Leading local corporate financiers Brabners Stuart have teamed up with their partner regional law firm Brabners to commission a review of current supply chain best practice across NW chemical companies. This review has highlighted many issues to debate, gaps to be explored and overwhelming support for a chemicals supply chain forum.
The first forum will be held at the Heath on March 25 2014 starting at Noon and will present detailed findings of the review, facilitate a members discussion and determine the shape and frequency of future forums. Guest speakers will be invited to address members on what is new and challenging within the NW, globally and across other industry sectors. All chemical supply chain practitioners are invited to attend.
The review comprised a series of interviews with senior executives in the NW representing a variety of chemical companies. Interviews were carried out by Phil Browitt of Chainology and John Roche of CNW. Overall conclusions are outlined further below. The full report will be distributed with an invite to the workshop by CNW before the end of January.
The overall observations included the following.
- Each company had a different focus mainly driven by the different types of business and strategies.
- All supply chain executives were strongly focused on aligning their objectives to the business strategy. Supply chain strategy appeared not to be a standalone issue but a contribution to the overall business strategy.
- There were little or no internal conflicts within the supply chain organisation which is aligned with production and site operations.
- A strong customer focus emerged with some adding value to their customers through the supply chain design despite a negative internal impact. Segmented service was in evidence.
- Relationships came out as a key factor with examples of customer and supplier implants, long term open book contracts and long term relations despite regular tenders.
- There was an enthusiasm to improve and a wish to learn from best practice and to obtain benchmark information.
- Actions were not totally cost driven. KPIs were strongly monitored mainly as a rear view mirror rather than an action indicator.
- Professional development for supply chain managers was not evident. Current job-holders were members of the Institute of Transport & Logistics with others also members of purchasing and chemistry professional bodies.
- All the companies were late adaptors to new concepts and technologies. There could be significant benefits through greater use of supply chain improvement techniques and through keeping abreast of rapidly changing new technologies.
- Supply chain sustainability (with regard to planet and people excluding profit) hardly reached the radar screen and there was no customer pull in this direction.
- Those interviewed were all supportive of the formation of a North West Chemicals supply chain forum or common interest group where learning about what is new, best practice, networking and seeking collaborative improvements could be agenda items.
- Most were looking to do something new varying from track and trace, selective moving from push point to pull, obtaining benchmarks and developing better planning processes and systems.
- Following these interviews and this article Chemicals North West (along with sponsors Brabners and Brabners Stuart) will circulate this note to its chemical company members inviting them to participate in the first supply chain forum. The agenda will cover the observations from this report together with a business outlook review, examples of best practice and a discussion regarding how members would wish to develop the supply chain group (for example technical or regulatory updates and relevant industry/subject speakers).
Further extracts from the results of the study are captured below.
The responsibilities of the supply chain experts included a wide range of functions: distribution cost and performance, safety, stocks, working capital, order process and customer service. In some cases responsibility for production and demand planning and purchasing was also included within the medium / small companies.
The supply chain function normally reports to the site operations director who could also be the business director and for two companies there was joint reporting to the commercial director. Consequently the supply chain was closely aligned with production allowing integrated direction and decision making.
As is common in the chemical industry, the supply chain executives do not sit on the board of directors.
Key objectives varied significantly. Some had safety as the prime objective followed by efficiency and cost whereas others focused on planning to meet customer demand. Purchasing to avoid stock-outs was the key for one interviewee. Others had customer service or margin at the top of the agenda. All had customer service and bottom line as a key objective but not necessarily prime
Strategy was an interview topic but key objectives were the prime focus of the answers. The implication is that there is not a specific supply chain strategy but rather the supply chain is one factor in supporting the business strategy. All of those interviewed ensured their objectives were in line with the business strategy.
Key Performance Indicators varied for the different companies.
Safety was the dominant issue for one company using incident analysis and investigative techniques. Another company sited fishbone analysis as a key safety feature. Other companies hardly mentioned safety.
Variable cost per tonne per transport lane was a common KPI along with stock turn, stock outs and working capital.
