Logichem April 21, 2010

Development of a global
Supply Chain Network
Strategy

Roger Bloemen
V.P. Global Supply Chain
1
 Agenda

Solutia Introduction

Business Strategy

Supply Chain Strategy

Implementation of Global Supply
Chain Network Strategy

2
 Solutia history

Pre 1997

Today
 Monsanto as a
chemical
conglomerate Spin off of
chemical
activities in
Plastic and 1997
Agricultural (Solutia)
chemical
division
division

Pharmaceutica
NutraSweet
l division

3
 Solutia’s situation in 2003

The leadership team

inherited an unfocused Portfolio analysis - 2003

High
portfolio of businesses Saflex

tilted toward

Structural attractiveness
commodity fibers &
Specialty
Nylon Intermediate Chemicals Fluids
CPFilms
Nylon Plastics

chemicals… Industrial Astaris

Fiber Phosphorous JV

Basic chemicals

At spin-off, Solutia was Axio Research Nylon Fibers Dequest Phosphonate

Water Treatment

assigned significant L Aspartic Acid

Chlorobenzenes
Pharma
Services

legacy liabilities
Acrylic Fiber
High
Business position

Note: Size of globe represents relative size of business

Consequence: Chapter
11 filing in Dec. 2003

Out of Chapter 11, Q1
4 2008
5
 Saflex – The Key Ingredient in
Laminated Glass

Key Product features

 Safety and security
 Quiet
 Design
characteristics

Application Segments
 Automotive
 Architectural
6  Photovoltaic
 Core Market: Automotive

Asia market driven by Chinese
growth

European market is driven by
Eastern European growth

North American auto builders are
under severe pressure

Regional Autom otive Dem and Asia Automotive

200 60
50
150
40
M Sqm

Msm

100 30
20
50
10
0 0
2007 2008 2009 2010 2011 2012 2013 2007 2008 2009 2010 2011 2012 2013

Europe North America South America Asia Pacific China Other Asia

Asia Automotive Means China

7
 Core Market: Architectural

Asia growth concentrated in lower-

specification China market

European market growth focused on
3.2 meter wide product

North American market driven by
hurricane belt applications and
commercial construction
Architectural Market Growth 2008-2013
4%
Regional Architectural Dem and
15% 23%

250

200
M Sqm

150

100
7%

50

0
2007 2008 2009 2010 2011 2012 2013

Europe North America South America Asia Pacific

51%
Europe North America China Other Asia South America

8
 New, Fast-Growing Market: Photovoltaic

Photovoltaic: Turning sunlight into

energy

Application: thin-film solar panels
(used in solar farms)

Role of Saflex: encapsulates
(protects) electrical components

Small base Regional Photovoltaic Dem and

Rapid growth-especially in 120

100
Asia and Europe M Sqm 80
60

Driven largely by energy 40

policy 20
0
2007 2008 2009 2010 2011 2012 2013

Europe North America South America Asia Pacific

9
10
 Strong but regional growth, market
moves East, fast !

Global PVB Demand Key Growth Area's

Photovoltaic China Automotive

Architectural China Architectural
Automotive Europe Architectural
Photovoltaic

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

• Photovoltaic will be fastest growing

segment
New applications could increase •China will generate majority of market
market growth: growth.
•Trilayer acoustic products will become
(e.g. automotive side laminates,
an increasingly important segment of the
automotive roofs) automotive market.

11
 First step: develop the business
strategy

Clear objective
“Saflex will grow with the market while increasing
margins so as to create sustainable and attractive
returns on future capital investments.”

4 pillars to support
this strategy
 Achieve lowest
delivered cost by
maximizing service
levels as a key pillar
12
 Supply Chain Strategy
Optimize with constraints
- Logistics tendering

Two ways to - MRP2 class A
Release constraints
- Advanced planning-systems
Global S&OP
achieve lowest - Collaborative forecasting
- People development

Service level
- Asset strategy
delivered costs
 Day-to-day
actions n
atio
(optimize within itial
s itu
In
constraints)
 Long-term
Cost / sqm PVB film
actions (release
13
constraints)
 Global Market mismatch supply /
demand on mid-term
Regional Sheet Supply/Demand Balance
MM m2

