Supply chain costs next efficiency target say analysts

05 August 2002 09:36  [Source: ICIS news]

How are chemical companies going to continue to drive costs down having already cut so far in the current downturn?

What looks impossible now, of course, may not always be so. And some would suggest that more pain for the sector could drive more radical pruning and restructuring: possibly a good thing. However, on past experience, it is difficult to see what may even prove to be a ‘W’ shaped recovery leading to the sort of restructuring many would like. It is still too easy in chemicals for the inefficient to run along side the efficient. At the same time, increasingly tough competition leads to increasingly tough market conditions.

Analysts at consultants Cap Gemini Ernst & Young suggest that chemical companies are going to have to be much more flexible and learn to link their enterprises in ways as yet almost too difficult to contemplate. Connecting the virtual, logical and physical layers of the organisation’s supply chain and looking at changing management processes that may bring about better performance is key, they say.

The suggestion is that so-called ‘adaptive’ supply chains – in other words fully integrated supply chains through which information flows freely and in which change can be implemented quickly - offer the chance to gain real competitive advantage. Adaptive supply chains, Cap Gemini Ernst & Young says, for instance, provide "end-to-end visibility of supply chain operations, dynamically integrate demand and supply management, target customers to boost revenue and help to maximise profit and shareholder value".

These are fine words but building much more flexible and, indeed, information driven supply chains is no easy task. The main barriers are probably not technological or, indeed, organisational but largely cultural. Companies have to work well within themselves but also with suppliers, distributors and customers. It is really a question of letting the information that flows through the supply chain ultimately drive decision-making processes.

As information technology (IT) capabilities improve so it becomes apparent that only organisational change can deliver real returns. The approach probably needs to be as simple as possible (to keep organisational structures as lean as possible) but information flows also need to be used effectively.

Cap Gemini Ernst & Young’s approach lays down considerable challenges for companies in industries like chemicals. Companies in other sectors, the computer manufacturer Dell springs to mind, have shown that good and increasingly flexible supply chain management can pay considerable dividends.

Chemicals producers usually think they are different – when Kevin Dean of Cisco Systems talked to chief executives at the 2000 SCI European Industry meeting about vibrancy and vitality in his fast moving manufacturing business, for instance, his remarks were largely ignored – but that is usually not the case. Companies across the sector are facing up to the impact of faster moving decision making on their businesses. They need to find opportunities to introduce greater flexibility into operations.

Certainly, better linkages up and down the supply chain can lead to cost savings. Companies have implemented big ERP (enterprise resource planning) projects but some are running out of steam. The next step would be to link ERP systems internally and coordinate activities more effectively. Cap Gemini Ernst & Young suggests that firms will need new rules that operate across enterprise boundaries and are consistent with corporate goals. They will need top get used to dispersed decision making that happens very fast, the analysts say.


By: Nigel Davis
+44 20 8652 3214



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