An industry caught between its digital ambitions and the ground realities: Insights from LogiChem EU 2019
I just returned from the LogiChem EU 2019 event that took place from March 19th to 21st in Amsterdam. The event was packed with who’s who of the supply chain community of chemicals industry in attendance. With so much ground to cover, let me get straight to my takeaways:
1) The digital agenda is ambitious – but then the ground realities intervene: Robotic Process Automation (RPA), AI/ML, Big data, and of course the obligatory topic of Blockchain were all talked about quite a lot. There are point digital capabilities that are getting wider adoption in the industry. Examples include:
- Seniors in tanks/silos to measure the consumption of the chemicals to plan replenishment
- Use of telematics and tracking devices to get visibility to containers and shipments
- Ability to connect and transact with customers and suppliers through digital networks
- Automated Guided Vehicles (AGVs) in warehouses
These are some of the digital technologies that are gaining broader adoption and delivering benefits. However, in my offline conversations, it is also very clear that the most dominant planning system of record for chemical companies is Microsoft Excel. The broader end-to-end digitalization usecases were lacking in general. The exception perhaps was a presentation by Jan Bruening, Cluster head of smart supply chain at BASF, on the work they are doing in the area of BASF4.0 horizontal integration with the customers wherein they are planning across a connected value stream network in a holistic manner. From the other presentations and from my own experience with our customers in this space, I will have to say the digital agenda is ambitious but the gulf between the ambitions and the ground realities is larger in chemical industry as compared to other industries. But the industry should look at this as an opportunity!
2) Blockchain hasn’t emerged from the pilot mode: There was plenty of conversation around blockchain. Jens-Mario Burggraf, Area logistics and customer service leader of Braskem presented a pilot the company did on blockchain in collaboration with innoBlock, a startup in the blockchain space, to simplify and maintain visibility into internal and external transactions. He explained the reason for opting to go with a startup as opposed to an established company as Braskem can focus on learning as opposed to starting with a prescriptive templatized approach recommended by the established consulting players. The knowledge the partner brought to the table helped them be faster in their pilot while getting educated on the distributed ledger technology of blockchain. While the Braskem team was successful in proving out the application of the technology in a pilot mode, two questions that remain to be answered, based on various conversations I had during the event were:
- The NPV and ROI from the investment is not clear
- Interoperability is a challenge. Chemicals make their way into nearly every physical product we consume – food, clothing, cars, homes, fuel etc. If each of their downstream customers/industries have their versions of a private blockchain, interoperability will be a challenge. In relation to this, there was a general consensus amongst attendees that a public blockchain is a more viable option than a private blockchain.
The blockchain discussions over the last 3 days served as a reminder that there remain weak links in the blockchain story.
3) Sustainability is more a byproduct, rather than core to the supply chain agenda: Given that chemicals are present in nearly every physical product, I was expecting the supply chain professionals to lead charge in driving sustainability. However, through some round table discussions I participated in as well as several one-on-one conversations I had with the attendees, it was clear that, sustainability is more a byproduct of productivity improvements and efficiency gains through supply chain core agenda of cost reduction, rather than front and center for the attendees. Disappointing as it may sound, this tension between managing costs and sustainability was reflected in a research report that LLamasoft published in collaboration with the Economist Intelligence Unit. In a very passionate presentation on promoting clean earth, Steven Beddegenoodts, sustainability lead at SABIC spoke about Operation Clean Sweep, an international program designed to prevent loss of plastic granules (pellets) during handling by the various entities in the plastics industry and their release into the aquatic environments. He encouraged the attendees to get familiar with the initiative. Also, regulation is tightening around chemical industry in general. However, rank and file supply chain professionals are clearly prioritizing their department objectives over sustainability initiatives. But, as one attendee commented sustainability cannot be the job of supply chain alone, but should be integral to the practices of the entire company.
