1、 2022 Boston Consulting Group1The Digital Frontier in Chemical DistributionNetworksOCTOBER 26,2022 By Jan Beier,Patrick Haslanger,Lorenz Dolezalek,Eva-Katharina Dietsche,Christian Guse,Alexander Hogreve,Jan Friese,and Pepe RodriguezCompanies that rethink and reform their outbound distribution networ

2、ksgain new sources of revenues,greater sustainability,a more resilient supplychain,and significant competitive advantages over slower-moving rivals.The impact of supply chain disruption on the global chemicals industry has beensevere,affecting not only the inbound supplies of feedstocks needed for t

3、hechemicals that companies make but also the outbound distribution of those 2022 Boston Consulting Group2products to customers.And yet many chemical companies still havent made theeffort to optimize their supply chains,especially their outbound distributionactivities,even though they have considerab

4、ly more control over them than theydo over their inbound supply chains.The failure to optimize these outboundactivities can pose serious risks for chemical companies,especially as the marketfor chemicals becomes increasingly commoditized and customers can switch easilyto cheaper,more responsive prod

5、ucers.Given that significant advances in digitization have generated considerably higherlevels of efficiency and transparency,the time is ripe for companies to rethink andreform their outbound distribution networksnot just in the chemical industrybut in every sector that faces similar challenges.The

6、 rewards of making such aneffort can be considerable:significant competitive advantages over slower-movingrivals,new sources of revenues through a variety of value-added services,greatersustainability through reduced energy costs,and a more resilient supply chainoverall.The Outbound OpportunityOutbo

7、und supply chains have a direct impact on chemical companies costs andservice performancewhich,in turn,directly affect customer satisfaction.Andoutbound chains tend to be more complex than inbound chains,given that thesame narrow set of feedstocks must support a growing number,and increasinglywide v

8、ariety,of products.Whats more,the amount and diversity of products,aswell as the number of customers and end markets,tend to ramp up with everystep in the value chain.Optimizing outbound distribution chains,therefore,can significantly reduce costsby as much as 20%,in our experiencewhile maintaining,

9、or even improving,pre-optimization service levels.Moreover,optimized,more cost-efficient supply chains are also more sustainableand resilient.Simply by transporting less material over shorter distances,and 2022 Boston Consulting Group3using the most energy-efficient transport modes,companies can red

10、uce theircarbon emissions per ton-kilometer shipped by up to 20%,even before any directfocus on emissions reductions.And by building more sophisticated,transparent,manageable,and agile supply chains,companies can protect themselves from thekinds of unforeseen disruptions that have plagued the indust

11、ry recently.Intelligent DistributionYet too many chemical companies have neglected their outbound distributionchains,despite the complexity of those chains and their direct impact on costs,customer satisfaction,and carbon footprints.Due in part to strong M&A activity,customer distribution networks h

12、ave grown substantially,with little overallstrategic direction.Company leaders have downplayed the relevance of thosenetworks to the business,and they have been reluctant to invest in assets that theyconsider to be less strategic than those involved in production.This is a mistake.In the past decade

13、 or so,new technologies have transformedsupply chains.Thanks in part to the rise of the Internet of Things and big dataanalytics,supply chains now produce millions of vital data points.Material flowscan be visualized,analyzed,optimized,and thus steered in a completely newfashion,right down to the si

14、ngle product and shipment leveleven for globalcompanies with hundreds of thousands of shipments every year.More recently,leading companies are beginning to use artificial intelligence(AI)tooptimize supply chains.Digital twins of entire supply chains can be modeled onthe basis of millions of single t

15、ransactions and used to simulate multiple supplyscenarios,while taking into account business constraints,such as labor laws,shipment costs per mode of transport,warehouse fixed and handling costs,andmaterial flows.Sophisticated machine-learning algorithms predict supply anddemand and shipment delays

16、.Optimization algorithms based on heuristics ormixed-integer programming can help determine the best future setup of the supplychain and build the foundation for digital transformation.Even simple analysesfrequently reveal quick wins.Built in stages,the result is a fully integrated 2022 Boston Consu

17、lting Group4distribution chain that provides end-to-end transparency,flexibility,andpredictability.(See Exhibit 1.)A digital model,however,will always remain a simplified representation of reality.So,it is important to focus not just on the technology and algorithms required butalso on the people an

18、d work processes involved in making change happen in thereal world.In our experience,companies that achieve successful AItransformations dedicate as much as 70%of the required investment to embeddingAI in the organization,actively managing change,and building trust in the newtechnologies being imple

19、mented.Companies that take advantage of these new levels of transparency and controlcan do more than improve their cost positions.They can also boost service levels,such as lead times and on-time-in-full performance;provide customers with real-time track-and-trace information;and offer the option to

