By smartly optimizing their supply chains – from operational improvements to strategic realignments – chemical companies can not only reduce costs but also enhance resilience and stability. A holistic approach to the supply chain could prove to be the key to securing future success.
In the current business environment, global competition has intensified considerably. The chemical industry is currently under considerable pressure. Weakening GDP expectations in key sales markets are causing demand for chemical products to fall noticeably. Economic uncertainty is not only dampening the willingness of many customer industries to invest, but is also directly threatening the sales growth of chemical companies. In a market environment in which the top line is increasingly faltering, the question of resilience and strategic realignment is becoming more important than ever.
These challenges highlight the need for an approach to strengthen the supply chain and reduce related costs – underlined by our last Horváth study. Our study revealed that one of the top three priorities for chemical companies lies in the optimization of the supply chain.
This optimization can have various positive effects on the company, including reduced vulnerability to shocks through localization, stability against crises and shortages through diversification and highly efficient structures and processes through cost efficiency
For the greatest possible success, the optimization of the supply chain should always be considered holistically. To this end, the operational, tactical and strategic levels should be examined and the interaction adapted.
At the operational level, the focus is on improving local supply chain elements. As a first step, the cost and value drivers should be identified and presented transparently. This structural analysis will be the starting point for further optimization. Subsequently, efficiency can be increased, and costs can be reduced.
A suitable example of optimization at the operational level is the benchmark-based optimization of transports (incl. transport modes) between sites to reduce logistics costs within the entire network. Also, consolidation of logistic providers and additional outsourcing of non-core logistics to 3PL/4PL providers are currently driving efficiency. Digital enablers such as real-time tracking systems, automated performance dashboards, and predictive analytics for maintenance and inventory can further support operational excellence.
Within the tactical layer the focus lies on the improvement of allocation between different production sites. The main goal is to manage site utilization to the best possible and most cost-efficient way within the production network. An example could be the re-allocation of production within the existing network or consolidation of production lines. This option could increase the service levels, a more optimal allocation of production resources, less disruptions and ramp-up/ramp-down times and finally better warehouse utilization.
Furthermore, re-allocating production within the existing network can enhance supply chain resilience. This can be achieved by adopting a more local-for-local approach, thereby reducing the risk of being impacted by tariffs.
In a first step the EBIT effects of the re-allocation of the products between the sites should be simulated to get transparency. Then the different scenarios should be calculated and considered. In a last step the focus is to implement smaller adjustments which lead to over proportional benefits.
The strategic level focuses on the overall footprint and the re-design. The idea is to evaluate the entire supply chain and the production footprint holistically. This process is a strategic and rather impact-heavy exercise, but helps to fully realize the supply chain potential, reorganize the production and to mitigate risks and dependencies strategically.
The approach for re-design is based on a scenario analysis comparing different options based on pre-defined criteria. At the end of this analysis each production site has a clearly defined role within the network. Future decision like investments in new technologies should be done in line with the defined roles of the plants.
In conclusion, the chemical industry faces significant challenges, necessitating a robust approach to supply chain optimization. By addressing operational, tactical, and strategic levels, companies can enhance efficiency, reduce costs, and improve resilience against disruptions. Looking ahead, continuous adaptation and innovation in supply chain strategies will be crucial for maintaining competitiveness and achieving sustainable growth in the face of evolving global uncertainties.
Drüppel, M. / Orléa, K. / Kießling, J.
