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Over the past several years, chemical manufacturers have faced an increasingly challenging operating environment. Single-digit profit margins -- by one estimate, about 8% -- have become only more difficult to sustain as two market forces place additional pressure on the bottom line.
Chemical Manufacturing |
Top business challenge: Contend with an increasingly global marketplace and rising raw-material costs
Solution: Grow by acquisition or specialization; eliminate redundancy; monitor costs
How IT can help: Deploy ERP systems; use data warehousing and mobile technologies
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First, chemical producers now spend far more on raw materials -- particularly for natural gas and oil, whose prices have doubled and nearly tripled, respectively, since 2003 -- to run their plants and to produce and ship products. This augments an already hefty burden; manufacturers typically shell out some 50% to 60% of each sale on raw materials. Second, U.S. manufacturers now operate in increasingly global terrain, confronting price competition from producers in Europe and Asia. By 2002, more than 70 years of interrupted trade surpluses in U.S. chemical production had reversed to become a deficit; in 2004, the most recent year for which figures are available, U.S. industry recorded a trade deficit of $3.6 billion.
To stay competitive, midmarket manufacturers are expanding by acquisition in search of economies of scale or by focusing on the "specialty" portions of their business: those compounds that set them apart from competitors. And to squeeze out costs and generate growth, these firms are turning to IT, particularly through enterprise resource planning (ERP) implementations. Meanwhile, firms with more advanced ERP implementations are using them as a platform for additional analytical tools, such as business intelligence. The IT goals: to help managers set prices, monitor costs, keep inventory lean and improve process efficiency.
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