Value Creation || State-of-the-Art Production Concepts in the Chemical Industry

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19State-of-the-art Production Concepts in the Chemical IndustryUwe Nickel

The chemical industry’s environment has changed over the last decade, and pro-duction with it. We are aware that raw material prices and wage increases haveraised costs, competition is taking place more than ever on a global level, and mar-kets are maturing (see also Chapters 1, 3, and 8). The numbers of patent-protectedproducts and of new chemical species have shrunk, leading to a significant reduc-tion of ground-breaking technologies and to commoditization in many fields.Along with that, producers from low-cost countries like China and India have suc-cessfully developed in the market. All this has made cost optimization throughproduction management more important than ever to a company’s economic suc-cess.But the task has not become any easier. A global production network adds com-

plexity that needs to be managed. Interdependencies within this network requiremore sophisticated management processes and fluctuations of lead currenciescall for risk limitation strategies. Furthermore, turning the rising flood of infor-mation into true knowledge for the company is a substantial challenge for produc-tion management.As a result, the production function has to deliver excellent complexity manage-

ment and also produce at even lower costs (Fig. 19.1). In order to manage theincreased complexity, Clariant, one of the leading specialty chemicals companies,has established a dedicated network management function that balances capaci-ties and production volumes, with dedicated supply chain management con-trolling the global flow of goods. Technology and knowledge management pro-cesses are in place to filter state-of-the-art processes and concepts and turn theminto institutional knowledge. Cost reductions, on the other hand, are addressedthrough structural and operational levers. The structural levers consist of an opti-mized global production network and a focus on distinctive value creation. On theoperational side, functional excellence is to be achieved by establishing a systemfor continuous performance improvement and continued plant optimization.This chapter describes the efforts that have been made at Clariant since the late1990s, and the experience and learnings we gained.

Value Creation: Strategies for theChemical Industry. 2nd Edition. F. Budde, U.-H. Felcht, H. Frankem�lle (Eds.)Copyright � 2006 WILEY-VCH Verlag GmbH & Co. KGaA, WeinheimISBN: 3-527-31266-8

Fig. 19.1 Challenges in production and how to address them.

19.1Operating in a Transformed Environment

Over the past decades, and especially over the last one, the environment of thechemical industry has undergone some fundamental changes: innovation hasslowed down considerably, geographical barriers have largely vanished, and theskills of competitors in low-cost countries have improved.

19.1.1Decelerating Innovation

Over the past decade, sales of products younger than three years have decreased.In 1999, only 29 percent of sales were generated from these new products, muchless than in other areas. While other industries, especially in the consumer sector,have increased their share of new products, chemicals saw a drop of 19 percentbetween 1992 and 1999 (Fig. 19.2).The pipeline of innovation, expressed in filed patents, has also changed. The

Derwent World Patent Index shows that the number of patents in the world nearlytripled to 710,000/year between 1980 and 2004, whereas in the chemical industryit only doubled to 213,000/year. Since 1992, the number of patents in the chemicalindustry has been steady.

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Fig. 19.2 Decreasing sales from new products in chemicals.

What is more, the innovations in chemicals were largely incremental around exist-ing technologies andmarkets. New technologies (e.g., fuel cells) are growing quicklybut will not have a major substitution impact on traditional areas. For example, thenumber of patents in pigments, where Clariant is a market leader with a turnover ofalmost EUR 1.2 billion in sales, is consistently above that of emerging technologies(Fig. 19.3). As a result, instead of breakthrough innovation and blockbuster products,the chemical market is characterized by marginal changes and is fundamentally avery stable environment from the product perspective.

Fig. 19.3 New technologies in the specialty chemicals industry, 1970–2004.