20、 request smaller orderquantities.We advise companies looking to capture the benefits of a fully optimized outbounddistribution chain to follow a three-step process,as shown in Exhibit 2:2022 Boston Consulting Group5Create TransparencyThe first step in any distribution network optimization program is

21、 to ensure fulltransparency into the networks current physical locationsproduction assets,warehouses,and customer collection pointsand the material flows to and fromthese locations.This effort has three main objectives:Create transparency.Integrate data from the various sources needed,build adata mo

22、del,establish the current baseline,and analyze the changes requiredto capture the intended benefits.1.Plan the program.Determine the proper path for making the improvementsneeded,and make sure that it is linked to both the short-term and midtermoptimization goals as well as the overall longer-term s

23、trategy.2.Implement sustainable change.Begin making the planned changes andmonitor the impact;ensure that new approaches are embedded securely inprocesses and ways of working while remaining open to new methods andapproaches.3.2022 Boston Consulting Group6The target state for end-to-end supply chain

24、 transparency is usually quite clearfar more so than the path to achieving it.Typically,a full and comprehensive dataset will not be available,but it is also not a necessary prerequisite.This is whererecent advances in data engineering and analytics can help,by allowing for thecombination of very la

25、rge and varied data sources into a consistent supply chain Generate a consolidated,global data set encompassing all relevant costs,constraints,sites,and material flows,and apply AI to help reconcile dataamong disparate sources.The resulting data model must replicate reality asclosely as possible.If

26、the model contains only a subset of flowssuch as thefinal delivery leg from a specific location to a specific customer,for examplethen the analysis might focus on switching the source from one warehouse toanother,which may increase performance and decrease cost on that particularleg.But previous leg

27、sfrom the production plant to that warehousecouldbecome even less efficient.Analyze the current networkincluding production assets,warehouses,andcustomer collection pointson a consolidated map in order to understand thefull complexity of current operations and generate insights into opportunitiesfor

28、 optimization.While the optimization model can mathematicallydetermine the best warehouse locations,for example,noting the location ofwarehouses on a map could reveal redundancies.Customer densityinformation will indicate where the warehouse footprint is too dense or toospotty.And product flow data

29、will show which routes are the main ones andwhere products may not be distributed to customers most efficiently.Understand the effect of all optimization levers in light of overall strategy andpotential business disruptions,and then quantify and rank their impact.Because the personnel and financial

30、resources needed to implement anyplanned changes are limited,it will be necessary to prioritize the optimizationlevers to maximize the return on investment and properly sequence theirimplementation.This is feasible only when the costs and benefits of each leverare clearly quantified.2022 Boston Cons

31、ulting Group7data lake.Common enterprise resource planning systems,for example,canprovide shipment data to highlight material flows on a per-shipment level.Business data warehouses and other databasescontaining order data,forexamplecan provide a comprehensive view on customer locations and demand.An

32、d asset databases can provide details on transport equipment,warehouses,tankterminals,and other physical assets in the supply chain.All this data needs to be integrated and augmented,by geocoding company-owned,third-party,and customer locations,for example,and,when necessary,byapproximating all inte

33、rnal flows of product volumes to generate a full end-to-endview.Careful validation is a must,because data from many different sources mightbe contradictory,incomplete,or falsely matched.Using AI techniques such asfuzzy logic can help to improve the matching of various data sets.Once completed,the re

34、sulting data model forms the foundation for any furtherwork.Creating it,however,must not be a one-off effort but rather a continuousprocess,with more and more data added over time.Ideally,automated pipelines toexisting sources of data should be established and additional external data sourcesregular

35、ly identified and connected.A final objective in creating full transparency involves analyzing the data model inlight of the companys overall corporate goals.This will help to generate acomplete view of the strategic ambition for the distribution network and thusidentify implications for its future

36、setup and whats needed to achieve it.Balancingmultiple factors,such as achieving cost leadership versus increasing customerservice levels and preserving product quality,may well be required.To that end,the data set should reveal the relationship between such factors,with theunderstanding,for example

37、,that cost goals are unlikely to be achieved if thenumbers of warehouses and inventory levels are increased.Plan the Program 2022 Boston Consulting Group8Once the company has gained full visibility into the current state of its distributionnetwork and settled on its strategic goals,its time to begin

38、 planning for thenetworks future shape.This process should follow a structured approachencompassing three specific time frames:quick wins,midterm improvements,andlong-term targets.Quick Wins.Plan to capture short-term improvements,within the existing supplychain,that will generate value with little

39、or no investment.Quick wins are notintended to tackle major structural changes but rather to provide early evidence ofthe programs potential for success,help fund the journey,generate support for theoverall plan,build momentum among the program team,and boost confidenceamong business stakeholders.Qu

40、ick wins largely depend on the companys specific setup,including its particularproduction footprint,warehouse locations,modes of transport,and productcharacteristics(such as hazardous versus nonhazardous chemicals).A typical quickwin involves reductions in obsolete and slow-moving goods.Oen,activein

