Superior Processes at Chemical ManufacturersBenchmark best practices and performances for next-generation success

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Executive SummaryChemical manufacturers are struggling today to stay competitive in a difficult economy. They are attempting to increase productivity, innovate, and customize for demanding markets, and adhere to the myriad of regulatory and compliance issues, all while guarding slim margins. Many judge success in terms of this months or this quarters performance, but fail to breathe easier even if they achieve a critical milestonebecause just as quickly, another critical milestone emerges.

Truly competitive chemical organizations, on the other hand, look further down the road while they deal with todays challenges and obstacles. They seek to create world-class organizations that continuously improve, establish best practices, invest in systems and solutions, and develop workforce cultures that sustain growth into the next generation.

In early 2009, the Manufacturing Performance Institute (MPI) surveyed more than 2,500 manufacturers to determine if they are pursuing six key strategies that will help them to sustain growth into the next generation, and achieve performances that will differentiate them from their competitors. The six strategies explored by the Next Generation Manufacturing (NGM) Study (and the world-class definitions for those strategies) were:

Customer-focused innovation:Develop,make,andmarketnewproductsandservicesthatmeetcustomersneedsatapacefasterthanthecompetition.

Engaged people/human capital acquisition, development, and retention:Secureacompetitiveperformanceadvantagebyhavingsuperiorsystemsinplacetorecruit,hire,develop,andretaintalent.

Superior processes/improvement focus: Recordannualproductivityandqualitygainsthatexceedthecompetitionthroughacompany-widecommitmenttocontinuousimprovement.

Supply-chain management and collaboration:Developandmanagesupplychainsandpartnershipsthatprovideflexibility,responsetime,anddeliveryperformancethatexceedsthecompetition.

Green/sustainability:Designandimplementwasteandenergy-usereductionsatalevelthatprovidessuperiorcostperformanceandrecognizablecustomervalue.

Global engagement:Securebusinessadvantagesbyhavingpeople,partnerships,andsystemsinplacecapableofengagingglobalmarketsandtalentsbetterthanthecompetition.

FromthisNGMStudyresearch,MPIhasextractedandanalyzeddataforchemicalmanufacturers,focusingspecificallyontheirpursuitofsuperiorprocessesandprocessimprovements,andthedegreetowhichtheyhaveachievedworld-classperformanceswiththatparticularstrategy.i

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IntroductionChemicalmanufacturersarechallengedasneverbeforebyexternalrestrictionsandinternalpressures:

Customersincreasinglydemandhighervalueatlowercosts,acceptingnothinglessthanabsolutepurityandperfecttimelinessofshipments.Butgivingmorevalueatthesameorlowercostischallengedbyincreasinglycomplexglobalvaluechainsandrelationshipswithnumerousandchangingplayersandbusinessmodels.Allofthismakesproactivedecisionsthatultimatelyleadtocustomersatisfactiononsourcing,formulas,batches,productionlocations,inventorylevelsincreasinglydifficult.

Regulatorsaroundtheglobearefocusingintenselyonchemicalfirmsandthemanypotentiallyhazardousmaterialstheyprocess(e.g.,theChemicalFacilityAntiTerrorismStandards,inplacesince2007,requirethathigh-riskchemicalandpetrochemicalfacilitieshavesecuritymeasuresinplacetopreventtherelease,theft,diversion,sabotage,orcontaminationofspecificchemicalsofinterestii),escalatingthecompliancerequirementsonthesefirms.Inaddition,chemicaloperationsandtheirworkersmustbefocusedonworkplacesafety,puttinginplacethesystemsandwarningsthatalertpersonneltorisksastheyreceive,transform,anddistributechemicalsandcompoundstocustomers.

Heightenedcallsforinnovationascustomersseektodifferentiatetheir productsareforcingmoreresearchanddevelopmentactivityinordertostayinfrontofcompetitors.Customizedformulasarerequiredtokeepexistingcustomerssatisfiedwhileattractingnewones.Atthesametime,chemicalmanufacturersarewaryofproductproliferationandthescrutinyofproduct-profitabilityandeconomictrade-offs.