“Waste” in terms of unnecessary cost (waiting time, weekend working, non value added activity) and payload figured in half the interviews as did “On Time In Full” which usually was managed by exception by the carrier. Plant turn round times and cut-offs also figured highly for those in that type of industry.
The focus was on margin per customer or customer sales income after direct logistics costs.
Around half the companies had clear graphical evidence of KPIs which may have been there for the others but were not evident on the walls. Other KPIs found included: ‘number of supply agreements’, ‘number of incorrect orders placed’ and number of complaints (quality/service).
It was felt there was a serious lack of available benchmarks.
Cost efficiency was part of the KPIs. Three companies used flow mapping or spend maps or value stream analysis. There was little or no evidence of cost to serve, network design, dashboards or other relatively modern analysis and improvement techniques.
Bespoke demand, production planning systems using spreadsheets were in evidence along with some use of SAP Sales and Production Planning. SAP Transport Management appeared not to be used but some carriers, having long term relationships, provided this service.
Half the companies believed relationships were the key and developed a very close working relationship with their chosen carrier. There are examples of long term contracts using open book for fixed elements and closed book for variable freight along with carrier offices on site giving efficiency savings with regard to payloads, self loading, shunting, waste reduction and planning. Carrier incentives were also used and a belief that penalties would simply hide issues. All of these relationships were regarded as successful, contributing added value to the business.
Other companies negotiated contracts of affreightment on an annual or longer timeframe but still managed to keep long term relationships.
Most companies aimed for high customer service and saw relationships as the key. One relationship example was an open exchange of demand forecasts resulting in improved planning and 30% less stock for both parties. Another has the customer on site and together managed to reduce stock turn by 7 days. Reducing the customer’s working capital through frequent small deliveries was another example of working for the customer.
The concept of designing the supply chain to add value to the customer, sometimes with efficiency loss to the company, was apparent in a number of cases. This is less common in the chemical industry than in other industries closer to the end user.
Most sell on a “push” basis making product available at the point of manufacture. Two are looking to sell on a “pull” basis moving the product closer to the customer in Europe and beyond. Stocks held closer to the point of use was seen as an objective in some cases.
Most do not differentiate customers although the close relationships described above does point to some segmentation. One company differentiated through using different quality carriers for different customers. Another had a 100% customer service objective. Supply chain professionals rarely met with their counterparts and meetings only took place when a quality or service problem arose. Would more proactive supply chain contacts be beneficial?
Collaboration was not a talked concept. Clearly vertical collaboration between chemical producer and the carrier(s) is evident. There were no examples of horizontal collaboration between chemical companies to improve the overall supply chain efficiency (an area for further discussion?).
With regard to sustainability, the provision of safe, sustainable and competitive transport solutions is a declared main priority for the chemical industry. Although emissions from transport represent only a few percent of their greenhouse gas emissions the chemical industry does raise awareness of how to further reduce transport emissions.
For two companies in this study Safety and Responsible Care were the major issue under this heading. There was extensive work being done in this area.
Most companies saw sustainability in terms of planet and people aspects taking profit as a given improvement requirement. Most companies saw the environment and social aspects as a selling opportunity and based on the product, the site operations, landfill but not really associated with the supply chain. One company did include sustainability in its carrier tender processes.
Carbon footprint and emissions were not seen as a key issue and as yet there is no customer pull in this direction. Other ideas for sustainability measures included: returnable packaging, fuel efficiency, back-loading and resource efficiency programs.
There was generally little interest in finance and risk topics however two companies thought there could be room for outside financial investment in supply chain projects. An example was investment in stock tanks to cover planned shutdowns.
Procurement functions managed the risk in contracts largely using standard headings.
Where purchasing came under the same remit as supply chain, business risk became a more prevalent issue, in particular single suppliers and their security of supply.
None of the companies were early adopters of new technology with many resigned to ‘fit’ with existing corporate systems that may be less efficient or out of date.
All the supply chain specialists kept up to date through conferences, seminars and internal networks. Most felt they could do more. Track and trace tended to be something to be considered in the future.
Most felt the very new evolutions such as 3D printing, nano-technology, social media, the cloud and the Internet of Things were not relevant. This should be challenged at the first forum event.
