Last week I attended the SCM Chem event in Atlanta GE. The event was attended by 100 leading supply chain practitioners across the chemicals industry. I was fortunate to lead a roundtable discussion on supply chain complexity. The structure allowed me to lead a discussion in a speed-dating format – the simple idea was to have a discussion for 25 minutes with 10 colleagues at a table, and then the moderator would move on to the next table. This format allowed each participant to engage in discussions on S&OP, inventory optimization, supply chain complexity, demand forecasting and other topics. And some conversations were focused on asking the question ‘What if…’, but we’ll leave that topic for another date.
My topic was supply chain complexity in the chemicals industry. In thinking about how to moderate a discussion, I decided to simply ask the question – is the supply chain really that complex? We (SAP) deal with some tough industries, such as consumer products and high tech, that rely on domain expertise in demand forecasting with point of sale information, collaboration with suppliers and customers where forecast differences must be resolved, and then numerous parcel shipments to thousands of customers.
After getting thru the typical ‘Oh you’re from SAP, can you tell me how to get something OUT of the system? All I do is enter stuff…’, I was able to pose my question and then see where the discussion led. Each table was slightly different, but some general themes did emerge, with a resounding ‘Yes, we are complex, and here is why’:
- The regulatory environment, from REACh to CTPATS to Dangerous Goods, makes shipping chemicals very difficult to be compliant – paperwork, borders, public safety, etc. Data reporting is really cumbersome and time-consuming.
- The chemical supply chain is finally global – we have transferred production to low cost countries to take advantage of cheap labor and cheaper feed-stocks, and to get manufacturing in regions that are growing (China, Middle East, etc.). Now that we are there, the labor advantage is disappearing and we are finding that it takes a helluva long time to ship anything. And I still don’t trust some regions to protect my intellectual property, so I keep my best products in the states and pay extra for shipping or for developing elaborate blend strategies.
- I am a multi-modal kind of chemical. I start in a pipe and transfer to a barge or marine shipment. Sometimes I transfer to a storage tank, and then go to railcar, and then to a tank truck. Eventually I make my way to my customer. Every step is a transfer, every transfer is another supply chain. My legal entities change along the way, some to take advantage of tax benefits. Things sometimes get a little ugly and I don’t know who really owns me.
- Damn customers, they keep asking for more. Every day they become more and more demanding, and keep threatening me that the competition is right outside the door. They want a ribbon on the package (literally), they want specific fonts, specific specs, and don’t want to pay any extra. The portfolio is changing quickly and the product life cycles are getting shorter, some as short as 9 months. And, the worst part is that we treat all the customers the same and don’t enforce any business policies.
- I have customers asking me to send them our formal contingency plans for hurricane season, or for our most likely disruptor. So, we are doing more what-if simulations, and I have to store products in railcars outside of the gulf coast from July through October. I also found out that my back-up supplier is not my back-up supplier – he contracted the other guy, so I really only have one supplier.
- Despite all the extra contingency planning, we still can’t predict what’s going to happen next. There are more force majeures now than ever before. We have become experts at being reactive and responsive, and my supply chain needs to keep up with me.
So, the supply chain is complex. It probably is not limited to our industry, but we do have some items that make us respectably unique. And by the way, yes, I do know how you can get some really great information out of SAP, it just happens to require another license…