Alloftheseissuesarecompoundedwheninefficientprocesseserodeprofitabilityorleadtoamistakethatputsprofitsandpossiblylivesindanger.Chemicalmanufacturersmustexcelatthebasics,andtheymustbeespeciallyfocusedoncontinuousimprovementtomakesurethatinternalandvalue-chainprocessesoptimizesafety,productivity,andprofitability.

Toachievesuperiorprocessesfromplantfloorthroughthefrontofficeandintothevaluechainchemicalmanufacturersmustrethinktheiroperationsstrategiesanddothreethingsexceptionallywell.Iftheywanttobeprofit-,customer-,andsafety-consciousproducerstomorrowandintheyearstocome,theymust:

Recognizesuperiorprocessesandoperationsasacorestrategy,andrecognizethatachievingworld-classperformanceinthisstrategytheabilitytorecordannualproductivityandqualitygainsthatexceedthecompetitionthroughacompany-widecommitmenttocontinuousimprovementisakeytosuccessinthechemicalindustry.

Supportprocessimprovementwithdedicatedemployees,resources,investments,andbestpracticestoensurethatorganizationaleffortssatisfycustomersinthemostproductive,cost-effectivemannerpossible.

Monitorperformance,strivingtomoreeffectivelymanageoperationsandmoreproductivelysatisfycustomers.

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World-Class Processes and Process ImprovementFewchemicalmanufacturershaveachievedworld-classprocessesandprocessimprovement:AccordingtotheNGMStudy,15percentofchemicalmanufacturersreportthemselvesashavingachievedworld-classprocessesandprocessimprovement(ranked5ona15scale;see Table 1).Andonlyanother29percentbelievetheyarenearworld-classstatus(ranked4ona15scale).Asignificantlyhigherpercentageofchemicalmanufacturers,though,recognizetheimportanceofprocessesandprocessimprovement:59percentofchemicalmanufacturersrateprocessesandprocessimprovementashighlyimportanttotheirorganizationssuccessoverthenextfiveyears(see Table 2).

Table 1

Rate your organizations progress toward world-class processes and process improvement:

Chemical manufacturers

1=Noprogress 2.7%2 16.9%3 36.6%4 29.0%5=World-class 14.8%

Source: Next Generation Manufacturing Study

Table 2

Rate the importance of process improvement to your organizations success over the next five years:

Chemical manufacturers

1=Notimportant 1.1%2 2.8%3 10.5%4 26.5%5=Highlyimportant 59.1%

Source: Next Generation Manufacturing Study

Whatsinterestingisthegapbetweenrecognitionofthisstrategyandtheabilitytoachieveworld-classstatus.Manychemicalmanufacturersarestrivingtoimprovebutareeitherunawareofbestpracticesorunabletoexecutethem.Aretheyconstrainedbytheircurrentleadership,workforceskills,cultures,orinflexiblesystemsthatdontsupporttheirimprovementinitiatives?Surprisingly,4percentthinksuperiorprocessesandprocessimprovementarenotterriblyimportant.Cantheseorganizationsbeactivelytryingtoachievebetterperformance?Whatchancedothosefirmshavetorunprofitable,customer-satisfyingoperationslong-term?

Recognizingtheimportanceofastrategy,suchassuperiorprocessesandprocessimprovement,isthelaunchstepinachievingsuccesswiththestrategy.Forexample,welookedatchemicalmanufacturersthatareatornearworld-classprocessesandprocessimprovement(agroupthatwewillrefertothroughoutthisreport):79percentofchemicalmanufacturersatornearworld-classprocessesandprocessimprovementratethestrategyashighlyimportant,comparedtoonly45percentofchemicalmanufacturersfurthestfromworld-classstatus.

