The biggest supply chain challenges chemical manufacturers face – part one

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January 22, 2020By Mihir Shah

To stay competitive in today’s chemical industry, manufacturers must sustain a high level of operational productivity. Moreover, current issues like rapid commoditization, complex supply chains, aging assets, and increased need for dynamic operations planning make it more demanding than ever before to achieve the level of productivity that drives differentiation and innovation. Manufacturers often become locked into patterns where they’re implementing shortsighted cost-cutting measures that can adversely affect operational productivity and decrease overall market responsiveness.

To ensure you don’t fall into these traps, it’s vital that you not only understand the industrial challenges you face, but also recognize the top trends that are reshaping manufacturing. Gaining this knowledge is the first step toward building a foundation of digital transformation.

This blog post is a helpful summary of the top challenges a supply chain faces today. If you’d like to learn more about how to turn these obstacles into opportunities, please read our recent executive brief for an even deeper dive into the topic.

Supply chain complexities

Chemical manufacturing production can run as continuous or a batch; various streams and chemical processes can merge, demerge, produce intermediate (bulk) material or finished goods, and be made-to-stock (MTS) or made-to-order (MTO) on different asset combinations with various starting points. These kinds of variables make planning, costing, formulation, and quality management complicated, as the supply chain must operate under the constant pressure of minimizing asset downtime and maximizing asset utilization.

On top of that, chemical companies often cannot foresee the full reach and scope of their products or molecules that are often only an intermediary step toward another final product—typically produced downstream. Additionally, the chemical manufacturing industry is under constant regulatory watch due to the nature of its materials and products and must balance those demands as it deals with unique supply chain pressures.

One result of such complications is poor productivity, which often goes undetected because the workforce is simply trying to keep working with outdated, generic, or poorly integrated software solutions. Today’s fast-paced technology landscape has changed the way business is done. In fact, Accenture states in a 2019 report: “As a result of all the technological disruption, the typical sequence of activities from sensing customer demand to fulfilling an order will soon look very different from today.” The very nature of many chemical industry challenges has changed—and will continue to change.

Supply-demand unpredictability

Supply chains are mercurial. Disruptions can occur anywhere in the supply ecosystem and cause ripple effects up and down the value chain.

For instance, the rapid commoditization of the chemical industry means that customers often have numerous sources from which they can procure needed materials. If you don’t have what customers need, in the right quantity, at the price, when they want it, they can go to one of your competitors.

And because chemical manufacturers (and their customers) are often so high up in the value-chain, they can be victims of the “bullwhip effect”—small changes that happen at the “tip of the tail” (end-market) translate into major changes by the time they reach the “grip handle” (producer).

All of this takes place amid interconnected global economic cycles that impact one another. In such a dynamic environment, it can be extremely difficult to provide accurate forecasts. So much so, that even confirmed purchase orders can be moved around, making it problematic for manufacturers to satisfy the most profitable demands at the best times.

In part two, we’ll take a look at hindrances to a smooth-running supply chain that are a bit more under a manufacturer’s control.

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