North America Europe

124
104
93 109 Asia Pacific

53 59
66
2004 2008 49
2004 2008
37
Global
2004 2008
Legend 259
South America
2004 213 243
Capacity
MM m2

Demand

2004 2008 7 10
4
2004 2008

14
2004 2008
Implied Operating Rate 88% 94% 1
 Global Sheet Asset Infrastructure

Ghent, Belgium

Bor (5)

Roermond (26)
Kentucky (9) Trenton, MI
Uentrop (22) Ulsan (22)
Indian Orchard, MA (IO) Frankfurt (52) Suzhou, China
Cuernavaca(4) Fayetteville (10) Shiga (45)

Santo Toribio, Mexico Rayong (6)

Solutia 140 Sao Jose dos Campos

Sekisui 107
DuPont 47
Kuraray 57
15
 Inter area shipments do not add value, have
unpredictable pricing, unreliable leadtime
Europe:
2300 Cont

. .
.

120+580 100+86
Americas: .
1800 TEU
.

. Asia / Pacific:
100+71 413+242 500 TEU

Saflex : 4600
Solutia : 36000
containers/year
176+50

16
USA : 65; Lat:34; Be : 46; Asia : 20
 Conceptualisation of Saflex SC network

Raw materials Intermediates Extrusion Interleaving Finishing

Ghent, Belgium
Newport (UK) (1961)
TEG
Antwerp, Belgium
Ghent (BE)
2EHA
Newport,
Antwerp (BE) Wales (1991)
Plasticizer
(1998)
ETHANOL
Trenton, MI Indian Orchard, MA (IO) Indian Orchard (US)
(1955)
VAM (1927) Suzhou, China
(2007)
Trenton (US) Contractor (US)
BUTCHO
Santo Toribio,
Mexico Santo Toribio (MX)
(1996)
PVOH
San Jose Dos Campos (BR)
Sao Jose dos Campos, Brazil
(1989)
Suzhou (CN)

Singapore
Singapore (SG)
1
Finishing Center
(1998)

17
 Capacity and capability needs

Global PVB Demand

PVB market growth will require
Saflex to invest in new capacity
Photovoltaic
Architectural
Automotive

Growth will be strong in Asia
and Europe
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Saflex will require more

Key Growth Area's
capability in strategic product
categories – 3.2m billet
China Automotive
architectural, three-layer co-
China Architectural
Europe Architectural extruded acoustic
Photovoltaic

18
 Asset strategy: where to start?

Many questions and potential options…

Shall we integrate backwards? If yes,
how far and with which technology?
Where shall we extend our Where and when shall we install
resin capacity first? product specific equipment?

Shall we expand or close our

South American extrusion line?

When shall we expand our

?
Where shall we invest?
What is the ROI?
What is the immediate next step
to reduce capacity unbalance?

What do we do if the dollar

lines in China? falls under 0.6 EUR?
Shall we open a line in India? If
yes, with what specs?

…which are interdependent (how can we

model this with spreadsheets?)
19
 Methodology

Multidisciplinary
Supported by
team, coordinated universities for
by supply chain modeling and
and including scenario analysis
 Manufacturing
 Technology
 Purchasing
 Sales
 Business
management
20
 Asset strategy is developed using
an optimization model

…instead of spreadsheet simulations

Conceptual framework

Excel template

Mathematical model

Investment plan presented

to board & shareholders

21
 Building a holistic model is
time consuming and complex

Organisation
 Need internal OR knowledge

Data, data and data
• Forecast data, by month/sku
• Costing data by plant
• Freight data, by leg
• Duty data, by country
 Data issues
• Integrity
• Availability

Modeling
 Objective function
• Profit maximisation
• Cost minimisation
 Variables
• Mixed Integer vs Linear
 Aggregation level
22
 Value of the model

NOT
 Absolute truth
 It remains a model -> hence
abstraction of reality

BUT
 Insight generation
 Scenario comparison using same
baseline
 Speed
23
 Saflex convinced shareholders to
invest

In the past 4 years,
despite Chapter 11, Saflex
managed to invest more
than 200 M$
 Acquisition & expansion in
Mexico
 New plant in Suzhou
 Third line in Ghent
 New resin plant in
Antwerp
 Expansion of resin plant
24 in Indian Orchard US