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SUPPLY CHAIN MANAGEMENT Accelerating supply chain profitability and sustainability

Jul 7, 2021

Roch Gauthier, Senior Director – Product Management, Aspen Technology - Supply chain management systems have been one of the biggest victims of the volatility of coronavirus. Aspen Technology, a company that’s embedding Artificial Intelligence (AI) throughout world’s largest oil and gas, chemical and engineering companies’ environments, is helping manufacturing and supply chain ecosystem to achieve their goals in safety, sustainability and operational performance. There are various trends that are taking shape to adapt supply chains to this volatile market. The article discusses four key trends that will shape the supply chains going forward.

As the world recovers from the pandemic, four key supply chain trends are taking hold in the near term. The four themes include resilient and sustainable supply chains, Sales and Operations Execution (S&OE), extended value chain integration & end-to-end optimisation and what-if scenario analyses.

Supply chain management and sustainability

Supply chain resiliency is a key priority for governments. Chemical companies are looking towards sustainability targets to reduce energy use, emissions and waste while governments include green energy policies in economic recovery packages. A key takeaway post-pandemic is that sustainability and resiliency are two sides of the same coin. As such, supply chain digital twins can help manufacturers achieve their goals.

FPCO, Japan’s largest manufacturer of food containers and a logistics supplier, is one company that has achieved this critical balance. FPCO is committed to environmental advancement, as it avidly recycles used food containers and PET bottles. With more than a billion containers sold each month, selling recycled products needed to be an economically sustainable activity. The company chose aspenONE Supply Chain Management (SCM) to provide a stable and responsive food distribution in an efficient, sustainable as well as environment-friendly manner.

There are three core supply chain solution areas that can create meaningful change:

  1. Strategic manufacturing optimisation: For example, the biggest cost optimisation saving opportunities are available when a company assesses or redesigns its production and distribution network – exploring options in manufacturing capabilities (flexibility) as well as raw materials sourcing. In doing so, an organisation has the ability to effectively prioritise capex decisions to achieve long-term sustainability metrics, evaluate alternate supply options and P&L impact, plan reshoring activities as well as design the best distribution network to minimise transportation inefficiencies.

  2. Sales and Operations Planning/Integrated Business Planning (S&OP/IBP): To achieve financial and sustainability metrics, plans should be based on forecasts and assumptions. This will optimise the end-to-end supply chain holistically by creating optimal plans to achieve financial and sustainability metrics. By optimising planning, the environmental impact of procurement can be reduced, and excess or slow-moving inventory can be minimised. Production and distribution plans can be created holistically to ensure that customer demand is met using the least number of resources.

  3. Sales and Operations Execution (S&OE): S&OE is the management of change by aligning supply chain and operations – that is, how one respond to and manages daily upsets.

S&OE digital capabilities

Manufacturers know things do not always go as planned. Supply and demand uncertainty can result in inevitable daily events and disruptions, such as production quality issues, logistics delays, last-minute changes to customer orders, etc. For most organisations, COVID-19 amplified the supply and demand disruptions to a whole new level.

Manufacturers need to be more agile, which can be addressed by implementing S&OE processes and related digital solutions. S&OE is a process that allows manufacturers to align their day-to-day activities on an ongoing basis to achieve their longer term Sales & Operations Plans (S&OP) while improving agility.

Extended value chain integration and end-to-end optimisation

Transportation fuels have historically been the biggest demand and end-use for crude oil. With energy transition underway, demand for transportation fuels is expected to peak, driven by more efficient combustion engine technologies and the transition to electric vehicles. As a result, refiners will shift their attention from transportation fuels demands to chemical demands, and as a target area for future growth, this megatrend is referred to as Crude-to-Chemicals (CTC).

When looking at the CTC extended value chain, there are two key areas with integration opportunities. The first is the integration of the oil refining and base petrochemicals supply chains to exploit process and molecular synergies to shift from producing fuels to chemicals. The second is the integration of the base petrochemicals and downstream derivative chemicals supply chains. The opportunity here is linked to being more agile and specific in the monomers and polymers value chain planning integration as well as optimisation to best respond to changing supply/demand economic conditions across the extended olefins-to-derivatives value chain.

Managing and optimising a crude/olefins-to-polymers extended value chain is challenging, as it spans supply chains with very different characteristics. The intersection of bulk chemicals and polymers is where the demand-driven and the margin-driven sides of the value chain meet and interact.

The upstream refining and bulk chemicals businesses are margin-driven supply chains in which the optimisation opportunities consist of optimising the operating conditions of complex continuous production processes as well as exploiting feedstock supply and associated economics optionality.

The downstream polymers business is a demand-driven supply chain in which the optimisation opportunity consists of looking at the broader business system and determining the best way to balance supply and demand while maximising the profitability of this overall system.

What-if scenario analyses

The pandemic has highlighted the immense importance of what-if scenario analyses. Faced with tremendous uncertainty and complexity, the best way to face an uncertain future is by evaluating what-if scenarios to explore economically feasible alternatives. This is extremely valuable for business contingency planning purposes.

Unfortunately, most companies today still rely on inadequate spreadsheets rather than supply chain planning and scheduling optimisation digital twins. Spreadsheets are inadequate because they cannot adequately model process industry manufacturing and supply chain complexities and are not designed to do mathematical optimisation at scale.

At the core of a supply chain digital twin, there needs to be a representation of the manufacturing process. Multiple complexities may need to be factored into this model, such as production switching costs, utilities, minimum run sizes and so on. Modelling becomes even more challenging when one factors in other production or tolling sites as well as the dependencies across sites. As companies extend backwards from production into suppliers, there are aspects that should be modelled here as well, including different purchase minimums, costs and lead times varying by the supplier.

Finally, there is a downstream supply chain consisting of warehouses, distribution centres and customer ship-to locations. The situation can get complicated when one tries to factor in duties and tariffs or product substitution options, as it can be very challenging to model these interrelated elements in a spreadsheet – rather than using a solution designed specifically for that purpose.

The other big limitation of a spreadsheet is that it was not designed to do mathematical optimisations at scale to solve real-world problems – taking into consideration anywhere from tens of thousands to millions of variables and constraints.

Indeed, it is a post-pandemic imperative to accelerate supply chain profitability and sustainability with the latest technology the market can offer.

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  • Manufacturers need to be more agile, which can be addressed by implementing S&OE processes and related digital solutions. S&OE is a process that allows manufacturers to align their day-to-day activities on an ongoing basis to achieve their longer-term Sales & Operations Plans (S&OP) while improving agility.

  • The upstream refining and bulk chemicals businesses are margin-driven supply chains in which the optimisation opportunities consist of optimising the operating conditions of complex continuous production processes as well as exploiting feedstock supply and associated economics optionality

  • Roch Gauthier

    Senior Director – Product Management

    Aspen Technology

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