The chemical industry knows both heights and depths. Over and over again, economic lows are followed by boom years with full capacities and full order books. Not quite two years ago, the sale of petrochemicals dragged. Storage tanks were overfilled, and the price position was weak. Today, those tanks are almost empty, and production barely covers demand. Basic chemicals are once again making profits, reaching historic levels in some cases. For that reason, the position of the manager has become more difficult rather than easier.
Oil prices of more than $50 a barrel and the outsourcing of entire value chains to the Near and Far East force manufacturers to build new plants in the Near East and Asia to reduce costs and move production closer to demand. Globalization and the boom – especially in China – have opened new markets, but they have also created new competitors and expanded already-complex supply chains. Companies have reacted by adjusting their portfolios, a tactic that has led to mergers and acquisitions, joint ventures, and the quick setup of new production capacities.
Established Customer and Vendor Relationships in Flux
The chemical industry is about to completely reorganize itself. As with other industries, chemical companies must adjust their strategy and business processes to the dynamics of their environment. Instead of traditional networks based upon established customer and vendor relationships, companies are developing flexible, reconfigured supply chains or adaptive business networks. Independently operating units collaborate within these structures both internally and externally in a flat hierarchy. These units – in product development, transportation, or inventory management – have clearly defined responsibilities and goals that can be unambiguously measured. The responsibilities and goals increase flexibility, transparency, and the speed of business processes within an enterprise and beyond its borders.
Traditional IT structures offer only insufficient support for these concepts. Often they are too static to adjust quickly and flexibly to changes. To realize an adaptive business network, companies require an IT infrastructure that enables the rapid rebuilding of processes and organizational structures. A services-oriented architecture (SOA) provides such an infrastructure. The approach is similiar to that of flexible business units – SOAs encapsulate individual functions of an ERP solution. Individual units or functionalities of an ERP solution are encapsulated to this end. They are assigned unambiguous responsibilities as Web-based services that are provided in a standardized and reusable manner with a service repository. Combined with an integration platform and portal technology, they offer new opportunities to change business models quickly and seamlessly.
SOA in Production
Optimal control of the production process in the chemical industry requires a comparison of information from the planning process with real-time data from the process management level and current order and inventory data. But such a comparison does not harmonize standards from enterprise resource planning with those of manufacturing execution systems. Above all, it’s important to combine relevant information at the site responsible for production. Only this approach enables the following:
- Early recognition of breakdowns in quality and in the availability of machines, material, and personnel and the introduction of measures for automated workflows
- Continuous monitoring and analysis of variants
- Setup of rapid, competent communication with internal and external groups
- Collaborative linkage of vendors and production partners
- Access to all information relevant to decisions
SOA in Inventory Management
Up to 60% of total costs in the chemical industry derive from materials and logistics. That’s why the industry places such value on the effective handling of material movements. Scenarios for inventory management at business partner sites or vendor-managed inventory (VMI) aren’t new, but they create elbow room for additional optimization. That’s how forecasts can be compared to actual inventories continuously and in real time with a customer portal. The ERP solution automatically triggers the related material schedule; portal technology redirects the results to customers and forwarding agents.
Dispatch handling ultimately occurs when automatic shipping control is completely integrated into the overall process. Here, too, opportunities for improvement are present when business processes are combined with role-based process management because the combination means faster and more reliable dispatch handling. Standard processes are simplified and employees can concentrate on exceptions. The chemical giant Solvay has realized such a model. Communication within the integrated overall processes occurs on the basis of a nonprofit organization, the Chemical Industry Data Exchange (CIDX), which defines chemical e-standards for the industry.
SOA in Product Mix Optimization
Basic chemistry primarily asks what product mix produces the greatest profit. The question takes on special meaning when production capacity is almost completely filled. To arrive at an answer, a company must precisely know the value of various parameters, such as production price per product, system, and minute; the sales price; the sales revenue per product, customer, and region; current discounts; transportation costs; taxes; fees; and prices for raw materials. From the IT perspective, intelligent analysis tools are needed to present data from various viewpoints and to combine it. The data must often be brought together from various systems, and the related interfaces often demand a great deal of effort. But an SOA provides the information for such data mining with clearly defined services.
Competitive Advantages from Flexibility
Quick, flexible, and transparent process models are required to combine real-time information from production and sales with the simulation and optimization possibilities of modern supply chain management solutions along with the master and transaction data of an ERP solution. The process models must be based upon harmonized data and guarantee seamless, end-to-end-communication. Only IT architectures that provide flexibility and reusability guarantee that process models can be adjusted to match a changing economic environment.
The transition to an SOA must be planned carefully because it involves far-reaching changes in an organization, its business processes, and the company’s culture. The road to an SOA must be established independently of a company’s strategic goals. Industry-specific knowledge of business processes along with technical, system, and application knowledge with best practices from program and change management must be combined. SAP Consulting offers a road map here.
Value Lever in the Chemical Industry
The benefit of establishing an SOA is significant; it can be subdivided into two categories. First, it increases the efficiency and effectiveness of business processes. Second, business processes can be traced with key performance indicators (KPIs) and linked directly to measurements from the balance sheet and from profit and loss accounting. That’s how increases can directly influence a company’s profit.
The standardization and reusability of Web-based services and the elimination of proprietary interfaces reduce the cost of maintaining an SOA. The savings give those responsible for IT more elbow room for innovation, which also supports a company’s strategy and business processes over the long term.