Chemical Supply Chain

1

Logichem April 21, 2010

Development of a global Supply Chain Network

Strategy

Roger Bloemen

V.P. Global Supply Chain

2

Agenda

� Solutia Introduction

� Business Strategy

� Supply Chain Strategy

� Implementation of Global Supply Chain Network Strategy

3

Pharmaceutica

l divisionNutraSweet

Solutia history

� Pre 1997

� Monsanto as a chemical conglomerate

� Today

Plastic and

chemical

division

Spin off of

chemical

activities in

1997

(Solutia)Agricultural

division

4

Solutia’s situation in 2003

� The leadership team inherited an unfocused portfolio of businesses tilted toward commodity fibers & chemicals…

� At spin-off, Solutia was assigned significant legacy liabilities

� Consequence: Chapter 11 filing in Dec. 2003

� Out of Chapter 11, Q1 2008

Portfolio analysis - 2003

Str

uctu

ral

att

racti

ven

ess

Business position

Hig

hHigh

CPFilms

Saflex

SpecialtyFluids

Dequest PhosphonateWater Treatment

Acrylic Fiber

Chlorobenzenes

L Aspartic Acid

Axio Research

IndustrialFiber

Pharma

Services

Astaris Phosphorous JV

Note: Size of globe represents relative size of business

Nylon Fibers

Basic chemicals

Nylon Plastics

Nylon Intermediate Chemicals

5

6

Saflex – The Key Ingredient in Laminated Glass

� Key Product features

� Safety and security

� Quiet

� Design characteristics

� Application Segments

� Automotive

� Architectural

� Photovoltaic

7

Core Market: Automotive

� Asia market driven by Chinese

growth

� European market is driven by

Eastern European growth

� North American auto builders are

under severe pressure

Asia Automotive Means China

0

50

100

150

200

M S

qm

2007 2008 2009 2010 2011 2012 2013

Regional Automotive Demand

Europe North America South America Asia Pacific

Asia Automotive

0

10

20

30

40

50

60

2007 2008 2009 2010 2011 2012 2013

Ms

m

China Other Asia

8

Core Market: Architectural

� Asia growth concentrated in lower-

specification China market

� European market growth focused on

3.2 meter wide product

� North American market driven by

hurricane belt applications andcommercial construction

0

50

100

150

200

250

M S

qm

2007 2008 2009 2010 2011 2012 2013

Regional Architectural Demand

Europe North America South America Asia Pacif ic

Architectural Market Growth 2008-2013

23%

7%

51%

15%

4%

Europe North America China Other Asia South America

9

New, Fast-Growing Market: Photovoltaic

� Photovoltaic: Turning sunlight into

energy

� Application: thin-film solar panels

(used in solar farms)

� Role of Saflex: encapsulates

(protects) electrical components

� Small base

� Rapid growth-especially in Asia and Europe

� Driven largely by energy

policy0

20

40

60

80

100

120

M S

qm

2007 2008 2009 2010 2011 2012 2013

Regional Photovoltaic Demand

Europe North America South America Asia Pacific

10

11

Strong but regional growth, market

moves East, fast !

Global PVB Demand

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Photovoltaic

Architectural

Automotive

New applications could increase

market growth:

(e.g. automotive side laminates,

automotive roofs)

• Photovoltaic will be fastest growing segment•China will generate majority of market

growth.

•Trilayer acoustic products will become

an increasingly important segment of the

automotive market.

Key Growth Area's

China Automotive

China Architectural

Europe Architectural

Photovoltaic

12

First step: develop the business strategy

� Clear objective

� 4 pillars to support this strategy

� Achieve lowest delivered cost by maximizing service levels as a key pillar

“Saflex will grow with the market while increasing

margins so as to create sustainable and attractive

returns on future capital investments.”

