable them to leverage science, statistics and machine learning to better understand how the market is shifting. For example, forecasts can consider external variables to better incorporate market conditions into a consensus demand plan. In addition, algorithms can consider growing or declining markets, new product introductions and intermittent demand. System capabilities can automatically define demand patterns, identify outliers and even select the appropriate algorithm to achieve highest accuracy. Furthermore, segmentation capabilities help operationalize a customer strategy with the right priorities to meet business objectives.
As we are seeing in the chemical market today, companies that are investing to strengthen and integrate their S&OP processes, and bolstering their demand planning competencies with machine-learning-powered tools and other advanced supply chain capabilities are better equipped with improved visibility to stay a step ahead of disruption, meet their customers’ expectations and provide strong, accurate signals to the operational side of the business.
This visibility must prevail across the enterprise. As companies translate customer demand to procurement, manufacturing, asset and logistics requirements, they must be able to understand the complete pulse of the business and have a good vantage point of the interconnectedness of end-to-end processes. Furthermore, chemical companies must execute with flawless quality, 100% regulatory compliance and world-class safety. Some chemical makers, therefore, are adopting “control tower” capabilities to truly understand the health of the supply chain. Digital capabilities are key to advancing these efforts, even extending visibility beyond the walls of the business to further link ecosystem partners across the value chain.
Integrated And Intelligent Insights
Ensuring the right products get where they need to be in a timely fashion, even in the face of unprecedented disruption, takes fully integrated end-to-end planning. End-to-end planning requires vast business capabilities and processes to align across multiple business planning applications and technologies (for example, aligning next-work planning and execution processes). The real potential game-changer here is the ability to integrate these processes and data to foster customer-focused decision-making at every level of the supply chain. To succeed, chemical makers must continue to push the status quo and embed intelligence in these end-to-end processes; this will redefine supply chain planning, enabling supply chain professionals to understand exactly how operational activity will impact the business and the customer. Companies that can make these connections and put this kind of intelligence to work will give themselves a big advantage.
However, that level of intelligence appears to be lacking today. In the Oxford Economics analysis, just 38% of supply chain planners said they have full visibility into their company’s end-to-end design-to-delivery process. Those planners “find themselves at the head of a long, complex chain of processes which must work in concert, so they need to have a 360° view of the organization to effectively map the itinerary.”
The reality is that this 360° view can elude supply chain planners with disparate systems and broken business processes. Data may be relatively available, but without business context or the ability to integrate those data across business processes, value is lost. For example, integrating a financial plan into the S&OP cycle, collaborating with suppliers, resolving exceptions and analyzing real-time overall equipment effectiveness bring together data to drive business outcomes. Integration of end-to-end business processes bridges the gap between this 360° view and supply chain execution, a fundamental element of digital capabilities, because visibility without action is just visibility. It must be accompanied by crisp execution.
In practice, that means aligning people, processes and technology in the context of integrated business planning and supply chain execution. Chemical manufacturers must be able to bring data into a holistic customer-focused operational strategy that can scale up to the enterprise level and down to the plant floor. Strong scenario and exception planning capabilities give companies a huge edge in a volatile business environment, enabling them to make customer-focused decisions, with the ability to predict, plan, sense and act with a high level of responsiveness, even amid unprecedented supply chain conditions.
Here again, end-to-end business processes leveraging integrated business planning technology and a digital core can play an instrumental role in producing the kind of intelligence that enables a firm to elevate customer-centricity via improved supply chain execution. For example, as companies assess demand long-term, they also must refine the short-term operational forecast. Machine learning enables demand-sensing capabilities to adjust to short-term changes, creating new levels of agility — and keeping suppliers attuned to market changes. From an execution standpoint, this positions chemical manufacturers to have inventory in the right place at the right time, avoiding unnecessary costs and churn to fulfill orders on time. An operational control tower sitting over these end-to-end business processes — i.e., an integrated digital platform — enables seamless navigation among applications and source systems (production planning, transportation management, etc.) as well. Essentially, this control tower allows companies to connect the dots strategically and operationally, and to thoroughly understand what is currently happening, and what is likely to happen, across the enterprise, and to do so through the lens of the customers’ business priorities.
What’s also exciting is the adoption of data science in a very functional business setting. Supply chain experts have continued to bring new skills and competencies to the table in recent years; now these skills include the advanced application and use of data to strengthen supply chain initiatives. With the chemicals market facing on-going commoditization, the need for enhanced optimization and modeling will become critically important. Optimization certainly is not a new topic but the ability to orchestrate and scale models on a common platform integrated with a holistic end-to-end plan will open new sources of value. Data intelligence is a natural extension or even a fundamental element of end-to-end planning, helping chemical companies solve the most-complex industry supply chain challenges — and for customers to benefit as a result.
