Post on 15-Jul-2020
EPCA 2nd INTERACTIVE SUPPLY CHAIN WORKSHOP, BRUSSELS, MARCH 2011
For our second interactive workshop, EPCA decided to
explore opportunities and challenges for the chemical
industry’s supply chains in the 21st Century, focusing
on the potential for technology and sustainability
to transform the relationships between producers,
logistics service providers and customers and, ultimately,
operational effi ciencies and environmental footprint.
Chairman’s Overview
Philip Browitt, Chairman,
EPCA Supply Chain Programme Committee
and CEO of Agility Logistics Solutions
BRUSSELS, 15 & 16 MARCH 2011 1
Our fi rst session looked at Technology Development and New Generation
Supply-Demand Chains for the Chemical Industry. Our speakers took
us on a journey into the heart of transformational data utilisation
and management through the Internet of Things and the application
of business analytics systems. Their emphasis was adding value.
It is clear that the Internet of Things – a multitude of web-enabled
connections between devices, people, businesses, cities and
communities – is offering a plethora of real time contextual data
to access and use in new ways to enhance businesses, services and
our societies. We also gained insights into the power of predictive
analytics to improve every aspect of our business activities through
combinations of route-cause analyses and real time data access
that can transcend inter-functional barriers and drive optimisation
across companies and business networks. A display of dashboards
deploying real time data for control gave a glimpse into the future.
The key messages were that The Internet of Things is happening
now in some industries and is likely to spread across most. It will
provide a deluge of data which needs putting into context to make
decisions through predicting forwards and by utilising real time
dashboards. The Chemical Industry has good examples of information
exchange but it needs to remove “mind set” barriers regarding
sharing information to make our current technology effective before
progressing to new innovations in a step by step approach.
REPORT EPCA INTERACTIVE SUPPLY CHAIN WORKSHOP2
Our second speaker highlighted that Ikea has a sustainable
investment program as one of its four key overall business
goals. Reduce – reduce – reduce, regional sourcing, customer
trust, internal pride, communication and branding are major
elements. Consumers do care and it was guaranteed that
customers would require a full footprint including that of the
chemical industry.
The Workshop overall conclusions are that future changes
will include:
• The Internet of Things
• Customer sustainability expectations
• Supply chain volativity
We must:
• Overcome information sharing barriers
• Deploy new technology on a step by step basis
• Set sustainable programs
• Brand and communicate
Our dinner speaker focused on the impact of Customers
and Consumer Behaviour on Supply Chains. In fast growing
economies, consumers are increasingly “buying green” and
“paying more” particularly in the consumer-facing industries.
Responding to their customers’ demands, these businesses are
demanding that their suppliers work with them to improve
and chart both social and environmental performance.
For the chemical industry, leading and co-operating on
these new initiatives will offer potentially signifi cant gains
in terms of fi nancial performance and reputation.
Our second session focused on the need for innovation and
agility in 21st Century Supply Chains, with one speaker high-
lighting the need for increased fl exibility and responsiveness in
an increasing uncertain and volatile world where the centre of
gravity is moving east. Economy of scope rather than economy
of scale, bringing supply closer to demand, postponement,
small footprint manufacturing, response based network
design may be the future supply chains.
DAY ONE:
21st Century Supply Chains for the Chemical Industry
Philip Browitt,
Chairman of EPCA Supply
Chain Program Committee
and CEO of Agility
Logistics Solutions
Welcoming delegates to EPCA’s second supply chain
workshop, Phil Browitt outlined a focus on information
management and sharing, and green supply chains.
“Interest in optimizing business information emerged
during the fi rst supply chain workshop, and sustainability
of the chemical industry and its business processes
and systems was a key discussion topic at the EPCA’s
2010 Annual Meeting last autumn,” he noted.
At the EPCA 2010 Annual Meeting, Professor Jeffrey
Sachs, Director of the US-based Earth Institute, had
urged the chemical industry to fully engage in solving the
problems of climate change and sustainability, Browitt
reminded delegates. Sachs said the sector was “at the
heart of sustainability”, and highlighted the enabling role
of technology – in R&D, production process, logistics
and business systems – and the industry’s great history
of developing and applying it across all activities.
Before opening proceedings, Browitt said a straw
poll of delegates indicated increasing internet use for
doing business. Some 78% indicated 2-6 hours weekly
personal internet usage, and the survey also revealed
rising utilization of real time systems and data in business
decision-making. So far, however, industry’s use of social
networks to enhance business remains limited. This, said
Browitt, was a good point from which to launch a session
devoted to exploring the power of the internet and how
to apply its benefi ts along the chemicals supply chain.
1. Chairman’s Welcome and Opening Remarks
BRUSSELS, 15 & 16 MARCH 2011 3
Usman Haque,
Director of Haque
Design & Research,
CEO Connected
Environments,
Founder/CEO
Pachube
Usman Haque addressed four questions: What is
the Internet of Things (IOT), why is it important,
where is the value and how can it be used?
“Today,” he said, “we are transitioning from machine-to-
machine (M-to-M) data systems to the IOT.” M-to-M data
systems aggregate data from many devices, usually into a
data management backend, and are mostly single-industry
platforms, with one-to-one or fi xed connections, creating
data silos, channelling all data into a single system, closed
network. They often use IPv4 (Internet Protocol version
4) networks, with a gateways limiting access and growth of
devices. Data is usually stored in SQL (Structured Query
Language), generally fi xed tables, columns and rows with
specifi c attributes, and the overlaid with purpose-built
applications to extract information and to fi nd value from a
network of devices. “With M-to-M, system value is linear, and
scales according to the number of devices,” Haque added.
For Haque, IOT’s key characteristics are cross-industry
horizontals, rather than single industries using individual
platforms, enabling very different or related industries
to share data, to the extent that they want and choose.
