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OPERATIONS FLEXIBILITYIN PROCESS INDUSTRIES
1
e ruary
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Contents Page
.
B. Industry trends drive flexibility requirements 12
D. How to embed flexibility within operations strategy 20
E. Best practice flexibility levers 27
2
This document was created for our client. The client is entitled to use it for its own internal purposes. It must not be passed on to third parties except with the explicit prior
consent of Roland Berger Strategy Consultants. This document is not complete unless supported by the underlying detailed analyses and oral presentation.
2008 Roland Berger Strategy Consultants GmbH 2
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IntroductionA
33
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The study covers three process industries with similarcharacteristics in operations
Scope of the study
SIMILARITIES OF
CHEMICALS
OPERATIONS
Capital intensiveproductionequ pmen w
long depreciablelife
Broad product
Batch production
Regulatory
requirementsExamples: AdhesivesExamples: Anesthetics
Examples: H iene roducts
Globaloperations
Coatings Pigments Solutions Additives Agents
Infusions & injections Clinical solutions Tablets & pills Clinical nutrition Clinical agents
Beverages & water Cleaning agent Washing powder Foodstuffs Dairy products
4
o vents etc.
etc. etc.
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We have conducted more than 80 focused interviews with senioroperations managers from international industry leaders
Study approach and participants
OUR APPROACH
Comprehensive list of flexibility levers
(SELECTION)
Consultants project history
Preparation of hypotheses by partners
RBSC Competence Center OperationsStrategy and relevant industry
practices
More than 80 structured face-to-faceinterviews with decision makers, ratherthan questionnaire based statistics
5
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Four major trends put challenges for companies in all analyzedprocess industries
Key common trends in process industries
82%
What are the key challenges your company faces today? Volatile demand patterns is namedas the highest current challenge;while at the moment most
76%
55%
61%
companies experience an upswing
and struggle to serve marketdemand there is awareness thatthe next downturn is coming
second and puts companies undera constant restructuring andreorganization pressure
markets put the challenge to limitthe upwards trend by securingbenefits from short term drops
The shortenin of roduct life leads
6MUC-
demand
patterns
energy & raw
material markets
cycles to a constant ramp up-/ down
cycle the needs to be managed
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Eight trends in the pharmaceutical industry require more and moreflexibility in operations
2 3 41
PHARMA-CEUTICALS
-les are shorteningdue to reducedpatent protectionrequires faster
standards arechanging fre-quently in thepharma industry
from health payersis ever increasingdemanding pharma-economic benefits
running out onmajor blockbusterdrugs puts pressureon operational cost
ramp-up an ramp
down of operations
requ r ng qu c
adaptations
s ruc ure a us men
85 6
-
7
acquisitions as aresult of portfoliooptimization requirequick and efficient
-
Asia is increasingrequires a moreglobal footprint(India and Asia but
is increasing dueto more and morepersonalizedproducts
nology develop-ments is increa-sing along thepharma value
7Source: Roland Berger
-integration ofoperations
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Five trends in the specialty chemicals industry require more andmore flexibility in operations
1 2 3-
sitions as a result ofportfolio optimizationrequire quick andefficient carve-out and
extending theirvalue chain andbecoming solutionproviders to evade
of manufacturingpenetration to freecash for innovation
SPECIALTYCHEMICALS
n egra on o
operations
commo za on o
their products
4 65
-Asia is increasingrequire shorterreaction time towardscustomers and thus a
availability due toincreased compe-tition and decliningcustomer loyalty
establish scalesynergies to be costcompetitive whileavoiding asset build
8Source: Roland Berger
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Six trends in the consumer goods industry require more and moreflexibility in operations
1 2 3
patterns due tochanging consumerbehaviour andseasonal variations
life cycles due toincreased compe-tition, technologicalimprovements and
diversity due tocustomers demandingmore and morepersonalized
CONSUMERCARE
ncreas ng cus omer
requirements
pro uc s
4 65
--packagingdue to regionalregulations andincreased
availability due toincreased compe-tition and decliningcustomer loyalty
boarder activitiesdue to furtherinternationalizationand limited growth
9Source: Roland Berger
markets
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Most companies in the process industries have recognized theneed for flexibility
Verbatims Kurt Hogh (Value stream optimization)"Stricter market requirements (in terms of fresh
-
Jeffry B. Kindler (CEO)
"We must reduce our absolute cost andput in place a more flexible structure"
, ,demanding customers,) and strategic targetsmean that flexibility must be at the heart of ourcompany "1)
" our business now meets allconditions for long-term success: flexibleasset structures and a global focus
" Flexibility will have an ever
increasing relevancy in order toreduce capital tie-up and to be ableto react more quickly"
1)
backed by regional flexibility"
(Annual report 2007)
"Great flexibility is really importantso that we can rapidly adapt to
how our local customers work."
