Featured Author - Olin Thompson
- August 5, 2002
Why
SCP for a Continuous Chemical Company?
Why does a continuous chemical company need a supply chain planning system?
Because the high fixed cost of the plant drives a management objective
of 100% capacity utilization. A common approach to this utilization objective
is to set prices at a low enough level to drive to 100% utilization. As
utilization approaches 100%, the demand for perfection in the supply chain
plan increases. This, and other operating realities introduce a number
of objectives including:
- Changing
anything at 100% utilization has a direct impact on other parts of the
plan, supply chain, and customers: the Supply Chain Planning system
must recognize this fact and help manage the inherent conflicts.
- Trading
off customer service and inventory carrying costs against the production
efficiencies of operating at full capacity.
- Quickly
identifying and responding to customer demand changes
- Identifying
distribution bottlenecks
- Reducing
the likelihood of "shutting down a customer" because required products
are not at its plant when needed. The issue is magnified for "sole sourced
customers".
- Reducing
inventory carry costs across the supply chain
- Increasing
rail car, tank car or barge turns
- Reducing
transportation costs by planning for inventory to be in the right place
at the right time
- Reducing
inventory carrying costs to free up working capital
- Reducing
transition costs including minimizing the production of off-spec or
twilight material
- Optimizing
production schedules
- Increasing
production efficiency
- Improving
customer satisfaction
- Integrating
with the existing ERP system
Vendor
Considerations
If a continuous chemical company decides that these objectives are adequate
to justify a Supply Chain Planning project, an SCP product must be selected.
Many alternative vendors exist for SCP. The vast majority designed their
SCP product with little or no regard for the needs of continuous chemical
companies. Although these vendors may be large and well respected, does
their product serve the specific needs of a continuous chemical company?
As we will see below, the needs of continuous chemical companies are unique
and demanding. Most generic SCP products will fail to meet these needs.
How
can you determine if a vendor is focused on the needs of your industry?
Sales presentations and brochures are not a reliable indication; both
can be customized to make the company look very focused on any market.
For a view of the vendor's marketplace interest, look at the company web
site. It is designed to cover all possible markets. How deep into the
web site do you have to go to find substantial information on companies
like yours? If it is on the first page, the vendor is very interested
in your needs. If you need to go three or more levels before you begin
to see meaningful information about your type of business, maybe the vendor's
interest in your needs is minimal at best.
When
looking for a vendor, some considerations should include:
- Can the
vendor provide a list of continuous chemical industry references?
- Does
the vendor provide for the unique requirements of the continuous chemical
industry?
- Was the
solution built specifically for the continuous chemical industry (good)
or, does it utilize a generic solution employing templates (OK but not
good) or, is it just a generic product (bad)?
- Is the
solution a single, integrated application with one common model or is
it interfaced modules?
- Is the
solution a complete application or a modeling language that forces you
to create your own solution?
- Does
the vendor use independent consultants for implementation or does the
vendor use its own full-time chemical industry experienced professionals?
- Can existing
personnel (IT, Planners) support the system or does it require specialized
assistance from an Operations Research or modeling group?
Product
Considerations
When looking at the features that should be considered when evaluating
an SCP system for your continuous chemical business, the key issue is
modeling the unique characteristics of your specific chemical processes
and practices. If the model cannot fully define the realities of the processes,
it cannot possible manage these realities.
These
include cyclical production, complex transition wheels, lot quality matching,
available to promise, capable to promise, and sales monitoring in a production
environment that runs at 100% capacity. Other examples include:
- Aggregate
and detail views of your supply chain model for decision support during
sales forecasting, production scheduling, and product distribution.
- Stabilizing
production cycles in a "make to inventory" business through calculated
inventory target levels based on planned customer service levels. These
levels typically must calculate inventory target levels at the Product,
Package, and Location level and show the aggregate inventory levels
required for a business to support a given service level.
- Manage
inventory at customers' and other consignment locations?
- Customer
specifications - quality, packaging, and transportation
- Functionality
to support sole sourced customers
- Long-term
upstream scheduling with short-horizon finished product plans
- Production
Reports addressing variable quality issues
- Variable
scheduling horizons (de-couple packages & bulk)
- Rate
based production (long batches)
- Tolling
management and schedules
- Exchange
agreements planning
- Handles
flow rates from feedstock's to bulk (rail cars, barges)
- Inventory
management
- Pipeline
versus "on-hand" inventory management
- Consigned
inventory management
- Handles
work in process and unreported production
- Additive
consumption projections
- Models
unreacted materials including recycles
- Models
multiple produced items from a single feedstock
- Production
wheel - dynamic vs. static analysis production resource requirement
- Transition
matrix
- Equivalent
products, locations, and packages
- Collaborative
forecasting
Summary
Supply Chain Planning has proven to bring many benefits to a continuous
chemical environment. Gaining these benefits requires the selection of
a SCP solution that can deal with the unique needs of these businesses.
Although few SCP vendors can support these needs, first class options
exist. Only by focusing on the requirements that will make or break the
SCP project will the continuous chemical operation select the right solution
and gain these benefits.
About
the author
Olin Thompson is a principal of Process ERP Partners. He has over 25 years
experience as an executive in the software industry with the last 17 in
process industry related ERP, SCP, and e-business related segments. Olin
has been called "the Father of Process ERP." He is a frequent author and
an award-winning speaker on topics of gaining value from ERP, SCP, e-commerce
and the impact of technology on industry. He can be reached at Olin@ProcessERP.com