“Often IOT will be based on many-to-many connections.
It’s not just about many devices responding to a single
one. The IOT also facilitates ad hoc connections, so a
user may not know in advance of employing a device
the things to which it will be connected. There are all
sorts of different sensors and actuators out there.”
With IPv6 enabling a massive increase in addresses, many
more devices can connect directly through the internet.
“In terms of data storage, we’re hearing about No SQL –
2. Opening Address: Internet of Things and Impact on Supply Chains
which eclipses the columns and rows of SQL – and introduces
the concept of big data. We’re talking massive scale issues:
data from millions, billions or trillions of devices in non-silo
systems. What’s more, this data can then be repackaged or
repurposed by or for another organisation or even another
industry. New data capture and delivery services will
blossom. Imagine there are just a million devices pushing
data once every two minutes. That works out roughly at
10,000 updates per second. So imagine billions of devices
updating once a second: that’s a massive infrastructure.”
Looking ahead, Haque sees a mix of general and specifi c
services based on available data. Companies should perhaps
be thinking beyond making sole use of their own datasets
and pursuing options that enable wider user-groups access
to extract or develop the broader value in that data. “The
value of IOT comes from the number of connections between
devices, not the number of devices.” In this new world,
authentication, trust and robust systems will be essential.
To optimise benefi ts, Haque added, the IOT needs real
time inter-operability, enabling the convergence of different
data systems. Push notifi cation – as opposed to the pull
of M-to-M systems - is also important. “The value is getting
data via a real time alert, which in turn enables an action or
decision to be taken. It will mean much greater connection
with and responsiveness to ultimate consumers and move
us from data systems that predominantly allow us to save
money into those that enable us to increase revenue or offer
the option of developing new, value-generating data services.”
“Why is IOT important? Because it will touch every industry,”
Haque said. “Today’s low hanging fruit is being harvested in
energy, buildings and home automation. By getting buildings
to perform better, particularly in terms of energy, we’re
increasing sustainability. Soon it will be industrial process
monitoring, to ensure factory performance is related to the
price of energy, which in turn may be related to weather
analysis, or real time updating of a logistical process relating
to delivery of goods. To work, this will require real time data
sharing between many companies across different industries.
In mission-critical healthcare, it could start to save lives.”
IOT ( Internet of Things) is the future and will touch every industry.
Floods of real time data can be uploaded to the Internet, usually
automatically by sensors, for downloading by selected recipients in
other organisations or industries.
IOT is currently being applied in energy, buildings and home
automation allowing remote dashboard control contributing to
more energy friendly buildings.
IOT will soon lead to industrial process monitoring, real
time dashboard control and the updating of logistical
processes relating to delivery of goods.
Key points
DAY ON
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REPORT EPCA INTERACTIVE SUPPLY CHAIN WORKSHOP4
Haque explained that Pachube is designed to be a content
broker and “app” store for IOT: a data management
infrastructure for the IOT, a back-end system for connecting
citizens, companies and cities, with feeds coming from
all over the world. It enables users to store, share and
discover realtime sensor, energy and environment data
from objects, devices and buildings around the world.
Taking a feed from a device, building, environment or
sensor connected to the internet, Pachube can store,
share and graph its datastreams in realtime. The key
is providing access to realtime and historic data from
devices, buildings, environments or sensors to control
other environments, embed graphs in websites, or trigger
actions. Through content brokers like Pachube, the IOT
is enabling proactive responses to data. It also provides
widgets and dashboards for control and monitoring,
and can help make sense of data by visualizing it in
a range of tools, maps and graphs on websites.
Closing, Haque said the IOT will help people to manage
data generated by their devices and homes. It will help
communities improve environments and quality of life,
and help companies turn networked products into
services. On a global scale, it will help society exploit
effi ciencies derived from extreme connectivity.
“So where is value in the IoT?” Haque asked. “There is no
intrinsic value in data. Real time data has some value because
you are adding a second dimension to that data: saying
something is happening now or at a pinpointed moment in
time. Data with context has even more value. Knowing that
a data point is from a particular unit at a geographical and
time location, and near to other devices where something
similar or slightly different happened offers a stream of
changing values. Ideally, most value will be extracted from
these cross-domain real time data sets that have rich
contextual metadata. Content brokering will give real value.”
So how is IOT being used? The Pachube founder offered
the example of a web-controlled coffee machine:
Imagine an organisation whose people - spread
throughout a building – each have a mobile phone app
for triggering the coffee machine. They could each tell
the machine when and how much coffee they want
and how far they are from the machine. An aggregation
of data could inform the machine when to make
coffee and shutdown when there is no demand. That
way, energy is saved and coffee delivered to need.
Using anonymous data pinpointing the location of
Vodafone phone customers, TomTom is providing traffi c
fl ow reports to satnav customers. Vodafone had data. This
is a great example of one company accessing, repurposing
and repackaging another’s data. Coca-Cola has “Freestyle”
remote-controlled drinks mixing machines. This is the same
system used to send recipe changes to restaurants. Data
Centres are using IOT to monitor energy load and weather
forecasts to optimise cooling and heating to save money.
BRUSSELS, 15 & 16 MARCH 2011 5
Today’s business world is digital and deluged with data,
Jeroen Dijkxhoorn began. Views differ as to the value of data,
but businesses can’t operate without it and will increasingly
need to fi lter it as volume exceeds storage capacity. “Which
data should we store in our enterprise system that can add
value in the future? It’s a critical question! We used to store
everything, but now we face a ‘data tsunami’ – from enterprise
owned sensors, user owned devices, etc. - and we need to
identify what is valuable, to keep and use it in strategic analysis.”
Managing data volume and deriving valuable insights is a
huge challenge for companies. But that’s where data analytics
can help, the SAS manager noted. “It can help identify the
sensors that provide insights, identify data coming from a
realtime context, and pinpoint data coming from consumer and
community connections. It can allow us to identify information
that enables us to organize for effi ciency and cost savings.”