Table 1

Rate your organizations progress toward world-class customer-focused innovation:

High tech manufacturers

1=Noprogress 3.7%2 9.5%3 35.4%4 39.4%5=World-class 12.0%

Source: Next Generation Manufacturing Study

Table 2

Rate the importance of customer-focused innovation to your organizations success over the next five years:

High tech manufacturers

1=Notimportant 1.9%2 1.5%3 5.9%4 23.8%5=Highlyimportant 67.0%

Source: Next Generation Manufacturing Study

Recognizingtheimportance of a strategy,suchascustomer-focusedinnovation,isthelaunchstepinachievingsuccess with the strategy.Forexample,examiningthegroupofhightechmanufacturersthatratedtheimportanceofthecustomer-focusedinnovationaseither4or5(5=highlyimportant),55percentareatornearworld-classforthestrategy,comparedtojust17percentofthosehightechmanufacturersthatratedthestrategysimportanceas13.Likewise,amongthosefirmsthatreportthemselvestobeatornearworld-classcustomer-focusedinnovation,77percentratethestrategyashighlyimportant,comparedtoonly57percentofhightechmanufacturersfurthestfromworld-classcustomer-focusedinnovation.

Resources, Investments, and Best PracticesInordertocompeteinthenextgenerationwithcustomer-focusedinnovation,hightechmanufacturersmustfollowuprecognition withexecution:investinginpeople,equipment,andproductandprocesstechnologies(i.e.,applicationsandsystems)andapplyingbestpracticestobringaboutpositivechange.Onlybydoingthiscanhightechmanufacturersturneverycustomerinteractionintoanopportunitytomakeanewoffer,applycustomerideastonext-generationgoods,improvecustomerretention,increaserevenue,enhancevalue,growloyalty,andstrengthencompanybrands.

Butmanyhightechmanufacturersdonot,ingeneral,putexecutionmusclebehindtheircustomer-focusedinnovationstrategies:16percentofhightechmanufacturershavelessthan1percentoftheirworkforcesdedicatedtoproductdevelopment/R&D.Fortunately,though,nearlyone-thirdofhightechmanufacturers(29percent)dedicatemorethan10percentoftheirworkforcetoR&D(see Table 3).Approximately18percentofallhightechmanufacturersparticipatingintheNGMStudyinvestlessthan1percentofsalesintoproductdevelopment;25percentinvestmorethan10percentofsales(see Table 4).

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Resources, Best Practices, and InvestmentsInordertocompeteinthenextgenerationwithsuperiorprocessesandprocessimprovements,chemicalmanufacturersmustfollowuprecognitionwithexecution:investinginpeople,equipment,product,andprocesstechnologies(i.e.,applicationsandsystems)whileapplyingbestpracticestobringaboutpositivechange.Onlybydoingthiscanchemicalmanufacturersoptimizeeveryinchoftheirfrequentlyexpensiveandasset-heavyfacilities,deliveringimpeccablequality,findingandeliminatingwasteandcosts,ensuringworkerandcustomersafety,andturningoperationsexcellenceintoacompetitivedifferentiator.Butmanychemicalmanufacturersfailtomakeaserious,company-wideeffortatexecution:34percentofchemicalmanufacturersreportthatlessthanone-quarteroftheirworkforcesarefullyengagedintheirimprovementmethods/approaches(see Table 3).

Table 3

What percentage of your workforce has been fully engaged in your organizations specific improvement method/approach?

Chemical manufacturers

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Table 5

How many formal training hours are devoted annually to each employee?

Chemical manufacturers

8orfewer 23.6%920 40.1%2140 20.9%>40 15.4%

Source: Next Generation Manufacturing Study

Notsurprisingly,42percentofthosechemicalmanufacturersatornearworld-classprocessesandprocessimprovementhaveamajorityoftheirworkforcesparticipatinginempoweredworkteams(comparedto27percentofchemicalmanufacturersfurthestfromworld-classstatus),and49percenttraineachemployeemorethan20hours(comparedto26percentofchemicalmanufacturersfurthestfromworld-classprocessesandprocessimprovement).Investinginpeopleskillshelpsworld-classchemicalmanufacturersachieveacompetitiveperformanceadvantage.

