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Volume 6, Number 2, April 2008
This newsletter is published in cooperation with the ISM Chemical Group.  


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In This Issue ...
  • Chemical Industry News
    • Pharmaceutical Product Launch Success: A study of top-tier pharmaceutical companies by benchmarking organization Best Practices, LLC shows that marketers play a vital role early on in shaping and planning product strategy — and their employer organizations know it. The study determined marketing activities often begin much earlier now (as much as six years prior to launch) and identifies five tactics that best-in-class organizations used across the board to ensure product launch success.  Read more.
    • Think Before You Shuffle: You just bought a laptop. Or a flat-screen TV. Or an MP3 player. And unlike your parents' generation, you do not expect it to last forever. Modern consumers are prepared to toss their cell phones aside as soon as they hear the words "free upgrade." What most consumers do not know is that these gadgets contain highly toxic chemicals. When disposed of, they pose serious health and environmental risks.  Read more.
    • Forecast 2008: Nature to Imitate Art in Automotive Paints: As ecology, nature, the environment — and the fusion of emerging technology with all of the above — begins to register loudly on the collective consumer radar, the automotive industry is taking note. Designers at a recent presentation on the color trends for cars in 2008 and beyond predict vehicles painted in earth tones, silvers, blues, greens and whites will sell big this year, fueled by buyers' increasing environmental awareness.  Read more.
    • Raw Materials and Energy Expenses: This year, raw materials and energy costs are at the top of small- and mid-sized manufacturers' lists of economic concerns, according to the results of a January Group Outlook Survey conducted by buying consortium Prime Advantage. The study gauged the viewpoints of business owners, vice presidents of procurement and purchasing directors.  Read more.
  • Feature Article
    • Assessing the Supply Chain: Accenture's 2007 Global Chemical Industry Supply Chain Best Practices Study gauges the strengths and weaknesses of chemical companies' operations.  Read more.
  • Market Report
    • Recruiting Talent: The energy sector faces the same talent shortage trials as other industries. To help combat it, Ernst & Young LLP — in conjunction with Rice University — surveyed leading international oil and gas HR executives to gauge the challenges of workforce recruiting and retention, and to develop strategies for overcoming them.  Read more.
  • Announcements: ISM's 93rd Annual International Supply Management Conference and Educational Exhibit is less than a month away — May 4-7 — in St. Louis. Attendees will benefit from four days of supply management training and education from the best and brightest supply management professionals.  Read more.
  • Additional Resources: Check out these links to addition resources from the ISM Web site.  Read more.
  • Contact Us about ISM eDigest: Chemicals.


Chemical Industry News

Pharmaceutical Product Launch Success

Marketing Meets R&D: Five Best Practices Revealed

According to Best Practices in Global Pharmaceutical Launches, a study of 12 pharmaceutical organizations — best-in-class Merck, Pfizer, Eli Lilly, Johnson & Johnson, GlaxoSmithKline and Novartis among them — the most successful product launches reveal new levels of organizational alignment, with marketers playing a vital role early on. Benchmarking firm Best Practices, LLC, the organization which conducted the study, determined that it is not uncommon these days for marketing activities to begin up to six years pre-launch.

"Indeed, pharmaceutical and biotech companies reach much greater and sustained product success when they ensure strong partnerships between R&D and marketing," says media relations coordinator Kim Hardin. "[This balances] therapeutic innovation with commercial focus in all stages of product development."

The report includes more than 180 metrics, 100 best practices and 20 company case studies on critical pre- and post-launch topics, including marketing launch strategy and structure, marketing investment and staffing, cross-functional launch team composition and management, thought- leader development and more.

Key Findings

Best-in-class organizations participating in the Best Practices study were found to employ five universal tactics in their successful international pharmaceutical product launches:

1. They consistently allocated sufficient resources. According to the findings, the term "resources" applied to both financial and human resources in this sense — not just dollars, but also people and time. Their resource commitments were found to be consistent and persistent over a multiyear period. Additionally, their spending levels exhibited a consistent pattern: about 20 percent for pre-launch market research and thought-leader development, and 80 percent for launch and post-launch media advertising, scientific/medical meetings and promotional campaigns.

2. They integrate marketing strategy with structure, resources and planning. According to the study, team and marketing structures are emerging to accommodate international launch and brand management strategies. Cross-functional management systems are being deployed across the international enterprise to successfully implement these strategies.

