Transforming the GCC Chemical Industry with Supply Chain Integration – LogiSYM September 2020

The GCC chemical industry is second largest manufacturing industry in value add, after refining. 2017 Facts and Figures report by Gulf Petrochemicals and Chemicals Association (GPCA), the chemical industry accounts for 3.1 percent of the GCC’s GDP. It is the fastest growing sector in the GCC with Saudi Arabia and United Arab Emirates as the top producers.

Reported by GPCA, “China is one of the key destinations for GCC polyethylene exports. Slowing demand means 6% lower imports from the GCC vs 2019 and 10% lower than 2020 forecast before the virus outbreak.” Following COVID-19 the global chemical supply chain market reported a severe decline in output. A reduced end-products demand, has exposed the vulnerabilities of relying on a single consumption market.

GPCA confirms GCC chemical industry’s key problem is ensuring a smooth flow of raw materials to reach production plants across the globe for finished good production.” in turn aggravated by recent growth in global protectionism, trade tariffs and border closures. Overcoming these challenges, regional chemical manufacturers and suppliers are now forced to rethink and readjust their global supply chain model. The answer – supply chain integration. Collaboration amongst partners is essential to address challenges, ranging from demand-supply volatility to fulfilling orders on time.

GCC chemical industry is not immune to global trade fluctuations, transportation constraints and escalating competition, elevating the importance of supply chains to improve the bottom line.

The key focus areas:

• Operational and cost efficiencies: Cost reduction is the primary reason for integration along the value chain. A stepping-stone to increasing Company integration. Focussing on lowering logistics costs by coordinating time charters or invest in joint shipping lines to capture ship-owner returns. Realising operational and cost efficiencies will reduced lead times, improved forecast accuracy and increased inventory turnover.

• Knowledge exchange: Addressing gaps in own capabilities through collaboration. Knowledge sharing and learning, close collaboration helps in building deeper expertise and greater performance. To realise the full advantage of collaborations, partners must be committed to learning process and have the in-house capability to leverage on use of new information.

• Risk management: Risks are inevitable in complex supply chain networks. Working closely with partners can help mitigate some risk and avoid disruptions / obstacles to logistics. Reliance on China as the key export market for GCC chemical and petrochemical companies, has shown why integrating and extending partnerships along the supply chain are crucial to mitigate risks.

• Regulatory compliance: Chemical business supply chains require compliance to global, regional and local regulatory requirements – very challenging. Regulatory compliance requires tight cooperation amongst different functions of an organisation, third parties, suppliers, distributors, brokers and logistics service providers. There are numerous requirements that must be monitored and observed in order to prevent supply chain bottlenecks, potential scrutiny and reputational damage of the organisation.

Successful collaboration will result in several benefits – reductions in lead times, improved in-stock fill rates, improved forecast  accuracy, and increased inventory turnover.

So how can companies in the GCC chemical industry secure the future of their supply chain networks via integration?

• Establishing trust – Supply chain integration is a process of all parties at all levels, working in a synchronised and coordinated single system. This cannot happen without trust. Establishing trust is key to ensuring smooth collaboration between multiple supply chain partners. With less or no trust, all involved will experience lack of visibility, miscommunication and process inefficiencies.

• Driving change from the top down -The leadership has the power to steer collaboration among all supply chain partners by outlining the vision and objectives of the partnership. Leaders must create sense of purpose, empower people, streamline structures and coordinate trans-organisational, multi-stakeholder programs. A crisis is the opportunity for leaders to improve such vital collaborations.

• Enhancing communication -Cross-functional communication is fundamental at any time. But during crisis and driving structural changes is even more important. Working closely with strategic teams and exploring implications for procurement, logistics and distribution, supply chain teams can better prepare for risks related to supply and demand. Breaking down silos and creating an environment, allows the best talent to thrive.

Supporting localisation – To increase resilience, means to decentralise sourcing. Repositioning production plants / source manufacturing closer to end users’ markets, requires investing in regional infrastructures. Governments across GCC region (Saudi Arabia and UAE) have allocated $ 1.1 trillion and $ 350 billion respectively to infrastructural development between 2019 and 2038 to improve local products and promoting local suppliers. Embracing localisation, chemical industry can safeguard the supply chain process and reduce their carbon footprint.

• Embracing technologies -Technology is key to enabling integration in the supply chain. But the chemical industry is still lagging in digitisation. Only 17% of global chemical companies are “digital champions” (Boston Consulting Group) – also confirmed by GPCA on status of GCC chemical industry. Technology increases data availability, visibility and agility. Supply chain leaders in the chemical industry, need to take advantage of the tools and new technologies to drive innovation, reduce risk and improve efficiency.

Supply chain is about synergies across different levels and between different players in the ecosystem. The meaning of integration varies on the size and scope of a particular supply chain. The common goal is to bring together all relevant stakeholders along the supply chain to align their efforts in order to achieve a shared goal. Ultimately, companies that appear robust, go beyond supply security and adopt multiple strategies to drive value.  These strategies range from cost reduction, supplier collaboration, risk management to digitising operations and vertical integration. And as the majority of the GCC’s chemical industry want to focus on project delivery – which means securing faster and more direct ways of accomplishing them with the help of supply chain partners – this is an ideal environment to increase integration along the supply chain.