INSIGHT: Chemical companies need better supply chain capability

11 October 2013 15:03  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--Global chemical supply chains are being realigned as business moves to a growing Asia, new capacity is added in the Middle East and the industry is gripped by shale gas fever in North America.

Dow Chemical recently opened a logistics and technology centre in Belfast, UK, to help it understand more about its developing global supply footprint.

It is working hard now setting up the networks that will supply product to global markets from its investments in Saudi Arabia and on the US Gulf.

The company will handle the marketing and sales of a large proportion of the volumes from the giant Sadara project in Saudi Arabia with Saudi Aramco which is expected to be fully on-stream in 2016.

New volumes wil be moving out of the Middle East particularly to Asia. Later, as its new cracker and other plants come on-stream in the US, the challenge will be to move more volumes into a wider range of markets.

“We are preparing the market for Sadara products,” Peter Holicki who is Dow’s global manufacturing vice president for hydrocarbons, said at the 47th European petrochemical association (EPCA) meeting in Berlin this week.

There are many opportunities to work with partners in chemicals supply chains as large volumes of capacity, not just Dow’s, are brought on-line, he believes.

Holicki took part in a panel discussion at the EPCA meeting in Berlin on ‘global leadership and chemical supply chains’.

The faster-than-expected shift of chemical production from Europe to Asia, along with investment in the US, is realigning global supply/demand balances, the EPCA and trade group Cefic said in a jointly-authored report published at the EPCA meeting.

The volume and direction of material flows are changing and considerably increasing supply chain complexity and uncertainty, the associations say.

How firms tackle the supply chain challenges of the new capacity build ups in North America and the Middle East, as well as the changing supply/demand picture in Asia, will affect their short and long term performance, financial and otherwise.

Supply networks wil have to be more responsive and more resilient to external and internal shocks.

The EPCA/Cefic study, which draws heavily on case studies from different sections of and players in the industry, puts great emphasis on the opportunities that are presented by more collaboration, which they refer to as ‘pro-competitive’ collaboration between chemical companies and logistics service providers. It also suggests that there could be some ‘horizontal’ pro-competitive collaboration between chemical companies.

Collaboration is mentioned many times in the report: ‘Sustainable chemical supply and logistics chains, the path forward’. Members of the report working groups see clear opportunities for better understanding and information exchange, both up and down, and across, chemical supply chains.

Producers want to audit the operations and capabilities of logistics service providers and others in the supply chain.

Those providers likewise would theoretically be able to offer a better service if they had better data from the producer to work from.

It is good that service providers are becoming more global, the big chemical companies believe. They want now to see how improved supply chain performance might be achieved.

Chemical industry supply chains can be redesigned – they are not that complex - Paul Lord, research director with Gartner Supply Chain Research, said at the EPCA meeting. But what makes chemical supply chains unique are their constraints such as regional and national regulations and safety and environmental issues.

Chemical firms probably have a lot to learn from the best supply chain operators, the Apples and McDonalds of this world, Lord suggested.

These companies were one and two respectively in the Gartner Supply Chain Top 25 ranking for 2013.

There were no chemical companies on the list but a few firms with chemicals processing in their portfolios such as Proctor & Gamble, Johnson & Johnson and 3M. But the chemical industry is a supplier to the Top 25 so collaborates with them in some fashion.

Chemical producers might learn a thing or two from the ways in which the best supply chain operators take an integrated rather than functional approach to this side of their business. They are also market as opposed to sales driven.

Petrochemical makers could be better at market segmentation. They might also start to believe that they can let the supply chain, and the customer no less, dictate manufacturing practice.

“Manufacturing must become fully integrated into the supply chain,” Lord said at the EPCA meeting.

The highlight of the EPCA/Cefic report is that collaboration is the way towards creating joint value. How such collaboration is achieved is another matter.

Read Paul Hodges’ Chemicals and the Economy blog
Bookmark John Richardson and Malini Hariharan’s Asian Chemical Connections blog

By: Tom Brown
+44 208 652 3214

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