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Enterprise Profit Management for the Chemical Value Chain


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Enterprise Profit Management for the Chemical Value Chain

  1. 1. Enterprise Profit Management for the Chemical Value Chain December 6, 2001
  2. 2. After several years of cost and efficiency focus we believe the supply chain and manufacturing will provide the next big opportunity for earnings improvement. <ul><li>The nature of the supply chain and the current limitations in the way it is managed provide hurdles to leveraging the potential value. </li></ul><ul><ul><li>The supply chain is complex – multiple supply/distribution points, varying production flexibility, long lead times, limited transportation options. </li></ul></ul><ul><ul><li>The way the supply chain must be managed adds to the complexity – requires regional/global processes and optimization across several time horizons, includes multiple stakeholders, suffers from lack of consistency in tools and assumptions, measuring performance is difficult. </li></ul></ul><ul><ul><li>Many of the technology and infrastructure requirements are in place to make a step change improvement in supply chain performance. </li></ul></ul><ul><li>While typically included in cost reduction exercises, the manufacturing organization has long been ignored when it comes to optimization tools and processes. </li></ul><ul><ul><li>Chemical operations are extremely complex – physical as well as chemical processes, safety amidst extreme operating environments, regulatory requirements, large amounts of data from disparate sources. </li></ul></ul><ul><ul><li>Best operating practices often reside in the heads of veteran operators and engineers. </li></ul></ul><ul><ul><li>Manufacturing challenges – e.g., minimizing transition time and volume, maximizing on-spec yield, optimizing operations across a range of throughput rates – have not gone away. </li></ul></ul><ul><ul><li>Analytical tools are now available to enable systematic optimization across manufacturing operations. </li></ul></ul>
  3. 3. Creating the next wave of value creation in operations management. <ul><li>Downstream oil and chemical companies are on the verge of a step change improvement in the management and operation of the extended value chains, driven by improvements in information availability, analytical capability, and the ability to integrate the data </li></ul><ul><li>To make this step change, however, a new business model will be needed, one based on new processes and a network of relationships to supplement core competencies </li></ul>Enterprise Resource Planning Operations Management 1992 2002 1998
  4. 4. Manufacturers have struggled with supply chain planning solutions. <ul><li>“ Our research shows that manufacturers are unable to even get close to the vision in actual implementation of supply chain planning </li></ul><ul><ul><li>Organizations have difficulty staffing at the level required to operate sophisticated SCP technologies </li></ul></ul><ul><ul><li>Supply chain business processes are often ill-defined, and most companies are still uncomfortable with the theory of collaboration </li></ul></ul><ul><ul><li>Only a select number of companies have the sophistication and motivation to successfully implement SCP systems, and even those that succeed aim to improve one function at a time” </li></ul></ul><ul><ul><li>— AMR Research Alert, October 2001 </li></ul></ul>
  5. 5. The speed of information flow among trading partners along with the introduction of marketplaces has changed the nature of planning in the chemicals industry. <ul><li>How do you know if your decisions are optimum for the enterprise not just individual business units/product lines? </li></ul><ul><li>How efficient is the current process for evaluating the impact of changes in the business units on the entire enterprise? </li></ul><ul><li>Are metrics that drive individual business unit profitability decisions integrated and coordinated so that the overall enterprise profitability is maximized? </li></ul>Stable Unstable Planning for the Expected Traditional Business Environment Planning for the Unexpected The Future Static Dynamic
  6. 6. Planning for and reacting to the unexpected will require new capabilities. <ul><li>Enterprises need to become more responsive to supply and demand signals and know how to react appropriately (profit/service trade off) </li></ul><ul><li>Speed of decision-making must increase </li></ul><ul><li>Breadth of decision-making must also increase </li></ul><ul><li>Planning accuracy must increase </li></ul>
