Winning IT Strategies in the Chemical Industry

A discussion document on trends and directions in the Chemical Industry and their implications on IT Strategy

Business

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The Chemical Sector Perspective

• Global Competition• New, low-cost capacity• Cyclical business• Volatile feedstock prices• Environmental compliance• Economic slowdown

Commodity Chemical Stock Index

Specialty Chemical Stock Index

Source BigCharts.com

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There are a number of forces shaping the current and future business direction of the Chemical Industry

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These forces are driving Chemical companies to focus on five primary business themes

•Operational Efficiencies and Cost Reductions

•Globalization of Markets and Competition

•Improvements in Customer Service

•Product and Services Innovation

•Growth Strategies

Each of these business focal areas has significantimplications for the IT organization

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Operational Efficiencies and Cost Reductions

• Consolidate plants and implement new cost saving production methods

• Optimize logistics and distribution while reducing working capital in the supply chain

• Improve purchasing efficiencies via reduced transaction processing costs, fewer suppliers, and better supplier management practices

• Standardization operations and infrastructure

• Reduced overhead expenses and economies of scale from shared services for HR, finance, etc..

• Improvements and cost reductions for customer service and sales/marketing

• Integrated supply chain solutions for demand planning/forecasting, production scheduling, distribution resource planning, and warehouse management

• e-Procurement solutions and e-Marketplace enablement for buy/sell transactions

• Vendor managed inventory (VMI)

• B2E (business to employee) Intranets for self-service HR, e-learning, etc..

• Data Warehouse/BI solutions for self-service access to critical business analysis and reporting

• Web based sales/marketing solutions and channels for low volume/potentially new customers

• Outsourcing for managed ops, application management, help desk, web hosting, etc..

Business Focal Area IT Implications

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Globalization of Markets and Competition

• Expanding industry presence in world markets

• Making sound, rational, fact-based business decisions that are relevant to world regions/geographies

• Meeting or exceeding customer service level expectations anywhere in the world

• Exploiting the potential efficiencies of global-scale operations

• Capturing and leveraging the collective learning acquired from global operations

• Anticipating market and competitive trends on a global basis

• ERP systems deployment on a global scale

• Globally integrated supply chain management systems for ATP, demand planning/forecasting, scheduling, etc..

• e-Marketplace participation and enablement for global visibility of products

• Global networks and applications for communication and collaboration worldwide

• Customer care and sales force automation solutions to facilitate global account mgmt.

• Market and competitive intelligence systems that operate on a global basis

• Access to information from anywhere at anytime

Business Focal Area IT Implications

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Improvements in Customer Service

• Match services with customer requirements and expectations so that the company does not over deliver or under deliver

• Retain desirable/profitable customers and attract additional customers of the same type

• Reduce the costs for expediting, rebilling, and deferring which are typically associated with misdelivery of services

• Develop a level of customer intimacy and collaboration that helps fuel the product offering innovation engine

• General Web based service channels for low-volume customers and dynamic, secure web portals for high-volume customers

• e-Collaboration solutions for joint product development/innovation with customers

• Integrated Web and call center solutions

• Customer data warehouse/mining solutions

• Sales force automation/productivity solutions

• Wireless and pervasive computing support

Business Focal Area IT Implications

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Product and Services Innovation

• Increase the success rate for new “blockbuster” type products

• Increase the frequency of new product introductions

• More aggressive and efficient product life cycle management (PLM)

• Augmenting products with value-add services - leverage corporate knowledge assets to enhance the value proposition associated with the product

• Continuous monitoring and intimate awareness of competitive threats from other companies, industries, and/or products

• Identify and exploit product and/or service “white space” opportunities

• e-Collaboration solutions for joint product development/innovation with customers, suppliers, and/or business partners

• Knowledge Management solutions for faster and better leverage from corporate knowledge assets

• Web based research and data gathering tools for competitive intelligence gathering

• Product Life Cycle Management solutions

• Molecular modeling and computational chemistry solutions for product research

• Genomics and bioinformatics solutions for agricultural, microbial, and industrial biology product research

Business Focal Area IT Implications

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Growth Strategies

• Gain market share through improved service and better price/performance to existing customers or through acquisitions

• Gain market share by expanding the current product set to new markets and/or regions

• Develop or acquire new products and services to sell to existing customers

• Develop or acquire new products and services to sell to new customers

• Strategy and integration plan for merging acquired entities into the existing IT infrastructure

• Molecular modeling and computational chemistry solutions for product research

• Genomics and bioinformatics solutions for agricultural, microbial, and industrial biology product research

• Enhanced customer care/service solutions

• e-Commerce and e-Collaboration solutions

• Integrating acquisitions (ie. people, applications, technology, etc..) into an existing IT infrastructure

Business Focal Area IT Implications

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Near term trends for Chemical Companies support the concept of an integrated business and technology model

• System-to-System integration (e.g. ERP-to-ERP)

• B2B e-Commerce Portals

• Supply Chain Management (SCM)

• Customer Relationship Management (CRM)

• Consortia driven e-Marketplaces

• e-Collaboration and Knowledge Management

• Increased interest in ASP offerings/options

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Premier firms are moving to a model of integrated business and technology (e-business) in order to better address these IT implications and dependencies

ReliableStandardized, open, scalableFlexible, reactive/proactive

Strategy Development

Strategic Design

ProcessManagement

InfrastructureManagement

Measured, managedLeveragedIntegrated, architected

General: Effective, flexible, adaptable, modularSpecific: CRM, sales, fulfillment, ISC, Procurement, KM, Innovation

Built on a foundation of leading general business practicesIntegrated channel strategyCustomer centricBest-of breed supply chain managementLeading edge customer service

Linked to overall vision and strategyBasis for BU strategies and plansProduces a portfolio of interrelated initiativesCustomer centric

