He pointed to a large European paint manufacturer that established a forecast 10 weeks out, but sends daily updates to its suppliers and expects them to send confirmations that they will meet production.
A different animal
The specialty chemical supply chain brings its own issues to the game, explained Martin Woodward, Managing Director, ToolsGroup U.K. [the supply chain software company is based in Boston]. “The bulk chemical industry [supply chain] is very much commodity driven. It’s all about effectiveness when running. It’s demand [that is] controlled by price. It’s relatively simple. Cost a penny less and you sell everything. Cost a penny more and you won’t sell a thing. They run 24-7 and churn out everything they can.”
“It’s different with specialty chemicals,” Woodward added. “In my experience it’s more batch driven, running multiple products down the lines. They do have the same issues around contamination, but there’s a lot more diversity in pack sizes and containers. The key is different influence on demand and the way that shapes the supply chain.”
One of ToolsGroup’s chemical customers is BP Castrol, which operates in 23 countries. Most slow-moving products had excess inventory and fast-moving products often were out of stock, leading to uncertainty and waste at times.
“Our approach to forecasting is the same wherever we are, whatever the industry,” Woodward said. “The closer we can get to the consumer demand, the better we can create a forecast that eliminates the bullwhips throughout the system—people making subjective judgments.”
“With BP, a combination of signals comes into the factories. What we’re doing is taking those signals, looking at how people are placing orders, how demand is being taken from customers and we’re looking at patterns, behaviors, volumes, monthly and weekly ordering. If it’s 12 a year, how are they ordering? Is it one a month for 12 months, or one order of 12? The safety stock will be completely different depending on the situation. We start from the beginning of the supply chain and get as far upstream as possible with the data; the closer to the pure demand signal, the better we can do the inventory levels throughout the system.”
It paid off. Over a two-year period, BP Castrol’s aggregate forecast accuracy improved by 15 percent on average and total network inventories were reduced by 20 percent in the first year after implementation and another 20 percent the following year.
In a C.H. Robinson whitepaper entitled “New Ideas to Strengthen the Chemical Supply Chain,” it stated that “the way a chemical company responds to supply chain risks can ultimately determine their success...With the right infrastructure, chemical manufacturers can optimize their delivery of goods to customers while maintaining a high level of compliance and customer service.”