A Plain English Guide to Modern Manufacturing Methods

Thanks to Stephen Jannise of ERP Software Advice (see photo) for pointing out this excellent guide to Modern Manufacturing methods.

Although many such methods were pioneered in the automotive sector, the principles are very much applicable to the chemical industry. Indeed many chemical companies have achieved great success in the application of techniques such as Lean Manufacturing and Six Sigma.

In the post recession environment, companies will achieve success by being smart. This means innovation - such as investment in new technologies, development of new processes and optimisation of existing processes. Modern manufacturing techniques will facilitate much of the optimisation work.

The guide gives an excellent introduction for those who wish to familiarise themselves with the subject!

New Economic Fears Highlight Need for Manufacturing Excellence

Back in September 2009, this blog highlighted the 'new reality' faced by chemicals manufacurers.

As stated at the time "If our view is correct, we are in for a sustained period of lower volumes and reduced margins but punctuated by periods of high volatility caused by oil and currency markets. This will certainly mean that the pressure that has been experienced by the manufacturing sites during the downturn will continue."

With the current EU financial difficulties and the tightening fiscal controls in China, it appears that this statement was spot on. Although things have been generally better for manufacturers over the last 6-9 months,we are heading into very turbulent times once again, particularly in Europe and in Asia.

As I mentioned back in September, chemical manufactureres need to once again think very hard about the actions they need to take in order to survive the coming storm and to come out in good shape at the other end.

• There must be a clear focus on what has to be done to survive but this absolutely must not affect the ability to be flexible .
• A focus on cost effectiveness and value for money is essential.
• Wastes of all types must be identified and systematically eliminated using approaches such as Lean Manufacturing.
• Organisational effectiveness is a must. Staffing levels must be reviewed critically to ensure that organisations are as effective as possible and staff should be trained and ready to play their part by being able to safely and effectively start-up, shut-down, change grade and increase production rates at very short notice.
• Simply cutting numbers is not smart enough - skills must be retained but have sufficient flexibility to be available and ready, as and when required

UK Chemicals Exodus Underway?

I've just spotted a very interesting article from the Royal Society of Chemistry outlining concerns over the potential exodus of chemical and pharmaceutical companies from the UK.

As many will know, Ineos has recently announced its decision to relocate its corporate headquarters from the UK to Switzerland.

A number of other chemical and pharmaceutical companies may be poised to follow suit, given concerns over the perceived high levels of taxation in the UK for businesses and individuals.

Already the vast majority of UK chemical plants are owned by companies with headquarters outside of the UK. If the UK is no longer considered to be a 'strategic' location for an organisation, there may well be a drift of corporate, commercial and technical positions from the UK. Ultimately plant closures could follow, particularly if the total cost of employment is deemed to be too high.

This is a major concern. We have seen significant numbers of closures in recent years. My sense is that the UK needs a strong chemical sector, particularly if we wish to have a leading role in the development of green technologies. Although relocations of corporate HQs do not change the asset base, they do affect sentiment and can impact future investment decisions.

Downstream Changes at Shell

photo : icnetwork.co.uk

Following  relatively weak 4th quarter 2009 results, Shell has commented on the need for further downstream changes in order to improve company performance


Commenting on the results, Shell CEO Peter Voser noted that Shell's fourth quarter was impacted by the weak global economy. He noted that oil prices had increased compared to a year ago but gas prices and refining margins had declined sharply, because of weaker demand and high industry inventory levels.

Shell's assumption is that there won't be a quick recovery, and the outlook for 2010 will remain uncertain. As a consequence, it has sold a number of downstream assets and closed a refinery in Montreal, Canada. A number of other cost cutting initiatives are either underway or being actively considered, including further downstream divestments and a major downstream cost reduction programme.

The assumption that the recovery will not be rapid means that Shell is taking decisive action to position itself for the coming years. The assumption is equally valid for chemicals manufacturers. Actively planning for this scenario, whilst retaining the ability to be innovative and flexible, will be the key to future success, whereas batoning down the hatches and trying to ride out the storm will only lead to difficulties.