SAS provides a business analytics framework that
encompasses data integration and management, analytics,
reporting and business solutions. As an example of
how realtime digital data is being used, Dijkxhoorn
outlined how HSBC banking group’s credit card fraud
detection and prevention system sends realtime
transactional data into a system that compares it to
historic user behaviour. This enables HSBC to act
immediately to clear, stop or query a transaction.
In a demand forecasting project, SAS has helped Lubrizol
replace manual data processing – “based on spreadsheets
and gut instinct” - with a consistent, automated system
that has delivered signifi cant manufacturing benefi ts by
doubling forecasting accuracy based on sales team inputs.
The new system combines historic data from SAP, Excel
and Access and automatically generates forecasts.
For India’s Jaypee Group, SAS helped combine optimization,
project scheduling and simulation techniques to identify
action options and scenarios to optimize transportation
logistics through better route allocation and resource
management. This cut costs, raised profi tability, and
quickened segmentation analysis speeds. Overall, speed
and reliability of logistics decision-making was improved.
Steel producer Posco used the business analytics platform
to reduce scrap and improve throughput, output and quality,
and to implement a company-wide Six Sigma quality strategy.
Returns on investment were stellar, the SAS manager noted,
and the company’s scrap ratio fell from 15% to 1.5%.
Dijkxhoorn also offered two examples of improved asset
maintenance. Post-merger, energy major Conoco-Phillips
used analytics to harmonize maintenance operations
through the development of a top level scorecard to target
costs, health and safety, production and resources. Costs
fell, and mistakes and work duplication were reduced.
At gas producer, Nederlandse Aardolie Maatschappij,
huge gains were made through predictive analysis for
compressor sensor failures. Run-to-failure incidents had
huge impacts on operations: a single sensor failure could
take up to 38 days to repair and take out almost 18m3
of production – a year’s supply for 7000 households.
Anticipating sensor failure 6 months in advance enabled
scheduled intervention which cut repair time to just 10 days.
Signifi cant production reliability gains have been made.
The real value – 96% - of predictive analytics technology,
Dijkxhoorn argued, is in driving productivity and
business process enhancements. He also noted that
the median ROI for projects including predictive
analytics was 145% versus 89% for those that did not.
3. Case Response: Supply Chain Analytics How to Maximize the Value of Technology – the SAS case
Jeroen Dijkxhoorn,
Business Development Manager, EMEA
Technology Practice, SAS Institute
DAY ON
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We are currently living in a data tsunami where the
challenge is to bring information down into the workplace.
Predictive analytics as opposed to reactive analytics uses this
real time data to look forwards not backwards
Decisions are made focusing on root cause deploying
statistical analysis, forecasting and even social media data.
The primary value of analytics is performance
management, demand and supply synchronization,
supply chain risk management and process
integration.
Key points
REPORT EPCA INTERACTIVE SUPPLY CHAIN WORKSHOP6
“What exactly do we mean by ‘Analytics’?” the SAS
manager continued. Reactive analytics-based decision-
making is looking back at what happened, where and
when and using familiar tools such as standard reporting,
some ad hoc reporting, perhaps some drilldowns for
investigation, and alerts in order to refi ne business rules.
“Today, however, predictive analytics are offering much more
value and moving companies into business enhancement
space, which is forward looking and focused on root-
causes,” said Dijkxhoorn. “It’s possible to understand why
something is happening, and to use statistical analysis
and forecasting to predict trends over time, or to look
at market demand to synchronize operation planning.
We can even use social media data as an input.”
In summary, the SAS manager identifi ed three areas where
the primary value of analytics is located: in performance
management, by coupling fi nancial information with
process information to take the right decisions for
effi ciency; in demand and supply synchronization,
bringing together production planning and demand;
and in total quality, for both operational processes and
in brand management using social media analytics to
assess brand value and image in the market. There are
further opportunities for supply chain risk management
– inventory and profi t optimization, scenario simulation
and service effi ciencies – and for process integration.
4. Round Table Discussions/ Feedback
Day One Round Table discussions focused on
questions relating to the management and use of
data through the chemical supply chain. There is
widespread use of data, but the transition from
reactive to predictive analytics and utilization of
the Internet of Things is likely to be challenging.
How is your company managing the mass of data
and converting it into valuable information?
The chemical industry has invested heavily in ERP systems,
often delivering very high forecasting accuracy. Before
moving from “basic data capture”, the focus should be better
use of existing resources. Producer and LSP productivity
needs to be more closely aligned. Full loading of trucks
and ships could maximize effi ciency and productivity.
Avoidance of empty running would increase productivity
and reduce congestion and environmental footprint. Most
producers and LSPs are already capable of collecting and
sharing mass data. But for competitive reasons there is still
widespread reluctance to share in-house data externally.
For producers and LSPs, end-customer demand data
is key as it drives production and transport. A key
challenge is data interpretation: different people interpret
information differently. Reliable forecasting may not
require surveys of every customer: use of statistical
forecasting techniques could enhance forecast reliability.
Some chemical producers already systematically share
forecast data; but for most LSPs strategic capacity
planning is based on own company predictions.
Have you examples of current
applications including dashboards?
There was some feeling that the industry is not yet
fully ready to embrace and utilize the resources and
opportunities deriving from the Internet of Things. However,
there was growing evidence of the use of smart phones
to track ships and assess port congestion. Germany’s Maut
truck-tolling system is surely a sign of things to come.
Where is your company with regard to using
rich transactional data to run your systems
with forecasting and optimisation?