Dr. Rainer Oschmann(Executive General Manager)
" Operations flexibility is a clear"
(Letter to shareholders, June 2007)
" [Our] financial strength is therefore theresult of the followed strategic course and
10
of the flexibility and speed with which
external challenges are dealt with."(Mission statement 2008)1) Translated from German source
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Participants of this study confirm the relevance of flexibility however systematic transfer into their operations strategy is rare
Flexibility objectives and operations strategy
Do you perceive operations flexibility as one of yourtop 5 priorities?
Beverage producer, Production manager
" operations flexibility is very importantin our capital intensive industry" Pharma and Chemicals Group,
11%
89%Specialty chemicals company, COO
" flexibility is much more economicalthan investing in forecastingexcellence we had to learn it the
Head of Business development
"Definitely, flexibility is among ourstrategic goals. We would soon beout of the market if we would notconstantly try to react as flexibly asossible."
noyes
Do you systematically define strategic measures toachieve this objectives?
hard way"
Consumer Care company; Managermanufacturing
"Onl when we felt the stron market ush
44%56%
and had to quickly boost our output did werecognize significant hidden flexibilitybuffers; in one plant we where able toincrease output by 15% without anyinvestments"
,Head of Strategic Planning
"Operations flexibility is soinevitably important. It would befoolish if we left it to chance."
11
noyes
Pharmaceutical producer, Head of Operations
"We do build in flexibility but it is rather a functionalresponsibility than a systematic corporate approach"
Source: Roland Berger interviews, 2008
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Industry trends drive flexibility requirementsB
1212
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Different flexibility types exist: from handling of day-to-daydemand fluctuation to strategic considerations for M&A activities
Types of flexibility
TYPE EXPLANATION EXAMPLE
Demand The capability to deal with volatiledemand patterns
Increase in the advent of a new product
or the downturn at the end of theproduct life cycle
1
Geography The capability to install necessaryoperations for a new market entry (e.g. local supplier integration)
Entry into Chinese market making use oflocal labour cost advantages (keepingup necessary ingredient quality)
2
Network
Technolo
The capability to change volume andproduct allocation within a global siteportfolio
The ca abilit to re lace old technolo
e.g. new products, market demand shiftsor currency changes might require anoptimized utilization of global sites
e. . new small batch technolo ies
3
Mergers & Acquisitions
with new technology
The capability to make use of synergies
require different skills and productionsystem set-ups
Integration of newly acquired plants into
4
13
or re a n ex s ng synerg es n e case
of investment and divestments
an ex s ng pro uc on ne wor
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For the analyzed industries, the different types of flexibility havedifferent relevancy demand flexibility is a common requirement
Relevancy of different flexibility types
CONSUMERCARE
SPECIALITYCHEMICALS
PHARMA-CEUTICALS
Demand
Low High
Demand Demand
Low High Low High
1
Geography Geography Geography2
e wor
Technology
e wor
Technology
e wor
Technology
3
4
14
Mergers &
acquisitions
Mergers &
acquisitions
Mergers &
acquisitions
5
Source: Roland Berger interview results, 2008
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1 DEMAND FLEXIBILITY
Predicting yearly flu types is very difficult for the pharmaceuticalindustry demand for one serum can be very high or zero
Example: Flu serum
Back roundDemand
Serum has to be reproduced every year, as the virustransforms every year
Inventories are therefore not possibleReal demand
,
should be produced/normally three types of viruses arecovered Development of year specific serum takes up to 6 months Extremely high demand of incubated eggs for repro-
for type A
demand for specificvirus (later: type A)
demand
duction of antibodies (Impfviren), capacities are limited Serum manufacturers expect that demand will double