3. Their thought-leader programs are managed as an integrated, multiphased process to shape clinical development and market acceptance. The study determined that top-tier performers tailored their efforts, activities and relationship investments to match the value of each thought-leader segment, as well as to reflect the roles of each segment at different times. According to the findings, this approach ensured these companies optimized their potential to build relationships with the most influential thought-leaders — those who could help shape clinical development, market positioning, brand development and product success.

4. They enhance sales force enthusiasm with an uncapped, well-defined system for compensation. Among best-in-class organizations, capturing and maintaining sales force support was considered critical to product launch success. Early buy-in, training, launch meetings and ongoing communications all contributed to this goal; however, the study also indicates these organizations saw great value in consistent sales force product assignments and compelling incentive plans. Often, they reported presenting well-documented, uncapped bonus and compensation plans at launch meetings to spur enthusiasm.

5. They make the most of market research. To identify the most effective product positioning and brand development strategies, best-in-class organizations said they found market research very helpful. While this research has traditionally been essential for determining market size, as well as tracking and needs forecasting, more and more of it is being used to ensure clinical development mirrors market needs. Top-tier organizations' scientists and marketing communication teams were found to use the customer data, competitive intelligence and product forecasting market research to facilitate better dialogue between their groups.

A complimentary excerpt of this report is available online.


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Think Before You Shuffle

Environmental Advocacy Group Calls for Consumer Awareness of Electronic Waste Hazards

Whether it is a new laptop, flat-screen television or MP3 player, consumers today do not expect electronics to last forever. As such, they have adapted a "disposable" attitude to discarding these gadgets — however, considering they all contain highly toxic chemicals, this mind set deserves some rethinking.

To spur this shift, San Francisco-based social, health and environmental advocacy group Wellcorps.com is calling for consumer awareness of the hazards of electronic waste. "The electronics industry has what is called 'planned obsolescence,' which means that the electronic will become obsolete or stop working — generally about 18 months from purchase," explains spokesperson Clay Doherty. And more and more, Doherty says, companies are shortening their span to 12 months or less, which increases sales and also increases the amount of toxic electronic waste in the environment as consumers simply throw away devices every year.

"A lot of people don't realize the toxic chemicals that their gadgets contain," says Wellcorps.com founder Tony Rich. "iPods, iPhones and other electronics contain hazardous substances. When you throw your electronics away, those harmful chemicals don't just disappear."

According to Doherty and Rich, electronic waste accounts for 70 percent of all toxic waste. These devices can be made with more than 1,000 toxic materials, including the mercury, cadmium, lead, brominated flame retardants and PVC used to make semiconductor chips, circuit boards and disk drives.

Additionally, both men point out that toxic mercury exposure has been linked with such ailments as ADD/ADHD, autism, Alzheimer's, Parkinson's disease and Chronic Fatigue Syndrome. "Not only is this trash being dumped in our environment, contaminating our ecosystems and water supplies, it's also being shipped abroad," Doherty adds. He estimates more than three trillion tons of electronic waste — cell phones, portable music players, televisions, laptops, digital cameras and more — are exported from the United States each year to China, India and Africa because the United States environmental protection laws prohibit the landfill or incineration of these consumer items.

"It's bad enough that we're polluting our own ecosystems, but we're letting our consumption habits also destroy the health and safety of others," Rich says. "Something as simple as taking your old computer to an electronics recycling center can make a difference in a big way."

For more information about electronic waste disposal, visit the Wellcorps.com Web site.


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Color Trendsetter Ecology

Nature and the Environmental Concerns Expected to Fuel This Year's Automotive Color Trends

According to the experts at BASF Coatings in Florham Park, New Jersey, the debate on climate protection and heightened environmental awareness will heavily impact color trends for cars in 2008. At a recent presentation, a consensus emerged: the worlds of color will reflect a "sustainable symbiosis of nature and technology."

The designers presenting included Europe-based Michaela Finkenzeller and Mark Gutjahr, Asia/Pacific-based designer Chiharu Matsuhara and North American designer Sandra Mathia. All agree that the new palette of colors — inspired by ecological developments — will range from "new blacks," to white in multifaceted variations, to rich blues and greens, all the way to pastel colors.

BASF Color Coating Sample Panels
BASF Coatings presents the color trends. (Photo: BASF Coatings, 2008)

Additionally, the new silver is nothing like the silver of yesterday, they point out. "For years, it was the dominant color for cars all over the globe," agree Finkenzeller and Mark Gutjahr. "Its frosty and cool or highly reflective surfaces (liquid metal), as well as its ethereally tinted nuances, are absolutely inspiring."