24319.1 Operating in a Transformed Environment

19 State-of-the-art Production Concepts in the Chemical Industry

In contrast to other industries, the introduction of new production processesfaces some substantial barriers in chemicals. For one thing, customers are reluc-tant to accept price increases, even for innovative products. Even if product substi-tution is possible from a physical-chemical point of view in a wide range of appli-cations, as a result of consumers’ increasing focus on price rather than value,more and more specialty chemicals have turned into semi-specialties or even com-modities without changing in themselves. Companies’ product portfolios haveundergone a creeping aging process. In many areas, competition for the betterprice rather than the better product is giving efficiency of production a pivotal rolefor a company’s prosperity.Second, process changes that require new production facilities – and the

restructuring of old ones – often do not stand up to financial scrutiny. Only if thecost savings from the new process are very substantial do the investments have anacceptable pay-back. Furthermore, due to the growing importance of asset-drivenfinancial indicators like return on invested capital (ROIC) or economic valueadded (EVA), tight management of assets has become more important than in thepast. Investments into newly designed processes are being handled with increasedcaution. This has led to an increasing amount of investment into existing equip-ment rather than new. In the USA, for example, investments into existing assetsrose from 15.2 percent of total capital spending in 1997 to 36.5 percent in 2003according to the American Chemistry Council.

19.1.2Chemicals Have Become More Global than Ever

Political and technological changes have reduced the barriers between countriesand have created a truly global industry. Attempts at protectionism soon go by theboard, and have a greatly diminished ability to safeguard a local economy and, stillmore importantly, to ensure permanent GDP growth. Customs procedures havebeen simplified, excise duties have been lowered, technical standards have beenharmonized, and the Internet has created a completely new market transparency.All this has made it easier, cheaper, and more convenient than ever for the custo-mers to compare offers and sources on a global level rather than look only for localsuppliers. Operatingmargins have dropped from eight percent in 1990 to 6.7 percentin 2000, and competition is taking place on a global level for almost any product.

19.1.3Competition from Low-cost Labor Countries Is Changing the Industry Landscape

Political and economic progress in Asia, especially in China, has allowed Asiancompanies to successfully compete on the global market (see also Chapters 7, 32,and 33). This has also brought opportunities for foreign companies to take advan-tage of the low labor costs and the proximity to a huge emerging market. Be-ginning in the early to mid eighties with just representative offices, many compa-nies have now moved significant production capacity to this region (Fig. 19.4).

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19.1 Operating in a Transformed Environment

China has modernized its economy by opening up to foreign trade and invest-ments, reducing bureaucracy, and fostering the education of skilled labor.Furthermore, China and India have agreed to comply with intellectual property

rights acts and global patent protection practices, which has caused a quantumleap in these areas: today, 55 percent of all chemical patents come from Asia. Withwages in China only one thirtieth of those in Western European countries (EU of15) and the country’s infrastructure becoming increasingly acceptable, its com-parative advantages for production are tremendous. As a result, the gross outputof chemical products in Asia (excluding Japan) increased from eight percent ofthe global market in 1989 in real terms to 22 percent in 2004, and is expected toreach 26 percent by 2010 according to Global Insight – World Industry Monitor. Oneconsequence of this rapid structural shift of capacities to Asia has been a drop incapacity utilization in the US chemical industry (including pharmaceuticals andconsumer products) of 16 percentage points to an unfavorable 73 percent since1990, according to the Federal Reserve Board. Today, a substantial number ofplants in Europe and the USA are underutilized and require restructuring.

Fig. 19.4 Increase of production capacity in Asia.

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19.2Challenges and Responses

What are the implications of these trends for the chemical companies? To opti-mize costs and manage complexity, Clariant pulls structural as well as operationallevers and manages the global supply chain and production network throughdedicated functions. In addition, technology and knowledge management have toenhance institutional knowledge in order for the company to become best in class.The two structural levers that are systematically assessed are network optimizationand value chain design. The two operational levers are a powerful system for con-tinuous performance improvement and ongoing plant optimization. Finally, theincreasing number of and distance between sources and sinks within the supplychain systems obviously requires global management, highly standardized pro-cesses, and a high degree of planning accuracy. Today, capacities and product allo-cations are managed within the global production network.Leading companies will have to achieve an annual productivity increase of three

to five percent with these and similar actions to avoid losing competitiveness com-pared with the industry average (Fig. 19.5).

