Accenture Chem Training Full Presentation

© 2008 AMR Research, Inc. | Page 1

Growth and Innovation in the Chemicals Industry – AMR Research

Bill Polk


Introductions

Bill PolkResearch Director, Value Chain Strategies

• 19 years of management experience in the manufacturing, supply chain software, IT operations and logistics industries

• Managed enterprise-wide infrastructure, technology upgrade, and outsourcing initiatives for IT Infrastructure group at State Street • For Oracle’s Internet Supply Chain Management group led business development and implementation efforts • Managed electrical component manufacturing facilities in the US, Mexicoand Europe • Logistics officer for the US Marine Corps

• BA Mathematics, College of the Holy Cross; MBA Stanford Graduate School Of Business; MA Stanford University School of Education


Some of the Process Manufacturing Companies We Serve…Some of the Process Manufacturing Companies We Serve…


Agenda

• Industry Trends & Issues

• Innovation

• Sustainability

• Service Providers


Crude Oil and Natural Gas Spot Prices


Industry Trends

• Volatile feedstock costs rippling through supply chain

• Avg housing start consumes approximately $17K in chemicals and plastics, avg automobile absorbs more than $2000 in chemical products

• 2/3 of all US manufacturers rely on chemicals directly or indirectly

• 90% of manufacturers say replacing chemicals in their processes is technically or financially infeasible

But…

• US Industrial Output decreased 11.4% in Q4 2008

• Global overcapacity, global demand plummeting even in emerging markets (China, Russia, India & Latin America)

• Last large global capacity push in 2002, next one was slated for 2009-2010 in Asia and the Middle East.


Top Issues in Global Chemical Industry

• Rising Fuel Costs and impact on feedstock and transportation/logistics

• One major chemical manufacturer leases 6000 rail cars and averages only 4 return trips/year

• Feedstock cost increases had been outpacing final product price increases

• Excess global capacity (particularly Ethylene) by 2009/2010

• Sites will close in US and Europe, searching for advantaged feedstock regions

• Lack of Supply Chain Visibility

• Results in increased inventory (US Polyethylene industry $500M alone)

• Industry Peculiarities

• Terms offered

• Regional price protection differences

• Latency in settling feedstock accounts

• Uncertainty over future regulatory activity – REACH (KSCA), 10+2, TSCA, etc.


Volatile Fuel Costs: What are Companies Doing?

Passing along increases – Dow 45% over 3 months

Network Optimization & Simulation Tools – fleets, routes,

warehouses and distribution centers

Increased use of IT – Asset utilization, visibility tools, web-enabled

communication, TMS and WMS solutions

Increased transportation cost awareness (true net delivered cost)

Purchasing price

Transportation and logistics costs

Customs and import duties

Inventory carrying costs

Overhead and administration

Risk and compliance


Supply Chain Process Mfg Client Inquiries 2007 vs 2008

0%2%4%6%8%

10%12%14%16%

25%

14%

10%

2007

2008


Top Priority Business Process for 2008Which of the following represents your top priority for improvement over the next 12 months?(% Respondents, top 3 responses are in bold)

COG Pharma HT CP Auto A&DProviding real manufacturing costs, capabilities, and capacity to the business for effective sales and operations planning 19% 12% 24% 14% 22% 18%Operations excellence programs such as six sigma, TQM, and lean to reduce process / product variability, improve first pass yield, and reduce waste 8% 9% 11% 10% 17% 18%Reducing the impact of new product, supplier, and engineering specification changes on the manufacturing process 14% 12% 5% 29% 6% 9%Design for manufacturing - ensuring that new products / configurations are designed for existing or readily acquired manufacturing equipment 8% 15% 16% 5% 11% 0%Asset performance management and reliability centered maintenance programs to improve availability and performance of manufacturing tools and equipment 11% 12% 11% 5% 6% 9%Providing visibility on up-to-date inventory (FG,WIP), capacity, and manufacturing constraints to the business for order promising 8% 9% 3% 10% 11% 18%

Providing manufacturing with accurate and timely forecasts of demand11% 9% 8% 14% 11% 5%

Acquiring near real time production information for site level performance metrics3% 9% 8% 5% 0% 5%

Managing inventory across the extended supply chain e.g. with contract manufacturers, component suppliers, and 3PLs 3% 6% 8% 0% 6% 9%

Managing supplier quality, compliance and performance11% 3% 0% 5% 11% 5%

Finite capacity scheduling to efficiently sequence production orders to meet inventory, cost, and service level targets 3% 6% 5% 5% 0% 5%

n= 37 34 37 21 22 18Total 100% 100% 100% 100% 100% 100%


Business Process Importance vs. Performance

US - Top 2 Box Score Gap Aggregation Total Process Discrete <$1B >$1B IT LOB

Providing real manufacturing costs, capabilities, and capacity to the business for effective sales and operations planning (S&OP).

