Optimizing Value in the Supply Chain
In today's competitive manufacturing environment, product and process information is often a closely guarded secret. Information is shared with suppliers only on a "need to know" basis, and the need is scrutinized carefully. Logic seems to dictate that companies that are more enigmatic about their operations have a better chance of gaining a competitive edge. However, the opposite is actually true, according to Jim Lauria, president of Team Chemistry LLC, a management consultancy focused on relationship and information management between companies in process industries. "Today's marketplace rewards - in fact demands - robust communications among players in the extended enterprise. Without open relationships, information is not shared to the detriment of those involved," Lauria says.
Too often, material producers don't know where their products go or how they are being used. Finishing professionals get little direction from producers and are on their own when it comes to product utilization. According to Lauria, in the ideal relationship, information flows across boundaries as the lifeblood of the multi-enterprise, allowing all parties to benefit from increased transparency and aligned metrics. With multi-enterprise accountability, value is optimized along the entire supply chain.
"The more the finishing professional shares how they're using the paint/coatings and what they're hoping to achieve, the more that trickles back up the chain and improves the products that are available from their suppliers," Lauria says.
Beyond the BasicsIn a traditional buy/sell relationship, one sales person on the supply side interacts with one purchasing agent on the finishing side. The producer wants to sell as much as possible at the highest price-per-unit of product. By contrast, the end user wants to buy as little as possible of the product at the lowest price-per-unit of input. According to John Kauke, chief operating officer of Team Chemistry LLC, this basic, two-person relationship is self-limiting.
"The conventional practice of hand-offs between producers and end users impedes product stewardship, the development of better products - and profit creation for all the players," he says.
Instead, the finishing professional should push the supplier to get actively involved in every stage of the operation. "This means engaging in some way and at some level the folks that receive the material when it's shipped into the facility, the production people who handle the material once it's in the facility, the folks that determine whether it's a good product to use from a cost and performance standpoint, and the health and safety staff. All of these people need to be part of the equation," says Kauke.
Such relationships are developed over a period of time and often involve meetings at the end user's facility, in which the supplier is allowed to follow the material and see where it's being stored and how it's being applied. On the supplier's side, it also involves the use of sophisticated customer relationship management systems that can allow sales people to more easily gather and access information about the end user.
Both Lauria and Kauke admit that this information gathering and sharing process is complex and more demanding of everybody's time and effort than a traditional relationship. But in a highly transparent relationship, the supplier gains a better understanding of the finishing professional's needs, both from a performance and cost perspective. "It's not about the price per pound to the customer, but the cost per gallon of a given product applied to the surface, taking into account the handling requirements, the application equipment and all the things that the finishing professional has to do to use that product. The goal is for the producer to have a better understanding of what the cost is to the customer in the process so that they can continually drive those costs down by increasing value," says Lauria.
For example, a highly transparent relationship might enable a supplier to optimize a coating to minimize clogging at the spray gun and thereby reduce maintenance costs and increase the quality of the finished product, making the coating more cost-competitive from an application standpoint. An increased level of transparency can also help mitigate environmental and health and safety issues.
"The applicators are exposed to the components in the paint or coating formulation. Sharing with their suppliers how they're using the formulation can help their suppliers ensure safety, as well as optimization," says Lauria. "Even beyond that, as companies work to reduce emissions of volatiles and hazardous air pollutants, this reduction is more likely to occur in a transparent relationship."
Driving ChangeLauria and Kauke have identified four market issues that are affecting everyone in the supply chain, from the raw material producer to the finishing professional. The first is society's expectations - today's consumers expect innovative products that are made using less energy and fewer natural resources.
The second driver is the global supply/demand dynamic. "Perhaps the biggest factor affecting most everybody in the processing industries is the emergence of China as a consumer of raw materials, a producer of intermediates at very low cost, a producer of finished products and a consumer of all of these elements. This has meant that less value can be derived from what companies are selling in terms of material and products, and that more value needs to be derived from information and services," says Lauria.
The third driver is the regulatory environment. The Reach Initiative in Europe and the pressure in the U.S. - particularly California - to continually lower volatile organic compounds (VOCs) will eventually affect everyone in the paint and coatings industry. And the final driver is an increasing shortage of scientists and engineers in the U.S.
All of these issues are driving change in the way relationships are handled throughout the supply chain. According to Lauria, moving from a traditional, closed relationship to a highly transparent relationship isn't optional. To remain competitive, everyone in the supply chain needs to collaborate throughout the product lifecycle, from product design through recycling and disposal of spent product.
"Most producers and end users share the twin goals of minimizing their impact on the environment and earning more money. Most producers manage using effective internal metrics to optimize profits. Most end users manage in a like fashion. Neither shares with the other the metrics that matter most. In order to optimize utilization across the multi-enterprise, there is a great opportunity to build accountability across the entire product lifecycle," he says.
According to Lauria, such highly transparent relationships among players in the industry can lead to better outcomes for all - producers and finishing professionals, as well as the customers and communities they serve.
Christine L. Grahl is managing editor of Finishing Today magazine. She can be reached at 248.366.6981 or firstname.lastname@example.org.