Fig. 19.5 Annual labor productivity increase 1991–2003.

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19.2 Challenges and Responses

19.2.1Structural Cost Optimization

As a starting point for structural cost optimization, Clariant first of all has an opti-mized production network design that leverages scale effects and regional advan-tages. Second, a review of truly value-creating functions, processes, and processsteps is performed on a regular basis.

19.2.1.1 Designing a Global Production NetworkAs recently as the mid ’90s, the production concepts of Hoechst, Sandoz, andother global companies were based on local or regional production sites, supply-ing the surrounding markets with all the products in a company’s portfolio. Thisparadigm is gone. The market is global, and in order to withstand the increasingprice pressure, companies must leverage economies of scale by concentratingtheir production assets in fewer places. In the future, each plant should have aclear strategic position based on a defined technological profile and clearly definedset of products for which it can play to its strengths. These strengths may includecheap labor, proximity to feedstock or markets, technological expertise, or advan-tages in the legal system, for instance an efficient planning and building permis-sion process for new plants.Despite past efforts, most companies still have excessively scattered production

networks and too many sites in high-cost countries. This often needs decisive con-solidation, but also a shift to low-cost countries. In particular, merger and acquisi-tion (M&A) activities combined with historically grown production structuresimposed by the government protectionism mentioned above (i.e., customs, traderestrictions) have led to a proliferating plant network with many inefficient redun-dancies. Going forward, it is a safe assumption that M&A activities will continueand protectionism will be further reduced – network consolidation therefore can-not be viewed as a one-time effort, but as an ongoing core task in operations man-agement which has to strike a careful balance between the benefits and the costsincurred for writeoffs. This applies even more to a shift of production capacitiesfrom high-cost countries in Europe or the USA to China or India.Does this mean, then, that the ideally structured company has only a handful of

plants in China, India, and Russia, or even in an emerging market like Vietnam?Is this the end of a chemical landscape in high-wage countries? Not at all, in theauthor’s opinion: the best network design has to balance savings opportunitiesagainst the associated risks, and is likely to include a healthy admixture of devel-oped countries. Currency, trade restrictions, accident rates, and infrastructureproblems (such as power cuts, transport bottlenecks, natural disasters, and majordiseases) all weigh in the balance. Often, these “extraordinary expenses” are thekey driver of financial results. The limited availability of basic raw materials, ener-gy, and utilities seen in China more and more frequently since 2003, as well asgrowing urbanization and rising living standards (= costs) in urban China andmany emerging markets, are only a few examples of unpredictable disruptions

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over the last five years. It is therefore wise not to rely solely on “cheap” productionfacilities and product sources, but to maintain a sound production base in devel-oped countries with low risk profiles, despite their high labor costs. The best inclass offset this disadvantage as far as possible by pushing lean operations andautomation even further, and leveraging new technologies and process efficiency.At Clariant, for instance, we focus on increasing time yield and efficiency per

employee by systematically analyzing throughput time variances and optimizingproduction processes continuously. Here, a globally operating “rapid process de-velopment unit” comprised of experienced senior technologists is key for success.

