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Key insights: managing the chemicals supply chain

By Dr Madhav Durbha, Group Vice President at LLamasoft - 29th May 2019

Dr Madhav Durbha, Group Vice President at LLamasoft, shares key insights from the supply chain community of the chemicals industry.
 
Llamasoft May 2019 image.jpg
In this article, Dr Madhav Durbha, Group Vice President at LLamasoft, a software and services company that develops and markets technology to model and optimize supply chain networks, discusses five key insights:
  1. The digital agenda
  2. Blockchain
  3. Forecasting
  4. Sustainability
  5. Becoming a shipper of choice.
The digital agenda is ambitious – but then the realities intervene
Robotic Process Automation (RPA), AI/ML, big data, and of course the obligatory topic of blockchain were all major topics of conversation at the recent LogiChem EU 2019 event in Amsterdam. There are point digital capabilities that are getting wider adoption in the industry.
 
Examples include:
  • Sensors in tanks/silos to measure the consumption of the chemicals to plan replenishment
  • Use of telematics and tracking devices to get visibility to containers and shipments
  • Ability to connect and transact with customers and suppliers through digital networks
  • Automated Guided Vehicles (AGVs) in warehouses.
These are some of the digital technologies that are gaining broader adoption and delivering benefits. However, it is also very clear that the most dominant planning system of record for chemical companies is still Microsoft Excel. The broader end-to-end digitalization use cases were lacking in general. The exception perhaps was a presentation by Jan Bruening, Cluster Head of Smart Supply Chain at BASF, on the work they are doing in the area of horizontal integration with their customers, wherein they are planning across a connected value stream network in a holistic manner.
 
From the other presentations and from experience with LLamasoft’s customers in this space, it is fair to say the digital agenda is ambitious and that the gulf between the ambitions and the realities is larger in the chemical industry compared to other industries. But the industry should look at this as an opportunity!
 
Blockchain hasn’t emerged from the pilot mode
There is also plenty of conversation around blockchain. Jens-Mario Burggraf, Area Logistics and Customer Service Leader at Braskem, presented a pilot the company did on blockchain in collaboration with innoBlock, a start-up in the blockchain space, to simplify and maintain visibility into internal and external transactions. He explained the reason for opting to go with a start-up as opposed to an established company, which allowed Braskem to focus on learning as opposed to starting with a prescriptive, templatized approach as recommended by the established consulting players. The knowledge the partner brought to the table helped them work faster in their pilot while getting educated on the distributed ledger technology of blockchain. While the Braskem team was successful in proving the application of the technology in the pilot, questions on the net present value and return on investment remain unanswered.
 
Interoperability is also a challenge. Chemicals make their way into nearly every physical product we consume – food, clothing, cars, homes, fuel etc. If each of their downstream customers/industries have their versions of a private blockchain, interoperability will be a challenge. In relation to this, there was a general consensus amongst attendees that a public blockchain is a more viable option than a private blockchain.
 
These discussions serve as a reminder that there remain weak links in the blockchain story.
 
Sustainability is more a by-product, rather than core to the supply chain agenda
Given that chemicals are present in nearly every physical product, many would expect supply chain professionals to lead the charge in driving sustainability. However, through some round table discussions as well as several one-on-one conversations with the attendees at LogiChem EU 2019, it was clear that sustainability is more a by-product of productivity improvements and efficiency gains through the core supply chain agenda of cost reduction, rather than front and centre for the attendees.
 
Disappointing as it may sound, this tension between managing costs and sustainability was reflected in a research report that LLamasoft published in collaboration with the Economist Intelligence Unit. In a very passionate presentation on promoting clean earth, Steven Beddegenoodts, Sustainability Lead at SABIC, spoke about Operation Clean Sweep, an international programme designed to prevent the loss of plastic granules (pellets) during handling by the various entities in the plastics industry and their release into aquatic environments. He encouraged the attendees to get familiar with the initiative. Also, regulation is tightening around the chemical industry in general. However, rank and file supply chain professionals are clearly prioritizing their department objectives over sustainability initiatives. As one attendee commented sustainability cannot be the job of supply chain alone, but should be integral to the practices of the entire company.
 