The group of international designers agrees that the shift in thinking inspired by ecology has especially influenced buying habits, research and driving. "Sustainability is the name of the game," explain Finkenzeller and Gutjahr, who base their assessment of current trends on their observations of society. "The triangle of tensions involving individualism, ecology and technological progress is fostering new worlds of color that exploit their potential down to the last nuance."

For more color trend information from BASF Coatings, visit the organization's Web site.


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Raw Materials and Energy Expenses

Both Concerns Top the List in 2008 for Small- to Mid-Sized Manufacturers

According to a Group Outlook Survey conducted in January by buying consortium Prime Advantage, raw materials and energy costs top small- and mid-sized manufacturers' lists of economic concerns for 2008. Survey respondents included business owners, vice presidents of procurement and purchasing directors.

Among the key findings:

  • 46 percent agreed that raw materials — stainless steel, nickel, copper and other metals and plastics — were a major concern in 2008. Energy costs were the second biggest concern (17.5 percent), followed by logistics and supply chain costs at 16.4 percent.

  • Inflation (8 percent), labor (4 percent), foreign competition (3.4 percent), overhead costs (2.8 percent) and healthcare costs (1.7 percent) were among the other concerns identified.

Prime Advantage Group Outlook Survey Findings
Expected cost pressures for small- and mid-sized North American manufacturers in 2008 (PRNewsFoto/Prime Advantage)

Purchasing and Sourcing Priorities

The survey also found that 66 percent of Prime Advantage members plan significant capital improvements in 2008, including equipment upgrades — press brakes, turret punch presses and equipment for laser cutting, robotic welding and stamping.

This is supported by findings from the Business Roundtable's CEO Economic Outlook survey for the fourth quarter of 2007, in which CEOs were predicting a 35-percent increase in capital spending over the first six months of 2008.

Also, 88 percent of respondents are planning efforts to improve at least one of the following this year:

  • Cost savings
  • Efficiency measurements
  • Supplier diversity goals

Another 11 percent plan to address IT systems improvements, including new applications, data visibility and data accuracy; meanwhile, just 2 percent are planning investments in industry certifications or education.

Job Growth on the Horizon

The survey identified a positive outlook for revenue expectations and hiring, with 59 percent indicating a revenue boost in 2008. Meanwhile, just 1 percent indicated that job cuts in 2008 could occur, while 23 percent are planning new hires and 76 percent are planning to keep their current employee base at the same level as 2007.

For more information, visit the Prime Advantage Web site.


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Feature Article

Strengths and Weaknesses in Chemical Companies' Operations

By Christopher Lange

For many businesses, the supply chain is an increasingly important factor in driving both efficiency and competitiveness — and the chemical industry is no exception. Indeed, executives at chemical companies see the supply chain as critical, and their companies have devoted significant effort to improving their supply chains in recent years.

But those efforts are not always producing lasting improvements and sustainable results. They are often hampered by fragmented approaches and a lack of sophisticated tools, which can lead to inaccuracy, inefficiency and missed opportunities to achieve higher levels of business performance.

Those observations are based on findings from Accenture's 2007 Global Chemical Industry Supply Chain Best Practices Study. The second in a series — the first study was conducted in 2005 — this 2007 research was conducted under the guidance of a steering committee made of up of major chemical manufacturers.

The 2007 Global Chemical Industry Supply Chain Best Practices Study looked at a broad range of supply chain topics, including several that are especially relevant to chemical manufacturing operations, including demand planning, demand/supply balancing and production scheduling.

Identification and Sharing of Supply Chain Best Practices Study

Demand Planning

Like the 2005 study, the 2007 research found that chemical companies are using a wide variety of tools to perform demand planning, and seeing varying degrees of effectiveness. Some respondents (9 percent) said their companies use basic rules of thumb to plan, while 36 percent use simple models that extrapolate historical demand; 40 percent said they use legitimate forecasting techniques.

In terms of technology used, demand planning is frequently performed as a spreadsheet exercise. Forty-six percent of the participants indicated that they manage demand planning using tools such as Excel or Access, while another 24 percent use offline forecasting tools that draw on structured, downloaded ERP data. Twenty-seven percent said that their demand planning tools are fully integrated with their ERP.

The study also looked at planning accuracy at various levels of detail, such as product family, product and location. Not surprisingly, the research found that the ability to forecast accurately falls off quickly below the product level, with error levels of 25 percent to 35 percent at the product/customer, product/package and product/package/supply point levels. Nevertheless, more than 85 percent of respondents said that they are attempting to forecast at the product/customer level. A better approach would be to use the more accurate aggregate forecast, and then apply business rules to that forecast to develop lower-level demand plans.