within the next 10 years, resulting in production capacities
restraints
ype
demandt oe C
Problem
Only one serum is really needed for one specific type Production capacities have to be extremely flexible to
t
Autumn Summer Fall Winter
15
Source: Pandemic Report 2006
react to a specific demand
Limited production capacities
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2 GEOGRAPHICAL FLEXIBILITY
Manufacturing networks will continue to go through a significanttransformation process in the future
Attractiveness of market and production environment
Existin roduction networksDevelo in countries will further increasewill transform
Rationalization of WesternEuropean industries
industrial assets and production capacities
High China
Significant development ofindustrial assets in EasternEuropean regions and Asia
India
France
will occur in Europe
Need for geographical
flexibility of operations thus
Marketattractiveness1)
CzechRepublic
Mexico
Germany
Italy
will increase
Low
South Africa
16
1) Growth, Attractivity etc.2) Labor cost, country risk, infrastructure
attractiveness2)
Size indicates market size
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3 NETWORK FLEXIBILITY
Flexible production networks allow companies to adapt tochanging market conditions on a short-term base
Manufacturing network aspects
Ex lanation
Make use of globalproduction networks,e.g. shift production
production of lowvalue-addingcomponents
100%
Productionvolume
Volatile demand
patternProductioncapacity Degree of value
added
Volatile Share ofvalue added
e a e o reac on ashort-term base onchanging businesscharacteristics
t
Use of flexibleproduction volumes
e.g. use more
volume/capacities due
for productionvolume shifton a short
term base
Production of
labour
Labor costs
value added isdecreasing
intensiveproducts
Make use ofrelative cost
17
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4 PRODUCT TECHNOLOGY PORTFOLIO FLEXIBILITY
State of the art product technologies are needed to decrease costs product technology flexibility is seen as key enabler
Example: Energy consumption and costs
10 Energy consumption is growing
steadily
Energy consumption[Terajoule]
Costs[Eurocent/kWh]
1,000
6
8
Energy costs rose with a CAGRof 12,7% from 2000-2007
The ca abilit to re lace old with
600
800
2
4
new technology will increaseproduction efficiency anddecrease costs
200
400
1994 1996 1998 2000 2002 2004 2006 2008
Eurocent/kWh
1994 1996 1998 2000 2002 2004 2006 2008
Manufacturing industries
18
Source: Statistisches Bundesamt / VCI-Chemiewirtschaft in Zahlen 2007 / BDI
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5 BUSINESS PORTFOLIO FLEXIBILITY
M&A activities and value chain reconfiguration require operationsto be flexible towards portfolio changes
Business portfolio flexibility
Drivers for ortfolioM&A transaction value Euro e USD m
Businesstrends
changes
M&A activities
Until 2004: mainly cost-focused -
100,000
Consumer
oriented
Ongoing changes in Value ChainConfiguration Competition of value chains
,
40,000
60,000
oo s
Pharma
Forward and backwards
integration and des-integration
1994 1996 1998 2000 2002 2004 2006 2008
20,000
0
Chemicals
Ops chal-lenges
Manufacturing: Process for product transfers, modular value chain, flexible support functions,
Supply chain management: Scalable distribution infrastructure, standardized processes and systems,
19
Purchasing: Global and regional sourcing strategy,
R&D: Platform strategy, alignment with manufacturing,
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How to embed flexibility within operationsC
strategy
2020
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Choosing the most suitable flexibility levers is often prevented byfour common ruptures along the strategy process
Ruptures along the strategy process
1st common rupture:
Business flexibility needs are notsystematically assessed for top downstrategy development
.BUSINESSSCENARIOS
Businessscenarios
Businessscenarios
flexibilityneeds
Business flexibility needs are notsystematically transformed into operationsflexibility needs
2nd common rupture:
Manufacturing SCMPurchasing
Operations flexibility needs2. DEDUCTFLEXIBILITYNEEDS
Operations flexibility needs are not