Many companies are still using basic, aged systems:
new hires are often surprised by this. Forecasting and
optimisation process still widely semi-manual and time-
BRUSSELS, 15 & 16 MARCH 2011 77 2011BRUSSELS, 15 & 16 MAARCH
consuming. However, more customer data is being shared
and used. Long-range forecasts need to be replaced with
shorter, more regular, granular reports and outlooks.
Knowing customers monthly shipping averages may not
be helpful, but weekly or daily information can be. There
is concern that optimisation – for whatever purpose or
function - may be based on incomplete data, and that
systems may be seen as substitutes for strategies.
Does your company use data (real time or
historic) from customers, suppliers and the
public domain, including social networks?
The fi rst part of this question is covered above. Usage
of social network data is limited. But external data is
widely employed for tracking market pricing and trends,
sales forecasting, capacity and availability, customer plant
shutdowns, etc. A lot of this data is managed manually.
Real time data usage relates primarily to energy prices,
some trading, and vessel schedule information.
What are the barriers to rapid progress?
Views on data sharing still vary considerably: some see win-
win, others worry about investment cost, confi dentiality and
IT security. Integration of technologies and systems - such
as transportation sensors on vehicles and vessels, and the
variety of specifi cations - are potential barriers. Different
business rules governing different companies, corporate
policies and the complexity and variety of information are
further hurdles, along with human factors in transport data
collection. There are concerns about data deluge and using
the right data. Technology for cross-company sharing is
available, but not everyone has the required optimisation
tools or the will to implement. Are we able to see the full
picture – the customers behind our customers? Are we
feeding information downstream, but not looking upstream?
What are the likely business case pros and
cons, and will your company be proactive?
There is still a reluctance to share data and there are
system constraints, too. Cost issues can make new
technology diffi cult to sell to senior management: a sound
DAY ON
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business case, with pros and cons is essential! There may
also be confl icting goals within organisations, with some
departments/functions reluctant to change or adapt,
and technology may result in job loss. However, many
companies see the value in increased and enhanced data
use, analysis and sharing, and are embracing opportunities.
The following are examples of some of the discussion points:
Participants believe we need to work better with what we have and
achieve a closer alignment between producer and LSP to optimise resources.
Consumer demand data is key but data interpretation is a challenge and
statistical forecasting techniques could enhance reliability.
There are good examples of working together but there is a reluctance to
share information and this “mindset” must be overcome.
The expert speakers recommended the participants to make a step by
step approach towards analytics and the IOT.
REPORT EPCA INTERACTIVE SUPPLY CHAIN WORKSHOP8
Companies need to balance and integrate their efforts
on each leg of this triple bottom line, build an internal
culture of sustainability, and use quantitative and
quantitative metrics based on international standards to
demonstrate positive performance to stakeholders.
Turning to the supply chain, Meyer noted that changes
were accelerating, particularly in the chemical industry.
“You have growing customer concern, public-driven mandates,
product preferences, and growing demand for supply chain
transparency. Customers and consumers want to know what’s
in that product, its environmental footprint, what chemicals it
contains, the carbon emissions generated in manufacture.”
He acknowledged the role of Responsible Care in
safeguarding materials transport and driving innovation
in manufacturing, and making safer products. Meyer also
pointed to more environmental and “greener” specifi cation
in logistics, and the expansion of communications such
as safety data sheets relating to hazardous materials.
Now, the industry is seeing the growth of environmental
indexing, environmental footprints and benchmarking
in response to the demands of consumer-facing
customers such as WalMart and other major retailers.
Dave Meyer, Vice President,
Sustainable Economic and Environmental Development
Solutions (SEEDS) Global Alliance
“Sustainability is really about managing resources,” Dave Meyer
began. Each year, we are over consuming earth’s natural
resources by 30%, and we’ve used 30% of the earth’s total
resources in the past 30 years. If this continues, we’ll need
another two earths to support 6 billion-plus people.
This imbalance between what we consume and how
we replenish is at the heart of sustainability, and the
supply chain has an essential role to play in providing
leadership for resource optimisation, he continued.
Outlining three orbits of sustainability – fi nancial,
environmental and social – the SEEDS executive suggested
the goal must be a balance between the environment,
the consumption process and society. For business, this
means being both profi table and perceived as delivering
environmental and community value. Focusing on profi t
while ignoring the environmental and societal impacts
of doing business can destroy commercial reputations
and lead to the loss of licence to operate, something the
mining sector has learned the hard way, Meyer noted.
DAY ONE:
Dinner Speaker: Impact of Customers and Consumer
Behaviour on Supply Chains – Drivers and Solutions
BRUSSELS, 15 & 16 MARCH 2011 9
Working with your competitors can be particularly
benefi cial for small-to-medium sized businesses lacking
economies of scale available to larger producers or
service providers. “Cluster, form alliances, trade, swap,”
Meyer urged. “The basic premise behind high co-opetition is
fi nding value and leveraging alliances, partnering with other
shippers, even trading to control logistics and transportation
costs. It’s a little audacious, but sometimes we need to
think heretically to change the way business operates.”
Since the recession, “green” buying in the US has
stabilized, with consumers citing price, performance and
the economy for fl at growth. But there is a suggestion
that increasing information about “green indexes” may
again push “green” consumption. Surveys in China, India
and Singapore indicate that 84% of consumers will pay
a 27% premium for green products, but businesses
believe only 43% will actually do so. “Does that mean
‘green’ demand is outstripping supply?” Meyer mused.
What of the impacts of globalization and government-
driven initiatives to change supply chains? Globalization is
opening up new markets, but also increasing price pressure
and the external costs to environment and infrastructure.
Government-imposed penalties for “empty truck miles”,
mileage and tonnage tolls, carbon-related taxes – all of
these could drive up logistics costs. But it is pointless and
dangerous for long-term business sustainability to ignore
these pressures. Failure to change could result in business
failure. The right response, Meyer insisted, is to create an
innovative, sustainable supply chain that takes a creative
approach to the challenges. In the US, for example, some
intermodal transporters have been re-designing operations
and equipment, seeking enhanced fuel and mileage effi ciency.
