The chemical sector is not known for its ground breaking ideas, at least when it comes to designing supply chains, but why is that? When you think about the most innovative supply chains in the world, Amazon and Apple probably spring to mind. Or, maybe companies such as McDonalds or Walmart, maybe even Johnson & Johnson. Odds are that a chemical company won’t be front of mind.
Take a look at Gartner’s 2018 ‘Supply Chain Top 25. Only one chemical company appears on the list. Now while some might argue that the criteria used to judge success does not take into account the unique challenges facing the sector, it certainly supports the idea that the industry isn’t forward thinking.
Chemicals are ubiquitous in our lives. That orange you just ate was probably coated in chemicals to keep away insects and fungus. It was probably transported to the shop where you bought it in a truck kept cool by chemicals. But while many of the products chemicals help get to customers benefit from the latest supply chain innovations, chemicals themselves abide by a specific set of rules.
I alluded to this before, but the chemical industry has a number of unique constraints. As Steve Banker points out in Forbes, the complexities of the chemical production process mean improvements from other industries cannot simply be copied over. Many of the companies associated with supply chain excellence rely on discrete manufacturing to create goods. They use a Bill of Materials to dictate the parts that make up a specific product and typically assemble distinct units. Phones, cars and furniture are examples of typical outputs.
On the other hand, process manufacturing employed by chemical companies creates goods in batches and relies on formulas and manufacturing recipes. Typical outputs could include oil, gas or salt. The intricacy of this approach means there is far less flexibility in terms of supply chain design. Add to this a number of necessary, but stringent, regulations and you start to get a clearer picture of why the industry is more limited in terms of designing new approaches.
But, that doesn’t mean there’s no room for creativity.
So which company was the sole industry representative in Gartner’s list? It was BASF SE, the German juggernaut which generated sales of more than €60 billion in 2017. Hardly a minnow that doesn’t have to deal with legacy systems and ways of thinking. However, it has managed to uncover different approaches to innovation in logistics.
The company operates according to its ‘Verbund’ principle, which translates as ‘composite’ and means applying a holistic approach to its supply chain. Where possible, each production plant and piece of infrastructure adds value to another. The by-products of one are used to create the output of another and logistics frameworks serve multiple purposes. In addition to cost savings, these initiatives help BASF avoid six million metric tons of greenhouse gas emissions each year and run 280,000 fewer truckloads.
The company also keeps on top of the latest tech developments. Recently, BASF began working with start-ups Quantoz and Ahrma on an age old problem: how do you know whose fault it is if a product is damaged before it’s delivered? These companies are combining a smart pallet, able to store information about impacts and movement, with blockchain technology. They hope the resulting device will deliver a transparent and reliable means to monitor product integrity.
Is it too simple to demand that the chemical industry’s supply chain evolve in the same way as the world’s most agile companies? Or should chemical companies be doing more to leverage new technology and ways of thinking? BASF demonstrates that the answer is somewhere in between.
The chemical industry has its own set of challenges. The way its goods are produced, the way they need to be transported and the web of regulations that need to be adhered to, mean they lack the flexibility of other sectors. However, companies such as BASF and others, have shown there is plenty of room to innovate when you combine deep industry knowledge and thinking outside the box.