19.2.1.2 Focusing on Distinctive Value CreationAchieving competitive production costs depends heavily on maintaining a clearfocus on those core competences and products that will allow the company tobuild a distinctive position. This implies that the organizational setup should out-source all non-core functions, including in the portfolio only those productionsteps or products that show the required margin contribution.Which areas, then, should be outsourced? Efficiency gains and reduction of

capital employed have to be balanced against higher transaction costs and a con-siderable risk of losing internal knowledge. Services that can be clearly specifiedand planned would typically be purchased externally if this allows a cost reduc-tion. Detailed engineering is one example, while breakdown maintenance clearlywould not fall into this group.Typical areas for outsourcing are the production support functions, such as

logistics, including forwarding and warehousing, or site services, including utilitymanagement (electricity, steam, gas), security, and in certain settings mainte-nance. Tasks that can provide an advantage over competitors, on the other hand,such as highly sophisticated and specialized analytics, product safety and registra-tion, and specific waste water treatment should be performed in-house providedthey offer a competitive and transparent cost position based on fixed and sustain-able key performance indicators (KPIs).Outsourcing always bears the risk that service providers present overly optimis-

tic business plans to secure the contract and then raise the prices in the secondstage. This is not an issue if the service is commodity-like. But if it is not, revers-ing the outsourcing decision by an internal skill buildup could pose problems ifthe required skills are not readily accessible in the region. Therefore, outsourcingwill never be an option unless the key unit operations and services are protectedfrom the start from long-term changes or disruptions by reliable partners, pre-cisely defined service levels and service prices, and appropriate exit scenarios.To set the industry benchmark, however, focusing on core production tasks is

not enough. It is equally important to analyze the product-level value chain sys-tematically and continuously and act on the results of the analyses. Substitutionof raw materials by cheaper sources achieving the same quality standards is oneexample; standardized products from which different products can be manufac-tured via specific unit operations and/or with dedicated technologies is another. A

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holistic view of the product value chain offers vast opportunities. We identifiedmixing, filling, and packaging activities that are traditionally seen as core produc-tion competences as candidates for cheaper outsourcing, concentration within aneffective site network, or subcontracting. The potential threats of such anapproach – as discussed above – have to be kept in mind. However, without clearprocesses to identify the opportunities, companies risk a difficult cost positionand loss of market share. Such processes demand methodological experience, sol-id data, and a cross-functional dialogue between production, product manage-ment, and sourcing.The implications of a “cherry-picking” strategy are twofold: supply chain man-

agement becomes even more complex than before, and contracting becomes a keyactivity whose importance should be reflected appropriately within the organiza-tion. Contracts for site services, in particular, have a high upside or downsidepotential. Service agreements all too often turn out to be the subject of litigation,with considerable costs involved.Finally, tools need to be in place to track the margin contribution for all prod-

ucts and systematically eliminate those which do not meet the required threshold.Internal transfer price systems are typically detached from market dynamics anddistort profitability analysis on the level of a single production plant. Such analysisonly produces accurate conclusions when performed on the level of products orfranchises.

19.2.2Operational Cost Optimization

Employment in the chemical industry has fallen worldwide by 35 percent since1990, to 8.3million. During the same period, global chemical productionincreased by 50 percent. In other words, labor productivity has more than doubled.In the USA, for instance, productivity is increasing by about four percent everyyear, or, to put it another way, each worker produces 50 percent more today thanten years ago. That four percent figure is substantial, and cannot be achieved justby screening the company for cost saving opportunities. Instead, a robust continu-ous performance improvement (CPI) system must be put in place that drives con-tinuous improvements every day by opening up dialog between the staff involved.In addition to that, plant optimizations will still be necessary in the future toaddress fundamental changes in the market or production environment.

19.2.2.1 Introducing a Continuous Performance Improvement SystemIn 1997, Clariant started to focus on the continuous improvement process (CIP)in many areas to optimize effectiveness on a permanent basis. A continuousimprovement system consists of several elements: a dedicated organization, acomprehensive KPI system, a target-setting process, a set of tools, and, finally butimportantly, the right mindset.

