2017 Gartner Supply Chain Top 25: Chemical

Transcription

1 2017 Gartner Supply Chain Top 25: Chemical Published: 4 August 2017 ID: G Analyst(s): Paul Lord, Kamala Raman Leaders have begun to separate themselves from the rest of the pack as the chemical industry consolidates around more focused business portfolios. Chemical CSCOs can use this research for improved success with strategically aligned and enabled operating capabilities. Key Findings BASF continues to lead among chemical industry supply chains, improving its position within Gartner's Supply Chain Top 25 in 2017 to No. 16, up four spots from last year. Dow Chemical remains second in the industry and ranked No. 32 overall. The population of eligible companies for Gartner's Top 25 went from 36 in 2016 to 27 this year, as some companies dropped below the $12 billion revenue threshold for the study. For the 26 companies evaluated in both years, median revenue growth and return on assets measures declined by 1.4% and 0.4%, respectively. Inventory turns for this group slowed by 4% to 4.8 in The industry is undergoing further restructuring and consolidation that promises to bring better alignment between market requirements and operating capabilities. Leading companies have begun to explore the impact of digital innovation and disruption within their supply chain strategies. Recommendations Learn from the latest trends and innovative practices of the top chemical supply chains: Take a comprehensive approach to supply chain strategy that addresses organization, process and technology dimensions. Position operating capabilities to compete for capital investment based on value protection from strategic risk, rather than cost reduction. Measure supply chain performance comprehensively and position strategies in terms that are important to customers (satisfaction and service levels) and business executives (profitable growth and return on assets).

2 Move beyond generic S&OP and IBP constructs to define how business and operating decisions will be supported and governed to translate demand expectations and strategy into the orchestration of a profitable and sustainable supply network response. Analysis Gartner's Supply Chain Top 25 (see "The Gartner Supply Chain Top 25 for 2017") evaluates excellence and leadership using comprehensive financial and subjective evaluation criteria. The recent inclusion of corporate social responsibility (CSR) into the methodology (see "Corporate Social Responsibility Methodology Changes for the 2017 Gartner Supply Chain Top 25") allows the industry to be recognized for its strategic approach to sustainability and propelled both BASF and Dow Chemical upward in the chemical industry rankings and in the overall Gartner Supply Chain Top 25. Table Gartner Supply Chain Top 25: Chemical 2017 Chemical Rank 2017 Overall Rank Company Return on Assets 1 Inventory Turns 2 Revenue Growth 3 CSR Component Score 4 Composite Score BASF 6.1% % Dow Chemical 7.3% % SABIC 5.9% % DuPont 6.0% % Monsanto 9.0% % Syngenta 6.8% % ROA: ((2016 net income / 2016 total assets) * 50%) + ((2015 net income / 2015 total assets) * 30%) + ((2014 net income / 2014 total assets) * 20%). 2. Inventory Turns: 2016 cost of goods sold / 2016 quarterly average inventory. 3. Revenue Growth: ((change in revenue ) * 50%) + ((change in revenue ) * 30%) + ((change in revenue ) * 20%). 4. CSR Component Score: Index of third-party corporate social responsibility measures of commitment, transparency and performance. 5. Composite Score: (Peer Opinion * 25%) + (Gartner Research Opinion * 25%) + (ROA * 20%) + (Inventory Turns * 10%) + (Revenue Growth * 10%) + (CSR Component Score * 10%) data used where available. Where unavailable, latest available full-year data used. All raw data normalized to a 10-point scale prior to composite calculation. "Ranks" for tied composite scores are determined using next decimal point comparison. Source: Gartner (August 2017) Page 2 of 7 Gartner, Inc. G

