This interview is an abridged version of a broader conversation with Donald J. Weintritt, Jr., of The Dow Chemical Co. To listen to the full interview and others in the Executive Q&A Series, click here.
Formed in 1897 as a manufacturer of bleach, The Dow Chemical Co., today a $49 billion corporation doing business in 175 countries, makes a variety of plastics, performance chemicals, hydrocarbons, and energy products. MA recently caught up with Donald J. Weintritt, Jr., global supply chain director of Dow's Supply Chain Technology and Expertise Center, to discuss the company's changing supply chain strategy.
Q: How is Dow Chemical changing and what is the impact on your supply chain strategy?
A: If you think about Dow, historically, you just had kind of a core Dow. In other words, everything was part of Dow, within Dow, controlled by Dow, very North American-centric, which eventually expanded into Europe. But it was very much a geography type of business making a lot of materials with a lot of exports to the rest of the world.
The direction that we're headed in now is that the businesses themselves are going to take several different views. You're still going to have a core Dow contingent. We're going to have a lot more presence and capacity and joint venture-type arrangements, for instance, around hydrocarbons or feedstock or energy or base chemicals — things where the centers of gravity for manufacturing are shifting. Core Dow will look a lot more like a performance chemical business, and most of the feedstock, hydrocarbons, and energy capacity would be more in the joint venture space. There will be more of these market-facing units where they take products from the rest of the company, put them together in solutions, and sell directly to even retail markets, instead of just other manufacturers, which has been our primary focus.
Q: Do you consider these market-facing units to have their own distinct supply chains or are they at a data level all integrated at some point?
A: I think they're going to be hybrids, to be honest with you. I think they'll be integrated back through the chemical envelopes into the different parts of Dow. You might actually form some supply chains that don't exist right now. You may have to build some new capabilities and some new channels to market that we don't have currently.
Q: It almost sounds like a multiplicity of supply chains serving different business needs.
A: Certainly you're going to have different supply chains in the sense that some will be kind of the traditional, push production forecast type. As you move more toward the performance chemicals and market-facing units, you transition more into state-of-the-art supply chains. So you have different types. There are low-velocity and high-velocity supply chains; there are simple, large-volume movements; there are complex supply chains, maybe with packaging and blending and formulation, and things like that. So as we move in more of that direction, the Dow supply chains start looking more like some of the consumer product companies.
Q: Is it part of the strategy to try to manage these on common technological platforms or is each customer-facing unit or other business unit free to pick its own platform?
A: I think there are going to be common technologies, and then there'll probably be some unique technologies. Of course, we already have that in Dow now. For us, Most Effective Technology (MET) is kind of a combination of the work processes and then the enabling technologies or systems and capabilities that go along with it. For instance, all of Dow is on SAP. But we're also using internal solutions at this point.
Q: Dow has undertaken a project it calls Macro Flows. What is this project all about?
A: Macro Flows is a 20-year look into the demand — the material flows, if you will — in five-year buckets. Where are the sales going to be? It takes the business intelligence data and puts it together with some of the external macro economic data on how the markets are growing and which ones are expected to grow at what pace. You get kind of a check of what the internal business intelligence is versus what the external people are saying.
Q: Do you go as far as trying to model how these trends will affect supply chain strategy?
A: Yes, that's exactly the point. What you want to do — the payback for this — is you're primarily avoiding cost in the design or the operation of these future supply chain channels. The design and modification of the supply chain has to bring in all the elements of supply chain unit costs, the customer service levels that you're trying to meet, what's the capital investment in both the fixed assets and the inventory that you're trying to target. ... You look at integration of these new business models and ventures, and then the network complexity that results from that, and then what's the product mix and the customer mix. There's a lot of stuff that goes into this model, so, yeah, it's a fairly complicated thing. We've been working on it for a number of months now.
Q: That's a fascinating project. I've rarely heard of a company trying to look out that far.
A: Well, I've got to be honest with you — I feel real good about the 2011 number and I feel a little less good about the 2016 number, but I still feel pretty good about that one because I feel like you can predict growth and also the building of our new assets pretty accurately out about 10 years. The 15- and the 20-year, in my mind, are really more of an indicator of where we want to head.
If you think about what we're doing, we're doing a mass balance on the plant. I know that sounds kind of like Big Brother stuff, but really that is what it is. As new capacity comes online to meet growth and it changes the flows of materials around the world for us, it's like squeezing a balloon: If you increase it here, then you decrease it somewhere else, and you're into optimizing asset utilization on a global basis instead of a site basis, which has been kind of the way chemical plants were run in the past.
Q: When you look out across the time frame of the Macro Flows project, what kinds of technological capabilities are you looking for that, perhaps, you don't have right now?
A: Well, for one thing, something that we're already doing is what we call the Next Enterprise Architecture (NEA) project. So we're going to need — Dow was one of the original adopters of SAP, so we're actually still on R/2 — to upgrade to a more sophisticated information system. If you think about some of these joint ventures, for instance, some of those are going to have a certain amount of segregation and separation from the mother ship, like financial information. We need the ability to run Dow as a global enterprise but keep it segmented and segregated where necessary. So the NEA project is a big project for us over the next five, six, seven years, to migrate us to this new architecture.
Q: Is it going to be based on the enterprise services architecture idea from SAP?
A: Yes, SOA: services-oriented architecture.
Q: Do you see SOA as the architecture going forward?
A: I think so. ... If all of these things — and I'm not an SAP guy — are NetWeaver-compliant and if they all have the right portal structures so that you can plug and play different solutions into your architecture, then that gives you a lot more flexibility moving forward to either use best-in-class solutions or the one that's most effective for you. The advantage that I see in SOA over what we have currently is that it is pretty flexible when it comes to either taking new things into the system or taking things out and replacing them with new solutions. I think it is the right direction to go.
Q: I would imagine, too, that you must be thinking about what data security means in a global extended supply chain.
A: Oh, yeah. Dow has something like — is it 25,000 cyber-attacks a day?
Q: Twenty-five thousand what?
A: Cyber attacks, people trying to get into our systems one way or another. Some of them are pretty innocuous, like the junk mail stuff, but others certainly are not. So, yeah, protection of information — as you create these more sophisticated information systems and you have more and more information available — becomes more and more important.