Returning to supply chain transparency, Meyer noted 2010
had proved a watershed year in terms of the number of
announcements of supply chain accounting and sustainability
initiatives by sector-leading companies across industry.
This process, often led by consumer-facing industries,
is pulling in suppliers and driving sustainability
partnerships through the supply chain. But instead of
the mantra of mandate, these industry leaders are
promoting the idea of collateral action to achieve
win-win outcomes throughout the chain.
For logistics companies, the way forward is likely to be the
pursuit of a three-legged business offering based on cost,
service and environmental footprint, Meyer argued. They are
applying a sustainability lens to their operations and working
co-operatively within and across industry organizations to
address issues relating to air cargoes, ocean shipping, rail
and road transport: “They aren’t waiting for governments to
tell them what to do. They are innovating, acting as leaders!”
Meyer suggested an “old idea of the 90s called co-opetition”
is worth revisiting. “It’s a business strategy based on a mix
of co-operation and competition: co-operative competition.
Based on an understanding that business competitors can
benefi t from working together, it’s a plus sum game: what’s
gained by all players is greater than the combined sum of
what each player had when they entered the scenario. We
hear a lot about collaboration, but really its co-opetition.”
DAY ON
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Key points The elements of Sustainability are Environmental, Social and
Financial and all three must be worked and viewed together.
Research concludes consumers currently are and
increasingly will “buy green” and “pay more” initiating policy
change in chemical and other companies.
Efficiency improvement is a key solution along with
including environmental requirements in purchasing
decisions.
Companies working together, up and down the
supply chain, continues to be a major goal.
REPORT EPCA INTERACTIVE SUPPLY CHAIN WORKSHOP10 AIN WEPCA CTIVE
2DAY two:
21st Century Supply / Demand Chains
and Sustainable Development
Opening the second day’s sessions, Paul Gooch said that
although day one had focused on the need to access and
share more information, and to increase environmental
and social metrics and reporting, the recession had slowed
progress towards sustainability. He noted that a quick survey
of delegates indicated that in 2010, the “old chestnuts of
speed of service and resource and asset availability” were still
key drivers within the supply chain. “Another clear message
is that there is still a lack of energy and will to make supply
chains greener because of cost. Like last year’s discussions,
there is still a sense that you have to be rich to be green.”
1. Welcome Address by Session Chairman
Paul Gooch,
Member of EPCA Supply Chain
Program Committee & CEO
of The Logical Group
But not all the sustainability news is bad, he added:
“Last October, a Chemical Week article on sustainability
said key players in the chemical industry are re-orienting
product portfolios and supply chains to respond to
environmental demand from consumers. There is lots
of life cycle analysis going on in companies, and it’s
healthy to identify where biggest sustainability and
fi nancial gains can be made. Energy- and carbon-
management makes good business sense.”
BRUSSELS, 15 & 16 MARCH 2011 11
Professor Martin
Christopher,
Emeritus/Professor of
Marketing & Logistics,
Cranfi eld University
“For the 21st Century supply chain, there are new competitive
realities,” Professor Martin Christopher began. “Input costs
are rising - particularly raw materials - and will continue
to rise. There are new sources of low cost competition, and
pressure on price is going to continue. There’s a double
whammy: costs increase, but it’s not always easy to pass
on higher prices. The reason is the continued concentration
of buying power in markets, through merger, acquisition
and growth. Consumers are getting more powerful and
more demanding, in terms of service and delivery.”
His conclusion is that conventional market strategies
are no longer working in traditional ways: “In this time
sensitive, resource sensitive world, a world of increasing
uncertainty, we have to fi nd different ways to compete. One
way is by focusing on creating a supply chain which is much
more fl exible, responsive, and can deal with uncertainty.”
Addressing increasing volatility, the professor noted that he
and a Cambridge colleague had looked back to 1970 – a
time when the concept of supply chain management was
emerging – and looked at some key indicators of uncertainty
such as crude oil prices, exchange rate variations, the price
of gold, copper, and other commodities. “We weren’t just
looking at price. We were looking at variability within a year,
assessing how far up and down and how frequently prices
vary.” Their fi ndings were that even back in the early 1970s,
when oil prices were $5-15/barrel, volatility was a fact of
life, and over the period it has increased, raising the levels of
uncertainty global economies and businesses must deal with.
Volatility is now a fact of life, and is leading to changes
in how we think about the use of assets, how we
structure supply chains, and what uncertainty means for
the design of a supply chain, Christopher continued.
2. Opening Address: Supply – Demand Chains of the 21st Century and Major Drivers for Sustainable Development
“Other things are happening on the global stage,” he
added. “Population growth could mean we have 9 billion
people by 2050. This has all sorts of implications for
supply chains. We will see changing age profi les, changing
differentials between countries. There are implications for the
sort of skills and talents that we have access to. There’s a
trend to urbanisation. Already 50% of the world’s population
live in cities. We’re seeing the growth of mega cities with
more than 10 million people. There are infrastructure and
logistics challenges in serving those cities. And it’s not just
population growth we need to consider: it’s the income
growth that goes with it, and the increasing pressure on
resources. This has implications for the price of sustainability.”
For example, in the future, India will have a consumer
market larger than the combined markets of the USA and
Europe, the professor noted. The West’s best practice supply
chain solutions will be transferred to Asia, while new supply
chain solutions unique to Asia will also be developed locally
and successfully deployed. “This represents the changing
centres of gravity in our supply chains, driven by population
and discretionary income, which alter demand patterns. On the
supply side things are changing, too. Where is available supply?
What are the costs of transport? They are in a state of fl ux.”