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Organization: In the interests of clear targets and efficient work, there has to bea clear split between production staff and those who systematically identifyimprovement opportunities and refine the standards for the production work.The “producer” then focuses on supplying the market on time with the right

quality. The “improver” works to a target, such as a ten percent productivityincrease. They work together as part of the production organization, but with dedi-cated targets. In our experience, mixing the two tasks at the lowest level of man-agement or even on the shop floor often leads to project delays or failure to deliverthe expected benefit.The cornerstones of an effective CIP organization will combine internal knowl-

edge with a market focus: The “improvers” will get support from process optimi-zation units made up of experienced production specialists who will provide the“outside-in” (production) view. Product managers will keep the production func-tion in touch with the market, and ensure that the “producers” can respondquickly to a changing market environment.

KPI system: To speed up and anchor CIP in the organization, the companies thatset the benchmark in this area establish a clear KPI system linking the operationalperformance metrics consistently and comprehensively to the overall objectives ofthe company – and these metrics have to be easily understood and reproducedwithin standard companywide reporting systems. For instance, at Clariant a num-ber of different KPIs have been defined to track maintenance efficiency, but only afew (e.g., repair and maintenance costs/conversion costs) can really be tracked bythe production team on the basis of standardized systems (Fig. 19.6).

Fig. 19.6 Targets are “translated” and broken down to the shop floor level.

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An annual target-setting process for operational improvements needs to beestablished. Very specific targets have to be set for each plant and production unit,that in sum will allow the overall company target to be achieved. The processshould start with a top-down target for cost savings, followed by bottom-up actionand milestone plans. The improvement opportunities could be reductions inannual plant downtime to below ten percent per year as a sum of numerous mea-sures derived from observations on the shop floor, i.e., reduction of downtime forspecific vacuum pumps via preventive maintenance or substitution of a repair-intensive pump by one more suited to the process step.

Mindset: Such a process can only be implemented in an empowered organiza-tion. That means that tasks, team organization, and resources are delegated to thelowest managerial level in a plant (e.g., the supervisor or shift leader). It is essen-tial to train staff to recognize the highest-impact cost factors, so that KPIs becometransparent and everyone in a plant can have an overview of the progress of pro-ject teams and target achievements. “Management by Objectives” is no longer atool reserved for the top management, it has become a guiding principle for plantorganization. In addition, a set of standard tools will be applied uniformlythroughout the organization to set off a skill-building process and establish a com-mon language for a company-wide performance and improvement dialogue(Fig. 19.7). Examples of such tools from our operations at Clariant are overallequipment efficiency, total productive maintenance, visual management, and sta-tistical process control. Their application is supported by IT systems.

Fig. 19.7 A continuous improvement process (CIP) network andstructure – a structured system to make dialogue happen.

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In today’s business world, nobody likes to spend too much time in meetings.When we started the structured process of CIP implemention, we were counteredby objections such as: “We do not have time for meetings or problem-solving stor-ies, our daily tasks are more than sufficient.” However, putting structure intomeetings and establishing a regular problem-solving organization can put paid tothe grumbles. With a working CIP, the effectively available labor time can beincreased by ten to 15 percent. This requires regular meetings (e.g., for five min-utes at the beginning of a shift) to review performance development and theimpact of new initiatives, ideally supported by data from statistical process control(Fig. 19.8). The definition of changes is elaborated in problem-solving sessions ofroughly one hour, that take a structured approach to identifying problems anddeveloping solutions (e.g., a 5A campaign). All this needs a higher level of in-planteducation, with higher efficiency per worker as the payback.The biggest mistake a company can make within CIP is for its managers to

underestimate the importance of CIP-relevant training and “soft factors” toachieve targets. A CIP system is not a mailbox at the plant manager’s office wherecolleagues can drop suggestions for improvements, and it is not a collection ofcharts presented by management during a certification audit. It is crucial to havesomebody constantly facilitating the process and actions on the shop floor level,someone who acts as a “translator” with a direct reporting line to upper manage-ment and a CIP network across businesses and functions in place.

Fig. 19.8 A structured performance review process as one CIP element.

