Supply Chain Management Cutting Through Complexity in Supply Chain Management

Author / Editor: Laura Rokohl / Dominik Stephan

Supply chain strategies help chemical companies to be better organized. Improved integration of key functions can drive greater productivity and increase profitability. This article describes how software solutions can help implement supply chain strategies that drive more informed decisions, greater agility and higher margins...

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Supply chain management software can cut through complex business processes to deliver significant business benefits
Supply chain management software can cut through complex business processes to deliver significant business benefits
(Picture: Aspen Technology)

The chemical industry is highly complex in nature. In the cut and thrust of a dynamic market, manufacturers are constantly managing a rapidly growing product portfolio while dealing with intensive operational issues. Conflicting production strategies and on-going pressures to reduce costs add to the challenge to remain competitive. Reducing costs is also of paramount importance in today’s market and includes logistics, demand and supply strategies, as well as tackling the mounting risk and complexity that exists throughout the supply chain.

With greater visibility and agility, companies can make better informed decisions that affect margins. These decisions often have competing objectives, meaning too much focus on one business goal can result in sacrificing performance in another area. However, the strategy must be balanced to be successful. The key areas for consideration to achieve value in supply chain management are as follows:

Improve Customer Satisfaction

Customer satisfaction or customer service level is often measured by chemical companies in terms of on-time shipments of the right product in the proper quantity. More demanding customers can put the pressure on the margins as manufacturers are tasked to produce products that meet customer specific requirements.

This need for differentiation and higher margin goals necessitates better customer relations. Rapid response to demand changes, improvements in forecast accuracy, visibility and information quality are contributors to improved customer satisfaction.

Decrease Inventory

With better supply chain management, chemical companies are able to manage inventory levels, position more optimally and reduce or eliminate inventory buffers. Inventory buffers are typically a side effect of a lack of visibility into current or projected inventory levels and are often used to maintain customer service levels and protect against critical stock-outs.

When inventory is not available, plant efficiency is often compromised to accommodate products that must be produced or expedited to meet customer demand. Visibility into forward inventory positions and optimal position of inventory throughout the supply chain network can help mitigate these inventory issues.

Reduce Cost with Supply Chain Management

Potential cost reduction areas include: procurement, working capital, inventory storage, distribution, expediting and labor, etc. Good supply chain management allows organizations to minimize their inventory and reduce the cost of the capital invested in the operation, whilst still continuing to meet customer demand. Getting this balance right is essential in the chemical sector because some products are only active for a short period and others change on a frequent basis.

Company department metrics can often be pushed to focus on different competing metrics. If those affected are focussed on just one area of cost, it will be difficult to get an accepted solution to significantly improve other costs.