In my previous blog post, I discussed two supply chain trends that we expect to continue in 2021. The first was related to Resilient and Sustainable Supply Chains. The second was related to Sales and Operations Execution (S&OE). In this post, I’ll cover two additional supply chain trends to watch in 2021 and beyond.
Extended Value Chain Integration and End-to-End (E2E) Optimization
Transportation fuels have historically been the biggest demand and end-use for crude oil. With the energy transition underway, demand for transportation fuels is expected to peak, driven by more efficient combustion engine technologies and the transition to electrical vehicles. As this happens, refiners will shift their attention from transportation fuels demands to chemical demands as a target area for future growth. This megatrend is referred to as crude-to-chemicals (CTC).
When looking at the CTC extended value chain, there are two key areas with integration opportunities. The first is the integration of the oil refining supply chain and the base petrochemicals supply chain. The opportunities here relate to exploiting process and molecular synergies to shift from producing fuels to chemicals.
The second is the integration of the base petrochemicals supply chain (e.g. olefins) with the downstream derivative chemicals (e.g. polyolefins) supply chain. The opportunity here is linked to being more agile and specific in the monomers and polymers value chain planning integration and optimization to best respond to changing supply/demand economic conditions across the extended olefins-to-derivatives value chain.
Managing and optimizing a crude/olefins-to-polymers extended value chain is challenging, as it spans supply chains that have very different characteristics.
The intersection of Bulk Chemicals and Polymers is where the demand-driven and the margin-driven sides of the value chain meet and interact.
The upstream refining and bulk chemicals businesses are margin-driven supply chains in which the optimization opportunity consists of optimizing the operating conditions of complex continuous production processes, as well as exploiting feedstock supply and associated economics optionality.
The downstream polymers business is a demand-driven supply chain in which the optimization opportunity consists of looking at the broader business system (including changing demands for hundreds to thousands of individual finished products with unique characteristics, the distribution network and associated modes of transportation, inventories optimized according to demand patterns and production cycles of different grades, and semi continuous/batch/continuous production units) and determining the best way to balance supply/demand while maximizing the profitability of this overall system.
Many companies are already working on or prioritizing initiatives related to extended value chain integration and end-to-end optimization. Repsol Chemicals is one of them. Repsol Chemicals recently provided an overview of its “Control Tower end-to-end supply chain optimization” project at the November 2020 European Refining Technology Conference (ERTC). The AspenTech value chain optimization solution will support Repsol Chemicals in achieving its customer service objectives and becoming more agile to respond to market and operational changes, while doing so with full visibility into the end-to-end integrated margin across the olefins-to-polymers value chain with the required accuracy and granularity.
What-if Scenarios Analysis Leveraging Mathematical Optimization at Scale
In the past year with COVID-19, the one common thing I learned by speaking to manufacturers across different industries was how what-if scenario analysis skyrocketed in importance. Faced with tremendous uncertainty and complexity, the best way to face an uncertain future is by evaluating what-if scenarios to explore economically feasible alternatives. This is extremely valuable for business contingency planning purposes.
Unfortunately, most companies today still rely on inadequate spreadsheets rather than supply chain planning and scheduling optimization digital twins. Spreadsheets are inadequate for two reasons: they can’t adequately model process industry manufacturing and supply chain complexities, and they weren’t designed to do mathematical optimization at scale.
At the core of a supply chain digital twin there needs to be a representation of the manufacturing process. Multiple complexities may need to be factored into this model, such as production switching costs, utilities, minimum run sizes, and so on. Modeling becomes even more challenging when you factor in other production or tolling sites, as well as the dependencies across sites. As you extend backwards from production into suppliers, there are aspects that should be modeled here as well including different purchase minimums, costs, and lead times varying by supplier.
Finally, you have the downstream supply chain consisting of warehouses, distribution centers and customer ship-to locations. Things get complicated when you try to factor in duties and tariffs or product substitution options. As you can imagine, it can be very challenging to model these interrelated elements in a spreadsheet—rather than using a solution designed specifically for that purpose.
The other big limitation of a spreadsheet is that it wasn’t designed to do mathematical optimization at scale to solve real-world problems—taking into consideration anywhere from tens of thousands to millions of variables and constraints. Using a solution designed specifically to do mathematical optimization at scale such as Aspen Supply Chain Management (SCM) is extremely valuable because:
- An optimizer will find the best answer automatically, whether the goal is to maximize profit or minimize costs across the end-to-end system.
- An optimizer will recommend options that a person or business wouldn’t normally consider or didn’t know were even possible. That’s because it can easily deal with complexity in a way that a human mind cannot.
Most customers presenting in the Aspen SCM track at OPTIMIZE 2021 will provide insights on the economic value of—and increased agility made possible by—leveraging mathematical optimization at scale in planning and/or scheduling. What will be great about the Aspen SCM track is that it will consist of presentations from customers across a wide range of industries including lubricant base oils, bulk chemicals, specialty chemicals, consumer packaged goods, and automotive. Attendees will get a chance to learn firsthand about the types of supply chain optimization opportunities that exist in different areas of the process industries.
Optimize 2021 Virtual Conference – Supply Chain Management (SCM) Track
For the first time ever, AspenTech’s OPTIMIZE conference will be a virtual experience, and registration is free. I encourage you to take this opportunity and attend as many of the Aspen Supply Chain Management (SCM) track customer presentations as you can. Please visit optimize2021.com to register.