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19.2.2.2 Optimizing and Restructuring PlantsCompared with other industries, for example consumer goods or automotive engi-neering, chemical installations are highly inflexible. The layout, technology, andcapacities are largely fixed once they have been built. This does not apply so muchto batch-driven operations, but definitely to continuous production systems. Whilea continuous improvement system can effectively optimize processes within thetechnical limits of the installation, substantial changes in the market or produc-tion environment will also require plant optimization and restructuring in thefuture, for example a drop in sales for lead products, a shift of products to low-cost countries, or the concentration of product groups in specific plants. Thesediscontinuities always require a top-down adjustment of the plant organization aswell as changes in the asset structure. Managing the social matters throughoutthese transitions is often a challenge.

19.2.3Managing Complexity

19.2.3.1 Putting Global Supply Chain and Production Network Management in Place

As described above, several effects have led to a supply chain of so far unknowncomplexity. For example, transportation costs in the USA rose by 50 percent overthe last ten years, calculated on stable production volume (according to the Bureauof Census, Bureau of Labor Statistics, and American Chemistry Council). Further-more, there has been a significant increase in inventories in various parts of thechemical industry. There has been a drop in the chemical industry’s operatingcash flow, largely due to an increase in finished goods and work-in-progress inven-tories (Fig. 19.9). Inventory has proven to be a good indicator of the efficiency ofsupply chain management (SCM) (see also Chapter 22). To bring inventory cover-age to an acceptable level, organizational changes are often necessary and theroles and responsibilities of production managers have to be redefined or adapted,depending on how far advanced the company is in its change process. Forecastingand planning processes must become more reliable, and clear accountability andstandards for them need to be defined and tightly enforced throughout the wholeorganization.For SCM to be relevant in a diversified and global supply chain, it needs a dedi-

cated and globally operating organization. This has to reflect the business environ-ment as well as being able to support a changing production network.In a global production structure with IT-based information flows that substitute

one-to-one relationships, forecasting and planning processes need to be broughtto a new level. As mentioned above, this requires clear standards for their execu-tion, support from IT systems, and – most importantly – clear and visible account-ability for process quality. More specifically, the forecast accuracy has to be an ele-ment of the performance review and incentive system for the product managersand sales force.

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Fig. 19.9 Cash flow in US chemicals.

It is equally important to avoid “psychological safety buffers” in all steps of thesupply chain. Since the preceding step is not “next door” any more in a global sup-ply chain setup (e.g., between the raw materials supplier and the manufacturer ofthe finished goods), processes are a black box and people tend to err on the safeside, driving inventories up.The only way to avoid this is by strict analysis of the supply chain from the cus-

tomer order to final product delivery. Definition of the optimized (theoretical) pro-cess and sequential work towards a high service level approach allow the identifi-cation of gaps, and of opportunities which might not always be the cheapest (shipversus train versus plane) but could be the most effective way to reduce capitalcosts and shorten planning scope – an important aspect, especially in volatile cus-tomer markets with long production processes on the (chemical) supplier side. Asin the case of CIP, this needs clear parameters, KPIs, commitment from allplayers, and regular tracking. The most important parameters are the lead timefor all products, optimal lot sizes, replenishment points, and safety inventories.A state-of-the-art production site and plant network with clear competence pro-

files for each plant also requires the centralized and structured allocation or reallo-cation of products to plants, depending on comparative advantages and availablecapacities. A dedicated organization and systems need to be in place to facilitateefficient and global decision processes.