3rd common rupture:Flexibility lever toolbox3. SELECT BEST
FLEXIBILITY
system of flexibility levers Overlapsbetween levers generate a hidden flexibilityLevers applied
LEVERS
EBIT
21
Neither a systematic forecast nor controllingof gains from flexibility is made
.IMPLEMENTATION
tActual
Source: Roland Berger
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DEVELOP BUSINESS SCENARIOS1
Establishing flexibility starts with creating different business scenariosand assessing the related cost and benefits of flexibility
Determinants of flexibility value
to evaluate cost and effects of becoming moreflexible. Business scenarios can be calculatedwith different time horizons and incidentprobabilities
Scenario A Occurswith
The cost of becoming more flexible aredetermined by the actual degree of flexibilityand the cost of implementing additional
Noinvestment
Incident
PA
flexibility measures. The type of measures tobe implemented crucially depends on the timehorizon of the business scenarios
The benefits from flexibility are the effectsresulting from the measures implementedduring the realization of one of the possiblebusiness scenarios
investmentin flexibility
Scenario B
withprobability
PB
22 Airbusinterview
Gains from flexibility scenario BGains from flexibility scenario ACost of becoming more flexible
EBIT development scenario A EBIT development scenario BTIME
Source: Roland Berger
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DEDUCT OPERATIONS FLEXIBILITY2
Business flexibility needs are often not systematically derived fromthe company's strategic objectives
Link between strategic objectives and measures
Strategic objectives could be able to
cope with demand increase of 10% Further divestments of operations
The majority ofparticipants confirmflexibility to be part of
Is flexibility part of yourstrategic objectives?
assets; increase of outsourcing levele r s ra egy%
39%
Demand fluctuations of -5% without
Independent OP objectives
Yes No
Is flexibility transferred as
an objective of your
purchasing price effect
Develop second supplier for keycomponent
Compensate 5% volume reduction in
On the other hand a lot
of companies lack theopera ons s ra egy
41%59%
-facturing
cost per piece
Prepare to insource 30% of volumefrom contract manufacturer
Build task force to prepare integrationof potential acquisition
desiered flexibility oftheir operations
23 Airbusinterview
Yes No SCM Demand changes of 5% without
decreasing service level
Source: Roland Berger interview results, 2008
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SELECT BEST FLEXIBILITY LEVERS3
Selection of flexibility levers is not always based on the respectiveimplementation cost and time
Levers selection matrix
Hi h
MANU-FACTU-I Use of multi-purpose plantsI.2
Optimize production footprintI.1
I.9 Kanban utilization
I.8 Define pull/push pointsCost of implementation
I.3 Buy options on infrastructure/real estate
I.4 Joint facility utilization
Keep options on future technologiesI.6
Use modular/flexible manufacturingI.7
I.10 Optimize change-over time and cost
I.11 Consider total lifecycle costs
I.13 Introduce advanced operating schemes
I.14 Postpone product differentiation
I.12 Reduce lead time in productionI.5 Make-to-order
I.1
II.11
III.5
III.1 IV.4
II.10
IV.3
II.1
PUR-CHASING
IIMultiple sourcingII.2Global/cross-regional sourcingII.1
II.3 Peak sourcing
II.4 Negotiation/reflex
II.9 Sale & lease back
II.8 eProcurement
II.10 Standardization of product structure
Make-or-buyII.7
I.6
I.2
I.5 II.14
.IV.1
II.12
III.3
III.3
I.13I.12 II.8
e . Risk sharing partnershipsII.5
Supplier collaborationII.6
SCM/Logistics
III
III.3 Supply chain collaboration
Flexible warehouse dimensioningIII.2
III.1 Warehouse footprint optimization
II.11 Modularization
III.5 Advanced planning systems
III.6 Optimization of contractual conditions
for assets
I.4
I.3
II.12 CLB organization
II.6 III.6
II.5 III.4
IV.8
IV.9III.7
IV.6
III.8
I.7II.2IV.2
IV.6
I.11II.7
III.4 Outsourcing
GENERALIV IV.1 Partnerships/JV
Monitoring systems/KPIIV.2
.
III.8 Risk sharing with logisticsservice providers
IV.6
IV.7
Flexible working hours
Temporary workers
II.4
I.8
I.9
II.9
I.10
II.3
24
Low
Short-term Medium-term Long-term
IV.4 Modularization & standardization ofprocesses
.
