February 03, 2016
The challenges of abundance in chemicals
By: Richard Clos

With waves of new chemical capacity coming online, the chemical industry in North America is entering what could be called an “era of abundance”—at least from the customer’s perspective. In this era, customers will have a wider array of sourcing options, and they are likely to be more demanding in terms of service levels, product quality and innovation—and, of course, price.

Unless demand somehow grows quickly enough to absorb this new capacity, the era of abundance will put significant pressure on chemical companies’ pricing. One response might be extreme market discipline from market leaders, but that has rarely been seen in the industry—and there will always be competing companies ready to offer discounts to move their product. A better response: Go with the flow of increased customer choice and power. That is, chemical companies can prepare to counter a discounted, demanding market by developing superior customer service capabilities that will enable them to lock in their best customers and attract new ones from the competition, while reducing costs.

How can companies do that? Typically, it will mean re-examining the three functions that are primarily responsible for serving customers: sales and marketing, customer service, and the supply chain. Too often, these three groups are not well integrated, do not have consistent access to up-to-date, accurate information, and are saddled with immature and outdated processes and tools. At times, they even operate with objectives that conflict across functions. Looking at these three areas, chemical companies should consider:

  • Fixing the broken stuff. Integrate segregated systems and processes, and develop a common, customer-serving culture.

  • Increasing visibility. Provide decision makers with clear, timely information on order and shipment status and locations, and with insight into the entire order-to-cash and procure-to-pay processes.

  • Cleaning up and speeding up. Assess all the business processes that materially impact customer service, and do so from a customer perspective, not an internal view. Based on that assessment, coordinate and upgrade service capabilities such as order processing; manufacturing scheduling and planning; and outbound order-fulfillment activities in order to fill identified gaps.

  • Improving reliability. Identify and resolve the asset-integrity issues that affect customers. Make maintenance more predictive so that production-to-plan is more accurate. Stabilizing processes and assets improves overall product quality and ability-to-promise, and helps reduce costs.

In all of this, it will be critically important to have a deep understanding of the customer’s buyer values and the customer’s value to your company. Companies can then segment customers based on both factors, and draw on the improvements listed above to tailor pricing, service levels and capabilities to each segment. The goal is to deliver only what each segment values, without incurring the additional cost of “over-serving” them with offerings they don’t really need. In the supply chain, for example, this makes it possible to specifically target measurable improvements to the customer experience while lowering the cost of conversion, inventory and transportation.

A good starting point for these customer-focused changes is, as one might expect, the customer. Chemical companies should have their sales, customer service and supply chain people sit down with the customer’s people for a conversation about what the customer values and doesn’t value about current offerings and performance—and what they would like to see going forward. That can help focus improvement efforts on the things that truly matter to the customer.

These improvements will require new approaches from chemical companies and will likely disrupt the status quo in their operations and supply chains. But by pursuing these changes, companies will be prepared to deliver customer-valued services at a lower overall cost, which will be key to profitable growth and margin preservation in the era of abundance.

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