Logistics in the Chemicals Sector
Leading players in the chemicals industry could significantly increase their competitive advantage if they started leveraging logistics as well as other global industries do, according to new research commissioned by DHL.
The DHL whitepaper highlights opportunities to boost performance and overcome challenges such as commoditization by getting logistics onto boardroom agendas in the chemical industry.
According to the report, the five levers that can help chemical companies increase performance and competitiveness are: optimizing logistics costs, freeing up capital for better inventory management, smart investment in logistics assets, increased focus on end-to-end safety and security processes and differentiated logistics services.
“Logistics in the chemicals industry is expected to run smoothly and reliably with senior executives usually only paying attention when something goes wrong and rarely regarding logistics as an opportunity,” said Michael O’Hara, global head of chemicals sector at DHL Global Forwarding. “Logistics and supply chain management should be key elements in a formula for success for global chemical companies in today’s complex interconnected marketplace where products are fast being commoditized. The research has identified five levers that applied strategically at board level can restore competitive advantage, increase liquidity, and turn a standardized approach to safety and security from a cost into a benefit that adds value and attracts new customers.”
With a worldwide sales value of $3.3 trillion, the chemicals industry is one of the world’s largest and most important sectors, generating international trade volumes above 700 million tons of freight annually. The industry is exceptionally diverse with complex supply chains challenged by the variety of products, highly specialized transportation, and storage requirements and growing safety issues. With the ongoing globalization of the supplier and customer base, chemicals are fast becoming commodities and as a result competitive advantages are getting harder to find.
To meet these challenges, the report urges senior management to change its perception and see logistics as a strategic asset rather than a transport and delivery service. The report found that a holistic end-to-end approach to logistics can achieve greater logistics value through cost optimization, increased supply chain liquidity, smart investments in logistics assets, standardized safety across the supply chain, and differentiated logistics services.
“Management boards of chemical companies usually do not perceive supply chains and logistics as opportunities for their business,” said Professor Dr. Thomas Krupp, one of the report’s co-authors. “The five levers we outlined provide executives with insights and recommendations how to improve their company’s capability for better performance and increased competitiveness.”
First among the five levers is a fresh focus on optimizing logistics costs by adopting a total-cost-of-ownership approach. That means creating an end-to-end analysis of supply-chain costs and integrating supply chain and logistics management into decision-making.
The second lever is freeing up capital for better balance-sheet management by optimum use of just-in time solutions and reduced inventory. Innovative companies see logistics as one of the must-win battles of the future.
The third lever is smart investment in the best logistics assets and adopting a collaborative approach to get the best return on capital.
The fourth lever focuses on safety and security. A proactive approach to standardizing safety across an international supply chain can be a long-term and profitable differentiator.
“A boardroom that commits to developing and implementing a comprehensive supply-chain management safety strategy can set its company apart from the competition,” the report states.
The fifth lever is to get the right logistics services for the product and business unit. Differentiated services and supply chains specifically designed to meet customer requirements can create a competitive advantage in an industry where standard molecules are basically the same no matter what region they are made in or by which company. The report recommends that logistics as a service differentiator is a competitive edge chemical companies should take advantage of.