Continuous improvementIV.5
IV.9
.
Orientation on industry standards
Time to implement
Source: Roland Berger
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MEASURE IMPLEMENTATION4
Decisions regarding flexibility are made with limited knowledgeabout cost and gains; effective measurement is neglected
Transparency of flexibility
Do you measure flexibility of your internal
QUOTES
"We build buffers and flexibilize
CONCLUSION
The majority of companies
operations?
47%31%22%
wor ng ours a t oug we are notreally sure these efforts pay off ..."
do only have a rough ideaabout their internalflexibility
Most companies cannot
Do you measure the flexibility of yourexternal supply chain?
NoPartlyYes
"Often we are not exploiting ourflexibility potentials where we couldbecause su lier are not trans arent"
flexibility because they donot measure it
Consequently decisionsregarding flexibility aremade with limited know-ledge about cost and gains
Effective measurement
systems are not fully
55%35%
10%
NoPartlYes
Do you know the cost of being moreflexible?
60%
" We tackle flexibility needs whenthey occur, then we make a businesscase and calculate cost implications"
"What is more complex then
25Airbusinterview
10%
NoPartlyYes
ca cu at ng ex ty cost s to get toknow the benefits of flexibility"
Source: Roland Berger interviews, 2008
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Using a systematic four step approach, the four common ruptures canbe overcome and the full value of flexibility can be utilized
Four step approach
DEVELOP SCENARIOS CLUSTER OPERATIONS SELECT BEST SET OF CONTROL FLEXIBILITY
Cancel
high
Probability x Size
high
Cost of implementationEBIT
No Best caseScenario
A
Condideronly
mediumcost leversbut allow
medium
medium
-ment in
levers
Incident
ScenarioB
all
leverswithshortimpl.time Be selective
for moretime to
implement
low
longmediumshort
Time to scenario
low
longmediumshort
Time to implementt
investmentin levers Worst case
cenar oC
and reviewcontin-uously
Evaluate different businessscenarios
Derive of flexibility needs foreach business scenario
Cluster specific flexibility needsfor each scenario along theproduct of probabiliy and size(benefit/risk) and time tillpotential occurance
Select levers that reflect theprobability x size category as wellas the time horizon of the scenario
Detect hidden flexibility bycom arin feasible levers with
Constantly review flexibiltygains and cost
26
those already implemented andcancel those
1st rupture closed 2nd rupture closed 3rd rupture closed 4th rupture closedSource: Roland Berger
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Best practice flexibility leversD
2727
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DEMAND FLEXIBILITY LEVERS
Levers to tackle demand flexibility are well known, though theirimportance in the eyes of operations managers is changing
Top levers address demand flexibility
Rank # General Purchasing Manufacturing Supply chain
1 Temporaryworkers
Multiple/dualsourcing
Reduce lead timein production
Push-pull-pointdifferentiation
IV.7 II.2 I.12 III.4
Suppliercollaboration
II.6 Subcontractoruse
I.15 OutsourcingIII.4
2 Flexible workinghours
Global/crossregional sourcing
Multi purposeplants
Advanced planningsystemsIV.6 II.1 I.2 III.5
Buffer stocksIII.10
Com-ments
Temporary workers andinternally flexible workinghours in the most common
means to tackle demand
Multiple sourcing or dualsourcing is applied forcritical materials
For materials/services
Lead time reduction isclearly highest on theagenda of manufacturing
responsibles
A differentiated definitionof push-pull-point (make-to-order vs. make-to-stock)
has risen in the attention
Models of both leversstrongly depend on locallegislation
collaboration models up toJV approaches are applied
For suppliers where secondsource is too expensive
by using subcontractors forvolatile/peak demand
Multi purpose plants areconsidered where
established lever to sharevolatility risk with serviceproviders
Buffer stock is used to
2828
production at supplier is
requested/ supported
potentials though focus is
on lead-time reduction inproduction instead
Source: Roland Berger interviews, 2008
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M&A FLEXIBILITY LEVERS
With regard to establishing flexibility to better handle divestmentsand integrations, the clear focus is on more standardization
Top levers applied to address mergers & acquisitions
Rank # General Manufacturing Supply chain Mgmt. Purchasing
1 Orientation onindustry standards
Optimize produ-ction footprint
Warehousefootprint
Corporate LeadBuyer organization
IV.9 I.1 III.1 II.12
Productionsystem
I.17Outsourcing