13

Supply Chain Strategy

� Two ways to achieve lowest delivered costs

� Day-to-day actions (optimize within constraints)

� Long-term actions (release constraints)

Cost / sqm PVB film

Se

rvic

e l

ev

el

Optimize with constraints

- Logistics tendering

- MRP2 class A

- Global S&OP

- Collaborative forecasting

Release constraints

- Advanced planning systems

- People development

- Asset strategy

Initial s

ituatio

n

14

5953

2004 2008

North America

93

7 10

2004 2008

South America

4

4966

2004 2008

Asia Pacific

37

104124

2004 2008

Europe

109

MM

m2

2004 2008

2004 Capacity

Demand

Regional Sheet Supply/Demand Balance

MM m2

213

259

Global

2004 2008

243

Legend

88% 94% 1Implied Operating Rate

Global Market mismatch supply /

demand on mid-term

15

Global Sheet Asset InfrastructureGlobal Sheet Asset Infrastructure

Ghent, Belgium

Sao Jose dos Campos

Santo Toribio, Mexico

Trenton, MI

Indian Orchard, MA (IO)Suzhou, China

Solutia 140

Rayong (6)

Cuernavaca(4)

Kentucky (9)Roermond (26)

Shiga (45)

Sekisui 107

Fayetteville (10)

Ulsan (22)Uentrop (22)

DuPont 47

Frankfurt (52)

Bor (5)

Kuraray 57

16

Europe:2300 Cont

Asia / Pacific:500 TEU

Americas:1800 TEU

.

120+580

.

.

100+71 413+242

100+86.

.

.

176+50

USA : 65; Lat:34; Be : 46; Asia : 20

Saflex : 4600

Solutia : 36000 containers/year

Inter area shipments do not add value, have

unpredictable pricing, unreliable leadtime

17

Conceptualisation of Saflex SC network

Santo Toribio,

Mexico

(1996)

Singapore

Finishing Center

(1998)

Suzhou, China

(2007)

Sao Jose dos Campos, Brazil

(1989)

Indian Orchard, MA (IO)

(1927)

Trenton, MI

(1955)

Newport, Wales

Plasticizer

(1998)

Antwerp, Belgium

(1991)

Ghent, Belgium

(1961)

1

VAM

PVOH

BUTCHO

ETHANOL

TEG

2EHA

Raw materials Intermediates Extrusion Interleaving

Newport (UK)Newport (UK)

Antwerp (BE)

Trenton (US)Trenton (US)

Santo Toribio (MX)Santo Toribio (MX)

San Jose Dos Campos (BR)San Jose Dos Campos (BR)

Suzhou (CN)

Ghent (BE)Ghent (BE)

Singapore (SG)Singapore (SG)

Contractor (US)Contractor (US)

Indian Orchard (US)Indian Orchard (US)

Finishing

18

Capacity and capability needs

Global PVB Demand

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Photovoltaic

Architectural

Automotive

� PVB market growth will require

Saflex to invest in new capacity

� Growth will be strong in Asia

and Europe

� Saflex will require more

capability in strategic product

categories – 3.2m billet

architectural, three-layer co-

extruded acoustic

Key Growth Area's

China Automotive

China Architectural

Europe Architectural

Photovoltaic

19

Asset strategy: where to start?

� Many questions and potential options…

…which are interdependent (how can we model this with spreadsheets?)

When shall we expand our

lines in China?Shall we open a line in India? If

yes, with what specs?

What do we do if the dollar

falls under 0.6 EUR?

What is the immediate next step

to reduce capacity unbalance?

Where and when shall we install

product specific equipment?

Shall we expand or close our

South American extrusion line?

Where shall we extend our

resin capacity first?

Shall we integrate backwards? If yes,

how far and with which technology?

?Where shall we invest?

What is the ROI?

20

Methodology

� Multidisciplinary team, coordinated by supply chain and including

� Manufacturing

� Technology

� Purchasing

� Sales

� Business management

� Supported by universities for modeling and scenario analysis

21

Asset strategy is developed using an optimization model

� …instead of spreadsheet simulationsConceptual framework

Mathematical model

Excel template

Investment plan presented

to board & shareholders

Building a holistic model is time consuming and complex

� Organisation

� Need internal OR knowledge

� Data, data and data• Forecast data, by month/sku

• Costing data by plant

• Freight data, by leg

• Duty data, by country

� Data issues

• Integrity

• Availability

� Modeling

� Objective function• Profit maximisation

• Cost minimisation

� Variables• Mixed Integer vs Linear

� Aggregation level

22

Value of the model

� NOT

� Absolute truth

� It remains a model -> hence abstraction of reality

� BUT

� Insight generation

� Scenario comparison using same baseline

� Speed23

24

Saflex convinced shareholders to invest

� In the past 4 years, despite Chapter 11, Saflex managed to invest more than 200 M$

� Acquisition & expansion in Mexico

� New plant in Suzhou

� Third line in Ghent

� New resin plant in Antwerp

� Expansion of resin plant in Indian Orchard US