This shift in gravity has lots of implications, Christopher
continued: “Implications for where we locate production and
our distribution facilities, and how we connect supply and
demand in a differently confi gured world. The cost of making
things, not materials, but actual manufacturing cost, is as low as
it has ever been. We’ve got very good at making things – cars,
telephones, computers, etc. But the cost of moving things, from
manufacture to consumption, that’s high and getting higher.”
One of the things that sustained 20th Century global trade
was the falling cost of moving things, but this process has
stalled and may even be reversing. “I don’t know where
the crossover point is, but in some places we are getting
pretty close to it. Maybe we need to move to a local for local
supply model? The past was about central production, seeking
economies of scale, centralising distribution facilities. Does
supply need to move closer to demand?” asked Christopher.
DAY TW
O
Key points A time sensitive, resource sensitive and increasing volatile
and uncertain world, requires a flexible and responsive supply chain.
Best practice supply chains will be transferred to fast growing
Asia with low manufacturing cost in emerging countries but
increasingly high supply chain costs.
A change from economies of scale to economies of scope,
supply closer to demand, small footprint manufacturing, response
based network design may be needed.
People with wider cross-functional skills will be required. In
Darwinian terms, it is the one most responsive to change
who will survive.
REPORT EPCA INTERACTIVE SUPPLY CHAIN WORKSHOP12
How will this happen? “We can use postponement
techniques to enable late stage confi guration and
customisation. We need a mindset change, from the idea
of economies of scale and ‘big is better’ to economies of
scope. How can we do more things with fewer resources?
It’s about fl exibility. Is it possible to change the entire
pattern of business to a smaller scale, with more but
smaller facilities, in manufacturing and distribution?”
In fact, this is already happening. “We’ve always thought
of the steel industry in terms of big, integrated mills. But
increasingly we’re seeing mini-mills, using electric arc
furnaces rather than blast furnaces, and using scrap iron.
They’re more fl exible, and cheaper. There are lots of things
happening in rapid manufacturing, such as additive layer
manufacturing, and 3D printing, that are enabling remote
production to order. Ideas like this will change the way
we think about supply and demand, and might enable
us to move to small scale, small footprint industry.”
What do these changes mean for forecasting and
planning? Until now, operational management has been
predicated on stability, that we can forecast, plan ahead
and schedule capacity and production accordingly. Has
volatility upset these assumptions? And what about cost-
centred supply chain network optimisation in a world
that is no longer production led but instead needs to
become more demand responsive? Professor Christopher
suggested that in a volatile world we should really be
seeking to improve responsiveness: “Can we move more
quickly, and respond to unexpected changes? I’m not saying
‘throw out all our ideas on running lean’, etc. But today’s
world presents us with a rather different challenge.”
What does volatility and uncertainty mean in practice?
“Agility [in business] has been focused on responding
quickly to variations in volume, to demand increases, to
demands for different pack sizes and colours. Let’s call
it dynamic fl exibility. But the changes we’re seeing now
require a different sort of fl exibility. Let’s call it ‘structural
fl exibility’. This is the ability of the supply chain to adapt to
fundamental change, particularly if centres of gravity change.”
How do we adapt, the professor asked? “Some
[enterprises] don’t have any dynamic fl exibility, and
have to plan months ahead. As a result, they are
continually hit by market fl uctuations. Through lean
supply chains, many companies have been able to adapt
to achieve dynamic fl exibility. But the big challenge
is to move to structural fl exibility – to achieve an
adaptable supply chain dynamic in the face of structural
discontinuities, and disruptions in technologies.”
There are many ideas and options, he suggested:
“We might use local-for-local, focus on the mindset of
economies of scope, doing more with fewer resources.
Bandwidth could give us some headroom through asset
sharing. I see that within EPCA there is talk of collaborative
working and asset sharing. We can go way beyond that
into manufacturing and contract manufacturing. There the
notion is that we don’t need to own assets we just need
to access them. There are similar options for inventory
with swap arrangements. We need to act, not just talk.”
Supply chain decision-making needs to adopt a “real options”
approach. Borrowed from fi nance, this identifi es the best
decisions as those that keep most options open – not just
focusing on lowest cost decision, which might not be the
most effi cient and not necessarily the most fl exible. “It’s
not popular in age of cash conservation, where we generally
minimise use of assets. But sometimes some spare capacity
may not be a bad thing in terms of keeping options open.”
Professor Christopher commended the idea of
the “Triple A” supply chain developed by Hau Lee
of Stanford University : “Agility: it is agile, capable
of moving quickly. Adaptability: it can change in line
with shifting centres of [market] gravity. Alignment:
the ability to create seamless connections. If we’re not
collaborating and aligning, that stops us progressing.
We need to keep our focus on that distant goal.”
Finally, he addressed skills needs: “What sort of people
are we going to need who can do all these things? Effective
process management requires signifi cant cross-functional
skills. Managers will need in-depth expertise in one discipline
combined with enough breadth to see the connections
with others.” In closing, the professor reminded the audience
that Darwin had not predicted survival of the fi ttest.
“In fact, what he said was: ‘It is not the strongest
of a species who survive, nor the most intelligent.
It is the one most responsive to change.’ I think we
should put this on a sign above our desks!”
BRUSSELS, 15 & 16 MARCH 2011 13
Trained as a chemical engineer, Thomas Bergmark said
that since 1988, while increasing substantially its number
of customers and of products sold IKEA has more than
halved its suppliers to just over 1000 in 55 countries.
China is the biggest single supplier, but nearly two thirds
of IKEA’s products come from Europe, a third from Asia,
and a very small percentage from North America. Regional
sourcing is increasing, he noted. The key drivers are “logistics
costs and sustainability factors, such as CO2 emissions and
climate change. Sustainability is three dimensional: people,
planet, and profi tability. For me, they are not divisible.”
