With significant change needed in the chemicals and oil & gas markets in 2018, Mark Montanari, VP Chemicals and Oil & Gas at Maine Pointe, outlines some interesting insights straight from the horse’s mouth.C-Suite objective: Transformation for growth
CEOs question on a daily basis whether their supply chain and manufacturing facilities can respond to and capitalize on growth opportunities. A recent blog by our CMO, Simon Knowles, discussed how our clients often find there can be significant bottlenecks to throughput and limitations to an organization’s ability to respond to demand. How to capitalize on growth opportunities is a question I have been hearing for a while now in the C-Suite. And, with 2018 shaping up to be a growth year for almost every economically important country (global growth predictions hovering around the 4% mark), I am expecting to hear it a lot more in the coming weeks.
Growth in the chemicals and oil & gas market
With a few exceptions, the outlook for the global chemicals market is positive. In its year-end 2017 outlook, the ACC noted that American chemistry is experiencing a “renaissance”. US chemistry output is expected to increase by 3.7% in 2018, driven mainly by export growth due to new capacity coming online. Elsewhere, Cefic (the European Chemical Industry Council) is forecasting steady growth at around 2%.
After some turbulent years, the oil and gas industry is expected to continue its slow recovery in 2018, with the focus on rising commodity prices, costs and emerging technologies. However, excess supply will continue to put a dampener on oil prices in the year ahead. Natural gas prices, on the other hand, will benefit from higher demand, although price gains will remain limited.
To better understand the impact the transformation of growth is having on the chemicals and oil & gas industries, I’d like to highlight two companies on very different trajectories, but with a similar overarching goal.
The current situation:
Common denominators between the two companies
Despite the differences in their situations, executives from both companies have expressed a number of very similar concerns, namely:
- Business as usual is not an option
- Entrenched business processes have been loaded with constraints that may or may not be relevant in today’s environment
- Significant change will be required in the way decisions are made – inside the company and with suppliers / customers
- High degree of fatigue / initiative overload make getting the attention of the next level leadership in the company difficult
- Need to embrace and leverage increased digitization
In one case, the focus is on what must be implemented to survive within the context of building a foundation for an improved, game changing business model. In the other, it's around creating a compelling value proposition with a commitment to breaking down barriers and constraints to differentiate the company and deliver very significant growth. In both cases, supply chain transformation is the key to success.
A recent Global Supply Chain Institute research paper, concludes that increasing complexity across the supply chain and cost-savings fatigue is driving the need for a new approach to achieving competitive advantage. It goes on to say that Total Value Optimization™ (TVO), helps CEOs and supply chain leaders quantify and deliver the benefit of driving cross-functional collaboration across their procurement, logistics, and operations functions. This proven approach helps companies break down functional silos and drive measurable value across the end-to-end supply chain. I have found that TVO is a very effective tool in supporting a strategic dialog around business needs and provides executives with a very practical way of driving measurable change across their end-to-end supply chain and operations. This is tightly connected to execution to close gaps and capture value. In order to grow, you need to be able to anticipate and meet demands to deliver the greatest value to customers and investors at the lowest cost to business.
As I continue working with each company's leadership, I expect to uncover yet more common elements related to their path to build sustainable capabilities AND deliver near-term value while transforming for growth.
In the end, however mature your organization is, there is always a better way to run and improve your company. According to the Global Supply Chain Institute, the buy-make-move-fulfill supply chain accounts for 80% of a firm’s cost. I would suggest that isn't a bad place to start your transformational journey. Driving that next level performance is a leader’s job – success is the only option. The question is, do you have the in-house capability to execute the change needed, or do you need a bit of a helping hand along the way?
If you would like to discuss any of the points raised in this article, contact Mark Montanari firstname.lastname@example.org or another of our supply chain experts for a no-obligation discussion.
Calculate the value potential for your business. Complete our TVO Self Assessment Tool™ and receive an automated Value Opportunity Report. This provides an indicative quantification of the value improvement potential (EBITDA & cash) across your buy-make-move-fulfill supply chain.
Maine Pointe is a global implementation-focused consulting firm trusted by many chief executives and private equity firms to drive compelling economic returns for their companies. We achieve this by delivering accelerated, sustainable improvements in both EBITDA and cash across their procurement, logistics and operations to enable growth. Our hands-on implementation experts work with executives and their teams to rapidly break through functional silos and transform the buy-make-move-fulfill supply chain to deliver the greatest value to customers and investors at the lowest cost to business. We call this Total Value Optimization (TVO)™.
Maine Pointe’s engagements are results-driven and deliver between 3.5:1-12:1 ROI. We are so confident in our work and our processes that we provide a unique 100% guarantee of engagement fees based on annualized savings. www.mainepointe.com.