41、ventory management is minimal,especially for low-volume products.Gainingtransparency into stock and shipments at the product and warehouse levels willallow companies,for example,to segment products by volume share and orderfrequency and to develop location-and product-specific inventory targets that

42、 canaccount for the precise inventory needs of low-volume products.Such shipment transparency is especially important for global chemical companies,given the current disruptions in global freight.Detailed shipment information isalso critical to identify and improve so-called triangle shipmentsfrom p

43、roductionto storage location A to storage location B to customer,for example.Geocoding,visualizing,and modeling each leg of such triangle shipments allow companies toquickly detect inefficiencies,identify unnecessary shipments through root-causeanalysis,and determine more direct and cost-efficient r

44、outes,with the addedbenefit of reducing emissions.2022 Boston Consulting Group9Midterm Improvements.The next stage in the planning process involvesmidterm improvements,which should encompass the time frame of companiesnormal planning cycles,typically from three to five years.Because theseimprovement

45、s will require changes to the actual structure of the distribution chain,they should include the evaluation of the capital expenditures needed to fund thechanges and the building of positive business cases.Thinking systematically aboutthe entire distribution chain opens up the range of possible impr

46、ovementsconsiderably.Chemical companies that have grown inorganically in recent years,for example,are no doubt aware that consolidation of warehouses would allow for significantsavings.Instead of merely closing the warehouses with the highest storage costs,however,these companies should take a more

47、sophisticated optimizationapproach.Assuming that their efforts to gain transparency into supply chainactivities have been successful,they should have full visibility into the cost and thegreenhouse gases(GHG)emitted during the last leg between warehouses andcustomers.This,in turn,should allow them t

48、o balance the economies of scalegained via warehouse consolidation with reduced proximity to customers,whiletaking into account considerations such as tariffs,geographical concentrationversus diversification,and any associated changes in the supply chains continuityrisk profile.Using a demand foreca

49、st model based on machine learning and a center-of-gravityanalysis to reveal the geographic origins of demand,companies can determine theoptimal number and location of multiple warehouses within each region ordemand cluster.Running multiple mathematical optimizations on a granular levelwill allow th

50、em to incorporate specific industry and product characteristics into themodel,such as different requirements for commodity and specialty products orcustomer-specific needs.To ensure that the results of the model are implemented with the least disruptionto the business,companies will need to work out

51、 a detailed implementation plan,2022 Boston Consulting Group10including the sequence of warehouse closures and shis in volume shipped.(SeeExhibit 3.)While the cost benefits of such improvements will show up over time,the benefitsin terms of reduced GHG emissions can be much harder to track.Companies

52、should consider creating a control tower that monitors shipments and other supplychain activities at the single-transaction level,capturing data on their emissionsand continuously tracking emissions reductions compared with a preestablishedbaseline.Building a flexible optimization model that fully r

53、eflects the distribution networkwill also allow companies to adapt to evolving conditions,such as new-productintroductions and significant changes in demand patterns,and to make thenecessary adjustments to the network quickly and effectively.Long-Term Targets.In addition to capturing quick wins and

54、making plans formidterm structural improvements,companies should look further into the future,reimagining what their distribution networks might look like given the emergenceof broad trends,such as the impact of electric vehicles on customer requirements.2022 Boston Consulting Group11The idea is to

55、define a North Star view of the future network in light of theconditions that could influence it over time.This exercise need not take immediatebusiness constraints into account,but it must make sure that short-term andmidterm supply chain initiatives do not conflict with the goals of the North Star

56、vision.It is conceivable that each region,division,or end market could develop its ownindependent North Star.Global alignment would be critical in that case.Thetarget picture would need to cover all aspects of outbound logistics,includingwarehouse footprint,material flows and transportation modes,in

57、ventorymanagement,and supply chain governance.Adjacent areas,notably production,as well as customer-facing service offerings should also be considered.North Star exercises are usually less quantitative and data driven than efforts todevelop specific improvement measures.Instead,they take larger stru

58、cturalchanges into consideration,including:Long-term targets should serve as unified goals across functions,business units,and responsibilities.Conducting a gap analysis between the current setup and theCompanies should define a North Star view of thefuture network in light of the conditions that co

59、uldinfluence it over time.Potential regulatory constraints,such as trade tariffs and prohibited materials Expected market changes and fluctuating customer requirements,includingincreased localization of supply chains Changes in strategic direction that might affect the future product portfolio 2022

60、Boston Consulting Group12long-term North Star target will allow senior management to identify majorimprovement areas and prioritize the changes needed.Finally,a North Staranalysis will help management track the progress of improvement initiativestoward long-term ambitions more broadly.Implement Sust