Chemicalmanufacturingisahighlyautomatedbusiness,relyingheavilyoncapitalequipmentandITinvestment.Inadditiontoacquiringnewworkforceskills,facilitiesneedtoinvestinupgradingoracquiringnewequipmentandsoftwaretosupporttheirprocessimprovementinitiatives.Chemicalmanufacturersareinvestingintheirorganizationsinfrastructureatratescomparabletootherheavyindustries:43percentofchemicalmanufacturersspendmorethan5percentofsales(three-yearaverage)oncapitalequipment,and19percentspendmorethan5percentofsalesoninformationtechnologies(see Tables 6 and 7).Asacomparisontootherheavilyautomatedindustries,44percentofplasticandrubbermanufacturersspendmorethan5percentofsalesonnewequipment,and18percentspendmorethan5percentofsalesoninformationtechnologies.

Table 6

What is your organizations investment in capital equipment as a percentage of sales (three-year average)?

Chemical manufacturers

10% 12.8%

Source: Next Generation Manufacturing Study

Table 7

What is your organizations investment in information technology (hardware and software) as a percentage of sales (three-year average)?

Chemical manufacturers

10% 5.5%

Source: Next Generation Manufacturing Study

Onceagain,though,itsnotsurprisingthatthebetterchemicalmanufacturersareaheadofthepackwiththisinputmeasure.Theyaremorewillingtoinvestincapitalequipmentandthenecessarysoftwaretosupportit.Amongchemicalmanufacturersatornearworld-classprocessesandprocessimprovement,50percentspendmorethan5percentofsalesoncapitalequipment,and25percentspendmorethan5percentofsalesonIT(comparedto38percentand14percent,respectively,ofchemicalmanufacturersfurthestfromworld-classprocessesandprocessimprovement).

Table 6

What is your organizations investment in information technologies (hardware and software) as a percentage of sales (three-year average)?

High tech manufacturers

10% 9.8%

Source: Next Generation Manufacturing Study

Amongthosehightechmanufacturersatornearworld-classcustomer-focusedinnovation,46percentspendmore than 5 percent ofsalesoncapitalequipment,and33percentspendmore than 5 percent ofsalesonIT(comparedto27percentand29percent,respectively,ofhightechmanufacturersfurthestfromworld-classcustomer-focusedinnovation).Betterfirmsapparentlyaremorelikelytorecognizetheimportanceofcapital-equipmentandITinvestments.

NewequipmentandITtosupportstrategicinitiativesinthiscase,customer-focusedinnovationgivesanorganizationagreaterchanceofsucceedingintothenextgeneration.Butwithouthavingtherightgoals,processes,andbestpracticesinplace,newtoolsmaycompoundandquickenerrorsandmagnifymistakes.Hightechmanufacturersmustapplybestpracticesthroughouttheirorganizations,increasinglyimprovingtheproductivityofinternalandsupply-chainoperations.Acrosshightechindustriestoday,firmsareembracingimprovementapproachessuchasleanmanufacturing.Butfortheseimprovementapproachestowork,everyemployeemustbeempoweredtoimprovetheirownworkandhowitimpactsotherswhichrequiresadequatetrainingsothatworkerscanrespondindependentlytoissuesthaterodecustomersatisfaction.OneNGMStudyparticipantcitedhumancapitalastheirtopcustomer-focusedinnovationbestpractice.

Awell-trained,empoweredworkforcecanhaveconsiderableimpactonacompanysabilitytogetnewproductsintomarketsandthehandsofsatisfiedcustomers.Sowhyarentmorehightechmanufacturerspayingattentiontotheirworkforces?Just47percentofallhightechmanufacturersparticipatingintheNGMStudyhaveamajorityoftheirworkforcesengagedintheirorganizationsspecificimprovementmethods,and28percenthavelessthanaquarteroftheirworkforcesengaged(see Table 7).Andmanyhightechmanufacturerssimplydontreceivethedevelopmentnecessarytobeanythingmorethanworkers:Only29percentofallhightechmanufacturersparticipatingintheNGMStudytraineachemployeemorethan20hoursannually(see Table 8).

