February 19, 2020
In part one of this post we explored how to manage supply chain complexities and unpredictability. In this second part, we’ll help ensure chemical manufacturers don’t fall into a pattern of bad planning and skillfully anticipate seasonality.
To operate at its peak an enterprise needs to face and recognize the top trends that are reshaping manufacturing. Understanding these trends is the first step toward initiating a digital transformation. You can then take the additional steps designed to solve your business’ current problems, start showing value immediately, and help evolve a stronger business strategy.
Supplier seasonality and promotions
Thankfully, not everything about supply and demand is unpredictable—materials in the supply chain in various parts of the world follow their own, reasonably predictable seasonal patterns. For instance, cotton prices from India (the largest producer of cotton in the world, according to Statista) plunge when the harvesting begins in November, and stay low though when harvesting ends in March of the following year. This, obviously, has a significant impact on the fiber-garment industry.
Another example is oil and gas production—in which production slowdowns are typically anticipated in the Gulf of Mexico during hurricane season. The extent to which weather impacts production, however, is not predictable. In fact, gulf production took a massive hit in 2005, when the oil and gas industry lost over 100 million barrels of oil and more than 500 billion cubic feet of natural gas production due to a total of 12 hurricanes (including Katrina and Rita)—according to the US Energy Information Administration (EIA). More recently in 2017, Hurricane Harvey and Hurricane Nate lead to a loss of 12 million barrels of oil and 18 billion cubic feet of natural gas production.
Supply variations have a bearing on availability, quantity, cost, and lead times of raw material across the chemical supply chain—making the job of the procurement team arduous and complex. And when various players in the supply chain employ last-minute promotions and discounts with industry-wide impact on cost, availability, and inventories the challenges are only further exacerbated.
Operations and assets
When a lack of accurate demand forecasts gets added to the variability of supply-side changes, planners often struggle with determining quantities and whether to utilize MTO or MTS production. This impacts which equipment assets and asset-combinations are required for production, how long the assets will be used, and if the assets will be needed to manufacture multiple SKUs.
A manufacturer may have flexible assets that can be used in combination to produce different intermediate or finished goods (which could require packaging or need to be temporarily stored for use in another process). Planning and scheduling with flexible assets are likely to be more complex since many have specific constrains, such as a need for specialized employee crews, limited filling lines, low flow rates, and so on.
Working capital and inventory
Even the best plans exact a price when set into motion. The cost of excellent customer service can put a huge financial stress on specific regions or products or the company as a whole. To keep expenses low while still delighting the customer, it’s essential that manufacturers have the right amount of material at the right place and at the right time—whether raw material or finished goods.
Today’s challenges will be next year’s opportunities
Addressing the challenges we discussed doesn’t only improve today’s operational productivity; it also positions manufacturers to pursue future opportunities by opening up capacity, freeing up people’s productive time, and building working capital. Turning these challenges into prospects for success requires a digital transformation of supply, operations, inventory, and the commercial side of the business.
If you want to learn more about what trends will define the rest of 2020 for the chemicals industry and the evolving roles of blockchain, the circular economy, etc., read more in the executive brief “Top supply chain challenges of chemical manufacturers.”