Enterprise Profit Management for the Chemical Value Chain December 6, 2001.

Enterprise Profit Management for the Chemical Value Chain

December 6, 2001

2©Accenture 2001 All Rights Reserved

After several years of cost and efficiency focus we believe the supply chain and manufacturing will provide the next big opportunity for earnings improvement.

• The nature of the supply chain and the current limitations in the way it is managed provide hurdles to leveraging the potential value.

– The supply chain is complex – multiple supply/distribution points, varying production flexibility, long lead times, limited transportation options.

– The way the supply chain must be managed adds to the complexity – requires regional/global processes and optimization across several time horizons, includes multiple stakeholders, suffers from lack of consistency in tools and assumptions, measuring performance is difficult.

– Many of the technology and infrastructure requirements are in place to make a step change improvement in supply chain performance.

• While typically included in cost reduction exercises, the manufacturing organization has long been ignored when it comes to optimization tools and processes.

– Chemical operations are extremely complex – physical as well as chemical processes, safety amidst extreme operating environments, regulatory requirements, large amounts of data from disparate sources.

– Best operating practices often reside in the heads of veteran operators and engineers.

– Manufacturing challenges – e.g., minimizing transition time and volume, maximizing on-spec yield, optimizing operations across a range of throughput rates – have not gone away.

– Analytical tools are now available to enable systematic optimization across manufacturing operations.


Creating the next wave of value creation in operations management.

• Downstream oil and chemical companies are on the verge of a step change improvement in the management and operation of the extended value chains, driven by improvements in information availability, analytical capability, and the ability to integrate the data

• To make this step change, however, a new business model will be needed, one based on new processes and a network of relationships to supplement core competencies

EnterpriseResource Planning Operations

Management

1992 20021998


“Our research shows that manufacturers are unable to even get close to the vision in actual implementation of supply chain planning

• Organizations have difficulty staffing at the level required to operate sophisticated SCP technologies

• Supply chain business processes are often ill-defined, and most companies are still uncomfortable with the theory of collaboration

• Only a select number of companies have the sophistication and motivation to successfully implement SCP systems, and even those that succeed aim to improve one function at a time”

— AMR Research Alert, October 2001

Manufacturers have struggled with supply chain planning solutions.


The speed of information flow among trading partners along with the introduction of marketplaces has changed the nature of planning in the chemicals industry.

• How do you know if your decisions are optimum for the enterprise not just individual business units/product lines?

• How efficient is the current process for evaluating the impact of changes in the business units on the entire enterprise?

• Are metrics that drive individual business unit profitability decisions integrated and coordinated so that the overall enterprise profitability is maximized?

Stable

Unstable

Planning for theExpected

TraditionalBusiness

Environment

Planning for theUnexpected

The Future

Static

Dyn

am

ic


Planning for and reacting to the unexpected will require new capabilities.

• Enterprises need to become more responsive to supply and demand signals and know how to react appropriately (profit/service trade off)

• Speed of decision-making must increase

• Breadth of decision-making must also increase

• Planning accuracy must increase


Supply Chain Focus Areas

80’sEarly /

Mid 90’sLate 90’sEarly 00’s

Much of the technological foundation is in place to make the step change improvement in performance.

Critical Enablers

New Strategic Capabilities

Supply Chain Vision

Today

• Crude evaluation tools

• Investment scenario support

• 3rd party optimization tools

• Asset specific analysis tools

• Multi-period, multi-plant optimization

• Inventory reductions

• ERP implementations

• Desktop based analysis tools

• Sophisticated Demand planning

• Global decision support

• Application of best practices from other industries

• Integration of the global/regional networks

Major Developments

(Technology and Tools)

• Web based procurement and collaboration

• Electronic transactions

• Data Warehouse and EAI

• Enterprise wide optimization tools

• Transparency of data across the network

• Workflow support

Evolution of Chemicals Supply Chain Planning and Execution


Optimizing the Enterprise

Naphtha

Gas Oil

Ethane

Propane

Butane OlefinsPlant

Ethylene

Propylene

Butylene

Butadiene

Other

Buy

Sell

Buy

Sell

Polyethylene

Polypropylene

EO/EG

Market/App 1

Market/App 2

Market/App 3

Market/App 1

Market/App 2

Market/App 3

Market/App 1

Market/App 2

Market/App 3

RefiningStreams

Olefins Wedge Example – Primary Optimization

Product Line/SBU 1

Product Line/SBU 3

Product Line/SBU 2

Demand InformationVolumes/Price

Secondary

Optimization


Characteristics of Enterprise Optimization

Consistency across multiple time horizons

• Ability to determine accuracy of tools and processes, and incorporate feedback to improve processes and tools

Real time, accurate information

End-to-end optimization of the network

Sustainable, continuous improvement

• Accurate, timely data on demand, inventories, capacities, supply, prices and costs to support decisions across the network

• Ability to optimize across the entire global network

• Consistent assumptions across the network (prices, demand, supply) across all planning time horizons

Distribution InvMgt

TransMgt

SCPlan & Synch

Marketplaces Procurementand Sourcing

MfgStrategy &

Ops

OrderMgt

MoveSell Make/Buy


It’s not just a “big LP”.

