By Editorial Staff
If you have recently done your laundry, washed your hair or driven your car, chances are you have indirectly come in contact with products from Akzo Nobel Surfactants, a division of Akzo Nobel's Chemicals group. And while we may not readily think of chemicals when we think of products like shampoo and fabric softener, surfactants are used in almost every industry.
Surfactants are a class of chemicals that change the surface of materials when mixed with water or other chemicals. For example, laundry products contain surfactants to remove dirt and stains while also making clothing soft to the touch. Shampoo contains surfactants to clean and condition hair, and a car's engine oil contains surfactants to keep vital parts clean so an engine burns clean and lasts longer. Surfactants are also used in agricultural additives, asphalt paving, household and industrial cleaners, printing inks, paints, and paper pulp.
Akzo Nobel Surfactants is a division of Akzo Nobel's Chemicals group, one of the world's top chemicals producers. Akzo Nobel's chemical activities are grouped into five businesses: pulp and paper chemicals, polymer chemicals, surfactants, functional chemicals, and base chemicals. Akzo Nobel Surfactants manufactures more than 2,000 chemical products and more than 5,000 active stock-keeping units (SKUs), and manages millions of dollars worth of inventory monthly.
Applying S&OP for a Better Supply Chain
With such a large variety of products manufactured in six locations on two continents, managing Akzo Nobel's supply chain is an extremely complex task. In 2003, Akzo Nobel Surfactants made the decision to implement a formal sales and operations planning (S&OP) process to help bring the company's supply chain together more frequently and enable planners to communicate better to ultimately increase productivity and track inventory.
In simple terms, S&OP can be viewed as a process to bring together the business organization on a regular basis to make effective decisions on how to reconcile conflicts and develop a profitable game plan. Key to the S&OP process is ensuring that each group within the organization is making decisions based on the same set of data. Manufacturing cannot operate with its version of uncertainty, purchasing operate with another version, and sales operate with its own version. Another important focus of S&OP is not only to balance supply and demand, but also to keep them balanced. To maintain this balance on a regular basis, Akzo Nobel Surfactants knew it was necessary to have an effective process in place.
To help the company execute its formal S&OP program, Akzo Nobel Surfactants turned to Supply Chain Consultants' Zemeter S&OP solution for demand and inventory planning. Zemeter Supply Planner has the ability to maximize margins and quickly handle demand and/or supply disruptions, and the solution is able to evaluate planned changes to markets, including sourcing patterns, capacity, transportation and distribution.
Before the Zemeter implementation, Akzo Nobel Surfactants ran into many challenges with sharing data across different areas of the company. The company's previous supply chain management solution only allowed one user at time, making data transfers extremely difficult.
"One of the reasons we selected Zemeter is because it is a multi-user solution, which makes the systems available to everyone," says Bill Shearer, the demand chain manager at Akzo Nobel Surfactants at the time of the project. (Shearer has retired since the interview for this article). "The visibility of our forecast is much better since more people can view it, raising awareness of important issues earlier."
Shearer adds that Zemeter also makes it easier to compile reports. "With our previous solution, we had to download the data and manipulate them in Excel to get any answers. Now we can very easily create a new forecast error report using Zemeter because reports are preset. Productivity has gone up tremendously as a result, saving us at least a couple of days a month."
Breaking it Down
Akzo Nobel Surfactants' S&OP process begins with a demand forecast. Zemeter is then used to calculate a statistical demand forecast. The statistical forecast is sent to the company's sales force, where adjustments or overrides are made based on knowledge that the salespeople have from the field. Data are compiled into reports using Zemeter, and those reports form the basis for a demand meeting with each of the division's four business managers. Any changes made to the statistical forecast by the sales force, as well as the overall forecast and forecast error, are reviewed during this meeting, and the business managers discuss whether further inventory or forecast adjustments are required.
This results in a final forecast, which is used to perform a capacity analysis in Zemeter. This is a linear programming model, which includes production resources, bills of materials, routings, the sales forecast, raw material availability and prices. The company also performs a finite capacity analysis by production unit to determine if there are any production issues, then publishes the data and sends them to all production facilities. The company holds two supply meetings with different plants, at which time the capacity analysis and forecast are reviewed and managers discuss any issues or constraints and what can be done about them. Because Akzo Nobel Surfactants is a global business, if there are any deficits in a particular inventory, managers can call upon the global network to find out if another manufacturing location can pick up part of the supply.
The supply meetings allow Akzo Nobel Surfactants to examine the issues and develop a plan for how inventory and production is going to be managed for the next couple of months. Managers also develop a purchasing plan during the monthly S&OP meeting, which provides a forecast for the company's purchasers, who can then work together with Akzo Nobel's various vendors to determine what is going to be bought from each one. Managers take the supply and demand data from the supply meetings and consolidate them with any high-level issues, which form the basis of discussion at the monthly S&OP meeting. Inventory levels and changes, as well as supply and demand issues and uncertainties, are also discussed at the S&OP meeting.
With a diverse group of industries using the company's products, many factors can affect supply and demand, and therefore inventory levels. For example, Akzo Nobel Surfactants' Asphalt Applications develops advanced chemistry and technology to improve the performance and life of asphalt pavements. Oil prices can be a source of major uncertainty for this segment of the business. As oil prices go up, asphalt gets more expensive and municipalities buy less. Zemeter provides Akzo Nobel Surfactants with the ability to factor this uncertainty into the company's forecast. The S&OP process allows this information to be communicated to all groups within the organization, allowing them to more effectively develop a plan for how to deal with lower demand.
Another area of the company that must often deal with uncertainty is the agriculture segment. This segment of the business offers a range of products, including adjuvants that improve the performance of spray tank mixtures, dispersants for dry granule, suspension concentrate and wettable powder formulations, and modern emulsifiers. The company's surfactants are also used to enhance the performance of its customer's weed control products. And while many manufacturing environments deal with at least some level of uncertainty, production of the surfactants used with the weed control products can be especially uncertain since demand is greatly affected by dry or wet weather.
"The implementation of a formal S&OP process has allowed upper management to be much more aware and involved with decisions in forecasting, inventory levels, supply and demand," says Shearer. "The company has also implemented an S&OP process in our European facilities, so we have a much more global view of our overall business."
The improved collaboration and ability to optimize costs globally have resulted in significant savings for Akzo Nobel Surfactants. Additionally, Zemeter S&OP has helped the company to drastically reduce inventory while also tracking it more easily. Inventory data from SAP are exported into Zemeter, which provides the tools to manipulate the data and perform detailed analysis.
With a more visible forecast and the ability to effectively communicate about supply and demand issues across the entire company, Akzo Nobel Surfactants has found that these changes to its supply chain have proven to be some of the best ways to save money.