Table 7

What percentage of your workforce has been fully engaged in your organizations specific improvement method/approach?

High tech manufacturers

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Chemicalmanufacturersmustdiligentlymonitorprocesses,workforces,andequipmentiftheywanttoidentifyproblemsandissues,explorecost-savingsopportunities,anduncovernewwaystoenhancequality,safety,andcustomervalue.NGMStudyparticipantscitedthefollowingbestpracticestoachievesuperiorprocesses:KPIsareinplaceforeveryfunctionaldepartmentandarereviewedmonthlyduringameetingwithalllevelsofmanagement;clearlydefinedgoalsandweeklymeetingsaddressprogresstowardimprovements;constantreviewofprocessesanddevelopmentofcost-savings;andconstantreviewofperformanceandidentifyingareasofpossibleimprovement.

Yeteveninthechemicalindustrywheremonitoringandreportingisoftenmandatedsomemanufacturersdontmeasuretheirprocessimprovementefforts:15percentofchemicalmanufacturershavenomeasurementsystemsorreviewsinplacetotrackreturnontheirprocessimprovements,andanother26percenthaveonlyadhocmonitoringandreviews(see Table 8).Attheotherendofthespectrum,12percentreportregularmonitoringandreviewofcompany-specificmetricsbyCEOandseniorstaffandtransparencyandclaritythroughouttheorganization.

Table 8

What best describes your measurement system for reviewing return from process improvements?

Chemical manufacturers

Nomeasurementsystemperseorreviews 15.3%Adhocmonitoringofbasicmeasuresandadhocreviews 26.2%Company-specificmetricsmonitoredregularlybyoperationsstaff 20.2%Regularmonitoringandreviewofcompany-specificmetricsbyCEOandseniorstaff

26.2%

Regularmonitoringandreviewofcompany-specificmetricsbyCEOandseniorstaffandtransparencyandclaritythroughouttheorganization

12.0%

Source: Next Generation Manufacturing Study

Amongthosechemicalmanufacturersatornearworld-classprocessesandprocessimprovement,74percenthavebetterthanadhocmonitoringorreviews,and21percenthaveregularmonitoringandreviewofcompany-specificmetricsbyCEOandseniorstaffandtransparencyandclaritythroughouttheorganization,comparedto46percentand5percent,respectively,ofchemicalmanufacturersfurthestfromworld-classstatus.World-classchemicalmanufacturersunderstandthatwithoutvisibilityandreviewofperformancedatathatisaccessibleandapplicabletoalllevelsoftheirorganizations,itsdifficulttoidentifyareasforimprovementwithinanydivision,department,orline.Withoutthisdata,theycannotmakeinformeddecisionsaboutproduct-development,sourcing,andproductionactivitiesorleadacontinuousimprovementeffort.

Table 8

How many formal training hours are devoted annually to each employee?

High tech manufacturers

8orfewer 28.7%920 42.0%2140 19.1%>40 10.2%

Source: Next Generation Manufacturing Study

Notsurprisingly,57percentofthosehightechmanufacturersatornearworld-classcustomer-focusedinnovationhaveamajority oftheirworkforcesengagedinimprovements(comparedto37percentofhightechmanufacturersfurthestfromworld-classcustomer-focusedinnovation),andnearly40percenttraineachemployeemorethan20hours(comparedto18percentofhightechmanufacturersfurthestfromworld-classcustomer-focusedinnovation).

ManyNGMrespondentscitedaneedtoimprovehowtheylistentocustomersandunderstandtheirissuesandproblemsasabasisforimprovementideallymeasuredonspecificgoalsandobjectivesthatallowseniormanagerstotrackprogressinthiskeyfunction.Yetmanyhightechmanufacturersdontmeasuretheirinnovationefforts.

