As the world recovers from the pandemic, four key supply chain trends are taking hold in the near term. The four themes includes resilient and sustainable supply chains; Sales and Operations Execution (S&OE); extended value chain integration and end-to-end optimization; as well as what-if scenario analyses.
Supply Chain Management and Sustainability
Supply chain resiliency is a key priority for governments. Chemical companies are looking towards sustainability targets to reduce energy use, emissions, and waste, while governments include green energy policies in economic recovery packages. A key takeaway post-pandemic is that sustainability and resiliency are two sides of the same coin. As such, supply chain digital twins can help manufacturers achieve their goals.
FPCO, Japan’s largest manufacturer of food containers, and a logistics supplier, is one company that can achieve this critical balance. FPCO is committed to environmental advancement, avidly recycling used food containers and PET bottles. With more than a billion containers sold each month, selling recycled products needed to be an economically sustainable activity. The company chose aspenONE Supply Chain Management (SCM) to provide stable and responsive food distribution in an efficient, sustainable, as well as environmentally friendly manner.
Three core supply chain solution areas can create meaningful change. The first is strategic manufacturing optimization. For example, the biggest cost optimization saving opportunities are available when a company assess or redesigns its production and distribution network – exploring options in manufacturing capabilities (flexibility) as well as raw materials sourcing. In doing so, an organization has the ability to effectively prioritize CAPEX decisions to achieve long-term sustainability metrics, evaluate alternate supply options and P&L impact, plan reshoring activities, as well as design the best distribution network to minimize transportation inefficiencies.
The second area is Sales and Operations Planning/Integrated Business Planning (S&OP/IBP). To achieve financial and sustainability metrics, plans should be based on forecasts and assumptions. This will optimize the end-to-end supply chain holistically by creating optimal plans to achieve financial and sustainability metrics. By optimizing planning, the environmental impact of procurement can be reduced, and excess or slow-moving inventory can be minimized. Production and distribution plans can be created holistically to ensure customer demand is met using the least amount of resources.
The third area is Sales and Operations Execution (S&OE), which is the management of change by aligning supply chain and operations – that is, how you respond and manage daily upsets.
Sales & Operations Execution (S&OE) Digital Capabilities
Manufacturers know things do not always go, as planned. Supply and demand uncertainty can result in inevitable daily events and disruptions – such as production quality issues, logistics delays, last-minute changes to customer orders, etc. For most organizations, COVID-19 amplified supply and demand disruptions to a whole new level.
Manufacturers need to be more agile, which can be addressed by implementing S&OE processes and related digital solutions. S&OE is a process that allows manufacturers to align their day-to-day activities on an ongoing basis to achieve their longer-term Sales & Operations Plans (S&OP), while improving agility.
Extended Value Chain Integration and End-to-End Optimization
Transportation fuels have historically been the biggest demand and end-use for crude oil. With energy transition underway, demand for transportation fuels is expected to peak, driven by more efficient combustion engine technologies and the transition to electrical vehicles. As a result, refiners will shift their attention from transportation fuels demands to chemical demands, as a target area for future growth, this megatrend is referred to, as crude-to-chemicals (CTC).
When looking at the CTC extended value chain, there are two key areas with integration opportunities. The first is the integration of the oil refining and base petrochemicals supply chains to exploit process and molecular synergies to shift from producing fuels to chemicals. The second is the integration of the base petrochemicals and downstream derivative chemicals supply chains. The opportunity here is linked to being more agile and specific in the monomers and polymers value chain planning integration, as well as optimization to best respond to changing supply/demand economic conditions across the extended olefins-to-derivatives value chain.
Managing and optimizing a crude/olefins-to-polymers extended value chain is challenging, as it spans supply chains that have very different characteristics.
The intersection of Bulk Chemicals and Polymers is where the demand-driven and the margin-driven sides of the value chain meet and interact.
The upstream refining and bulk chemicals businesses are margin-drive supply chains in which the optimization opportunity consists of optimizing the operating conditions of complex continuous production processes, as well as exploiting feedstock supply and associated economics optionality.
The downstream polymers business is a demand-driven supply chain in which the optimization opportunity consists of looking at the broader business system and determining the best way to balance supply and demand, while maximizing the profitability of this overall system.
What-if Scenario Analyses
The pandemic highlighted the immense importance of what-if scenario analyses. Faced with tremendous uncertainty and complexity, the best way to face an uncertain future is by evaluating what-if scenarios to explore economically feasible alternatives. This is extremely valuable for business contingency planning purposes.
Unfortunately, most companies today still rely on inadequate spreadsheets rather than supply chain planning and scheduling optimization digital twins. Spreadsheets are inadequate because they cannot adequately model process industry manufacturing and supply chain complexities and are not designed to do mathematical optimization at scale.
At the core of a supply chain digital twin, there needs to be a representation of the manufacturing process. Multiple complexities may need to be factored into this model, such as production switching costs, utilities, minimum run sizes, and so on. Modeling becomes even more challenging when you factor in other production or tolling sites, as well as the dependencies across sites. As companies extend backwards from production into suppliers, there are aspects that should be modelled here as well including different purchase minimums, costs, and lead times varying by supplier.
Finally, there is downstream supply chain consisting of warehouses, distribution centres and customer ship-to locations. The situation can get complicated when you try to factor in duties and tariffs or product substitution options, as it can be very challenging to model these interrelated elements in a spreadsheet – rather than using a solution designed specifically for that purpose.
The other big limitation of a spreadsheet is that it was not designed to do mathematical optimization at scale to solve real-world problems – taking into consideration anywhere from tens of thousands to millions of variables and constraints.
Indeed, it is a post-pandemic imperative to accelerate supply chain profitability and sustainability with the latest technology the market can offer.
Roch Gauthier is a Senior Director, Product Management at Aspen Technology.
Roch Gauthier