  7. 7. Evolution of Chemicals Supply Chain Planning and Execution Supply Chain Focus Areas 80’s Early / Mid 90’s Late 90’s Early 00’s Much of the technological foundation is in place to make the step change improvement in performance. Today <ul><li>Crude evaluation tools </li></ul><ul><li>Investment scenario support </li></ul><ul><li>3 rd party optimization tools </li></ul><ul><li>Asset specific analysis tools </li></ul><ul><li>Multi-period, multi-plant optimization </li></ul><ul><li>Inventory reductions </li></ul><ul><li>ERP implementations </li></ul><ul><li>Desktop based analysis tools </li></ul><ul><li>Sophisticated Demand planning </li></ul><ul><li>Global decision support </li></ul><ul><li>Application of best practices from other industries </li></ul><ul><li>Integration of the global/regional networks </li></ul>Major Developments (Technology and Tools) <ul><li>Web based procurement and collaboration </li></ul><ul><li>Electronic transactions </li></ul><ul><li>Data Warehouse and EAI </li></ul><ul><li>Enterprise wide optimization tools </li></ul><ul><li>Transparency of data across the network </li></ul><ul><li>Workflow support </li></ul>Critical Enablers New Strategic Capabilities Supply Chain Vision
  8. 8. Optimizing the Enterprise Naphtha Gas Oil Ethane Propane Butane Olefins Plant Ethylene Propylene Butylene Butadiene Other Buy Sell Buy Sell Polyethylene Polypropylene EO/EG Market/App 1 Market/App 2 Market/App 3 Market/App 1 Market/App 2 Market/App 3 Market/App 1 Market/App 2 Market/App 3 Refining Streams Olefins Wedge Example – Primary Optimization Product Line/SBU 1 Product Line/SBU 3 Product Line/SBU 2 Demand Information Volumes/Price Secondary Optimization
  9. 9. Characteristics of Enterprise Optimization Consistency across multiple time horizons <ul><li>Ability to determine accuracy of tools and processes, and incorporate feedback to improve processes and tools </li></ul>Real time, accurate information End-to-end optimization of the network Sustainable, continuous improvement <ul><li>Accurate, timely data on demand, inventories, capacities, supply, prices and costs to support decisions across the network </li></ul><ul><li>Ability to optimize across the entire global network </li></ul><ul><li>Consistent assumptions across the network (prices, demand, supply) across all planning time horizons </li></ul>Distribution Inv Mgt Trans Mgt SC Plan & Synch Marketplaces Procurement and Sourcing Mfg Strategy & Ops Order Mgt Move Sell Make/Buy
  10. 10. It’s not just a “big LP”. <ul><li>Companies must develop processes geared toward optimizing the enterprise </li></ul><ul><ul><li>Decisions </li></ul></ul><ul><ul><li>Tasks and activities </li></ul></ul><ul><ul><li>Measurement and performance metrics </li></ul></ul><ul><li>Optimizing the enterprise will have a significant impact on the organization </li></ul><ul><ul><li>New roles and responsibilities </li></ul></ul><ul><ul><li>New organizations </li></ul></ul><ul><li>Develop decision-support technology to enable the processes </li></ul><ul><ul><li>Advanced planning systems </li></ul></ul><ul><ul><li>Interfaces to ERP systems </li></ul></ul><ul><ul><li>Interfaces to manufacturing systems </li></ul></ul>
  11. 11. Consistency across multiple time horizons is governed by a series of policies and rules and kept in check through performance measures. >18 months Strategic e.g. Business Team ~1-18 months Tactical e.g. S&OP Team < 60 days Operational e.g. Order Fulfillment Performance Metrics Performance Metrics Performance Metrics Business Policies Business Rules Decision Rules Transaction Systems Modify Modify Modify Translate Translate Inform Inform Decision Support Systems - Risk Analysis Decision Support Systems
  12. 12. Until recently, optimizing the enterprise was not practically feasible. <ul><li>Data/information required was not similar across business units </li></ul><ul><li>Decision-making was decentralized to compensate for data/information deficiencies </li></ul><ul><li>Manufacturing capabilities could not support frequent changes </li></ul><ul><li>Typically resulted in optimized decisions for business units which may have sub-optimized the enterprise </li></ul>