Approximately20percentofallhightechmanufacturersparticipatingintheNGMStudyhavenomeasurementsystemsorreviewsinplacetotrackreturnfromcustomer-focusedinnovation(see Table 9).Attheotherendofthespectrum,41percenthaveeitherregularmonitoringandreviewofcompany-specificmetricsbyCEOandseniorstafforregularmonitoringandreviewofcompany-specificmetricsbyCEOandseniorstaffandtransparencyandclaritythroughouttheorganization.

Table 9

What best describes your measurement system for reviewing return from custom-focused innovation?

High tech manufacturers

Nomeasurementsystemperseorreviews 20.1%Adhocmonitoringofbasicmeasuresandadhocreviews 29.7%Company-specificmetricsmonitoredregularlybyoperationsstaff

9.3%

Regularmonitoringandreviewofcompany-specificmetricsbyCEOandseniorstaff

28.5%

Regularmonitoringandreviewofcompany-specificmetricsbyCEOandseniorstaffandtransparencyandclaritythroughouttheorganization

12.4%

Source: Next Generation Manufacturing Study

Itisdifficultforhightechmanufacturerstoimprovewithoutmeasurementsystems,andlikelyimpossibleforthemtobecomeworld-classwithoutthemeanstotrackandimprovemetrics.Thebetterfirmsunderstandthis.Amonghightechmanufacturersatornearworld-classcustomer-focusedinnovation,57percenthaveadvancedmeasurementsystems,comparedto25percentofhightechmanufacturersfurthestfromworld-classcustomer-focusedinnovation.

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Strategic Attention Drives Process ImprovementRecognizingandexecutinganext-generationmanufacturingstrategy,suchassuperiorprocessesandprocessimprovement,ismeaninglessunlessitcandrivebenefitstoanorganizationsbottomline.WhattheNGMStudyfindsisthatchemicalmanufacturersatornearworld-classprocessesandprocessimprovementaremorelikelytooutperformcompetitors(higherqualitydeliveriesandanimprovedabilitytopleasecustomers),andtheyaremorelikelytooperateproductively.

Morethanone-thirdofchemicalmanufacturers(35percent)reportthatmorethan98percentoftheirdeliveriesareperfect;attheotherextreme,14percentreportthatlessthan90percentofdeliveriesareperfect(see Table 9).Chemicalmanufacturersoveralldoareasonablygoodjobofpleasingtheircustomers,with44percentindicatingthatcustomershavestrongloyaltytoourproductsduetoongoingtrustinourorganizationspeopleandcapabilities;while8percentdescribetheircustomersasatbestindifferenttobuyingourproductorcompetitors(see Table 10).

Table 9

What percentage of deliveries reach customers in perfect order (i.e., on time, high quality, to all customer specifications)?

Chemical manufacturers

98% 34.8%

Source: Next Generation Manufacturing Study

Table 10

Describe your customers satisfaction with overall performance Chemical manufacturersThreatenstopullbusinessbecausewedontmatchthecompetition 3.3%Indifferenttobuyingourproductorcompetitors 4.4%Preferenceforourproductsbyvirtueofprice,quality,anddeliveryperformance

48.4%

Strongloyaltytoourproductsduetoongoingtrustinourorganizationspeopleandcapabilities

44.0%

Source: Next Generation Manufacturing Study

Amongchemicalmanufacturersatornearworld-classprocessesandprocessimprovement,41percentreportthatmorethan98percentoftheirdeliveriesareperfect,comparedto31percentofchemicalmanufacturersfurthestfromworld-classprocessesandprocessimprovement.Approximately58percentofchemicalmanufacturersatornearworld-classprocessesandprocessimprovementreportthehighestlevelofcustomersatisfaction,comparedto33percentofchemicalmanufacturersfurthestfromworld-classprocessesandprocessimprovement.Chemicalmanufacturersthataresatisfyingtheircustomersarerelyingontheirworkforcestolistenandrespondtothevoiceofthecustomer,andutilizeITsystemstocommunicateandactonthatvoiceinamannerthatwillefficientlyimpactendproductsandenablebetterservicetocustomers.

