New strategies focus oninvestors and customers
By Staff -- Purchasing, 7/16/1998
Chemical companies are implementing a number of new strategic initiatives in an effort to improve earnings, compete on a global basis, and meet increasing demand for customized products and services. That's according to the 1998 Vision in Manufacturing global study by Deloitte & Touche and Deloitte Consulting, New York, N.Y., in collaboration with Dr. Aleda V. Roth at the University of North Carolina's Kenan-Flagler Business School.The consultants say that chemical companies are focusing on globalization, new product innovations, better supply chain integration, and specialization into non-traditional chemical industry areas.
Chemical companies continue to expand globally. In fact, 85% of companies surveyed in the report expect to expand their global reach. Despite the recent economic turmoil in Asia, chemical companies are continuing to establish their presence in this region due to its strategic importance.
Multinational chemical manufacturers are also partnering with companies in emerging markets to gain access to distribution channels, better serve a global customer base, and achieve geographic diversification. "Market leaders are forming these mutually beneficial collaborations as a key strategy to win in new markets," says John McConnell, global leader of Deloitte Consulting's chemical practice. "This is exemplified by the major consolidations fueling company expansion in North America and Europe."
Diversification is on the minds of chemical industry executives. Companies are working to increase revenue from new products. On the survey, respondents indicated that 62% of their sales revenue is derived from mature products. To improve this number, 38% are currently reengineering their new-product development processes.
Chemical producers are focusing on specialties, such as biotechnology, food technology, and bioengineering. "Companies that have traditionally supplied chemical commodities may now be supplying genetically engineered foods as well," says Robert Cox, leader of Deloitte & Touche's chemical practice. "This move into new areas such as food technology draws on a wider customer base and is attracting huge interest in the market."
Supply chain management is a top priority in the CPI. Almost three-fourth of the chemical companies surveyed have undergone major organizational changes to reduce costs and improve responsiveness over the past three years. "Executives are tightening the supply chain links both internally and externally in a move to get closer to their customers and suppliers," says McConnell.
The advantages of a strong supply chain management initiative are enormous. "While the entire industry shows significant progress, best-in-class companies demonstrate up to 10 times the improvement realized by median companies over the same period," says Rob Swanson, director of Pittiglio Rabin Todd & McGrath (prtm), Weston, Mass.
prtm's 1997 Integrated Supply Chain Benchmarking study shows that best-in-class chemical companies have a 25% advantage in cash-to-cash cycle time over average companies. They also get an advantage in total supply chain management costs of 3% of revenue while holding only half the inventory days of supply.
For the chemical industry, the biennial study showed an average 15% reduction in total supply chain management costs, a 50% reduction in order-fulfillment leadtime, a 20% decrease in inventory days of supply, and a 40% improvement in asset performance. That's compared to 1996 data.
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