  13. 13. Optimizing the enterprise will provide unique capabilities. <ul><li>Ability to drive true demand from end products back through the wedge to feedstock selection </li></ul><ul><ul><li>Little/no noise </li></ul></ul><ul><ul><li>No safety margins to protect performance metrics </li></ul></ul><ul><li>Ability to evaluate trade-offs between additional processing/conversion and a sale at any given point along the wedge </li></ul><ul><ul><li>Maximize margin </li></ul></ul><ul><li>Ability to synchronize the entire wedge on a feasible/optimal timeline </li></ul><ul><ul><li>Shutdowns </li></ul></ul><ul><ul><li>Turnarounds </li></ul></ul><ul><ul><li>Seasonal peaks/valleys </li></ul></ul><ul><li>Ability to optimize on an event driven basis to leverage market conditions </li></ul><ul><li>Ability to choose the right amounts of inventory and hold it in the right place in the wedge to provide maximum flexibility and minimize cost </li></ul><ul><li>Ability to evaluate different operating conditions and subsequent impacts on manufacturing costs between wedge participants </li></ul>
  14. 14. Benefits will accrue in multiple categories. <ul><li>Financial = Maximum Profit for the Enterprise > Σ Profit (BU’s) </li></ul><ul><ul><li>Revenue/margin enhancement, inventory reduction, transportation/distribution cost reductions, conversion and material cost reductions, SG&A cost reductions, purchasing and procurement cost reductions </li></ul></ul><ul><li>Organizational </li></ul><ul><ul><li>Alignment on enterprise KPI’s drives optimum behavior/decisions </li></ul></ul><ul><ul><li>More continuous enterprise-wide planning  optimized enterprise-wide response to unplanned events </li></ul></ul><ul><li>Savings leverage across the enterprise. </li></ul><ul><ul><li>Example: the savings achieved by carrying lower PE inventory because of increased demand forecast accuracy can be leveraged to deliver revised distribution of ethylene to achieve increased revenue in another sold-out derivative market </li></ul></ul>
  15. 15. Enterprise optimization will require fundamental changes in all areas. Information about the network – real time, accurate Analytical tools – comprehensive, accurate, fast Data Integration from source to analysis – seamless, accurate Streamlined business processes to make decisions and execute across the value chain Significant developments in technology and information will drive new performance levels Strategies to best leverage assets and positions Capabilities and structure to best execute the processes Benefits will not be fully realized without transformation of processes and organization Technology Process Strategy Organization
  16. 16. The level of benefits increases with the level of change to the organization. Low High High 3 2 1 Organization Impact Level of Benefits <ul><li>Advisory Output </li></ul><ul><ul><li>Build decision support tool </li></ul></ul><ul><ul><li>Share output with businesses </li></ul></ul><ul><li>Cross-BU S&OP process </li></ul><ul><ul><li>Some wedge performance metrics </li></ul></ul><ul><ul><li>Some process redesign </li></ul></ul><ul><li>Wedge Organization </li></ul><ul><ul><li>Redefine organization around wedge </li></ul></ul><ul><ul><li>Process redesign </li></ul></ul><ul><ul><li>New reporting relationships </li></ul></ul>1 2 3
  17. 17. About Accenture <ul><li>The world’s leading provider of management and technology consulting services and solutions </li></ul><ul><li>With more than 75,000 people in 46 countries, the company generated net revenues of $11.44 billion for the fiscal year ended August 31, 2001 </li></ul><ul><li>Serving 84 of the Fortune Global 100, more than half of the Fortune Global 500 and more than 4,000 clients on nearly 18,000 engagements over the past five fiscal years </li></ul><ul><li>As of July 2001, Accenture was restructured into a public company and is now traded on the NYSE under the ticker “ACN” </li></ul><ul><li>Our Chemical practice serves half of the world’s 100 largest chemicals companies, including nine of the top 10 chemical companies, as well as several of the petroleum refining companies, in the Fortune Global 500 </li></ul>
  18. 18. About Accenture <ul><li>Annual revenue for FY’01 was $1.53 billion </li></ul><ul><li>Over 3,000 deeply skilled professionals </li></ul><ul><li>Another 3,500 affiliated members (emerging talent) </li></ul><ul><li>Insights and solutions developed within and across industries </li></ul>&quot;Accenture has a supply chain practice by which other consultants should measure themselves. Broad, deep and intelligent, Accenture is steering clients in the right direction... Don't be penny-wise and pound-foolish; if you want the best in the business, look to this team.“ — Kevin O'Marah The AMR Research Alert on Supply Chain Management, December 18, 2000 Accenture has built the world’s leading supply chain management consulting practice.
  19. 19. Our Experience A ccenture has conducted supply chain engagements for many of the world’s leading companies. The Aromatics (Thailand) Public Co. Ltd.