A Strong Business Network
“Today’s reality is that nobody does business alone,” my colleague, supply chain expert Martin Barkman, wrote in a recent article in Forbes.
That reality was laid bare by the pandemic, the blocking of the Suez Canal by a grounded container ship, and other disruptions. The supply chains that fared best were those built as business networks — ecosystems with multiple layers of suppliers, customers and their customers’ customers, along with logistics providers and other relevant parties, all connected digitally in real time, working off common data sets, sharing analytics-based insights, and, as a result, making better-informed decisions collaboratively, as market conditions dictate, without the latency in communications that have plagued so many supply chains. As Barkman writes of the network construct, “You can onboard new partners, share plans, make modifications, align the needed resources, and trigger production runs. This is the definition of agility.”
Establishing common digital channels to share information further addresses the visibility gap. One thing we’ve learned from the recent rash of supply chain disruptions is the fortunes of the various segments of a supply chain are intertwined; their ability to securely share information is not just mutually beneficial but essential to ensuring supply chain integrity. The ability to share data and projections about near- and longer-term demand for specific products, including newly developed ones, along with upstream information about raw materials availability and logistics, provides a lot more certainty and a lot less guesswork for customers.
As alliances such as the new Catena-X initiative are demonstrating, business networks enable industries to embed in one another’s value chains, a development that can improve the customer-centricity of the supply chain. The aim of the Catena-X Automotive Network is an open ecosystem; vehicle manufacturers, and suppliers such as BASF and Henkel, are working to create a uniform standard for information and data-sharing throughout the entire automotive value chain. The emergence of business networks like this reflects the new realities of the chemical business, where companies recognize their best chance of elevating their value in the eyes of customers is to compete as part of a broader ecosystem, rather than head-to-head against other individual companies.
A Focus On Sustainability
The growing global emphasis on sustainability, net-zero emissions and decarbonization creates new opportunities to better align with your customers, diversify revenue streams and, in the process, make progress toward your own sustainability goals. For example, suppliers can identify feedstock constraints or more effectively model byproduct supply to identify opportunities to repurpose material and drive circularity. By better understanding how their products are experienced by customers, chemical manufacturers can gain insights that can be incorporated into research and development, manufacturing and asset planning processes to begin designing sustainability into the supply chain, perhaps even accelerating demand.
Additionally, this collaborative, network approach opens doors for co-innovation of customized products and even new business models like outcome-based billing based on product yield or efficiency. As part of a connected network of external stakeholders, a company can respond rapidly to market needs and establish a common platform for collaboration. Ultimately, based on operational and experience data and intelligent insights from the connected, collaborative ecosystem, they can respond to customer demand for innovative offerings such as proprietary, co-developed product formulations designed specifically to support a higher, sustainability-focused purpose.
The spirit of sustainability-focused co-innovation — and of customer-centricity — is evident in Green Token (www.green-token.io), a cross-industry partnership that is developing Industry 4.0 tools and processes. It aims to give various segments of the polymer supply chain a common platform on which to manage sustainability and circular-economy-type business initiatives around the pressing problem of plastics waste. Among the partnership’s highest priorities is helping consumer product goods companies reduce their plastics’ footprint. As producers of monomers as well as polymers, chemical makers are key players in the success of this renewable value chain. Eastman Chemicals, Kingsport, Tenn., for one, has embarked on this journey to provide visibility to sustainable products in the value chain, helping to accelerate innovation and sustainability in the industry.
Meanwhile, the extended business network construct also can provide the platform for a chemical company to advance its climate action strategies, helping it understand and manage its impact on people and the environment. SAP’s Climate 21 is such an initiative. It aims to help businesses understand, manage and report their greenhouse gas emissions; this will enable companies to quantify and articulate their carbon emissions reductions not only for compliance purposes but also, potentially, as means to differentiate themselves from the competition in an area, carbon footprint, that is increasingly important to shareholders, investors, customers and the public at large.
Traditional key performance indicators and processes are evolving not only because of increased demand for sustainable products but also due to a strategic commitment from the industry to lead with purpose. Again, supply chain teams should have the vantage point to steer companies with a holistic view of the enterprise. With sustainability initiatives like these, along with customers’ elevated expectations fundamentally changing the way chemical companies operate, supply chain organizations have a central role in ensuring this strategic shift is well-executed and the business outcomes it yields are positive for the customer and the company alike.
MATTHEW REYMANN is a Pottstown, Pa.-based senior solution specialist in the Chemical Industry Business Unit at SAP. Email him at [email protected].
