GPCA discusses logistics needs

SHIFTING SANDS

MIDDLE EAST • THE CHEMICAL SUPPLY CHAIN IN GCC STATES MAY BE YOUNGER THAN ELSEWHERE BUT IT IS FACING THE SAME CHALLENGES, AS GPCA’S CONFERENCE HEARD EARLIER THIS YEAR

PETROCHEMICAL PRODUCERS IN the Middle East have a number of competitive advantages in the global marketplace. They have easy access to low-priced feedstock and, being newer, their facilities are generally more efficient than older plant in the mature markets. The region is also handily placed to export material both east- and westbound.

However, the distance to those markets means that producers in the region have to ensure their logistics operations are equally efficient if those cost advantages are not to be eroded by distribution costs. That has been an increasingly important function, especially since the fall in global oil prices and the rise of shale oil and gas output in North America have changed the balance of competitivity.

More than that, changing demographics and growing pressure to reduce carbon emissions are putting something of a strain on industrial manufacturing, at the same time as customer expectations are growing. IT advances are making supply chain transparency available to more players in the chemical business, further driving competition but also raising the potential for greater collaboration and for the capture of hidden efficiencies.

It was within that environment that the Gulf Petrochemicals & Chemicals Association (GPCA) held its ninth Supply Chain Conference this past May in Abu Dhabi. The meeting’s stated aim was to explore the role of technology in driving agile and efficient supply chains for the petrochemical sector in the Gulf Cooperation Council (GCC) states. Some 280 delegates from 19 countries arrived for the three-day event to hear a wide range of speakers and to network with their counterparts from other companies.

LET’S GET TALKING It is now generally accepted that supply chain companies have to adapt if they are going to become more agile and embrace the technology that can bring great benefits to their operations and their client industries. But what does that mean in practice for a logistics service provider (LSP) to the petrochemical sector?

The first answer is collaboration, but this is something that many in the industry have been seeking for decades. Is it now the time to open up to partners in the supply chain? Mohammad Husain, president/CEO of Equate and chair of the GPCA Supply Chain Committee, certainly thinks so. “The industry must utilise and share common resources to ensure cost-efficiency and productivity in an increasingly competitive market environment,” he said, opening the conference.

Furthermore, supply chain efficiencies offer an excellent opportunity for the petrochemical industry to reaffirm its commitment to protecting the environment but, again, this will require industry, its LSPs and government agencies to work together to achieve sustainability goals. “The adoption and implementation of best practice initiatives, the highest industry standards, environmental programmes and rigid regulations need to be encouraged across the board,” Husain said.

Technology will play a crucial role in making sure that high-value chemicals and petrochemicals move from the manufacturing plant across roads, through ports and over the sea to their final destination in a sustainable and safe manner.

GET PLUGGED IN One of the largest and most modern petrochemical manufacturing plants in the GCC region is the new Sadara facility in Jubail, Saudi Arabia, whose CEO, Ziad Al-Labban, explained that the engineering of an agile supply chain was just as important to the project as the engineering of the plant itself. He described an agile supply chain as one that minimises the time from production to revenue by applying advanced work processes and systems, reduces inventory levels and relies on the building of strong partnerships.

In more quotidian terms, the need for agility in the supply chain also meant that the new production unit should be located on the Red Sea coast, close to its suppliers, ports and logistics companies.

Al-Labban also noted the role played by various IT tools in reducing the order-torevenue period but others are still questioning whether it can generate concrete benefits. However, Nathan Scott, regional IT head for Panalpina World Transport, said that digitisation has the potential to lower production and operational costs, accelerate lead times and help in better planning and production optimisation. Scott also pointed to the potential offered by 3D printing in terms of, for example, additive manufacturing as well as the implementation of blockchain principles to simplify business processes both within and between companies. Alarmingly, though, research has indicated that, while 90 per cent of CEOs believe the digital economy will impact their industry, only 15 per cent actually have a digital strategy.

John Straw, senior adviser at IBM, had some pointers in that direction, quoting a study by Accenture that found that 58 per cent of chemical companies are already employing digital tools to get a competitive advantage. That means that established business models are being up-ended.

On a more practical level, Christian Juul Nyholm, managing director of Maersk Line’s regional operation, said that one win-win scenario could involve better forecasting by GCC petrochemical producers alongside better reliability on the part of shipping lines, through the use of digitalised collaboration.

