10 supply chain priorities for leaders in the chemicals sector

The Middle East is the primary supplier of feedstock to the chemical industry worldwide, and a major chemical supplier across all segments. Yet amid geopolitical shifts and climate concerns, the sector’s supply chain segment stands at a pivotal juncture. Arun Bruce, CEO of TransformationX, outlines 10 supply chain priorities for the months ahead.

1. Create a comprehensive supply-risk library

Creating a comprehensive supply chain risk library is essential for effective supply chain risk management. Spending time and effort in proactively identifying vulnerabilities across the supply chain ecosystem, planning mitigation strategies in advance, could mean the difference between a functioning supply chain and one that is brought down to its knees by a little rain.

The risk library has to be deep and comprehensive, including everything from operational, geographical, social, economic, political, cybersecurity, geopolitical, man-made/natural disasters to reputational and financial risks.

In order to establish such a risk library, companies should start by looking internally first and understand historical vulnerabilities. Follow this up with an external look at the latest risks and trends and bring it all together in an internal workshop that lists and classifies risks. Close collaboration with suppliers is crucial during risk assessment as it enables the identification of potential supply chain vulnerabilities and facilitates the implementation of risk mitigation measures, including contingency plans, business continuity strategies, and joint monitoring of supply chain performance.

For instance, Johnson & Johnson developed a comprehensive supply chain risk management framework that includes risk identification, assessment, and mitigation strategies, helping them navigate disruptions effectively. Johnson & Johnson periodically evaluates and updates the supply-risk library.

2. Diversify the supply base

Easier said than done, supply diversification across geographical, geopolitical orbits is essential, especially for A-suppliers. Begin by pinpointing crucial suppliers and establishing back-up options to guarantee continuity in the face of disruptions. This might entail a separate task force within procurement, to foster relationships with alternative suppliers or investigating new sourcing locations to minimize dependency risks.

It is crucial to approach supplier diversification strategically, aiming to mitigate vulnerabilities without going overboard. This could mean collaborating with suppliers from diverse geographic locations, leveraging multimodal logistics, or implementing a ‘China + One’ strategy to lessen reliance on a single country.

For instance, Apple today has diversified its supplier base beyond China, expanding into countries like Vietnam, Taiwan, Thailand and India to reduce dependency and mitigate risks.

Regardless of the chosen method, supplier diversification represents a proactive stride toward forging a robust and flexible supply chain.

3. Empower supplier relationships team

As highlighted by a recent report from Gartner on the future of supply chain, companies are increasingly recognizing the value of collaborative supplier relationships, with 77% investing in deeper partnerships. This strategic approach not only fosters a more robust supply chain, but it also nurtures innovation and problem-solving, driving continuous improvement and adaptability in the face of challenges.

Doing this practically requires empowerment and elevation of the supplier relations team. The team needs to segment suppliers and pursue prioritized and focused efforts on A-suppliers – quarterly leadership reviews, visits to supplier facilities, open-ended conversations on innovations and priorities are all critical.

4. Celebrate risk management achievements

Celebrating success in the absence of crisis helps reinforce good practices and embed them in the organizations. If you have survived the supply chain crises so far reasonably well (Covid-19, war, weather disruptions), you do have a ton of lessons that you have learned and many successes to celebrate. Documenting them, codifying them, and appreciating the team members who sustained operations through crises is important.

Recognizing achievements boosts morale and encourages proactive risk management. This celebration is not just about patting ourselves on the back, it is about learning from our victories and leveraging that knowledge to fortify our supply chains for the future.

5. Adopt a balanced approach to working capital

Pushing too hard on extended payment terms, may seem like a smart idea to manage working capital, but it can be counterproductive as well. Most SMEs cite poor payment terms as one of the main reasons they are unable to serve large companies. Adopting an agile approach to payment terms, focusing on extended terms with stronger, stable suppliers, while managing smaller suppliers even on advance basis is a crucial lever to ensuring suppliers stay with you and you do not stagnate.

6. Encourage supplier innovation

Sharing your internal objectives and challenges openly and often with suppliers is a great approach to ensuring an innovative supplier ecosystem. Joint investment in improvement projects is an additional way of ensuring that suppliers focus on topics critical to you. These projects may be as small and regular as developing a new grade of raw material or as large as joint pursuit of a patented product.

7. Emphasize risk compliance among suppliers

The chemical and energies industry grapples with an increasingly complex regulatory environment, posing substantial challenges, especially in logistics compliance for hazardous goods transported globally. Recent regulatory initiatives like the EU’s ‘Fit for 55’ and Carbon Border Adjustment Mechanism (CBAM) target this sector, underlining the critical need for compliance and transparent partnerships with logistics providers.

As regulations evolve, trusted partnerships become essential to ensure compliance across diverse geographies and effectively navigate regulatory intricacies.

BASF focuses on systematic risk-oriented assessment and auditing of suppliers and has integrated high-tech risk analysis tools to monitor its supply chain compliance with global regulations, ensuring transparency and proactive risk mitigation.

The industry faces mounting risks from volatile factors such as multistage shipping routes, weather disruptions, and geopolitical tensions. Integrating risk management and compliance into supply chain processes is crucial. Suppliers must adhere to regulatory requirements and industry standards, supported by regular audits and assessments to proactively identify and mitigate compliance risks.

By adopting high-tech risk analysis tools, digitally mapping supply networks, monitoring material movements, and using predictive analytics to anticipate and mitigate various risk types before they occur, supply chain stability can be improved.

8. Implement collaborative category management

Category management approach – involving a cross functional team (CFT), and joint demand planning and structured sourcing – is still the best way to foster collaboration and knowledge sharing within your organization. Create cross-functional teams to address supply chain challenges collectively. Encourage open communication channels and information sharing to enhance agility and decision-making during disruptions. Ensure periodic CFTs at a category level.

Transparent information sharing through real-time data systems and analytics is paramount for informed decision-making. So is ensuring all key decisions are taken on your Enterprise Resource Planning (ERP) platform and not on private excel sheets.

9. Consider a Supply Chain Control Tower

To bolster supply chain resilience, harness cutting-edge technological solutions like supply chain visibility platforms and predictive analytics solutions. A supply-chain control tower provides end-to-end visibility of the supply chain. Effective solutions go one step further, and allow for scenario planning, predictive analytics and responses.

Most ERP platforms’ supply-chain modules have add-ons related to predictive analytics. There are also several ‘point-solutions’ that specialize in control towers that may be worth exploring.

For example, automaker General Motors (GM) due to semiconductor shortage crises during the global pandemic developed end-to-end visibility tool in the supply chain that predicts and highlights potential disruption up to N level suppliers for semiconductors.

10. Build personal relationships with CPOs

One of the tried and tested ways to still build resilience is to have a few peers and friends to call on for advice. Most peers (even if from different industries) grapple with similar problems and having a safe sounding board for bouncing off ideas for improvement still ranks very high with successful Chief Procurement Officers (CPOs).

An Iftar with an old procurement colleague / or an extended conversation with a former job-applicant can go a long way in identifying risks and improving the arsenal to counter them.