Elements of supply-chain (SC) design at Dow are a sound work process, modeling capability, resiliency study, customs and duties, and carbon footprint, which together will make the total SC cost transparent for decision-making purposes. Why is SC design - or better, value-chain design - so important?

Products are manufactured with an expectation of return on capital. However, increasingly complex, longer global supply chains and associated accessorial costs are eroding its profit. Therefore, SC design and modify work process (SC D&M WP) was designed to help businesses accelerate success. What is the added value? SC design is not only about how to get goods from A to B, but it's also about optimizing the total value chain, from supplier to customer. Complexity is the new reality.

With globalization, the flexibility for customers to make a choice, and the uncertainty, it is more important to have robust, reliable and visible supply chains. And generating value for our customers is another reason. The final customer is paying our bills and salaries, so cooperation and partnership is needed to deliver solutions, not only the product. In the previous landscape, we had a poorly defined work process, which was not integrated with other major global processes, resulting in below best-in-class supply chains.

So we had to change the game: SC D&M WP is designed to support the efficient and effective design of new, or modification of existing, integrated supply chains for lowest cost to serve and maximum business value and customer service. The SC Expertise and Technology Center (E/TC), an established work group at Dow, is the owner of the work process. The businesses, and therefore also customers, are addressing requests to this group, and it is delivering solutions back to the businesses. This is done by applying tools and technologies, and by involving subject matter experts, stakeholders, logistics service providers, operations and logistics purchasing. It is a concerted management effort.

Methods of the SC Design Process

The services of the SC E/TC can be summarized as design new efficient and effective supply chains through modeling, support major projects, support modifications to existing supply chains, conduct supply chain of the future studies, and develop and maintain supply-chain most effective technology. Design and modify supply-chain projects are aligned to work types that reflect the project's effects and objectives.

Some projects may use multiple work types. The different work types are: plant/facility, feasibility study, network optimization, work process and IT, mergers and acquisitions, exchange/swaps/tolls, and SC resilience. Other elements, such as environment, health and safety (EH&S), and logistics procurement, are included. As an example of plant/facility, this work type is split up in four major parts: SC scope identification, SC definition and initial design, SC final design and constructions, SC initial startup and review. Each of these major parts has sub-elements and tasks to properly execute the work process with described purposes and outputs, which are documented in workbooks.

For SC modeling, different methodologies and tools are used depending on the purpose. For simulation, typically Arena (discrete event simulation/Rockwell) and iThink (systems dynamics modeling/Isee systems) are applied. Modeling approaches to represent changes in a system over time are particularly useful for understanding the influence of variation in inputs (e.g., the effect of variation in transit time on tank-size requirements). For optimization, typically LogicNetPlus (IBM) and other methodologies are used. Mathematical approaches for rigorous minimization or maximization of an objective function are subject to constraints (e.g., supply); they are particularly useful for balancing competing factors in supply-chain network optimization and design. Reasons for network optimization can be the following: distribution network planning, strategic sourcing, global sourcing decision, multi-time period modeling, mergers and acquisition analysis, service level modeling, and margins. The potential objectives are to minimize freight costs, minimize facility costs, minimize transportation risk and maximize customer service levels.

Resilience of the Supply Chain

SC resiliency is added to the work process, as globalization and uncertainty are the new reality. How does resilience relate to risk management? Conventional risk management relies on risk identification and assessment to prevent disruptions. But unfamiliar risks may be hard to anticipate and still harder to quantify. By improving the resilience of its supply-chain operations, a business can increase its chances of coping with disruptions and prospering during times of upheaval.

How does resilience relate to sustainability? Resilience is sustainability in real time. By sensing and responding to external forces, a business can adapt to changes in economic, environmental and social conditions, and thus remain competitive over the long run. The overall objective is to create sustainability for the business. Dow is using different methodologies to obtain that ultimate objective. Dow and Ohio State University together have developed a resilience assessment system called SCRAM (Supply Chain Resilience Assessment and Management). This system is delivering both qualitative and quantitative results. About 150 questions are addressing vulnerabilities and capabilities.

You want to know how strong your capabilities are to cope with identified vulnerabilities. Increasing vulnerabilities will result in exposure to risk, and increasing capabilities will result in erosion of profits, so you want to create a zone of balanced resiliency. Resilience is the capacity of a business to survive, adapt and grow in the face of turbulent change and complexity. It can be seen at different time scales: from short-term day-to-day business continuity to long-term strategic sustainability. Resilience is particularly important for supply-chain management because of the pressures and uncertainties associated with global procurement, manufacturing and distribution.

Resilience will enable supply chains to be inherently resistant to such factors. The process steps are: Identification and assessment, quantification and prioritization, mitigation plans and execution, continuity/recovery plans and learning. A heat map can be used to illustrate the effect versus probability of events/disruptions. The resilience tool kit consists of a questionnaire, the SCRAM analysis and disruption simulation, with scenarios and strategic options. And for certain materials, meeting the criteria, we use a distribution risk review, including applying methodologies like Safety and Quality Assessment System (SQAS) and Chemical Distribution Institute (CDI) questionnaires/audits.

Competitive Supply Chain

Another important element of supply-chain design is customs and duties influence on sourcing - and to capture Harmonized Commodity Description and Coding System (HS) tariffs, exemptions, preferences and boycotts/restrictions. Dow has added this functionality to the optimization process. And last but not least, the increased emphasis on climate change is leading to exploring the ways to control the contributors, and CO₂ emission is one of them. Therefore a global project is launched on estimating carbon footprint for supply chains. CO₂ emission depends on distance, ton and mode of transport. The steps: calculate the distance between origin and destination for each shipment, calculate the tons x miles, and use an emission factor for each mode of transport to calculate CO₂ emissions. Now you can compare.

The total SC costs are made up by asset design, handling cost, freight cost, accessorial cost, customs and duties, and working capital. A final comment is that collaboration, vertical and horizontal, is becoming more important to cope with increasing cost and environmental pressure and stay competitive in a global market in the face of turbulent change and complexity. The described elements of SC design, for example, are applied in 11 steps for Sadara, the grassroots joint venture project in Saudi Arabia.