Business Consolidation

The Focus on Business Consolidation

How will manufacturers continue cutting costs while delivering innovation and growth?

Companies across the globe are facing a number of financial challenges at the moment, with many organisations still feeling the bite from the recession

The economic downturn brought many challenges for chemical manufacturers, though they were able to achieve their aims and weather the storm

One of the primary challenges for businesses is to be able to tolerate these monetary challenges and still introduce innovative measures to their supply chain

Chemical manufacturers are aiming to spend money on innovative approaches that deliver top line revenues without resulting in over-spending from low value customers

When building a supply chain, organisations are looking towards developing one which is robust and responsive, while keeping in line with changing markets and business requirements

KMPG is one company that has commented on the challenges currently facing supply chains around the world, with the business claiming that many organisations have turned to measures such as production rationalisation, working capital management and efficiency optimisation

These approaches are helping to stabilise finances and contain the effects of the credit crisis

KPMG believes that many chemical manufacturers had already begun to consolidate their operations to achieve efficiencies in economies of scale and decrease costs before the global financial crisis hit businesses

The group emphasised that consolidation in the industry is mainly focused on cost-driven initiatives in back-office functions such as supply chain and procurement

"While some chemical manufacturers have found that supply chain consolidation has delivered significant benefits, in our firm's experience, many have failed to realize the full value that consolidation can provide. Most commonly, this is a result of four main challenges," KPMG stated

These four challenges include insufficient understanding of the baseline processes that support procurement and supply chain efficiency, along with an historically poor record for mapping process changes through to the "future state"

The remaining two challenges are a low appetite within management to consolidate business functions and consolidation initiatives which show a lack of experience in building robust business cases

Geography has also played a key role in cutting costs for chemical manufacturers

"The focus on business consolidation has also been driven by the geographical relocation of both capacity and support functions

"With a shift in global demand to East Asia (where lower production and labour costs may deliver additional advantage), and the migration of petrochemical capacity to the Middle East (largely in response to feedstock pricing and availability), many chemical manufacturers are discovering opportunities to further consolidate their supply chains," the business explained

KMPG has advised that a strong mix of global methodologies and process mapping has the potential to deliver long-term cost savings and efficiencies, while such an approach could also provide opportunities for a competitive advantage

Many businesses have come forward with supply chain leading practices that evolve towards a "cost to serve" approach, as opposed to the traditional method where manufacturing unit costs were addressed separately from freight expenses

By using this "cost to serve" approach, the holistic cost of the unit is mapped, along with elements of the supply chain such as logistics, packaging, management overheads and working capital

"This approach addresses three main challenges prevalent in chemical industry supply chains: eroded margins due to long processing and finishing times for batch-manufactured products; spikes in freight costs related to the emergency delivery of chemical products; and the high disposal costs that are often incurred with redundant chemicals," KPMG noted

The "cost to serve" method also offers opportunities for more transparency into the overall costs that can impact a business' profitability and customer profile

In addition, the method allows businesses to easily identify any inefficiencies in their supply chain, which can then be rectified, leading to lower payouts and more money for the business at a time when there are many economic challenges.

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