BRUSSELS, MARCH 2011 Chairman’s Overview · explore opportunities and challenges for the chemical...

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


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

E


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.


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

E

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


“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

E

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.


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


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

E

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.”


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.


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!”


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.


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.”


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


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

www.epca.eu

EPCA

a.i.s.b.l. The European

Petrochemical

Association i.v.z.w.

Avenue de Tervueren

270 Tervurenlaan

B-1150 Brussels – Belgium

T + 32 (0)2 741 86 60

F + 32 (0)2 741 86 80

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