19.2.3.2 Establishing Technology and Knowledge ManagementIn mature markets, innovation stands alongside mergers and acquisitions as thekey to sustainable growth. However, not only new products are innovations, andthe definition has to be broadened to include innovations in processes and process

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chains. The number of new processes and technologies is increasing faster thanthe number of new molecules. Therefore, knowledge management needs to iden-tify new technologies or innovative production techniques and spread themquickly to the leadership group in production and process development. NIR/VISspectroscopy in production to reduce sampling and speed up product testing isone example of a quick transfer from R&D into traditional production processes;an intelligent combination of experiments and computer-aided design, and theuse of pervaporation to optimize rectification processes are others from the lastdecade.All too often, having the knowledge in-house is not so much the issue as apply-

ing it everywhere and every day. Doing this effectively requires a mix of expertiseand entrepreneurial habits aligned in a straight and target-oriented project man-agement system, run by an efficient project team and supported by an intranet-based knowledge portal that allows for rapid data mining.A similar approach is effective for the inverse process of transferring questions

and problems upstream: from production into pilot plants or development labs.This is the key to optimized plant management, fewer downtimes and a continu-ous reduction of off-spec material are the rewards.Manufacturing information systems for real-time process control in the lab and

for efficient statistical process control, as well as the right number of lab trials,limits information losses between the plant and the labs. Parallel synthesis, suchas units with online analytics in the lab, and the use of new technologies such asMicro Reaction Technology developed by Clariant and a few other companies forapplication in production mean a step change in reproducibility.Exchanging best practices, however, is not sufficient. The best companies go

beyond that and ensure that best practices are truly applied, by defining clear andmandatory standards which will be redefined as necessary over time and appliedthroughout the entire organization. Deviation from known best practices for nogood reason is well known to be the biggest enemy of an efficient production sys-tem. Creativity is still allowed, but not to deviate from a standard, only to improveit.Training programs must be set up in order to spread knowledge, and tailored to

the individual’s and organization’s development needs. Here, “training by project”is a smart approach. Tools and techniques are provided, a project managementarchitecture is put into place and participants have the task of achieving a definedproject target. Examples of tools here are statistical process control, fast change-over, or visual management. When the whole production and product develop-ment network is informed about such projects, learnings, and the people involvedvia an IT-based knowledge portal (e.g., Intranet or Lotus Notes team rooms),momentum is set free and know-how is understood and applied by a much largernumber of people – a scale-up factor of the specific kind.

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19.3Outlook

The major trends in the chemical industry are likely to continue over the nextyears. Globalization will go on, and the huge Asian market will provide furtheropportunities but also challenges (see Chapters 7, 32, and 33). GDP growth inAsia will lead to a bigger market, but also to higher salaries, at least in the urbancenters. Growth in traditional markets will be very limited.Product offerings will follow distinct business models with either “price” or

“service” as the key value proposition. “One size fits all” will be “out”, differentia-tion will be “in”. At Clariant we have switched production from efforts to optimizeproduct quality in general towards a two-pronged approach: making “adequate”products at the best price or striving for high-grade specialties that meet specificcustomer requirements. For the service business model, direct interaction of pro-duction and development with customers will require new job profiles that com-bine production and marketing/sales skills.On the sourcing side, the slow but steady reduction of fuel and basic raw mate-

rials will induce further cost pressure on production. These can only be tackledthrough flexible and optimized production systems based on concepts that takepurchasing power, the supply-demand balance, and strategic orientation intoaccount.The good old days of production are gone and will never come back. The future

can be exciting, though, if a set of different concepts, functions, and professionsare orchestrated properly. With music that was written a hundred years ago, it isthe conductor and his musicians that make the difference in the interpretation.The same is true in production. It is less about inventing new concepts than aboutsuperior execution, in close alignment with internal and external partners.

19.4Summary

. Decelerating innovation, globalization, and competition fromlow-cost countries create a challenging environment

. Production management must manage complexity and produceat even lower costs

. Structural cost optimizations are achieved via the design of pro-duction networks and value chains

. Operational cost optimizations are achieved via a system of con-tinuous improvements and ongoing plant optimizations

. Complexity will be managed through a global supply chain andproduction network management as well as technology andknowledge management

. Building institutional skills in production in order to be superiorin execution is the key to future success.

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Value Creation || State-of-the-Art Production Concepts in the Chemical Industry

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