Industry Expert Peter Robinson talks about chemical manufacturing challenges and how Maine Pointe helps companies achieve their goals.
Q: How mature are chemical companies in terms of unlocking the potential of sales and operations planning (S&OP)?
Based on my exposure to a number of chemical companies and looking at the inventory profiles of those companies (raw material and finished goods), most chemical companies are not at all advanced in S&OP. They are not taking seriously the need for an S&OP process and not getting the end-to-end supply chain involved in operations planning. Ultimately, they need a single game plan that all stakeholders buy into so that there can be true discipline imposed on what is manufactured. Even more importantly, the game plan must reflect what they sell. Chemical companies are in the business of selling chemical products, not manufacturing them. That is how working capital and inventory are optimized.
Q: What is the barrier?
Professionals in the chemical industry have very strong technical abilities, but often the practical skills needed to manage the supply chain—particularly in demand sensing—are missing. On the surface, many may vehemently disagree with that statement—but I am willing to bet that some self-examination on the subject would change minds. The quality of output in chemical companies is good and the ability to organize themselves within the manufacturing process is good, but too often the need to satisfy customer demand seems to fall too far down the list.
Q: Is that shortcoming related to talent or to organizational/structural issues?
The chemical industry primarily employs process engineers and chemists, who rise through the ranks to management. Those individuals have remarkable technical skills and unmatched ability to manufacture high-quality products, but as a rule, the demands on their time prevent them from getting hands on involvement in the S&OP process.
In general, I see two fundamental problems in the sales and operations processes: too much inventory (both raw and finished goods), and an inability to get on a different path to prevent the inventory problem from recurring. In a situation such as that one, an outsider perspective can help to ‘get a leg over the fence,’ so to speak.
Q: Let’s talk about equipment usage, maintenance, and working capital management. How well do chemical companies optimize equipment usage and manage turnarounds?
In a chemical company, equipment is generally operating 24 hours a day, seven days a week. The optimization of equipment is incredibly important to properly maintain expensive machinery and minimize unplanned, inefficient stoppages. Maintenance activities must be a part of the S&OP process and integrated into the production plan to avoid unnecessary downtime.
Aside from ensuring ongoing equipment optimization, chemical companies need to improve their plant turnaround methodology. The process can cost millions of dollars or euros a day, and so there’s a tendency to throw resources at the problem in order to shorten the period. Often, we see contingency upon contingency being built into the process, driven by a fear of not being in control. Companies need to exert better planning and control of turnarounds—and the good news is that with the right kind of expertise, there’s a tremendous opportunity to reduce costs.
Benchmarks in the industry are generally defined as ‘What we did last year.’ While there is some opportunity to learn incrementally year-on-year based on accumulated knowledge—it’s very important to be able to stand back and assess what is the true cost of the current system. There needs to be a direct relationship between what must be achieved and the resources needed to do that. So preparing estimates, developing work standards, and ensuring proper monitoring and control throughout the process are paramount. Turnarounds are an iterative process where—with the application of the right knowledge and discipline—improvements can be dramatic and continuous.