Chemical companies are facing dramatic changes in global markets, feedstock supply, corporate mergers and other areas. Traditional supply chains based on demand forecasts can limit a company’s ability to respond quickly and effectively to new and unforeseen developments. However, a demand driven, pull approach focused on real-time updates on customer demand and backed by deep visibility across the supply chain can help companies keep pace with change in today’s chemical industry.
“Demand driven” has been a part of supply chain thinking for a number of years. For many chemical companies, however, the concept has not been translated into actual supply chain structures, processes and strategies appropriate for today’s rapidly changing business environment.
A demand driven supply chain involves transforming the traditional planning-based supply chain into an integrated, multi-tier supply network driven by actual customer demand.
Properly designed, implemented and managed, this approach reduces unnecessary touch points, thereby reducing operating costs and improving profitability and customer service. Inventory is managed in alignment to dynamic target operating levels. Demand/supply continuity issues can be identified before they impact production and affect customer service.
For commodity chemical manufacturers, demand driven supply chains can help increase efficiency and reduce cost, giving them a competitive advantage in markets where tight margins mean the difference between success and failure. For speciality chemical manufacturers, a demand driven approach can help improve customer service and provide better support for multiple suppliers, products and buyers.
For almost any chemical company dealing with significant change, the most important benefit is increased agility. A distinction can be made between flexibility – responding to expected demand based on historical trends and regular forecasts – and agility – responding to unexpected events and unforeseen demand. These events include extreme weather, geopolitical disturbances, regulatory changes, market volatility, price fluctuations in raw materials, power outages or changes in third-party suppliers. Demand driven supply based on real-time sharing of information has both the flexibility and agility to accommodate unforeseen events that might affect demand or the ability to meet demand.
Why chemical companies need demand driven supply is a matter of record. Benefits involving cost, performance and the ability to respond to change have been realized by chemical industry leaders worldwide. But exactly how a demand driven supply chain is implemented is a different matter.
Making the transition from a traditional forecast-based supply chain to a demand-driven model involves challenges found with most change management initiatives. Management buy-in is essential, starting with the CEO. Key stakeholders include leaders in IT, sales, operations and HR. Equally important is the need to convince customers and suppliers that they should join the initiative. It is critical that they understand the benefits they can achieve by collaborating. Successful programs establish a shared benefits model with partners, allowing both sides to provide input to the future-state process and related metrics.
Anticipating potential pitfalls is also important. A demand driven environment requires all parties to expose more operational data outside their four walls, so data must be clearly defined and integrity is key. Finally, talent management must be fully supported, especially the need to recruit, train and retain supply managers who are comfortable with today’s technology.
With the right design, support and management, demand driven supply chains can help the industry better adapt to today’s rapidly evolving global markets, representing a change for the better for manufacturers, suppliers and customers.