How Chemical Companies can Prepare for the Challenges of Recession
Three Questions Chemical Companies Should Ask Now
1. How do you recession proof an industry that is worldwide in scope, highly regulated, highly specialized, and rife with market competition?
Most chemical companies are reporting strong revenue growth, fueled by significant pricing increases; but they also cite rising raw materials, energy, and logistics costs as current concerns, combined with softening demand in most segments.
In a period of recession and inflation, the chemical industry faces these major challenges, among others:
- Suppliers are feeling free to accept the companies they want to work for, and companies are feeling threatened.
- Logistics issues are interfering with both procurement and delivery—in other words, both ends of the plan-buy-make-move-fulfill supply chain are in jeopardy.
- Companies are slowly automating but lack the data they need to make significant changes; so they are automating systems that are less than optimal.
Yet, sustainable recession- and inflation-proofing is feasible. End-to-end supply chain optimization that improves supplier optionality and relationships, logistics, network analytics, and digitization will give a chemical company the agility it needs to survive recession and inflation.
2. Where do you start with end-to-end supply chain optimization?
The first step in optimizing a supply chain is to find out what works and what doesn’t, and that requires visibility into the supply chain. Many chemical companies lack the company-wide KPIs and metrics that will provide the insight they need; for others, the necessary data is available but closely held in siloes; and for others, the data is accessible but the company lacks an operating model to effectively use it.
The following two assessments not only create visibility into the supply chain, but also propel those structural changes that make cost savings sustainable far into the future.
- An assessment of the six dimensions influencing consistency and collaboration—organization, roles and responsibilities, systems and tools, business processes, performance management, and capabilities and culture. roles and responsibilities, competencies, systems, and tools. The resulting 6-dimension framework enables a company to establish KPIs and metrics, build collaboration, improve decision making, and identify initiatives that will save costs.
- An assessment of the capability, capacity, and cost (3C) of current operations. The 3C assessment helps to pinpoint those areas that are core to company operations, those that should be outsourced, and those that should be kept in-house regardless because they provide a competitive or fiscal advantage.
3. What type of results should you look for from supply chain optimization?
A manufacturer of performance polymers faced a volatile and inflationary supply chain and a procurement department in turmoil. By making gaps in the supply chain visible and introducing the procurement team to new approaches, SGS Maine Pointe expanded supply chain optionality. The results included a 6% reduction in costs, 50% value creation, and a procurement team that was primed to deal with inflation and recession.
In another case, SGS Maine Pointe implemented a 100-day plan that enabled a carve out from a chemical company to build its procurement, logistics, and operations processes from scratch; roll out 50 contracts with suppliers; reduce supply chain costs by 6 percent; and free up 15 percent of inventory to release $3M in cash. The ROI was 6:1.
For further insights into the ways that supply chain optimization will help recession- and inflation-proof your chemical company—including initiatives in procurement, logistics, and data analysis—see Three Keys to Recession Proofing the Chemical Industry Supply Chain.