Chemical Manufacturers Look to the Future

Chemical Manufacturers are taking decisive actions to position themselves for the future. According to Price Waterhouse Cooper's 13th Annual Global CEO Survey, chemical companies are responding to the current challenges in a number of ways:

• Companies are increasingly looking to Asia and expect operations to grow in this area
• The level of M&A activity is expected to increase
• Companies see innovation as being essential to future growth
• Comapnies are spending more to develop leaders and in-house talent
• Cost cutting and infrastructure improvements are essential

The comments absolutely reflect the need for a coherent and strategic approach to survive and thrive in these turbulent times. As noted previously, excellent strategic planning, in-built flexibility and the ability and desire to innovate will be the key attributes of successful companies.

Poor Demand In Construction Sector Threatens Chemical Manufacturers

photo : diamond.ac.uk

Whilst all chemical manufactuers are hoping for a better year in 2010, recent figures from the US indicate that demand remains very slack in the non-domestic construction sector, a major market for polymer and chemical manufacturers.

According to the American Chemistry Council (ACC), some 20% of spending in construction projects goes on chemicals and plastics and the figure is set to increase as buildings 'go green' with improved insulation, solar power etc.

The Associated General Contractors of America (AGC) has painted a negative picture in a number of recent press releases. In particular, the AGC recently released a construction industry outlook in which nine out of ten contractors stated that they believe that there will be no construction recovery in 2010.

This a big concern. Demand for chemical products relies on consumer demand, with construction and automotive being particularly important sectors. This downbeat assessment does not make happy reading for the chemical industry.

Cold Snap Hits Chemical Industry

photo shows view from the blog office

The current severe cold snap, affecting much of the Northern Hemisphere, is starting to have a significant impact on chemicals manufacturing.

All manufacturers are well aware of the need for robust winterisation programmes and most plants have well rehearsed procedures which can be implemented as soon as the mercury drops but this year, even the best procedures cannot address all of the issues being encountered.

China has been particularly impacted. Lower operating rates are reported across a number of crackers due to a combination of naphtha shortages and power supply problems. There are also severe transportation problems, particularly in Northern China.

In Europe, some crackers are reporting reduced rates, major polymer producers have reported operating problems and transportation is difficult in some regions. In the UK, many producers have interruptible gas supply contracts, which oblige producers to cut back consumption when national gas demand is high. There are also localised reports of staff having difficulties to get in to work, due to road transport difficulties.

Salt producers are working flat out. In the UK, the Salt Union reports that even though the mine has been working at capacity since mid-December, it is not able to sustain the unprecedented level of repeat orders and is working with the authorities to prioritise deliveries.

With the cold weather expected to last for quite some time, the industry has yet another challenge to deal with as we start the new decade.

Chemical Industry Strategies For The Coming Decade

The start of a new year is a good time to think about Chemical industry strategies for the new decade. Just a very quick look back at the 'noughties' will tell us that we are set for a decade of significant upheaval for the industry.

The last decade saw huge changes in the chemical industry. Several years of strong growth followed by a very painful recession. The emergence of new players in the industry and a steady shift of the manufacturing base from Europe and North America to the Middle East and Asia.

In thinking about what is to come, I'd like to highlight two excellent articles published in ICIS Chemical  Business

In his article 'Prepare for the Great Petchem Marathon', Paul Hodges focuses on the key issues that need to be tackled. Restructuring, Supply Chain, Technology, Commercial Strategies and Size and Scale are flagged as key issues for chemical companies. Paul suggests that the motto for the new decade could be 'Think About Tomorrow and Act Today'

In another excellent article 'Recession Prompts Shift in Chemical Strategies', Anna Jagger focuses on the societal 'Megatrends' that will provide major opportunities for flexible and innovative chemical companies. The article lists Renewables, Food, Energy Efficiency and Water as being key issues for the coming decade.

The new decade will bring significant change. There will be significant problems to deal with, there will be threats to the industry but there will also be major new opportunities. Excellent strategic planning, in-built flexibility and the ability and desire to innovate will be the key attributes of successful companies.

GCC to Supply 20% of Global Petrochemicals by 2020

photo : GPCA

According to estimates by the Gulf Petrochemicals and Chemicals Association (GPCA), the GCC will meet 20% of the world's petrochemical demand by 2020.

The growth of petrochemicals in the region continues to be very impressive. Current petrochemical output in the region is some 63 million tonnes and this will almost double between now and 2015, with a number of large scale projects projects underway throughout the region.