Meetingdeliverydemandsandsatisfyingcustomersfrequentlycomesatacosttoanorganization,asovertime,expediting,firefightingandworkaroundstakeprecedenceoversoundroot-causeproblem-solving,anddata-basedprocessimprovement.Onekeymeasureofinternalperformanceisproductivity(value-addperemployee).Fully41percentofchemicalmanufacturersreportvalue-addperemployeeofgreaterthan$125,000,and26percentofchemicalmanufacturershavebeenabletoimproveproductivityoverthepastthreeyearsbymorethan50percent(see Tables 11 and 12).

Strategic Approach Drives Improved InnovationRecognizingandexecutinganext-generationmanufacturingstrategy,suchascustomer-focusedinnovation,ismeaninglessunlessitcandrivebenefitstoanorganizationsbottomline.WhattheNGMStudyfindsisthathightechmanufacturersatornearworld-classcustomer-focusedinnovationaremorelikelytocapturethebenefitsofimprovedinnovation(morenewproductsavailableforcustomersandanimprovedabilitytopleasecustomers).

Lessthanone-thirdofallhightechmanufacturersintheNGMStudy(31percent)reportthattheyderivemorethan25percentofsalesfromproductsintroducedinthepastthreeyears(see Table 10).Similarly,50percentofhightechmanufacturersreportthat5percentormoreoftheirtotalSKUshavebeenlaunchedinthepastyear(see Table 11).

Table 10

Approximately what percentage of annual sales are derived from products introduced in the past three years?

High tech manufacturers

50% 12.2%

Source: Next Generation Manufacturing Study

Table 11

How many new products as a percentage of total SKUs are launched annually?

High tech manufacturers

20% 8.2%

Source: Next Generation Manufacturing Study

Amonghightechmanufacturersatornearworld-classcustomer-focusedinnovation,40percentgetmorethanaquarterofannualsalesfromnewproducts,comparedtojust21percentofhightechmanufacturersfurthestfromworld-classcustomer-focusedinnovation.And62percentofhightechmanufacturersatornearworld-classcustomer-focusedinnovationlaunched5percentormoreoftheirSKUsinthepastyear,comparedtojust38percentofhightechmanufacturersfurthestfromworld-classcustomer-focusedinnovationthatlaunched5percentormoreoftheirSKUsinthepastyear.(Evenmoreimpressive,afull30percentoftheworld-classgrouplaunchedmorethan10percentoftheirSKUsinthelastyear.)

Hightechmanufacturersoveralldoareasonablygoodjobofsatisfyingtheircustomers,withnearly50percentofallhightechfirmsindicatingthatcustomershavestrongloyaltytoourproductsduetoongoingtrustinourorganizationspeopleandcapabilities(see Table 12).Evenhere,though,hightechmanufacturersatornearworld-classcustomer-focusedinnovationhaveaslightedge:56percentachievethehighestlevelofcustomersatisfaction,comparedto43percentofhightechmanufacturersfurthestfromworld-classcustomer-focusedinnovation.

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Table 11

What is your value-add per employee ([sales cost of materials] number of employees)?

Chemical manufacturers

$175,000 23.1%

Source: Next Generation Manufacturing Study

Table 12

By what percentage has productivity (i.e., value add) improved during the past three years?

Chemical manufacturers

100% 4.0%

Source: Next Generation Manufacturing Study

Approximately45percentofchemicalmanufacturersatornearworld-classprocessesandprocessimprovementreportvalue-addofgreaterthan$125,000,and34percentreportthree-yearproductivityimprovementsofmorethan50percent,comparedto38percentand20percent,respectively,ofchemicalmanufacturersfurthestfromworld-classprocessesandprocessimprovement.