II.7StandardizedMonitoring/ KPI
IV.2
2 Standardized&scalable ITsystems
Standards oncommodity codes&use of databases
IV.3 II.13
sys ems
Com-ments
Industry standards is widelynamed as key to be flexible
Often though standards are
country specific and the
Clearly still on the rise isthe introduction ofproduction systems
Even if implementation will
In the context of PMI oftenoutsourcing is helpful,provided the contract is set
up in a flexible way for such
A corporate lead buyerorganization is consideredby most of the participants
as highly adaptive to
Standard KPI systems area key lever to quicklyintegrate new companiesand make them
company that has one isachieved much faster
Often companies take thechance to outsource duringM&A situations as thejustification case with
The increasing use ofstandard commodity andsupplier codes also is veryhelpful in integration
29
IT standards are an
advantage but depend onthe target company's setup
built more easily
Source: Roland Berger interviews, 2008
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During the interviews companies across all industries analyzedand gave an insight into how they establish flexibility
FLEXIBILITY TYPES
Geo- Tech- M&ADe-1 2 4 5Net-3
INDUSTRY
Pharma Consumer Chemical
Overview flexibility cases
1. Central coordination department 1
.industry
3. Fast growing markets inconsumer good industry
3
. External intermediate business asa buffer
4
network and service provider
7. Network and geographic flexibilityto satisf lobal customer base
6
30Source: Roland Berger interviews, 2008
8. Selective M&A Strategies to reacton changing business environments
7
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1
A manufacturer of pharmaceutical products uses a centralcoordination department to react to short term customer demands
Interview example: Pharmaceutical industry
SOLUTIONSITUATION/CHALLENGE
High volatility in demand Fast chan in customer
Central coordination department
Complex market conditions Close working relation-ship with customers andfast communication of
Central coordination department as an "earlywarnin s stem" to react to trends
Coordination
department
needs/preferences
Short product life-cycle
R&DProduc-
tionMarke-
tingCus-
tomers
organization via centralcoordination department
Enhance production capabilities Continuously improve production technology (e.g.
cross industry benchmarking for production
technology of flavors)
Best practice technology
is key important React to specific country regulations, produce big lot
sizes for one country and minimize set-up times
Standardize products in close relationship withcustomers to improve planning flexibility
Improvetechnologyand planning
Contract manufacturingwith high volumes
Special regulations forindividual countriesBest practice
31
n ance wor orce ex y; mu -purpose use oworker capabilities (can operate all lines)
production strategy
Source: Roland Berger interviews, 2008
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2
A consumer goods producer uses a mixture of measures to dealwith volatile demand
Interview example: Consumer industry
SOLUTIONSITUATION/CHALLENGE
Volatile demand pattern
Demand
Studies on market development and trends on aregular basis
For selected products customer forecast on weekly
Closecooperationwith the
Time
For selected products only make-to-order
customer
Flexible machinery Set up APS to get overview on global [?] capacityFlexible
during change-over
Flexible maintenance contracts with service provider(maintenance during time of low demand
andproductioncontrol that is relatively predictable
ex-t me wor ng ours account
Job sharing (partly hob in production/partlyadministration)
Usage part time employees (5-20%) depending onHR-Management
32 Airbusinterview
Very "flexible" workers (e.g. students) for high peaks
(up to 10%) "Hausfrauenschicht"
measuresTime
Scenarios
Source: Roland Berger interviews, 2008
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3
A consumer goods and a pharmaceutical producer use a four stepapproach to deal with fast growing local markets
Interview example: Chocolate industry
SITUATION/CHALLENGE SOLUTION
Fast growing local markets Supply of the customer in fast growing markets bydistributor
Distribution to the county is organized by chocolate
Contractswith localdistributors
pro ucer to secure ats e very t mes
Jointventures
In several countries the chocolate producer has jointventures with local companies
that are relatively predictable
Demand
eman n oca mar e s g enoug , own sa esorganization id founded
Organization of whole distribution from the productionplant over the warehouse to the final customer by the