The annual GPCA Forum is now underway and the agenda has a strong focus on sustainability issues and on achieving success in the post-recession environment.

In implementing such a huge investment programme (estimated at approximately $170 billion between now and 2015), producers in the region will face a number of challenges and issues but these will be overcome, given the right skills and resources. There is little doubt that over the coming decade, the region will develop into the global petrochemicals hub.

Canada Rail Strike Hurts Chemicals Manufacturers

photo : life.com

With 70% of the production volume of the Canadian chemical industry being moved by rail, the current rail strike has the potential to severely hurt chemicals manufacturers.

The dispute, by the locomotive engineers, is not currently impacting freight, as positions are being covered by managers, but this isn't considered sustainable in the long-term, especially as weather conditions deteriorate.

As a response, the government introduced legislation this week to order 1,700 unionised employees back to work and send the dispute to binding arbitration. It claims the strike could have "serious repercussions" for a still-fragile economy.

Canadian Chemical Producers' Association president Richard Paton has commented that the the strike could threaten the economic recovery, with manufacturers potentially forced to scale down production and lay off workers.

As this blog has noted, the post-recession 'new normal' is chracterised by a very fragile recovery with sustained periods of lower volumes and reduced margins but punctuated by periods of high volatility caused by oil and currency markets.

So for the Canadian Chemical Industry, a significant problem with logistics would be a disaster. This issue, on top of all of the other challenges that the industry is facing, may be enought to push some manufacturers over the edge. Hopefully a solution will be found quickly.

Clariant Announces Closures in 'Global Asset Optimisation Project'

photo http://www.clariant.com/

Clariant has annouced a number of site closures as an initial conclusion to its Global Asset Optimization Project (GANO).

Sites planned for closure are Huningue, France: Pontypridd, UK; CIVAC, Cuernavaca in Mexico; and parts of two plants at Clariant sites in Germany, at Gendorf and Frankfurt. In addition, Clariant will now initiate an evaluation of all strategic options for its site in Onsan, South Korea.

According to Clariant "Project GANO is part of a wider restructuring program at Clariant aimed at closing the gap the company has compared to peers regarding several key performance indicators. The Project addresses the structural deficits of Clariant’s production network as well as long term overcapacity issues. It will continue to identify further optimization potential."

Whilst such a move is tough, 570 job losses in total, it represents only the first stage in Clariant's optimisation programme. Clariant has hinted that further changes can be expected between now and 2013, as it "continues to identify further optimisation potential".

Such structural changes are necessary, however. As noted in the previous post on the new reality for petchems, highly efficient and flexible manufacturing assets will be required to survive in the post-recession world. Clariant is taking bold steps, we can expect many more to follow.

New Reality For Petchems

In the Chemicals and the Economy blog and an article for ICIS Chemical Business, my colleague Paul Hodges shares his view that the landscape for Petrochemicals has changed during the current downturn. As Paul states 'We came into the downturn on the back of a major boom in consumption, supported by reckless lending and borrowing and now this mind-set seems unlikely to return quickly'. If this view is correct, we are in for a sustained period of lower volumes and reduced margins but punctuated by periods of high volatility caused by oil and currency markets. This will certainly mean that the pressure that has been experienced by the manufacturing sites during the downturn will continue. As consumers in the market place shift from "wants" to "needs", exactly the same shift will apply to chemical manufacturing site managers. To make things even harder, however, managers will need to be able to cope with the consequences of market volatility. There must be a clear focus on what needs to be done to survive but this absolutely must not affect the ability to be flexible . A focus on cost effectiveness and value for money is essential. Wastes of all types must be identified and systematically eliminated using approaches such as Lean Manufacturing. Value chains within the manufacturing plant and supply chain must be shortened wherever possible using value stream mapping techniques. Organisational effectiveness is a must. Staffing levels must be reviewed critically to ensure that organisations are as effective as possible and staff should be trained and ready to play their part by being able to safely and effectively start-up, shut-down, change grade and increase production rates at very short notice. This means that simply cutting numbers is not smart enough - skills must be retained.

In short, highest quality manufacturing management will be absolutely essential if sites are to survive and thrive in the new landscape.