Collaboration gets a lot of attention in the supply chain arena, but 16 percent of respondents indicated that they do not collaboratively plan with their customers at all. More than three-quarters of those who said they do plan collaboratively with customers also said that they do not have any means of measuring the benefit of such collaboration.

The variety of tools and approaches used for demand planning points to a range of sophistication and effectiveness — and indicates that there is often an opportunity for improvements that could have significant benefits. As many in the chemical industry know, weak demand planning ripples throughout manufacturing and the supply chain and ultimately makes the achievement of superior performance a challenge.

Demand/Supply Balancing

In the area of demand/supply balancing — often known as supply and operations planning (S&OP) — chemical companies have seen some improvements in the last two years. For example, in terms of collaboration, 53 percent of respondents in 2007 said that related business units routinely share demand/supply data, up from 41 percent in 2005. Thirty-seven percent indicated that they share such data periodically, and only 10 percent said that there is no such communication between business units.

The breadth of participation in the S&OP process has also improved since 2005, with more than 70 percent of all respondents indicating broad functional representation on the S&OP team, with members coming from areas such as customer service, commercial, finance and supply chain management.

At the same time, however, there is clearly room for improvement. In looking at the "frozen period" used for S&OP, the most common period used is one month, cited by 45 percent of respondents. Twenty-four percent said they use a shorter period, but 28 percent indicated that they had no frozen period in effect. Not surprisingly, given these varying approaches, the range of volume variance experienced by respondents covered the full range from 0 percent to 100 percent.

Meanwhile, the execution of the S&OP process is not uniformly strong among respondents. More than three-quarters reported having reliable, accurate data feeding a frequent and responsive S&OP processes, but 17% said they were working with unreliable, inconsistent data. In addition, less than half the respondents reported having optimization capabilities or frequent audits to improve their processes.

Production Scheduling

Production scheduling appears to be an area where there is relatively little opportunity for major improvements. Many respondents said that their organizations have integrated scheduling technology, that they have been using those tools for five or more years and that they are at least moderately satisfied with those tools. Many said that they are able to re-plan on a weekly basis and the process takes less than a day.

For both unplanned transitions and schedule variance, companies appear to be hitting their targets. Across the study population, unplanned transitions — that is, changes to products or campaigns that were not in the plan one month earlier — were targeted and realized at about 20 percent. For schedule variations — that is, times when operations deviate from the production plan — targets averaged 20 percent for make-to-stock and 24 percent for make-to-order. Actual results were 25 percent and 28 percent, respectively.

For many organizations, production data or triggers are available during the production run and there are near-real-time links to the order-promising function. Here again, the 2007 findings showed improvement from 2005, when it was more common for companies to have to wait until the end of a shift or even the next day to see what was going on in manufacturing.

Continuing to Move Forward

The results of the Accenture's 2007 Global Chemical Industry Supply Chain Best Practices Study highlight several strengths of chemical companies in terms of the supply chain. More important, they highlight several areas of opportunity.

In particular, key opportunities lie in addressing the commercial functions, and the way they relate to the rest of the supply chain. For example, chemical companies can take steps to more thoroughly document commercial policies, and they can establish mechanisms for enforcing and monitoring those policies. Doing so is likely to have positive ramifications far up the supply chain.

Organizations can also focus on giving manufacturing and supply chain operations a seat at the table in commercial decision-making. That way, those operations will have a clearer view of the commercial requirements that they will need to support. At the same time, they will be in position to inform the commercial processes so that sales and marketing can factor manufacturing and supply chain realities into commercial decisions. The end goal is to address issues early on so everyone can work together to hammer out potential solutions.

For more information on the Supply Chain Best Practices Study, visit www.accenture.com/Global/Services/By_Industry/Chemicals/R_and_I/The2007SupplyChains.htm.

Christopher Lange is a senior executive in Accenture's Chemical practice and author of the 2007 Global Chemical Industry Supply Chain Best Practices Study.


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Market Report

Talent Shortage A Leading Issue in Oil and Gas

Nearly all industries are facing the impending crisis of a talent shortage — and the energy sector is no exception. As part of a joint study with Rice University, Ernst & Young LLP surveyed HR executives at 22 leading international oil and gas companies to glean insights on the challenges of workforce recruiting and retention, and how to overcome these challenges.

Nearly 90 percent of the respondents believe their industry faces a talent shortage and calls the problem one of the top five business issues facing their companies (see box below). Dina Pyron, a leader in the Human Capital practice within Ernst & Young's Global Oil & Gas Center, says it is clear that the talent void in the oil and gas industry has transformed from an organizational challenge into a critical business issue.

