Transparent processes will save industry millions

If process industry supply chain partners can achieve visibility throughout the product life-cycle all the businesses involved...

If process industry supply chain partners can achieve visibility throughout the product life-cycle all the businesses involved will benefit. Antony Adshead reports

At software supplier Aspentech's user conference in Washington DC last week delegates from leading process industry companies - in oil, pharmaceuticals, chemicals, plastics and semiconductors - heard leading industry figures and analysts set out a vision of "joined up" industry.

The prize - savings of up to $500bn (£333bn) per year according to industry analyst ARC Consulting - can be won with greater efficiencies using the latest in business software and networks.

And the savings could not come too soon, Aspentech founder Larry Evans told the conference. "The process industries are not optimised," he said. "All too often they're making the wrong stuff, at the wrong time, in the wrong place."

By the 1990s the first wave of computerisation had been used to model, control and give visibility to processes of chemical transformation at plant level, Evans said. Then enterprise resource planning (ERP) systems had been introduced, to add visibility to the commercial side of the business.

According to Aspentech's leaders these advantages have levelled out and an industry battling a decline in margins needs to look to the next leap forward. Chief executive David McQuillin described the Internet as the catalyst to link together the enterprise, manufacturing and supply chains.

"The next big wave is in enterprise optimisation management," he said. "The value potential is enormous - we are talking hundreds of billions with competitive significant advantage for early adopters."

Optimisation is the key IT task - and a mammoth one - facing the process industries. It is a method that unites the modelling, design and monitoring of engineering assets with scheduling, supply chain, trading and fulfilment via multiple flows of information between stages in the lifecycle of products, bringing huge efficiencies.

As well as connecting the internal process of the business to make these gains - such as enabling real-time flows of information between chemical engineering and plant design staff, or by linking process monitoring to fulfilment so that customers get real-time delivery information - optmisation also has designs on the relationship between enterprises.

By introducing visibility throughout the supply chain the optimised enterprise can extract further efficiencies through the use of the Internet.

German chemical company Merck is already benefiting from optimisation. The company makes pharmaceuticals and liquid crystals for LCD screens. Its product set includes hundreds of lines with thousands of ingredients which must be mixed in precise quantities in highly controlled conditions.

Being able to feed information between the design stage of chemicals and plants and the supply chain and marketing functions means that development periods and time to market can be shortened and money saved.

Until recently, flows of knowledge were hampered - data in paper form was poorly distributed, often inconsistent and sometimes duplicated. With complex plants in several countries the result was waste on a large scale.

Michael Grund, head of central process development engineering for Merck, said, "In the past we designed plants by the gut feeling of the engineer. If you needed to be certain the plant would cope you just made it bigger. By designing plants more efficiently we have reduced the need for investment by 5% and running costs by 20%-30%. And the biggest benefit is in time to market. As a rule of thumb if you get to market one week earlier in pharmaceuticals you save $1m," said Grund.

While optimisation promises gains through greater visibility and accurate information flows in the journey from model to delivery, it is also the banner under which less complex, but equally important efficiency gains are being made.

US giant Dow Chemical has a manufacturing presence in 38 countries at 208 plants and turns over $28bn. Arnold Allemang, executive vice-president, outlined the company's strategy. "In the 1970s and 1980s we achieved visibility at a plant level, in the 1990s ERP tied together the commercial parts of the business.

"The future is now to tie ERP and manufacturing systems together - to give visibility from order creation to fulfilment to give safe, predictable production and supply chain optimisation."

Allemang identified one of the last remaining problems as a hidden factor. "At Dow", he said, "we raise 800,000 purchase orders a year. If 10 minutes of telephone time is expended on each for enquiries about shipment or payment that equals a huge cost to the business. What we need is to leverage real-time information."

Dow has started to address this. By allowing business partners access to parts of the Dow system via the Internet it saved $11.5m last year on postal costs and is instituting a system to enable customers to view their accounts.

Such advances are important but analysts point to a future where flows of real-time information within and between manufacturing companies will make current systems - where complex processes inside the plant contrast with hardheaded, competitive and information poorly-distributed between business partners - seem prehistoric.

Andy Chatha, president of ARC Consulting, said, "Today we are optimising each entity but not the whole. We are just putting inventory in the middle to even out the bumps - to get rid of inventory you need to collaborate more closely."

Navi Radjou, senior business applications analyst at Forrester Research, suggested how the future could look. "Traditionally companies have focused on being high-performance manufacturers to achieve efficiency gains. But as uncertainty increases efficiency gains are not as important.

"The future will see adaptiveness become a prime requirement, with supply networks being event-driven. Web services will bring about an 'electronic shadow', tracking business processes as they happen, connecting the physical supply chain to the digital supply chain while self-regulating software agents will automate the mundane decisions," Radjou said.

So, while many companies have made advances towards optimising their internal processes and external supply relations, the steps so far have been small. Internally companies find that a major obstacle to reworking business processes is the culture of the organisation.

As one delegate, Bengt-Ove Andersson - a process control specialist with plastics maker Borealis - said, "With polymer production you have about 1,000 products and 5,000 customers. It is very complex to reorganise it. It is always too easy to do business as usual. You can't just change in one business, you need to change the business model."

Externally too, relationships between businesses in the supply chain are overwhelmingly based on squeezing the supplier. AMR Research vice-president Bruce Richardson said, "Suppliers in Taiwan are being whipped around with just two days to make and ship components. Suppliers need visibility, they need to see when their customers are receiving orders so they can respond more efficiently," he said.

Optimisation, then, is clearly a long way off for many process industry companies. While sophisticated software to model chemical change and the equipment necessary to bring it about and monitor such processes can be linked to the commercial and supply chain operations of manufacturers, the obstacles to internal adoption and external collaborative methods are not the technical ones.

The biggest changes internally need to re-work silo-based working practices where departments are used to performing their roles and then throwing the results over the wall to the next silo.

Externally, to make use of the latest IT can offer supply chain partners, moves need to made away from the adversarial relations and drive for short-term gain that prevail currently.

So is the world of process manufacture up to it? The answer will not be a theoretical one. When the early adopters start to optimise. the savings they reap will give them an edge that means others must follow or fail.
This was last published in November 2002

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