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Process Industry Supply Chains: Advances and Challenges

Prof. Nilay Shah, Imperial College London

The European Union has a strong position in the process industries, particularly in the specialty chemicals and pharmaceuticals, energy and consumer goods sectors. The process industries constitute a significant proportion of the EU manufacturing base, with the chemicals sector alone (not including pharmaceuticals, food and drink and pulp and paper) contributing 2.4% of GDP. Process industry companies often sit in the middle of wider supply chains and as a result need to meet a particular set of competitiveness criteria which are quite different from those used to evaluate, benchmark and improve the performance of manufacturers/suppliers who operate at the final consumer end of the chain. In our experience, typical supply chain benchmarks for the process industries do not measure up well when compared with sectors such as automotive and electronics. Examples of such benchmarks are:

• The stock levels in the whole chain (“pipeline stocks”) typically amount to 30-90% of annual demand in quantity, and there are usually 4-24 weeks’ worth of finished good stocks;

• Stock turns (defined as annual sales/average stock) are typically 2-8;

• Supply chain cycle times (defined as elapsed time between material entering as raw material and leaving as product) tend to lie between 1000-8000 hours;

• Value-added times (time when something happens to material as a percentage of chain cycle time) are of order 0.3-5% (particularly fine chemicals and pharmaceuticals);

• Low material efficiencies, with only a small proportion of material entering the supply chain ending up as product (particularly fine chemicals and pharmaceuticals, where this figure is 1-10%).

Modern process industry supply chains, comprising networks of manufacturers, suppliers, retailers and distributors, are therefore coming under increasing scrutiny as a means of improving efficiency and responsiveness. In order for such networks to function effectively, both the network and the individual components must be designed appropriately in the first place, and the allocation of resources over the resulting infrastructure must be performed as effectively as possible. Although the process industries are turning their attention to improving the performance of their supply chains, they are hampered by both intrinsic factors (e.g. the need to influence processes at the molecular level, and wide distributions of asset ages) and technological factors (e.g. availability of tools and methods for supply chain analysis). There are a number of reasons for this, many of which relate to details of process and plant design, and to the prevailing economic orthodoxies when such decisions were taken. It is often not possible to improve these significantly simply by improving logistics and transactional processes – there exists a need to effect fundamental changes at the process and plant level, and at the interfaces between the different constituents of the value chain from product discovery to manufacture and distribution. In addition to the general pressures to improve upon such performance measures, the process industries are attempting to undertake significant transformations and will need to face new challenges in the future. These include:

• A desire to move from a product-oriented business to a service-oriented business, providing life-cycle solutions for customers (driven by the perception of higher margins and an ability to provide something novel);

• The need to respond ever more rapidly to changing market circumstances, with shorter product life-cycles;

• The aim of mass customisation (an extreme example is designer drugs which are tailored to small populations – existing pharmaceutical supply chains are inappropriate to meet this need);

• The need to evaluate, report and improve sustainability and environmental and social impacts throughout the supply chain;

• Aiming to anticipate and respond to future regulation and compliance requirements (for example the responsibility to recover and recycle consumer products at end-of-use).

This paper will review the advances made in methods to support improvements in supply chain design and operation, and describe some challenges that future research should address.
 

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