WIRED FOR LOGISTICS Ralph Muessig, senior consultant at Camelot Management Consultants, said that ‘big data’ is also a game changer for the chemical logistics sector, where additional data is driving higher supply chain integration. State-of-the-art IT systems built around big data currently support typical transport management elements through order management, transport planning, transport execution, and freight cost management.

With these technologies potentially disrupting the status quo, several industry experts addressed the question of how efficiency and agility could be enhanced with the new supply chain technologies. Richard Verity, partner at McKinsey & Company, maintained that an agile supply chain is enhanced through three levels of segmentation: needs-based, asset-based and product-based. »

LOGISTICS SERVICE PROVIDERS IN THE MIDDLE EAST STRIVE

FOR THE HIGHEST SAFETY STANDARDS AND MODERN

Needs-based segmentation reflects service requirements as well as product sophistication. Product segmentation, on the other hand, considers the variance of sales against total sales. Asset segments can employ different distribution models that cater to different product segments.

Technology disruptors such as big data can optimise the network behind the supply chain for each segment. The differentiated supply chains would drive pricing, cost, inventory, and service levels. A case study showed how Volvo has improved EBIT by 15 per cent and reduced lead times by 30 per cent through digital-enabled supply chain segmentation.

Driving efficiencies within the supply chain requires robust management of the new technology platforms. Manufacturers must use integration to extract the full efficiencies of a supply chain. At a company level, this means new organisational structures, integrative IT tools and systems that help supply chain networks work together, as well as a higher level of customer intimacy that caters to the specific needs of customers.

According to Hosnia Hashim, deputy CEO for olefins and aromatics at PIC and board chairperson at Equate, supply chain efficiency is the sum of various cross-functional collaborations. Hashim detailed how Equate’s cross-functional sales and operations teams within each business consist of people with manufacturing, sales, finance, procurement, and IT functions. They are headed by someone from supply chain.

Each team develops one integrated, tactical plan “that can direct its business to achieve competitive advantage by integrating customer-focused plans for products with supply chain.” IT serves as an enabler for people and processes and ensures continuous improvement in a measureable environment. “[IT] is your window to the world and your virtual vessel to stay ahead in an ever globalising industry,” said Hashim.

Governments can encourage this type of integration by intervening in a number of key dimensions, Rachid Maalouli, associate partner at McKinsey & Company, explained. These include operations and maintenance upgrades alongside improved interfaces between transport modes. They could also expedite targeted expansions, enable private sector participation, provide better access to financing, assist in the adoption of disruptive technologies, and help build capabilities and attract talent.

In Saudi Arabia, Maalouli said, strong integration between different logistics assets is needed to strengthen the national supply chain infrastructure. Low levels of integration have led to diminished connectivity and lower asset utilisation. At an initial level, improved port utilisation and shorter port dwell times would help open up the supply chain.

TRANSPARENT AND VISIBLE These and other presentations made a strong case for the adoption of new technologies to improve supply chain efficiency, since a failure to take advantage of the opportunities will inevitably lead to the region falling behind.

To improve their supply chain performance, companies need to first break the circle and act in collaboration with their partners across the whole supply chain. They need to segment their supply chains; where there was one supply chain, they need to create many, but then compromise.

Customers’ demands for more and more individualised products are continuously increasing. This points to ever more microsegmentation, and finally to the implementation of mass customisation ideas. Customers will be managed in much more granular clusters and offered a broad spectrum of suited products. This will enable customers to select one of multiple ‘logistics menus’ that exactly fits their need. At present, new transport concepts, such as drone delivery, allow companies to manage the last mile efficiently for single and high-value packages. Using big data to optimise networks for each customer segment is absolutely crucial, along with making sure that differentiated supply chain drives pricing as well as cost, inventory and service level.

While digital technologies continue to advance, the ability of people and organisations to fully use their capabilities has struggled to keep pace. Besides digital innovations in products and services, disruptive technologies may also include ways to improve human productivity. Employees should be engaged to re-think how work gets done and understand how technology can enhance rather than threaten their capabilities.

When it comes to driving efficiency, supply chain is not a solo performance. It is the sum of all cross functional collaborations. The role of IT is absolutely pivotal to achieve optimised and efficient supply chain operations as it enables processes and people, while ensuring continuous improvement in a measureable environment. IT is the new window to the world and the virtual vessel to allow companies to stay ahead of change in an ever more globalised industry. HCB www.gpca.org.ae

MOHAMAD HUSAIN (CENTRE): INDUSTRY MUST LEARN