13% 14% 12% 13% 16% 11% 17%

Managing inventory across the extended supply chain e.g. with contract manufacturers, component suppliers, and 3PLs

9% 8% 11% 9% 12% 8% 13%

Asset performance management and reliability centered maintenance programs to improve availability and performance of manufacturing tools and equipment

14% 16% 12% 13% 20% 11% 19%

Managing supplier quality, compliance and performance 7% 6% 8% 3% 32% 9% 3%

Providing manufacturing with accurate and timely forecasts of demand 11% 8% 12% 9% 20% 16% 2%

Acquiring near real time production information for site level performance metrics 12% 10% 13% 10% 24% 10% 14%

Operations excellence programs such as six sigma, TQM, and lean to reduce process / product variability, improve first pass yield, and reduce waste

5% 10% 1% 4% 8% 6% 3%

Finite capacity scheduling to efficiently sequence production orders to meet inventory, cost, and service level targets

6% 6% 6% 5% 8% 8% 3%

Design for manufacturing - ensuring that new products / configurations are designed for existing or readily acquired manufacturing equipment

8% 2% 12% 4% 32% 9% 6%

Reducing the impact of new product, supplier, and engineering specification changes on the manufacturing process

6% 10% 4% 5% 12% 4% 10%

Providing visibility on up-to-date inventory (FG,WIP), capacity, and manufacturing constraints to the business for order promising

5% 4% 7% 3% 20% 6% 4%

BLUE = Notable performance gapRED = Significant performance gap

Most Im

porta

nt

Least Im

porta

nt


Innovation


Innovation Classifications

We provide reliable delivery and high volumes of well understood and commonly produced chemicals at a consistent quality and at market price

COMMODITY PRODUCER

PRODUCT SPECIALISTS

We have flexible production capabilities and manufacture batches of a wide range of specialty chemicals on demand, to customer specific formulations, + command a premium

PRODUCT INNOVATOR

We invest heavily in developing new chemistry and command a price premium for manufacturing and providing technical and joint development services on customer applications of (specialty) chemicals

PORTFOLIO MASTER

Based on the synergies of our integrated manufacturing and supply chain, we offer a wide range of chemicals/ products: We have a wide range of chemicals that fall into all three categories above


Progress: Products introduced in last 2 years = 1/3 of revenues

Sample Size = 120

Q. What percent of your 2007 revenue is generated from product introduced...

14% 14% 17% 14%

17% 19%19% 21%

19%22%

32%24%

51%45%

33%42%

CommodityProducers

Product Specialists Product Innovators Portfolio Masters

More than 5 yrs ago

In the last 2-5 yrs

In the last 1-2 yrs

In the last 12 mo.

SMB ChemCos are recent innovators: 44% of their product have been introduced over last 2 years vs 30% of large enterprises

Suggests new applications, and branding/packaging, rather than new chemistry

Most new product revenue is generated from Innovators


Q. Does your company have a formal New Product Development and Launch (NPDL) process in place?

Do not have a formal NPDL process

In the process of implementing formal

processFormal NPDL process in

place (<2 yrs)

Formal NPDL process in place (2 yrs+)

Most do not have a formal NPD&L process, or less than 2 yrs old

Sample Size = 120

33%30%

17% 20%

Have formal process in place:

38%

43%

68%

63%

Commodity Producers

Product Specialists

Product Innovators

Portfolio Masters

Still represents opportunity as companies try to get it “right”

Roughly half of SMB companies do NOT have a formal process in place / one-third are implementing


Q. What are the top 3 reasons why product development and introduction or launch efforts do not meet expectations?

23%

23%

15%

8%

12%

0%

8%

4%

4%

4%

13%

5%

8%

13%

10%

15%

10%

8%

8%

8%

32%

16%

16%

8%

4%

12%

0%

4%

8%

0%

33%

10%

13%

10%

10%

3%

7%

7%

3%

0%

Product cost/pricing issues

No clear product differentiation

Regulatory issues

Poor promotion process

Product quality issues

Late to market or missed demand

Inadequate distribution channel

Poor commercialization process

Product does not meet customer needs

Inventory shortage / product availability issues

Commodity Producers Product Specialists Product Innovators Portfolio Masters

Expectations miss when market opportunity is ill-defined

Sample Size = 120

% who said 30%+ of introductions do not meet expectations:

23%

36%

48%

20%

Commodity Producers

Product Specialists

Product Innovators

Portfolio Masters

SUMMARY OF TOP REASON


Significant process gaps in Prod. & Process Portfolio Mgmt

Sample Size = 120

Q. How important are the following processes to your company to ensure successful business innovation? (1= Not at all important / 10=Extremely important)How well would you say your company performs these processes today?(1=Poorly / 10=Extremely well)

53%

53%

48%

47%

33%

38%

28%

31%

Product portfolioprofitability analysis and

management

Project resourceallocation, scheduling

and reporting

Project review andworkflow management

Asset (mfg and R&D)portfolio profitabilityanalysis and mgmt

Importance

Performance

Gap=20%

Gap=15%

Gap=20%

Gap=16%

SUMMARY OF TOP 3 BOX (8, 9, or 10 rating)

Problem areas (gaps) are significant in Product & Process Portfolio Mgmt and Customer Needs Mgmt processes (see slide 21).

High in importance

But performance is low!