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This level of integration will provide significant operational and monetary benefits to the Chemical company, suppliers, and customers up and down the supply chain

• Companies with best-in-class SCM usually have a 7% cost advantage over median performers

• Leading companies continue to have a 40%-65% advantage in cash-to-cash cycle time over average companies

• Top companies hold 50%-80% less inventory than their competitors• Companies implementing supply chain planning solutions can expect to

realize multidimensional performance improvements• Realized cost savings

– Reducing inventory levels by 10%-50%– Reducing price concessions and rework by 40%-50%– Utilizing resources 10%-20% more efficiently

• Improved customer service– Improving delivery reliability to 95%-99.9%– Reducing product outages to 0%-5%– Reducing cycle times by 10%-20%

• Achieved business growth– Increased market share and customer retention resulting in a 3%-7% increase in sales– Achieving flexibility to adapt to business change– Accelerating speed to market

Source : Pittiglio Rabin Todd & McGrath Study

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Successful business models for Chemical companies in the next 10 years will leverage internet technology extensively in the SCM and CRM domains

Customer Needs and Business Driverse-markets and virtual "click and mortar" companies are changing the playing field threatening traditional relationshipsMoving to "partner relationship management" via extranets to strengthen bonds with marketers, dealers and distributors Moving from point solutions to integrated relationship management across lines of business and customer touch pointsUsing Internet technology to create new value in commodity and specialty productsProduct Stewardship

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How should the IT organization position itself for maximum effectiveness given these Chemical Industry trends and directions ?

It starts with Strategy

IT ManagementIT Strategy, Planning & Leadership

Support OperateBuild & Maintain

Architect & Define

Identify Solutions

Clearly understanding IT enabling opportunities to enhance or transform business processes

Understanding how to leverage IT to fulfill requests

Using consistent technologies and standards to define and design systems

Applying appropriate processes, methodologies and resources to deliver solutions

Structuring build efforts properly for reducing execution issues

Operating under a clear set of defined processes and policies

Maintaining availability and service levels Efficiently allocating resources and utilizing

the most appropriate sourcing options

Setting a clear direction Aligning the IT portfolio with business direction Establishing the models and architectures Efficiently managing assets and TCO Effectively structuring the organization and sourcing

options

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Effectively addressing strategic issues improves the positioning, delivery, and effectiveness of IT

• IT creates an understanding of the IT spend, initiatives, and value– Used for clearer justification of IT budgets– Basis for collaborating with the business to determine where best to make IT

investments• Improved integration of IT into the business planning process

– IT contributions to the business direction are more direct– Additional areas of value which IT can provide are more easily identified– There becomes a joint involvement in bringing IT and the business forward

• Foundation for better downstream IT planning– Providing the guidance necessary for efforts that provide additional structure for

IT delivery – e.g. Technology Architectures– Sets a direction that the IT delivery group can drive towards and that the business

understands– Sets the foundation for more efficiently providing IT products and services

• Ensure value is sustained and managed– Providing the proper oversight and involvement in making IT investment choices– Clear understanding of governing roles and responsibilities helps ensure the right

decisions IT decisions are made

Ultimately, it must lead to improving revenue growth through effective solutionsand reducing costs by more efficiently enabling and managing the business process

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Strategy &Business Processes

OrganizationDesign

& ChangeApplication

ConfigurationSolution

IntegrationProject

Management

Implementation& Operations

Support

•Project scope•Project management framework

•Delivery control•Project schedule•Milestone list•Cost schedule•Detailed work breakdown structure

•User support•Action log •Post-project audit •Benefit analysis•Documented process review

•Maintenance change orders

•Delivery control documentation

•Macro/micro design•Business rules•EAS strategy•Migration maps•Proof Of concept•Testing strategy•Acceptance test plan

•Release plan

•Implementation plan

•QA test plan •Phase transition package

•IT services strategy•IT tech imp plan•Training plan •Iterative application releases

•Requirements matrix

•Process mapping•Process best practices

•Future org scope and requirements

•Detailed gap analysis

•Change readiness assessment

•Transition mgmt plan

•Project charter•Strategic fit•Customer success criteriaReadiness assessBusiness case AVP summaryCritical issues

•Business strategy•Critical processes•Readiness for change•IT portfolio•Future requirements•Current vs. future gaps

•Change management•Organization design•Current processes •Best practices

•Package design•Infrastructure fit•Infrastructure mods

•Baseline & final configurations•Integration testing•Deployment planning•End-user training

•Project governance•Project structure•Documentation

•Solution deployment

•Org. change implementation

•Bus. transformation management

•Exceptions mgmt.•Help desk•Outsourcing hand-off

Work Stream Scope

Work StreamDeliverables

Work StreamLeadership

IBM and AspenTech together provide leadership and end-to-end delivery capability with complementary strengths

The IBM/AspenTech relationship offers differential advantage:

Our team has seasoned industry expertise

IBM middleware technology is an integral part of AEP

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IBM Global Services• IBM is the world’s largest and most prolific e-business

• IBM Global Services is the world’s largest system integrator

• Alliances and partnerships with key ISV’s• AspenTech, i2, Ariba SAP, JD Edwards, PeopleSoft, Siebel,

Interwoven, Vignette, Plumtree, Documentum

• Others in strategy, technology, content delivery, digital branding, etc...

• IBM “practices what it preaches”• Sharing IBM’s e-business knowledge and experiences with clients

• Evolving methods and techniques based upon engagement experiences

• Watson Research

• 20,000+ e-business engagements across many industry segments• e-business strategy and governance development services

• Application design and development services

• Systems integration and network services

• Strategic outsourcing, web hosting, and support services

• Distance learning services

• End-to-End e-business delivery capabilities - HW, SW, and services