Should we get rid of forecasting altogether?
In an extremely provocative and highly entertaining Oxford style debate moderated by Dr Frank Jenner of EY, Tim Bett, former Head of Supply Chain at Archroma, and Yasser Bin Sabir, Head of Global IBP at Arlanxeo made passionate arguments for and against, respectively, on the topic of Forecasting for S&OP does not work in the current environment and we should abandon it. Tim’s contention was that organizations are forced to forecast down to customer-SKU level. With thousands of SKUs in the portfolio, they will inevitably get it wrong and hence it is a waste of time. Yasser made the counter argument that wanting certainty should not be the reason to question the need for forecasting. He spoke about the tremendous gains he experienced in his career making “agile forecasting” a discipline of their S&OP. His definition of “agile forecasting” is to break the traditional weekly/monthly cadence of the forecasting and instead use event driven forecasting wherein information triggers the need for adjusting forecasts as it emerges. He also talked about the need for blending hard data from the past and soft data that is about future and create scenarios to stress test this. I tend to side with Yasser’s side of the argument and so did about 78% of the audience in an interactive poll, a number that remained the same from beginning to the end, essentially making the debate a tie.
 
Speaking from first-hand experience, in LLamasoft’s recent work with customers across a variety of industry verticals, it’s been observed that algorithmic forecast accuracy can be improved by up to 15-20% by bringing in external causal factors and leveraging machine learning to extract seasonality and trends and applying correlations with external factors. In a highly engaging presentation, Christian Backaert of Solvay spoke about how they are improving forecasting accuracy significantly through their own independent work, by bringing in leading indicators. Manufacturing activity of rubber and plastic products, motor vehicles, trailers, and semi-trailers, medium high-tech products, and crude oil prices were some of the leading indicators considered in their analysis. Needless to say, Yasser’s comments extended beyond algorithmic forecasting, bringing in human inputs in the IBP context.
 
Becoming a shipper of choice in a highly capacity constrained environment
There is a lot of talk around how shippers and carriers will need to collaborate more closely in an environment where transportation capacity is heavily constrained due to driver shortages, equipment availability and, in case of ocean shipping, heavy consolidation that took place in the recent past.
 
In a sign that the tables have turned in the favour of carriers, Pablo Nosti, Manager Logistics Procurement and Operations for DuPont shared the following tips on how to become a manufacturer of choice for carriers:
  • Improve site loading times and reduce the wait times for trucks
  • Enable easy to schedule, flexible appointments for pickup and delivery
  • Ensure completeness of information so missing information does not hold up deliveries and loading
  • Provide weekly lane-level forecasts to help carriers plan their capacity.
Last but not the least, establish collaborative relationships with appropriate reviews of performance, touch points and incentives.
 
Concluding points
All in all, there have been many recent quality discussions that have demonstrated the industry’s desire to share and learn from each other. Top of mind are rapidly shifting buying behaviours, and Brexit and US-China trade wars resulting in a significant shift in flows, prompting them to look for opportunities to improve their supply chain design competency.
 
Mat Woodcock of LLamasoft along with few of our other colleagues, organized an interactive workshop titled “Margin at Risk”. The attendees played the roles from finance, sourcing, pricing, and logistics in a game of collaboration for a fictitious oil products company trying to balance purchases, inventory, distribution costs, and pricing to maximise the overall profit. In a stepwise fashion, participants progressed across the stages of independent working, chaotic collaboration, and synchronized collaboration, with profits increasing with each stage. The participants were so involved that they wanted to continue playing even after the time was up!
 
Industry events provide professionals with a great opportunity to make new connections that will last for many years to come. After all, the supply chain community is a small world! The chemical industry as a whole has great digital aspirations and while the realities of legacy technologies, business complexities and regulations will need constant attention, there is a very optimistic view about what the future holds for the industry.