Chemicals industry suffers poor supply chain practice

3 May 2006
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04 May 2006 | Rebecca Ellinor

Chemical companies could increase their profits by around 14 per cent by improving their supply chain, a study by Accenture has found.

The research involved interviewing more than 1,000 people at 250 business departments in chemicals firms across North America, Europe and Asia Pacific on their supply chain practices.

It found that the supply chain represents 50 to 70 per cent of operating costs in most chemicals firms - from the purchase of raw materials, to production to distribution. But although companies said they considered it important, their use of training and technology did not reflect that.

In addition, collaboration both between customers and suppliers externally and internally between the various departments was found generally to be weak.

Christopher Lange, senior executive for resources at Accenture, told that because of pressure to cut prices, chemicals companies should improve their supply chains as a way of reducing costs and adding value.

"For example, a lot of people want to reduce transportation costs by negotiating better rates with carriers. But if they started to plan differently they might find they don't need to move the product two or three times before it gets to the customer and could make a saving there instead," said Lange.

He said firms needed to improve activities such as sourcing, transportation and manufacturing before moving on to other areas such as better collaboration, both internally and externally.

Lange said while the study did not include the role of purchasers, it was telling that they weren't involved in all parts of the supply chain at these firms.

"We think it is critical for procurement to play a much more strategic role than they are playing today in chemical or other industries," he said,

Accenture plans to look at the contribution of procurement in future studies.


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