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How can the Chemical Industry Respond to this market?

The headlines of any recent press release about the chemical industry reflect the gravity of the economic situation.  The announcements from Dow and BASF on plant closures, plants idling capacity and headcount reductions are unfortunately just the beginning.  It’s going to be tough for chem companies in 2009, but we are tough industry with a tremendous amount of talent that has never backed away from a challenge. 

During the 2 day event, we heard presentations from Bayer, Rohm&Haas and Air Products on how they have transformed their supply chains into a responsive and agile network viewed more as a competitive advantage than as a shared cost.  Several key themes emerged – first and foremost, you must have a solid, disciplined business process in place with the right people having the right skills.  The business process must be the foundational layer – without that layer, anything that you pile on top (such as technology) will simply crumble.  Second, technology is a key enabler to the organization and it will drive cultural change as well.  Rohm&Haas spoke about how inventory optimization using SmartOps lowered working capital, IMPROVED customer service and eventually made believers out of DRP planners and schedulers.  Air Products used an example about index/formula pricing – the GM did not believe that any customer would accept a formula pricing strategy as a method to respond to the rapid fluctuations in raw material pricing.  However, 2 years into the program over 60% of that business now leverages index pricing – no more fighting for the penny increase, and no more bickering about why the price wasn’t reduced when the feedstocks have.  Bayer discussed how the transition to APO took less than 12 months – from a life of spreadsheets to a life of true planning.  In each case, it was clear that the culture of the organization was being challenged by technology-enablement and that showing the organization a quick-win was an excellent strategy.

During the first day, we had 10 chem companies in the room.  The top initiatives were noted as cost cutting and portfolio management/pricing.  Amongst cost cutting, working capital reductions rose to the front.  SAP led a session on the SCM benchmark initiatives.  Bill Cantwell, former Air Products VP, chairs the group and reviewed how companies must respond to this economic environment, with a strong focus on demand forecasting.  Finally, Accenture led an interactive session that prompted some good roundtable discussions. 

The day was capped off by Dr. Larry Lapide from MIT delivering the keynote address.  Dr. Lapide spoke about optimizing demand and supply chains.  In his discussion, he spoke about the difference between demand forecasting (which is easy), demand planning (plan for the demand) and demand management (how do you manage the demand that you have).  The message was clear – you have to be responsive and you have to focus on the customer.

The actual presentations should be available shortly.  Please contact me with any questions or to obtain a copy.

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