Additionalown salesorganization
Build-up of additional production plants in the fast
growing markets Preferred option if business opportunity appears stable
and needed ualit standard can be achieved inAdditional
roductionTime
33 Airbusinterview
countries
Often acquisitions are used for a fast increase of localproduction capacity
plantsScenarios
Source: Roland Berger interviews, 2008
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4
A large pharmaceutical producer uses external intermediatesbusiness as a buffer to cope with fluctuation of internal demand
Interview example: Pharmaceutical company
SITUATION/CHALLENGE SOLUTION
Company sells intermediates to external customers
If internal demand is increasing/decreasing, business
with external customers is slashed/increasedExternalInternal demand
Volatile internal capacitydemand
ex y s secure y re a ve y s or - erm con rac s
with external customers Due to combination of internal and external demandeconomies of scale can be realized within the plants
as capacity
reserve
Extensive use of multi-purpose-plants
Avoidance of continuous production processes
Standard shift models to vary personnel capacity
Time
combined with extremelyflexible plants
Manufacturing technology , ,
job rotation)
Manufacturing KPI system to measure performanceand flexibility
Flexiblemanufac-turingsystem
34 Airbusinterview
companiesProductsPotential of plant equipment
Source: Roland Berger interviews, 2008
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5
A large consumer goods company facilitates its manufacturingnetwork and service providers to cover demand fluctuations
Interview example: Consumer goods company
SITUATION/CHALLENGE SOLUTION
Mostly local manufacturing for local demand, at leastfor commodity products
Worldwide sister plants use same raw materials (e.g.Manufac-Demand
Different demand patterns
Product 2
, Shift of production capacity is institutionalized within IT
systems for the case of demand peaks, local rawmaterial shortages etc.
network
Time
Product 1
ro uc
combined with increasingcomplexity in packaging
Number of
packaging variants
Contract manufacturing is used to cope with demandpeaks
Service providers have expert knowledge when it
comes to fast product/plant changes, often
Use of
service manu ac ur ng o pro uc s w sma o s zes soutsourced
Benchmarking with the external service providershelps to increase speed of product/plant changes
providers
35 Airbusinterview
TimeTechnology
Throughput optimization with machines focussed onone product type (e.g. shampoos), flexible automation
of machine periphery to cope with packaging variants
Source: Roland Berger interviews, 2008
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6
A specialty chemicals manufacturer combines network andgeographic flexibility to satisfy its global customer base
Interview example: Specialty chemicals
SOLUTIONSITUATION/CHALLENGE
Products are produced in technologically identical("twin") plants (e.g. 2-3 twin plants per region)
Local production for local demandsNetwork
Global customer base
ree capac es are s are w n every reg on
Payoff time for local infrastructure shortens astransportation costs are on the rise
flexibility
ncrease o oca coverage w par ners ps og s cssuppliers) and joint ventures (e.g. [not yet] favorableM&A targets)
Leveraging advanced planning systems (e.g. SAP
requires presence in localmarkets
Geographicflexibility
Utilizing standardized IT systems for effectively routing
flow of goods & products together with logisticspartners
36
Own site Joint venture
Source: Roland Berger interviews, 2008
7/29/2019 Roland Berger Operations Flexibility in Process Industries 20110222
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7
The specialty chemicals company uses hedging and selective M&Astrategies to react on changing business environments
Interview example: Specialty chemicals
SOLUTIONSITUATION/CHALLENGE
Flexibility for product technologies is achieved byselectively acquiring specialized competitors
Post-merger integration of acquisitions is done
Winning with acquisitions
changing technological requirements
Immediate integration of acquisitions into global leadbuyer structure
Centralized roduction onl for business units offerin
SelectiveM&Astrategy
significant economies of scale
Risks of volatility reduced by broad business portfolio
Hedging with+105%
USD/t Prices for important raw materials are secured by
using futures e.g. on commodities such as palm oil
High planning security as prices are locked in
High flexibility to get the optimum independently of
37
time
price developments
Possibility to smooth out peaks and downs
Source: Roland Berger interviews, 2008