• Companies must develop processes geared toward optimizing the enterprise

– Decisions

– Tasks and activities

– Measurement and performance metrics

• Optimizing the enterprise will have a significant impact on the organization

– New roles and responsibilities

– New organizations

• Develop decision-support technology to enable the processes

– Advanced planning systems

– Interfaces to ERP systems

– Interfaces to manufacturing systems


Consistency across multiple time horizons is governed by a series of policies and rules and kept in check through performance measures.

>18months

Strategice.g. Business Team

~1-18months

Tacticale.g. S&OP Team

< 60days

Operationale.g. Order Fulfillment

Performance Metrics

Performance Metrics

Performance Metrics

BusinessPolicies

BusinessRules

DecisionRules

Transaction Systems

Modify

Modify

Modify

Translate

Translate

Inform

Inform

Decision Support Systems - Risk Analysis

Decision Support Systems


Until recently, optimizing the enterprise was not practically feasible.

• Data/information required was not similar across business units

• Decision-making was decentralized to compensate for data/information deficiencies

• Manufacturing capabilities could not support frequent changes

• Typically resulted in optimized decisions for business units which may have sub-optimized the enterprise


Optimizing the enterprise will provide unique capabilities.

• Ability to drive true demand from end products back through the wedge to feedstock selection– Little/no noise– No safety margins to protect performance metrics

• Ability to evaluate trade-offs between additional processing/conversion and a sale at any given point along the wedge– Maximize margin

• Ability to synchronize the entire wedge on a feasible/optimal timeline– Shutdowns– Turnarounds– Seasonal peaks/valleys

• Ability to optimize on an event driven basis to leverage market conditions• Ability to choose the right amounts of inventory and hold it in the right place

in the wedge to provide maximum flexibility and minimize cost• Ability to evaluate different operating conditions and subsequent impacts on

manufacturing costs between wedge participants


Benefits will accrue in multiple categories.

• Financial = Maximum Profit for the Enterprise > Σ Profit (BU’s)

– Revenue/margin enhancement, inventory reduction, transportation/distribution cost reductions, conversion and material cost reductions, SG&A cost reductions, purchasing and procurement cost reductions

• Organizational

– Alignment on enterprise KPI’s drives optimum behavior/decisions

– More continuous enterprise-wide planningoptimized enterprise-wide response to unplanned events

• Savings leverage across the enterprise.

– Example: the savings achieved by carrying lower PE inventory because of increased demand forecast accuracy can be leveraged to deliver revised distribution of ethylene to achieve increased revenue in another sold-out derivative market


Enterprise optimization will require fundamental changes in all areas.

Information about the network – real time, accurate

Analytical tools – comprehensive, accurate, fast

Data Integration from source to analysis – seamless, accurate

Streamlined business processes to make decisions and execute across the value chain

Significant developments in technology and information will drive new performance levels

Strategies to best leverage assets and positions

Capabilities and structure to best execute the processes

Benefits will not be fully realized without transformation of processes and organization

Technology

Process

Strategy

Organization


The level of benefits increases with the level of change to the organization.

Low High

High

3

2

1

OrganizationImpact

Level of Benefits

Advisory Output• Build decision support tool• Share output with businesses

Cross-BU S&OP process• Some wedge performance metrics• Some process redesign

Wedge Organization• Redefine organization around wedge• Process redesign• New reporting relationships

1

2

3


About Accenture

• The world’s leading provider of management and technology consulting services and solutions

• With more than 75,000 people in 46 countries, the company generated net revenues of $11.44 billion for the fiscal year ended August 31, 2001

• Serving 84 of the Fortune Global 100, more than half of the Fortune Global 500 and more than 4,000 clients on nearly 18,000 engagements over the past five fiscal years

• As of July 2001, Accenture was restructured into a public company and is now traded on the NYSE under the ticker “ACN”

• Our Chemical practice serves half of the world’s 100 largest chemicals companies, including nine of the top 10 chemical companies, as well as several of the petroleum refining companies, in the Fortune Global 500


• Annual revenue for FY’01 was $1.53 billion

• Over 3,000 deeply skilled professionals

• Another 3,500 affiliated members (emerging talent)

• Insights and solutions developed within and across industries

About Accenture

"Accenture has a supply chain practice by which other consultants should measure themselves. Broad, deep and intelligent, Accenture is steering clients in the right direction... Don't be penny-wise and pound-foolish; if you want the best in the business, look to this team.“

— Kevin O'MarahThe AMR Research Alert on Supply Chain Management, December 18, 2000

Accenture has built the world’s leading supply chain management consulting practice.


The Aromatics (Thailand) Public Co. Ltd.

Our Experience

Accenture has conducted supply chain engagements for many of the world’s leading companies.

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Enterprise Profit Management for the Chemical Value Chain December 6, 2001.

Documents

supply chain performance

rights reserved planning

chemical value chain

nature of planning

analytical tools

planning accuracy

chemical operations

chemical processes