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ConclusionChemicalmanufacturerscannolongerrelyonlegacymanufacturingandmanagementmodelstoremaincompetitive.Withoutaguidingstrategicobjectivesuperiorprocessesandprocessimprovementsandtheresources,bestpractices,andbusinesssystemssuchasenterpriseresourceplanning(ERP),customerrelationshipmanagement(CRM),andbusinessintelligencetosupportthatfocus,operationscanrapidlydeteriorateandputproductquality,workersafety,andprofitabilityinjeopardy.Thisleavesthemlittleopportunitytoadvanceintothenextgeneration.Managingachemicalfirmwithafirmgraspofinternalandexternalimprovementopportunitiesandthestrategicmeanstoaddressthemcanleadtosuperiorprocessesandsignificantlyreducewasteacrossprocesses,shrinkleadtimes,enhancesafety,reducecosts,andimprovecustomersatisfaction.

World-classchemicalfirmsattainsuperiorprocessesby:

1. Understandingtheneedtoputprocessimprovementatastrategiccorporatelevel.

2. Applyingthenecessarybestpracticesandinvestmentstoexecutetowardtheirstrategicimprovementvisions.

3. Rigorouslymonitoringtheirprogresstowardworld-classprocesses,continuouslysolvingproblems,andrecalibratingtheirapproachesinordertooperatemoreeffectively.

Isyourchemicalfirmreadytoachieveworld-classprocessesandprocessimprovements?

iAllresearchinthisreportisbasedondatafromTheNextGenerationManufacturing(NGM)Study,whichwasconductedbytheManufacturingPerformanceInstitute(MPI)inearly2009tobetterdefinethestrategiesandbusinessactivitiesnecessaryforworld-classperformanceandsuccessintothenextgeneration.TheNGMStudywascoordinatedbytheAmericanSmallManufacturersCoalition;conductedbytheManufacturingPerformanceInstitute(MPI);andsupportedbyManufacturingExtensionPartnershipcentersandpartneringorganizations.Atotalof2,529manufacturersparticipated;forthisreport184manufacturerswereidentifiedaschemicalmanufacturingusingthethree-digitNAICScode325.FormoreinformationontheNGMStudy,gotowww.mpi-group.net.

iiRichardA.Michau,CFATScompliancefromTopScreentothesitesecurityplan,Securityinfowatch.com,March9,2009.

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About the AuthorsJohn R. Brandt and George Taninecz

JohnR.BrandtisCEOandFounderofTheMPIGroup(www.mpi-group.net),andhasspentmorethantwodecadesstudyingleadershipineffective,purpose-drivenorganizations.FormereditorofbothIndustryWeek andChief Executive magazines,heisanexpertonhowcompaniesandcommunitiescanadaptthemselvestotherealitiesofnewmarkets,newcorporatestructures,andnewcustomerexpectations.Johncanbereachedatjbrandt@mpi-group.net.GeorgeTanineczisVicePresidentofResearchforTheMPIGroup(MPI).FormercommunicationspecialistwithMcKinsey&Co.andIndustryWeek magazinemanagingeditor,Georgeisawell-knowninnovatorinbusinessresearch,andhedesignsandmanagesMPIsresearchandknowledge-developmentprojects,workingwithclientstoscopeandachievetheirdata,communication,publishing,andintellectual-propertyneeds.Georgecanbereachedatgtaninecz@mpi-group.net.

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About Microsoft DynamicsMicrosoftDynamicsisalineofintegrated,adaptablebusinessmanagementsolutionsthatenablesyouandyourpeopletomakebusinessdecisionswithgreaterconfidence.MicrosoftDynamicsworkslikefamiliarMicrosoftsoftware,suchastheMicrosoftOfficesystem,whichmeanslessofalearningcurveforyourpeople,sotheycangetupandrunningquicklyandfocusonwhatsmostimportant.BuilttoworkwithMicrosofttechnologies,itworkseasilywiththesystemsyourcompanyalreadyhasimplemented.Byautomatingandstreamliningfinancial,customerrelationship,andsupplychainprocesses,MicrosoftDynamicsbringstogetherpeople,processes,andtechnologies,helpingincreasetheproductivityandeffectivenessofyourbusinessandhelpingyoudrivebusinesssuccess.

Worldwide(1)(701)281-6500UnitedStatesandCanada,tollfree,(888)477-7989www.microsoft.com/dynamics