4) Should we get rid of forecasting altogether?: In an extremely provocative, and I may add, a highly entertaining Oxford style debate moderated by Dr.Frank Jenner of EY, Tim Bett, former head of supply chain at Archroma, and Yasser Bin Sabir, head of Global IBP at Arlanxeo made passionate arguments for and against, respectively, on the topic of “Forecasting for S&OP does not work in the current environment and we should abandon it”. Tim’s contention was that organizations are forced to forecast down to customer-SKU level. With thousands of SKUs in the portfolio, they will inevitably get it wrong and hence it is a big waste of time. Yasser made the counter argument that wanting certainty should not be the reason to question the need for forecasting. He spoke about the tremendous gains he experienced in his career making “agile forecasting” a discipline of their S&OP. His definition of “agile forecasting” is to break the traditional weekly/monthly cadence of the forecasting and instead use event driven forecasting wherein information as it emerges, triggers the need for adjusting forecasts. He also talked about the need for blending hard data from the past and soft data that is about future and create scenarios to stress test this. I tend to side with Yasser’s side of the argument and so did about 78% of the audience in an interactive poll, a number that remained the same from beginning to the end essentially making the debate a tie.
Speaking from firsthand experience, in our recent work with customers across variety of industry verticals, we observed that algorithmic forecast accuracy can be improved by up to 15-20% by bringing in external causal factors and leveraging machine learning to extract seasonality and trends, and applying correlations with external factors. In a highly engaging presentation, Christian Backaert of Solvay spoke about how they are improving forecasting accuracy significantly through their own independent work, by bringing in leading indicators. Manufacturing activity of rubber and plastic products, motor vehicles, trailers, and semi-trailers, medium high-tech products, and crude oil prices were some of the leading indicators considered in their analysis. Needless to say, Yasser’s comments extended beyond algorithmic forecasting, brining in human inputs in the IBP context.
5) Becoming a shipper of choice in a highly capacity constrained environment: There was quite a lot of talk around how shippers and carriers will need to collaborate closer in an environment where transportation capacity is heavily constrained due to driver shortages, equipment availability, and in case of ocean shipping, heavy consolidation that took place in the recent past. In a sign that tables have turned to the favor of carriers, Pablo Nosti leading EMEA Logistics Procurement for DuPont shared following tips on how to become a manufacturer of choice for carriers:
- Improve site loading times and reduce the wait times for trucks
- Enable easy to schedule, flexible appointments for pickup and delivery
- Ensure completeness of information, so missing information does not hold up deliveries and loading
- Provide weekly lane-level forecasts to help carriers plan their capacity
- Last but not the least, establish collaborative relationships with appropriate reviews of performance, touch points, and incentives.
All in all, I was impressed by the quality of the discussions and the desire to share and learn from each other. In a sign of significant growth in the interest of supply chain design, myself and my colleagues had a packed 3-day schedule with a number of meetings in between sessions and in the evenings. Top of mind for several attendees are rapidly shifting buying behaviors, Brexit, and US-China trade wars, resulting in significant shift in flows, prompting them to look for opportunities to improve their supply chain design competency. Mat Woodcock of LLamasoft along with few of our other colleagues, organized an interactive workshop titled “Margin at risk”. The attendees played the roles from finance, sourcing, pricing, and logistics in a game of collaboration for a fictitious oil products company trying to balance purchases, inventory, distribution costs, and pricing to maximize the overall profit. In a stepwise fashion, participants progressed across the stages of independent working, chaotic collaboration, and synchronized collaboration, with profits increasing with each stage. The participants were so involved that they wanted to continue playing even after the time was up after each round!
All in all, it was a very positive event for me and a great opportunity to make new connections that I am sure will last for many years to come. After all, supply chain community is a small world! The chemical industry as a whole, has great digital aspirations. While the ground realities of legacy technologies, business complexities, regulation and such intervene, I came out feeling very optimistic about what the future holds for the industry!