In pursuit of sustainability, the group has invested in a
long-term goal to use 100% renewable energy at its
stores, factories and distribution centres. Bergmark said
IKEA has an 8-year return-on-investment period for this
project: “Normally you might expect a return in three years.
But with new technologies, wind, solar, etc., we must allow
a longer payback period.” IKEA is also focusing on other
areas of sustainability where there are clear business
incentives: “Many relate to reducing materials, energy, water:
reducing, reducing, reducing! It means we save on costs, and
improve the bottom line. But improved long-term profi tability
enables IKEA to invest in its people and the planet.”
3. Case Response: Sustainable Retailing with Focus on the Supply Chain The IKEA case
Bergmark emphasised the brand value of sustainability.
“Through improved performance and reporting, it’s
possible to address the concerns of stakeholders and
customers. Sustainability generates good news stories
and internal pride across the workforce, which is good
for recruitment. For a retailer with over 600 million
customers, trust is crucial – with consumers, with NGOs,
with unions. That’s why it is also important to be open
about the problems and risks a business is facing.”
Through to 2015, IKEA is pursuing four major sustainability
goals: 1) develop a more sustainable product range, which
requires assessment of manufacturing materials and
methods and acknowledges customer demand for increased
product content information; 2) achieve carbon neutrality;
3) turn waste into resources and design for cradle-to-cradle
use, with an ultimate goal of a product range based 100%
on re-used or recycled materials and products;
4) social responsibility, which means ensuring good working
conditions for all supplier workers. To this end it introduced
a code of conduct on working conditions for its suppliers.
Bergmark said IKEA’s customers increasingly seek
information and reassurance on all these goals.
He also noted that, “People more and more want
products to be tested and certifi ed, to be sure that they
are OK from a quality and sustainability perspective.
So I see more and more labelling of products.”
Focusing on climate change, he said that for a business
like IKEA over 50% of the CO2 emissions come from
raw materials, extraction and production. So having
started by looking at in-house facilities, and exploring
the environmental or carbon footprint, it becomes
necessary to look back up the supply chain. “That means
companies like IKEA are increasingly asking suppliers and
sub-suppliers for information about carbon footprints.”
DAY TW
OThomas Bergmark, former IKEA
Sustainability Manager, Senior Advisor,
Bergmark Sustainability AB.
Key points Ikea are well advanced through a ten year sustainability program (journey)
which is one of only four key business goals. Sustainability is about reduce,
reduce, reduce.
The four sustainability goals involve develop sustainable products, gain
carbon neutrality, turn waste into a resource and design for cradle to cradle.
Key aspects involve real supplier requirements through partnership,
customer trust, regional sourcing, internal pride, communication and
branding.
One certainty is that consumers and retailers will require the
chemical footprint and an accompanying sustainability program.
REPORT EPCA INTERACTIVE SUPPLY CHAIN WORKSHOP14
The basis of IKEA’s supplier relationships has also
changed: “When I started at Ikea in the 1980s there were
only three priorities: Price, price and price. Today it’s is totally
different. More than 50% of suppliers have long term
relationships based on co-operation and joint development
in areas like quality, logistics, sustainability and productivity.
The result is increased competitiveness. Long-term supplier
relationships reduce costs and increase productivity.”
For IKEA, supporting suppliers is a key element of
extending supply chain sustainability. One such project
established with WWF is promoting sustainable cotton
production in India and Pakistan, which involves farmer
education – on water, fertiliser and pesticide management
- that is helping improve quality and yield. “It’s not about
organic, it’s about better cotton, with less chemicals, and
better earnings for the farmers,” Bergmark explains.
Another project on fabric dyeing techniques aims to
both reduce and improve chemicals use in India and
Bangladesh, where chemical industry specialists are helping
suppliers by selling expertise along with products.
Tackling energy effi ciency has also brought signifi cant
gains: “This highlights the potential of really low hanging
fruits. Earlier, I talked about 8-year return on investment,
but we’ve seen energy effi ciency projects deliver between
40% to 80% energy usage reductions in one or two months.
These save costs and cut CO2 emissions,” Bergmark said.
Concluding, he made some recommendations: Analyse
business potential from the three key sustainability
perspectives: social, environmental and fi nancial.
Establish a long-term sustainability direction, and
keep the number of sustainability goals low – four is
perfect: Too many goals will hinder progress. Finally,
make sustainability part of your business culture.
Addressing the chemical sector, Bergmark said it
should expect more retailer requests for lower CO2
chemicals. “Climate change will be one of the key focus
areas for most businesses for the next 10 to 20 years.
The progress you make could make you a preferred
supplier, so minimise and report on your carbon footprint
to customers. And think about the chemical leasing
concept. I believe strongly in selling services rather than
just products, and that goes for a business like IKEA. If they
can sell kitchens instead of selling kitchen products, you
can sell chemical knowledge instead of just chemicals.”
BRUSSELS, 15 & 16 MARCH 2011 15
infrastructure. Lack of harmonization in the European
railway network remains a problem. There is also a clear
trend towards more integrated large scale chemical plants,
requiring alignment of logistics infrastructure and capacities.
Is the Supply Chain changing as a result of
sustainability and carbon footprint issues/
requirements? Is there evidence of more
collaboration/sharing between producers and
suppliers (e.g.: forecasts in joint planning)?
It is, but mainly customer-driven sustainability changes, and
not quickly enough. Change is still primarily cost driven.
Financial insecurity slows change. There are opportunities
to enhance sustainability and reduce footprints, and
make overall effi ciency gains. We are seeing increased
collaboration across departments within companies to
deliver sales, supply chain management and procurement
gains: more is needed. Do sales people realise the issues
relating to limited time windows for loading/unloading? A
third of empty loads are due to time window restrictions.