3 Top Trends Impacting Chemical Supply Chains At a strategic level, the chemical industry is highly demand driven, as an efficient and reliable supplier of quality materials and sustainable solutions to the world's highest performing consumer, life science and industrial value chains. Leading companies in the industry have aligned their technology and business portfolios with global trends such as materials for energy efficiency and improved product performance, agriculture innovations for advanced farming productivity, and alternative feedstock or energy sources (see Note 1). Many strategic initiatives are driven by optimization of the business portfolio through the management of investment decisions and large transactions. The chemical industry's supply chain challenges primarily relate to the translation of strategy to execution while reconciling operating realities with financial objectives: Capacity investment driven by shale gas opportunities (about 10 million tons of ethylene between 2017 and 2019) will shift global product flows and stretch logistics infrastructure. Much of the new capacity is in North America, taxing Gulf Coast export infrastructure that is already constrained and adding distribution patterns related to capacity in the Mid-Atlantic region. These impacts to global distribution may be further impacted by geopolitical developments related to changes in regional trade agreements, reforms to U.S. corporate tax rates and the longer-term self-sufficiency of China through additional capacity investments through Mergers and acquisitions catalyzed by slowing growth have elevated the focus on capturing synergies. A "deal making" mindset has cultivated expectations of seeing immediate financial impact from its strategic decisions. This has returned many chemical companies to the legacy view of supply chain as a source of cost savings, rather than an opportunity for investment in upgraded capabilities. The imperative for supply chain leaders is the positioning of capability improvements to include but go beyond efficiency improvements by demonstrating the criticality of investment in operating capabilities to competitiveness and realization of business objectives. The risk of failing to invest must be considered as a driver for investment that is at least equal in importance with any productivity dividends that may be delivered. Increasingly, this includes the risk of talent retention and knowledge loss associated with underinvestment in technology-enabled process capabilities. Leaders must help their organizations arrive at a better balance between perspiration and inspiration, investing to make it easier and more satisfying for the people managing operations and serving customers. Industry portfolio realignment is bringing to a close the era of agricultural chemicals as a driving force for industry growth. Investment to develop and commercialize technology and solutions to feed a growing global population has been successful. But with this success has come oversupply and the need to improve operating efficiency. The industry has learned that these challenging supply chains require distinct capabilities and tactics different from those required by petrochemicals and advanced materials (see "DowDuPont: A conglomerate on the way to focused business portfolios"). Integrated business planning is becoming a technology solution as much as a decisionmaking process. For a variety of reasons, the industry is being led from operations-centric S&OP to finance-centric IBP processes, accompanied by new software products by the same Gartner, Inc. G Page 3 of 7

4 name. Decision making that connects execution with strategy is critical, but the modeling of complex supply network constraints becomes overlooked in favor of one-size IT solutions promising visibility, integration and high-speed computing. These features and capabilities are relevant to the digitalization of operational processes. In comparison, monthly or quarterly decisions benefit more from scenario planning capabilities that support consideration of risks, constraints, costs and opportunities into network design and tactical business decisions. Highlights From the Top-Ranked Chemical Supply Chains BASF is the world's largest chemical company and was recognized for the second consecutive year in Gartner's Supply Chain Top 25, improving to No. 16 in Increased weighting of specialty products in the company's portfolio has driven a focused differentiation of supply chain strategies and capabilities along the value chain. A change from proportional allocation of costs to increased transparency on the operating cost-to-serve of each transaction, product and business has enabled more intelligent business and marketing decisions for expanded margins while improving service delivery performance. Sustainability has been designed into the company's global supply network, which includes six complex "Verbund" sites (see Note 2). These highly engineered integrated manufacturing sites are designed for increased resource efficiency and reduced environmental impact. The company scored 10 out of 10 on the CSR component of the ranking index. BASF is taking a leadership position on supply chain innovation in the chemical industry, advancing Industrie 4.0 initiatives with smart manufacturing approaches such as model-based analysis for improved maintenance effectiveness. Augmented reality tactics with industry-specific tablets provide factory employees with better operating intelligence for more transparent and efficient work processes. The company has leveraged a bimodal approach to supply chain that combines rapid innovation and design for sustainable growth with clear service-level agreements (SLAs) for scalable, repeatable execution. Dow Chemical was No. 32 overall and second among chemical companies on the strength of its sustainability and CSR leadership within the industry. Dow has focused on disciplined execution to deliver continuously improving quarterly profitability for over four years. The company is working the third phase of its sustainability journey, establishing its 2025 goals aimed at collaborating with likeminded partners to redefine the role of business in society and help advance the well-being of humanity and the planet. Dow has the potential to benefit from increased focus in the new DowDuPont organization, a merger which will create three independent businesses focused on material science, agriculture and specialty products. The company continues to be advanced in network modeling for sustainability and resilience. It has invested in a logistics execution platform for distribution visibility and is actively pursuing the use of digital technologies to further improve risk management and the delivery of a better customer experience. SABIC rose to No. 68 overall (from No. 75 last year) and claimed the third spot among chemical companies. The company's Vision 2030 strategy includes continued investment in petrochemicals and polymers across all geographic regions. SABIC's diverse global portfolio is supported by a center-led approach to supply chain strategy and maturity development that includes comprehensive programs for talent management and performance benchmarking. Page 4 of 7 Gartner, Inc. G

