Over the past two years, industries across the world have been reeling from supply chain volatility. The chemical’s industry is no different, as its value chain—from raw material sourcing and shipping to production—has been impacted by disruptions and ripple effects due to the COVID pandemic. An additional factor in the volatility is that many downstream industries rely on chemical companies for their production processes. As such, there’s never been a greater need to find ways to manage the chemical supply chain through disruption.
o9’s Tanguy Caillet, SVP of Industry Solutions, speaks with three chemical supply chain experts, Yasser Bin Sabir, Vice President, Head of CoE for Supply Chain and Procurement at Arlanxeo; Hezi Benzaken, Integrated Business Planning Manager at Adama; and Bill Lam, Principal at Deloitte to learn more about how companies are navigating through uncertainty.
Below is an excerpt from their conversation:
Tanguy Caillet: How were you impacted by the pandemic and what were some of the immediate countermeasures?
Yasser Bin Sabir: Yeah, that’s a very important point to begin with. Arlanxeo is a world leader in synthetic rubber and performance elastomers. The biggest customer application area for us is automotive… but another major application area for us is also pharma.
So when the COVID crisis was unfolding, we had two impacts. We saw demand fall off a cliff and, of course, we had to react to that fall in demand. But at the same time, we had to be conscious that there were customers who still needed a product–especially the pharma segment. So we had to come up with a calibrated response, to ensure we could respond, cut down on production, save on the working capital side, but still keep a certain amount of capacity going to supply those people who need it.
Planning was extremely important from that perspective. Typically planning meetings and decision making would be weekly, monthly, especially when you talk about S&OP and IBP, so what we did right away was we switched to a daily, almost real-time decision making. We brought the teams together on that kind of platform where we could interact pretty much in real time and have meetings really with our top management on a daily basis. And that allowed us to really be on the ball and, you know, make decisions and responses that were necessary.
Hezi Benzaken: In 2020, the dissonance was very high, people were working from home, but still they were getting products. So our service levels were great. So the plan was to keep working with the lever because there were a lot of opportunities and upside communication was great. But COVID was the root cause. Now [in 2021], we are feeling the symptoms of this change in the demands. So this year, it’s really tough for us. The imbalance in logistics, the costs…the most important thing is to switch in the mindset…we need to reinvent ourselves to this new reality.
In Israel [an idea] we borrowed from the army is to validate quick decisions. Try to get the end- to-end scenarios because you have to try to model it in advance. So these are things that we are doing today that we didn’t do in the past.
Tanguy: Looking back, what have you learned from these challenging times?
Yasser: A lot of people designate this whole COVID impact and disruption as a Black Swan. I would say that it was not entirely a Black Swan. We didn’t know when it would happen, but something like that could be on the horizon. We have to accept the humility that we live in a world that’s so interconnected, that is fragile in many ways. COVID brought together a lot of disruptive elements that acted as a catalyst to create gaps and shortages or other kinds of disruptions in many areas.
One lesson is that we have to be more humble and more aware of the kind of world and the interconnected supply chain that we live in. It’s a network where there are so many interconnections that you could think about it as a butterfly effect. It has so many different implications all across the world, 50% of global GDP is still coming from global trade. So we have quite a massive and complex system on our hands that we have to be conscious about and think about our process of challenges from that point of view.
Bill Lam: Just maybe to build on what Yasser just shared, most companies–especially public companies–think in quarters and not years. I think that there’s not a lot of strong incentive to put in additional buffers and redundancies in the supply chain to preventatively attack risks. This notion of building resilience in the supply chain, isn’t anything new. I think we know that to Yasser’s point, there have been events that have occurred every so many years. I think the question here is, is [COVID] big enough, different enough to change behaviors and organizations where we actually need to look at this differently?
I think it is different to this point around global connectivity. It’s just gotten to a point where when one material of 15 that goes into a bill of material doesn’t become available, suddenly you can’t produce that product. And that’s just happening and cascading across the entire supply chain. I think it’s showing that some of the traditional lean approaches to planning aren’t enough.
Tanguy: After two years in a pandemic, what does the “new normal” state in the supply chain look like and how are you dealing with it?
Yasser: First of all, it’s not over yet. I think some of the learnings will continue, even after two years. What does the new normal look like? I think many of the things that we took for granted before COVID hit us, we cannot anymore. I think it was one of the participants who commented that we will see more volatility, we will see more frequent disruptions that we have seen in the past, because things are gonna stretch.
So we will see a reconfiguration of the production networks. What also becomes very important is a relook at the distribution models. So, that’s one of the things we are doing, a comprehensive review of our entire distribution model. In the new normal, I think things will improve, but they will not go back to pre COVID times. The shipping industry will not go back to the crazy amount of overcapacity as it had in the past.
Hezi: We had shortages in 2019. We had a lot of explosions in China, so many suppliers stopped producing active ingredients. So back then we developed a lot of allocation methodologies and tools that were very robust. But this time when we came to use those processes, we saw that it’s not relevant anymore, because we are not in shortage of active ingredients. But today, because the crisis is so severe, we are seeing a lot of shortages in the raw materials. So if you are missing the raw material or active ingredient, you can do for example 10 products from one raw material. We don’t have processes for that. It’s taking us a lot of time to understand what is the implication of this delay or this shortage in this specific moment. Which orders are being impacted, which customers are being impacted, what is the best recommendation for optimization, where to produce, what to produce, where to ship. This is something where we can do the calculation, but you definitely need technology. We are looking for a control tower. Something that will help us in this one to three months actually to have this kind of information in real-time to be able to react quicker.
Bill: I think one of the things you’re gonna see is looking at where the failure points and risks are from a likelihood of occurrence. That’s going to help prioritize where to put dollars because you can’t predict everything, but you certainly can put some investment in places that are going to protect you from other future events. This could take the shape of anything from revised inventory strategies to alternate sourcing strategies and contract structures. Companies that were exposed to manual, slow decision processes, I think really exposed some challenges in a heavily supply constrained environment–especially where you have difficult decisions to make with a lot of stakeholders involved.
Tanguy: So I would like to conclude quickly on technology side meanings, do you see any trends in technology that are going to be able to help you as companies tackle those challenges?
Hezi: In the implementation of machine learning and artificial intelligence on the decisions that we are taking, we as humans are very limited. Today, computers using machine learning can take 1000s of datasets of information, put this into one recommendation or highlight where the crisis that we are going to have and what is the implication? So I think the information is there, we just need something to take it for us to connect it with our business, and tell us what this means.
Bill: You’re not going to be able to predict the next pandemic, but you can probably predict that something’s coming. I know, a lot of our clients are starting to look forward in terms of what are those leading indicators. That it’ll give you a better sense of where demands are headed. Then, you could look further down the value chain into the consumer. You know, there’s no shortage of metrics and indicators out there. We’re working with a lot of clients on trying to dial that in to figure out what lags actually worked themselves all the way back to the consumption of their materials, and start to look at how to put those long-term scenarios in place and use those indicators as a way to get better demand predictability out around the corner.
Tanguy: Absolutely agree. Thank you so much for this. It’s been an amazing discussion, I think this gave a kind of a flavor of the values, different perspectives from this industry. So thank you again, Yasser, Hezi, and Bill for your time to enlighten us with your expertise.