61、ainable ChangeOnce the improvement plan has been designed,companies must start carrying outand monitoring the intended changes.At the same time,however,they must alsobuild the capabilities needed to implement the changes smoothly and to allow forongoing,sustainable improvement.They should begin by a

62、ssigning accountability for each improvement task,determining who should carry out it out along predefined action steps andmeasure its impact through specific milestones and implementation KPIs.Usingspecific individual milestones to track progress helps companies to easily measuresuccess.But multipl

63、e milestones will likely need to be achieved before any impacton specific KPIs will be seen.One milestone,for example,might involve the initiation of negotiations to rent aterminal at a harbor not previously used.But the effect of reducing both deliverytimes and logistics costs from the new terminal

64、 to customers can only be measuredaer multiple additional milestones have been passed and the new setup is fullyimplemented and running smoothly.Tracking milestones and their financial impact,as well as regular reporting onprogress,is best done through a central project management office(PMO).ThePMO

65、 should act both to manage and control the realization of benefits within theplanned time horizon and required resources and to support implementationteams in case of challenges.Key to the effort will be for the PMO to enlist support on common challenges,including from:2022 Boston Consulting Group13

66、Specific implementation measures should be designed and driven by the owners ofthe business or function where the necessary changes will occur.Only they havethe knowledge and experience required to carry them out successfully,and they arethe ones who must integrate the changes into their daily work

67、routines.As with all critical operations,making major changes to the distribution networkwill require developingor buyingnew capabilities,including people-relatedcapabilities,such as new knowledge and skills;supporting systems,such asoptimization tools and supplemental data;and assets and hardware,s

68、uch as real-time transport position monitoring devices and control rooms.Requiredcapabilities will likely include both temporary implementation capabilities andpermanent execution capabilities.Ideally,the specific capabilities needed duringimplementation(such as the ability to create and run a struc

69、tural optimizationmodel)will serve as the foundation for an execution capability(such as the abilityto optimize product flows on an ongoing basis).The business,for example to propose alternative shipping modes Subject matter experts,for example to ensure methodological consistency inthe approach to

70、data and its analysis Management,for example to properly prioritize implementation activities soas not to begin too many measures at onceNew methods that enable companies to run thebusiness in a more efficient and effective manner needto replace old ways and traditional thinking at alllevels.2022 Bo

71、ston Consulting Group14To sustain the changes made,it is critical to anchor them in daily ways of working.New methods that enable companies to run the business in a more efficient andeffective manner need to replace old ways and traditional thinking at all levels.This includes both tangible work pro

72、cesses(such as regularly running quantitativeoptimization models and frequently benchmarking processes against competitors)as well as intangible,cultural changes(such as cross-functional collaboration andthe assignment of responsibility for optimization efforts across functions andhierarchical level

73、s).The key to long-term success is continuous improvement.And the key tocontinuous improvement is a company-wide change in mindsetthe willingnessnot just to own specific improvement measures and results but also to seek outnew ideas and methods and to incorporate the best ones into regular ways ofwo

74、rking.With the right investments and approach,PMOs set up during the project oenevolve into centers of excellence that can continue to support this cultural changeby ensuring that continuous improvement is top of mind always and everywhere.As such,they can serve as the basis for each round of struct

75、ural improvements,both aer the initial wave of measures has been completed and when newcompetitive pressures,market opportunities,or advances in technology warrant anew round of structural optimization efforts.Companies that optimize outbound product distribution networks,an all-too-oenneglected asp

76、ect of the chemicals business,achieve real gains in cost,sustainability,and resiliency.The advent of the Internet of Things,big data,AI,and other digital technologies can help in this effort,significantly reducingcomplexity,accelerating value realization,and improving customer satisfaction.The key i

77、s transparency.Using the digital tools now available,companies must laythe foundation for optimization through a thorough understanding of the networkand how it operates.This,in turn,will give them the insights needed to plan forand carry out the necessary optimization efforts,both in the near term

78、and in the 2022 Boston Consulting Group15future.Those that succeed will be able to serve their customers more effectively,atlower cost,and with a sustainability advantage over their slower rivals.In short,its time to see outbound supply chains as a real competitive advantageand to make the moves nee

79、ded to gain that advantage.2022 Boston Consulting Group16AuthorsJan BeierPartnerColognePatrick HaslangerProject LeaderMunichLorenz DolezalekPartnerMunichEva-Katharina DietscheProject LeaderMunichChristian GuseManaging Director&PartnerMunichAlexander HogreveManaging Director&PartnerHamburgJan FrieseM

80、anaging Director&Senior PartnerFrankfurtPepe RodriguezManaging Director&PartnerNew Jersey 2022 Boston Consulting Group17ABOUT BOSTON CONSULTING GROUPBoston Consulting Group partners with leaders in business and society to tackle theirmost important challenges and capture their greatest opportunities

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