5 This year most likely marks the final year of recognition in Gartner's Supply Chain Top 25 for some iconic names in the chemical industry. DuPont, which ranked fourth among chemical companies and No. 73 overall, began as a supplier of explosives for mining applications and evolved into an iconic company with early leadership in manufacturing excellence and operations safety. Its branded products have served diverse markets across the global economy (Teflon, Nylon, Kevlar, etc.). After repositioning its portfolio to emphasize agriculture, the company will combine its holdings (primarily with the agriculture division) of Dow Chemical to form another industry pure-play. Monsanto, ranked fifth among chemical companies and No. 79 overall, led the chemical industry charge in portfolio restructuring from chemicals to agriculture solutions. As the leading global supplier of seeds and crop protection chemicals, it has focused on applying biotechnology to improve agriculture outcomes. With its planned acquisition by Bayer, Monsanto will join forces with another company that has migrated its portfolio from chemicals to a business portfolio centered around life science (see "2016 Gartner Supply Chain Top 25: Life Sciences"). Syngenta is the original agriculture pure-play, formed by the joining and divestment of divisions from two life science companies early in the century. The company ranked sixth in the chemical industry and No. 89 among all companies. ChemChina is nearing completion of its acquisition of Syngenta, which will become official once it has achieved holding 98% of total shares. Excellent supply chain practices, including process discipline and successful enablement with technology, can be found in several other companies not considered for ranking in the Gartner Supply Chain Top 25 due to revenue and other eligibility criteria. These include Axalta, Eastman Chemical, ExxonMobil Chemical, Lubrizol and Momentive Performance Materials. Summary Supply chain in the chemical industry has become increasingly recognized as critical to providing solid return to shareholders and value to customers. Its primary focus on operational excellence (safety, quality and reliability) has caused the chemical industry to be overlooked in the Gartner Supply Chain Top 25 over the years. But industry leaders have been positioned well as the importance of sustainability and corporate responsibility has received increased recognition and weighting in the methodology. If the planned M&A activity yields increased business focus and operating alignment, the potential for creating value from supply chain excellence and digitalization is substantial. We look forward to continuing to bring recognition to these trends, developments and successes. Gartner Recommended Reading Some documents may not be available as part of your current Gartner subscription. "The Gartner Supply Chain Top 25 for 2017" Gartner, Inc. G Page 5 of 7

6 "Research Guide for Demand-Driven Chemical Supply Chain" "2017 Strategic Roadmap for Chemical Product Supply Orchestration" "Don't Overlook Process Architecture for Successful Supply Chain Network Design" "Designing an Environmentally Sustainable Supply Chain Network" "Chemical Supply Chains in 2016: A Study in Contradictions" "2016 Gartner Supply Chain Top 25: Chemical" "2015 Strategic Roadmap for Managing and Fulfilling Demand in Chemical Supply Chains" Note 1 Gartner's Chemical Industry Definition This industry report includes chemicals and industrial materials manufactured primarily through process-based conversion of nonfood raw materials (oil, natural gas, air, water, metals, wood and minerals) into end products. Includes agricultural input materials to farming (patented seed, fertilizer), petro-chemicals, process-based building materials (e.g., cement, gypsum), and pulp and paper. Note 2 Verbund Principles Verbund principles are based on the intelligent interlinking of production plants, energy flows and infrastructure. The Verbund system at BASF creates efficient value chains that extend from basic chemicals right through to high-value-added products such as coatings and crop protection agents. In addition, the by-products of one plant can be used as the starting materials of another. In this system, chemical processes consume less energy, produce higher product yields and conserve resources (Source: BASF). Page 6 of 7 Gartner, Inc. G

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