Could producers and customers offer extended
windows or 24 hour collection/delivery? Can we increase
payloads: there is still 22% air inside most truck loads.
Better communication of the sustainability might help
throughout the supply chain. Can we work with unions to
address on site working hours and sustainability? Finally,
is it possible to communicate LSPs’ full cost to serve due
to delays, restricted time windows and part-full loads?
Could producers and customers be encouraged to
change through rewards or penalties? The most innovative
producers and LSPs are likely to make most gains.
Is the supply chain changing to meet more
demanding customer requirements?
Yes and no! Certainly some customers are driving
sustainability-related changes. But it can be diffi cult to
know what they really want: do they want 5 loads on
a Monday morning, or would later or staged deliveries
be better for them, and for supply chain costs and time
effi ciency and for better sustainability performance? >>
4. Round Table Discussions/ Feedback
Day Two Round Tables focused on opportunities
and challenges relating to supply chain
sustainability, globalization and the Internet of
Things. Progress on sustainability is slow, and
globalization continues to impact activities –
positively and negatively. However, there was
general agreement that signifi cant advances in
optimization and sustainability can be realized
through the Internet of Things and increased
co-operation between producers and LSPs.
Are we seeing the supply chain becoming
more fl exible and agile to meet increased
variability in volume and mix?
Flexibility is increasing. Supply chain fl exibility and agility is
measured by demand responsiveness, and the common
measure is availability of products and services. Producers
and LSPs all have KPIs focused on these. Both groups
have also learnt some lessons from the fi nancial crisis, and
are adjusting processes to better manage capacities in
oversupply situation. However, we are close to the limit
of capacities again, so fl exibility is decreasing. For LSPs,
some overcapacity provides fl exibility. There is increasing
collaboration along the entire supply chain, from raw
material and logistics procurement to linking processes
throughout the company to better alignment with
customers. Flexibility is increasingly built into and along the
entire supply chain, but there is still room for improvement.
Chemical companies still aim for economies of scale rather
than scope, and this is unlikely to change. The upstream
industry is based on big plants operating at 93% and above.
Is the supply chain structurally changing
because of continued globalization
and what does the future hold?
Yes! Globalization (and deglobalization) is our reality.
Corporate responsibility is also increasingly important
in sourcing. We also need to prepare for volatility and
unpredictable events. Manufacturing capacity is shifting to the
ME and Asia (closer to feedstock, but also closer to market).
Europe’s logistics infrastructure is struggling to cope with
the changes in material fl ow and is in need of enhancement:
additional port capacities to cope with increasing shipping
volumes, including need for improved port connectivity
between ports and between ports and their respective
hinterland; increasing congestion on roads and intermodal
hubs, which need major investment to update and expand
DAY TW
O
The following are examples of the discussions :
Significant advances in optimization and sustainability can be
realised through the IOT and increased co-operation between
producers and LSPs.
Europe’s logistics infrastructure is struggling to cope with the
changes in material flow and is in need of enhancement.
Asset limitations are driving collaboration, between LSPs (sharing
assets), between LSPs and producers (product swaps), and between
producers.
The use of IOT, data transparency and sensors could cut
empty mileage, enhance freight exchanges, enable more
local-for-local swap deals, improve tank utilization and deliver
fuel and emissions reduction.
and encourage recruitment? Similar issues face the
shippers. Perhaps the Year of Chemistry is a good time
to promote careers in front-line chemicals logistics?
Can you see the application of Internet of
Things technology helping to drive sustainability
initiatives?
There are many opportunities to use IOT to drive
sustainability. Greater data transparency and signifi cant
increases in sensors across the logistics infrastructure
could cut empty mileage, enhance freight platforms
and freight exchanges, enable more local-for-local
swaps deals, improve tank bank utilization. IOT could
enhance working conditions and help recruitment,
optimise across the supply chain, improve health
and safety, and deliver environmental gains, such
as fuel effi ciency and emissions reduction.
>> There is still a public perception that transportation
generates a large proportion of industry CO2
emissions, when reality is that private households,
followed by manufacturing are by far largest generator.
The issue is not transporting oranges from Spain
to Austria, but going shopping in our SUV!
How are chemical companies and logistics
suppliers working to manage asset limitations
and the anticipated shortage of qualifi ed
personnel (drivers, crew of ships, other)?
There are asset limitations, due to market volatility and
changing product fl ow patterns. This is driving collaboration,
between LSPs, between LSPs and producers, and between
producers. We are seeing LSPs sharing assets, producers
using product swaps, and we are seeing efforts to persuade
manufacturers and customers to alter delivery windows
to add fl exibility, prevent congestion, and optimise logistics.
There are political issues relating to infrastructure, which
have adverse impacts: we need a common approach to
move future fl ows within Europe across road, rail, ports
and intermodal connections. One way to actively manage
volatility may be through more creative, longer-term
contracts and closer partnerships. There are personnel
shortages in the driver pool and shipping crews. Average
driver age in Europe is now 50+, and there are 3-4
times more leaving than joining industry. Can a change in
working conditions and pay through enhanced scheduling
and supply chain co-operation improve working lives
REPORT EPCA INTERACTIVE SUPPLY CHAIN WORKSHOP16
Acknowledgements and Thanks
EPCA wishes to thank all participants in the EPCA interactive Supply
Chain Workshop for having shared their knowledge, expertise, skills
and competences to enable us to make this synthesis report for all
EPCA members. Both speakers and chairmen of the round table
discussion initiated an interesting exchange of views. We are grateful
to all delegates of the member companies present in Brussels for
their ongoing support to EPCA Supply Chain activities. Gratitude
is also expressed to Phil Browitt and Paul Gauch who chaired the
workshop brilliantly. The fi ndings of this workshop will undoubtedly
contribute to further discussions at the October meeting in Berlin.
See you there!
Cathy Demeestere
Contact Details
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