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Supply chain structure in the chemical industry is difficult because of the complexities associ-
ated with this industry.
Conventional manufacturing (discrete manufacturing) uses bills of materials that specify the
parts that go in the final product, assembles the products, and produces lots consisting of dis-
tinct units.
Process manufacturing is different. Process manufacturers use formulas and manufacturing
recipes. They produce goods in batches or a continuous stream. SCP is based on modelling
constraints and key parameters. Chemical industry models are very complex.
In the supply chain planning market, the chemical industry often seems like an afterthought.
Certainly, most of the writing on supply chain planning has a distinctly discrete manufacturing
industry flavour to it.
Complex manufacturing is a hallmark of the chemical industry. Typical factories include many
tightly interconnected operating units for blending, separating, reacting and packaging of final
products.
Tanks are used everywhere, within operating units, between units to balance operations, and
for temporarily storing materials, work-in-process, and finished goods inventory. Production
planning solutions must reflect a deep understanding of the product and the manufacturing
processes to ensure that plans are realistic and support stable product transitions. Planning re-
quires an explicit understanding of the complex, non-linear chemical processes occurring
within process units. Complex relationships between raw material variability, operating units
and constraints on product changes must still be thoroughly modelled to develop optimal sched-
ules.
Most SCP suppliers can’t begin to produce high fidelity models of process manufacturing
plants. But in addition to modelling manufacturing, a good supply chain solution needs to also
model demand and inventory. This is important because the central process in supply chain
management is sales & operations planning (S&OP), which is increasingly being referred to as
“integrated business planning” (IBP). IBP balances supply and demand in a manner that opti-
mizes an organization’s key financial goals. Running demand-supply simulations is incredibly
clunky and time consuming at best. But it can be all but impossible for complex chemical
supply chains unless demand, inventory, and manufacturing parameters and constraints are in
one model.
Supply chain design and Supply chain operation
Process industries such as steelmaking and chemicals are increasingly focused on customer
service, but their supply chain practices are designed for low-cost, efficient operations. To align
with today's corporate strategies, they need to match their supply chains to the markets they
serve while improving their demand forecasting capabilities.
1. What is our actual cost-to-serve for each product to each customer?
Different customers, products, service levels and distribution channels contribute dif-
ferent margins; by identifying the unprofitable and low-margin product/customer com-
binations and high-cost processes, you can develop action plans for each in order to
improve your business’ profitability or determine where to send products in periods of
shortage and excess. Cost-to-serve optimization analyses and quantifies all the activi-
ties and costs incurred to fulfil customer demand for a product through the end-to-end
supply chain. It evaluates the thousands of activity-based costing options to identify the
optimal network design, structure and flow to achieve the lowest total cost-to-serve
based on all end-to-end trade-offs.