INSIGHT: Better understand the supply chain

11 January 2008 16:39  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Chemical companies know that effective supply chain management is important. It just seems they are not prepared to learn better ways of capturing value from this often neglected side of the business.

The Accenture supply chain study released at the start of the year highlights a global phenomenon.

Close to two-thirds of supply chain professionals in chemicals say their companies have no formal processes for identifying and sharing supply chain best practice.

This means that chemical makers are missing a trick.

“While companies have traditionally looked at the supply chain as a way to cut costs, they now look at it as a strategic and financially important part of the business and a way to generate value and revenue," says the author of the report, Christopher Lange.

“In a competitive global landscape, sharing best practices will be critical to increasing performance,” he adds

Two years ago - when it launched its first chemicals supply chain study - Accenture says companies were wondering what they should be doing. There appears to be more clarity now but change is coming only slowly.

This current study covered some 400 players located across the globe. A small group of big chemical manufacturers, including Dow, DuPont, Grace, Bayer MaterialScience, Shell and Total, formed a steering committee.

In the chemicals supply chain generally performance is poor facing the market and in logistics.

Companies acknowledge that they are not as effective as they could be at managing supply networks and transportation and they don’t do enough to understand customer segmentation.

This is surprising given the increased emphasis in the past five years at least on better logistics planning and on customer focus. Despite much talk, action appears to have been limited.

One problem could be that while chemical companies have given a lot of thought to supply chain structures they have not given the same attention to “filling in the boxes” on the organisational charts.  

So hiring and training in supply chain-related operations are weak.

“Not surprisingly,” Accenture says in its study report, “only one-third of the participants were happy with their current capability levels in the areas of employment development and retention”.

The most significant finding of the survey was that 63% of participants have no formal process for sharing supply chain best practice across their organisations.

Accenture calls that finding “especially troubling in light of the importance of the supply chain and the growing sophistication of supply chain processes in an era of globalisation”.

As might be expected from earlier work and studies from other consultants, the chemical firms think they could segment customers better.

Some 23% of respondents to the Accenture study indicated that they lacked profitability statistics at the customer level.

The pricing function also seems hardly well integrated with other supply chain processes. The setting of prices remains a commercial function for the majority.

Cost-to-serve, customer segmentation, demand and supply balancing and order management are each integrated with pricing only half the time, Accenture says.

The study shows also that demand planning is still pretty basic: only 40% of respondents to the survey use legitimate forecasting techniques.

In the consultant’s words: “Weak demand planning ripples throughout manufacturing and the supply chain and ultimately makes the achievement of superior performance a challenge.”

Indeed one of the critical points made in the study analysis is that demand planning improvements can help companies perform more effectively. This is particularly important as the sector heads for what most see as difficult period of demand uncertainty and oversupply in key markets.

The main area for improvement, however, is the relationship between the supply chain and commercial functions. Supply chain operations should have a seat at the table in the commercial decision making process.

Each can learn from the other and offer increased production and marketing efficiency in a strongly competitive operating environment.

By: Nigel Davis
+44 20 8652 3214

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