Ernst & Young Chart Showing Issues Representing Significant Problems

"The lack of key talent could potentially impact corporate growth, financial performance, safety and reputation," Pyron says. "This should raise a red flag to leadership that immediate and innovative solutions are necessary."

Threat of Competition, Need for Compensation

According to the findings, the greatest threat to recruiting and retention is competition from counterparts within the industry. Respondents ranked competition from peer companies an eight out of 10, with 10 representing a major challenge.

Also, nearly unanimous was the industry's response to the problem: increased compensation. Eighty-eight percent of respondents cited increasing compensation as their primary solution to keeping and attracting talent.

Talent Shortage Requires Innovative Solutions

Bill Lee, associate dean of executive education for Rice University, says compensation is undoubtedly important, but the survey results show there is a real opportunity to do something different to stand out from the competition, lure new recruits and create loyalty among existing employees

Some new approaches to turn the tide on the talent shortage include:

  • Focus on the next generation. Ernst & Young suggests looking beyond baby boomers and focusing on recruiting and retention strategies designed for Gen X and Gen Y.
  • Recruit in bulk. Expand and diversify recruiting methods. Hiring in bulk and providing training programs for a variety of areas can improve and diversify a company's talent pool.
  • Customize culturally appropriate approaches. Seventy-six percent of respondents said retention issues are different around the world for their company. Oil and gas is a global industry with a global workforce and a one-size-fits-all approach does not work.
  • Leverage retiring workers' knowledge. Be creative in retirement arrangements in order to retain intellectual capital.

"The first company with a break-out strategy could position itself as the leader in a highly competitive recruiting and retention environment," Lee says.

The information cited in this report was provided by Ernst & Young. For more information, visit www.ey.com/perspectives.


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Announcements

The 93rd Annual International Supply Management Conference and Educational Exhibit Is Just One Month Away!

Soon, the Institute for Supply Management™ will host its 93rd Annual International Supply Management Conference and Educational Exhibit (May 4-7, 2008) in St. Louis. The event offers four days of supply management training and education, with workshops led by the best and brightest in the supply management profession — all successful practitioners and experts in the field.

To earn Continuing Education Hours (CEHs), attendees will learn:

  • Cost-cutting strategies
  • Time savers
  • Change-drivers
  • Confidence-builders
  • How to streamline processes to overcome challenges
  • Relationship development
  • What works
  • Who is best-in-class (and why)
  • How to gain a competitive advantage

Workshops have been organized into seven educational tracks: lean supply management, leadership in supply management, sustainability and green strategies, and the decade ahead in supply management global. Also, a selection of general supply management topics will be peppered with workshops on new trends and innovations.

Details and registration are available online.


A Collection of Helpful Hints About Utilities Purchasing

ISM's online Utilities Resource Guide features articles issued by the institute — as well as from other sources — on a myriad of utilities-related topics, including cost-reducing purchasing techniques, a guide to calculating the energy purchase, energy sourcing plan guidelines and "bright ideas" from a supplier.

Articles from other sources include Manufacturers Seek Relief from High Energy Costs; Energy Procurement for Large Consumers in Electricity Markets; Long-Term Power Contracts:The Art of the Deal and more.

Browsers can also purchase utilities-related books devoted to projecting the long-term outlook for supply and demand of oil, gas, coal, renewable energy resources, nuclear power and electricity.

To view the guide, log on to the ISM Web site.


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Additional Resources

A Wealth of Information at www.ism.ws

Visit ISM's Web site, www.ism.ws, for more supply management resources. The site provides published articles, conference presentations and reference materials that pertain to supply managers in all industries. Here are some items that might be of interest:

  • Originally presented by John M. Studebaker, Ph.D., president of Studebaker Energy Consulting, LLC, Energy Purchasing Techniques That Reduce Costs outlines practices which, when understood and applied correctly, contribute to operational cost savings and financial risk deductions. These items include analyzing energy costs, as well as energy bill content (electricity, natural gas and water/sewer).

  • Attendees of Getting Your Arms Around Meeting Spend, an on-demand Web seminar based on a Pfizer case study, learn to identify the roles of the procurement organization in a meeting spend management program, drive standardization across multiple divisions, use data to leverage volume across the supply chain, and recognize (and overcome) the challenges of a global program.

  • When it comes to global sourcing, evaluating a location and finding the best fit for an organization's specific need is a challenge even for experienced supply management professionals. This is where the focus of the Decision Support Model, or DSM, comes in, according to a recent Inside Supply Management® article titled A New Method for Evaluating Outsourcing.

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