Building resilient supply chains : how to implement responsive and flexible supply chains for the chemical industry in a pro-competitive way

1/ How to cope with turbulance, uncertainy & volatility

Managing resilient supply chains implies companies need to manage their vulnerability, a combination of the likelihood of a disruption of their business processes and its potential severity. Resilient companies’ supply chains are designed in order to cope with low-probability occurrences with severe outcomes. A company’s potential financial, strategic, operations and hazard vulnerability needs to be mapped out using layered and balanced methods, separating threats from baseline activity, build partnerships, build a culture of awareness and sensitivity to security.

Beyond the three-layered approach, resilient supply chain management needs to focus at the margin level and not mainly on the volume flow as was the case in the past. Understanding value chain dynamics implies shifting the balance from the micro to the macro : increased planning decision frequency and shortening planning horizons, shifting the balance from planning precision to big picture understanding and risk awareness.

The current chemical supply chains are becoming longer, relatively more expensive and complex. Logistics are also becoming more important. Longer supply chains create challenges for managing safety, on-time delivery, flexibility, responsiveness and sustainability. Chemical producers may cut these longer supply chains up between many LSPs creating more complexity.

Achieving efficient supply chain implementation is important both for chemical companies and LSPs. IT tools will be needed to track and trace, vendor-managed inventory will increase and LSPs will need to communicate and collaborate in a pro-competitive way. Faced with volatility, supply chains will need global networks, with variable cost models, asset availability and speed. Responsiveness and flexibility will be key.

2/ Resilience through partnerships

A way to manage resilience in supply chains is to create “natural” supply chains. Natural supply chains are not synonymous to full customization, standardization or segmentation. They allow to differentiate service offerings and supply strategies without compromising scale benefits and complexity.

Another way of reducing the uncertainty in the supply chain is by pro-competitive collaboration. High performers build partnerships by exchanging information and setting up systems for structural collaboration such as VMI (vendor managed inventories) and CPFR (collaborative planning, forecasting and replenishment). VMI for instance is a win-win : lower costs and more efficiency for supplier, customer and LSPs. All of the aforesaid is to be subject to competition law compliance.

While pro-competitive vertical collaboration along the supply chain improves performance, more benefits could be available via horizontal partnerships across chains at certain levels, which very often involve LSPs.

A critical success factor for pro-competitive collaboration is that companies stop their traditional thinking and start looking at the optimization opportunities beyond their own network. Opportunities for pro-competitive horizontal and vertical partnerships are based on leadership, common understanding of clear performance targets and rules for fair risk- and benefits- sharing between all parties involved, especially the customer : on a clear understanding of the respective roles and responsibilities of all contributing parties; and on mutual trust and openness.

For more information, read this report

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