Project management Why Silo Mentality is the Number One Performance Inhibitor for Chemical Companies
Operations in chemical companies could be significantly more efficient if procurement, production and supply chain were managed by an overarching strategy. Furthermore, operations strategy is insufficiently aligned with customer requirements. Consequently, chemical companies are wasting huge performance potential.
A strategy is not everything: A study by strategy and organization consultancy Camelot revealed that 85 % of study participants stated that an operations strategy was available in their company. However, understanding what functions and contents operations strategy comprises, differs greatly. According to the study results, understanding of operations is usually restricted to the productions area, while other functions such as procurement and supply chain management only play a minor role. The consequence: While production pursues cost targets with large production units and avoiding product changes, supply chain management has to meet ever fragmented orders in volatile markets.
„In chemical companies, we still find a traditional silo mentality. Keeping up this mentality, companies give away huge potential. Performance can be significantly increased with a cross-functional optimization approach balancing cost targets and market requirements“, says Dr. Sven Mandewirth, Partner Industry Lead Chemicals at Camelot.
Missing Alignment with Business Strategy
Even if a trend towards an increasing integration of production, procurement and supply chain management is noticeable, a cross-functional strategy derived from business strategy and market requirements, is still missing. Two thirds of survey participants stated that their operations strategy is not closely linked with global business targets.
Instead, operations strategy is developed and executed on business unit or country level. In less than half of the companies covered in the study operations strategy has a clear customer focus. In addition, the overarching operations strategy is not broken down into function-specific strategies and targets.
Application of Operational Excellence Approaches
To increase operational performance, the majority of chemical companies apply “operational excellence” approaches, in particular LEAN and Six Sigma. However, these approaches are mainly applied in production where they have their origin. Less than half of the companies apply operational excellence to order-to-cash and distribution processes. Regarding the monitoring of operational performance, all participating companies use key performance indicators (KPI), but only half of them align the target values with business strategy.
According to the study, the Internet of Things and digitization will have a strong innovative impact on operations strategies and operational excellence initiatives. Chemical companies will therefore have to watch these developments closely.
For the survey, top executives from 30 chemical companies headquartered in Europe were interviewed by means of an online questionnaire as well as deep-dive interviews. Interview period was November 2015.