Significant process gaps in Customer Needs Management

Sample Size = 120

Q. How important are the following processes to your company to ensure successful business innovation? (1= Not at all important / 10=Extremely important)How well would you say your company performs these processes today?(1=Poorly / 10=Extremely well)

68%

53%

38%

33%

29%

30%

Customer/Market needsassessment / idea

management

Marketing, promotion,and/or sales planning

Sample management forcustomer/market

development

Importance

Performance

Gap=35%

Gap=24%

SUMMARY OF TOP 3 BOX (8, 9, or 10 rating)

Ranks as most important process

Largest gap!


47%44%

53%

69%

44%

17%

37%44%

27%

44%

27%

44%46%30%

23%

50%

67%

47%32%

27%

48%

71%

9%10%17%

8%6%

17%16%24%

47%

9%2%

Retail(n=32)

HealthcareBanking Oil&Gas Industrial Chemical A&D MfgHigh Tech Auto Mfg Pharma CPG

Increase Remain the same Decrease

Growth in IT Spending for 2009 by IndustryBudgetGrowth: 2.6% 3.3% 0.9% 3.8% 1.8 -0.8% 4.5% 11.3% 4.3% 2.2% 4.3%


IT Adoption Curve – Spending TrendsIT Adoption Curve – Spending Trends

49% 46%26% 23%

50%48%

2%11%

24% 29%

42%49%

Innovator(n=106)

Early adopter(n=140)

Averageadopter(n=76)

Late adoper(n=31)

Decrease

Remain the same

Increase

IT Budget Direction 2009/2008


Total addressable Chemical innovation tech market by revenue segment in North America (2007-2010)

Sample Size = 120

$737,100,521

$1,704,649,271

$483,798,750$483,750,000

$814,649,638

$533,509,072

$1,854,584,491

$506,425,781

11%

9%

10%

5%

$-

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

$1,400,000,000

$1,600,000,000

$1,800,000,000

$2,000,000,000

Total <$500M $500-$1.49B $1.5B+

Pro

ject

ed S

oft

war

e M

arke

t S

ize

($ M

M)

0%

2%

4%

6%

8%

10%

12%

2007

-10

Pro

ject

ed G

row

th (

%)

2007 2010 2007-10 Growth (%)

CALCULATIONS:

# of N. American ChemCos x Average technology spending to support innovation = Total 2007 investmentsTotal 2007 investments x Net change in 24 mo. = Total addressable market (2007-2010)(includes software and related services such as hardware and integration)


NPDL initiatives impact on technology spending

Sample Size = 120

Q. Which of the following NPDL initiatives impacts your technology spending to support business innovation?Q. Which will impact your spending to support business innovation in the next 3 yrs?

48%

44%

40%

32%

30%

28%

36%

38%

53%

47%

34%

43%

46%

78%Development of a strong R&Dportfolio/pipeline

Improvements in collaborationprocesses/technologies w /inR&D, Mfg, SC + Sales & Mktg

Recruitment + retention of toptier managers and scientists

Redeployment of existing mfgtechnologies/assets for

new /higher margin products

Investments in IT to increaseR&D productivity

Formation of R&D alliances +partnerships w / other f irms

Commercialization of greenmanufacturing processes

Today

Next 3 yrs


Information Technology Adoption Curve - Self AssessedInformation Technology Adoption Curve - Self Assessed

29%

36%

24%

10%

30%27%

23%

34%

25%

19%

22%

0%0% 0%

30%

40%

21%

7%

2%

26%

15%

35%

4%

23%

35%

56%

9%

Innovator - Leads theway by being among

the first to adopt

Early adopter - Part ofthe second wave of

adoption

Average adopter -Move with the masses

Later adopter - Waituntil the technology’s

presence in the

Laggard- Last toadopt new

technologies

Total Enterprise Net: LoB Finance job Mfg Ops job CIO Net: IT

56% CIOs believe their company is an Innovator, compared with 29% among all job functions


Sustainability in US and European Chemical, Oil & Petroleum Industries


Legislative Long View and Sustainability


Expansion Plans– US vs. Europe by 2010Q12. Which of the following Sustainability initiatives will your company invest in by 2010? Select all.

32%

32%

37%

32%

26%

42%

37%

26%

26%

47%

42%

21%

32%

10%

36%

46%

37%

23%

31%

39%

24%

24%

34%

21%

19%

23%

0% 25% 50%

None - w e look at Sustainability as contraction

Dvlp renew able energy sources: w ind

Dvlp new energy sources: biofuels

Dvlp low er cost/larger fossils (coal for synfuels)

Alter ref ining to consume more sustainable feedstocks

Dvlp new energy sources: hydrogen

Dvlp renew able energy sources: hydro

Dvlp renew able energy sources: solar

New conversion units to align w /demand for "greener" product slate

Invest in green/sustainable chemicals

Alter/retrof it current exploration/production to improve yields

Process imprvmnts to Reduce COx/NOx emissions

Invest in energy mgmt/optimization for ow n operations

US 2010

Europe 2010



Thank You

Bill Polk

[email protected]

(617) 574-5240

Documents

Accenture Chem Training Full Presentation