SOLVAY

Logichem 2010

« Improving profitability

Through cost-to-serve

Analysis »Christian BackaertEuropean Supply Chain

Manager Solvin

SOLVAY

C2S : presentation topics

� Who is Solvin?

� Introduction to C2S

� How to put in place & Solvin experience

� Let’s share our experience

SOLVAY

C2S : Introduction

SolVin is a leading European manufacturer of PVC and associated products.

Foundation : January first 1999 by merging the vinyls activity of BASF and Solvay in Europe

Ownership : Solvay 75%; BASF AG 25%

Employees : around 2000

Products : Cl2, NaOH, EDC, VCM, PVC-S PVC-E, VDC, PVDC, PVC Copolymers, R-PVC

Figures

SOLVAY

Lillo

PARIS

Milan

Barcelone ROME

BERLIN

Jemeppe

Martorell

Tavaux

Lillo

Zandvliet

Jemeppe

Rheinberg

Rheinberg

Tavaux

Fos/Berre

Martorell

Zandvliet

Company ProfileSolVin production sites

Ferrara

C2S : Introduction

SOLVAY

PVC Supply 2008Europe

Source: Solvay (Business Intelligence)

1600

660

460400

480

1300

1050

750

330400

0

200

400

600

800

1.000

1.200

1.400

1.600

1.800

Ineos Vinyls SolVin Arkema Vinnolit Shin-Etsu LVM Anwil Vestolit Borsodchem Oltchim

kt/y

Total : 8.9 Mt/y

C2S : Introduction

SOLVAY

PVC World Market

50 2201500

6000

11400

17500

25000

34500

0

5000

10000

15000

20000

25000

30000

35000

40000

1945

1950

1960

1970

1980

1990

2000

2010

32000

C2S : Introduction

SOLVAY

EU 27 Consumption of PVC2009

Source : SolVin (vision)

5.880 mt

RIGID FILM

8%CABLES & WIRES

8%

PLATES

2%

PIPES FITTINGS

26%

OTHERS

10%

PROFILES

29%

TUBES PROFILES

3%

FLOORING

5%

FLEX. FILM SHEETS

6%

COATED FABRIC PAPER

3%

C2S : Introduction

SOLVAY

C2S : presentation topics

� Who is Solvin?

� Introduction to C2S

� How to put in place & Solvin experience

� Let’s share our experience

SOLVAY

Introduction to C2S

� Study from IBM

SOLVAY

Introduction to C2S

� Customers have not been created equal and all requires

different level of services.

• Do you know your customersexpectations in terms of service?

• Do you measure the cost of delivering the expected level of service?

� Cost-to-serve is about both

• Control of all the costs

• Segmenting the customerportfolio to maximize the revenu

Sales & Mkting

Customer

service costs

Distribution costs

Production &

Procurement costs

C2

S

Appro

ach

SOLVAY

Introduction to C2S

Sales & Mkting

Customer

service costs

Distribution costs

Production &

Procurement costs

C2

S

Appro

ach

� Frequency & cost of commercial support

� Promotions

� Transport� Warehousing

� Packaging

� Claims management

� Management of documents

� Multisourced or dedicated to a plant

� Flexibility in delivery accuracy

� Technical requirements

� Terms of sales

� Yearly discounts� Value of accounts receivables

� Security stocks

� ….

To grasp the expectedresults from a cost-to-serve analysis it isessential to collect all « hidden costs »

customer A

customer B

customer C

Revenues

Costs

Apparent

Profit

customer A

customer B

customer C

Traditional analysis Accurate C2S

� All production costs

� At the lowest level of SKU� All raw materials

SOLVAY

Introduction to C2S

� Working with real figures instead of averages

Impact of Averaged figures

-20

-15

-10

-5

0

5

10

15

20

25

30

01.2

005

04.2

005

07.2

005

10.2

005

01.2

006

04.2

006

07.2

006

10.2

006

01.2

007

04.2

007

07.2

007

10.2

007

01.2

008

04.2

008

07.2

008

10.2

008

01.2

009

04.2

009

07.2

009

10.2

009

GROSS MARGIN Monthly

Gross Margin Average 3 Months

Working withaverages leads

to short termmistakes in operationaldecisions

Negative gross

margin, reduce

production and

sales

Excellent growth

margin, extend

production, room for

price negociations

SOLVAY

Introduction to C2S

� The closest possible to current figures• Quicker deviations in raw materials

• Quicker deviations in tranport costs (energy & competition)

• Fierce competition put pressure on sales prices and priceevolution are no longer only a trend

Sold quantities deviations

0

20

40

60

80

100

120

01.2

00504

.2005

07.2

00510

.2005

01.2

00604

.2006

07.2

00610

.2006

01.2

00704

.2007

07.2

00710

.2007

01.2

00804

.2008

07.2

00810

.2008

01.2

00904

.2009

07.2

00910

.2009

01.2

010Sold quantities

SOLVAY

Introduction to C2S

� The deepest possible: customer level

Analysis of Margin: detailed by geographical zone

-15

-10

-5

0

5

10

15

20

25

30

35

01.2

00504

.2005

07.2

00510

.2005

01.2

00604

.2006

07.2

00610

.2006

01.2

00704

.2007

07.2

00710

.2007

01.2

00804

.2008

07.2

00810

.2008

01.2

00904

.2009

07.2

00910

.2009

Gross Margin Country One

Gross Margin Country 2

Average Gross margin

While the

average remains

positive, one

coutry delivers

much bigger

Gross Margin

than the other.

Treatment should

then be

differentiated

SOLVAY

Introduction to C2S

� Control the data in your C2S analysis

A n a ly s is o f m a rg in e v o lu tio n

-5 0

0

5 0

1 0 0

1 5 0

2 0 0

2 5 0

3 0 0

02.2

005

05.2

005

08.2

005

11.2

005

02.2

006

05.2

006

08.2

006

11.2

006

02.2

007

05.2

007

08.2

007

11.2

007

02.2

008

05.2

008

08.2

008

11.2

008

02.2

009

05.2

009

08.2

009

11.2

009

02.2

010

a vg (a l l c u s t . ) n t v ve n te via re f

Tra n s p . a n d ta k e a w a y € / t

ra w m a t e ria l c o s t

T ran sp o rt co st evo lu tio n fo r o n e sp ecific cu s to m er

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10 11 12

M on th s

Eu

r/T

S um of Trans p. and tak e away €/t

A verage on y ear bas is for the c us tom er

A verage on y ear bas is for the c ountry Mastering yourdatabase is key to ensure success of

C2S approach. This is however not the easiest task and is

resourcesconsuming

SOLVAY

C2S : presentation topics

� Who is Solvin?

� Introduction to C2S

� How to put in place & Solvin experience

� Let’s share our experience

SOLVAY

C2S within Solvin : how we put C2S into practice

� Data collection

Fix production cost / product

Month 1 Month 2 …

Product A 100 107

Product B 100 98

Product C 99 88

Product D 97 105

Product E 102 103

…

Variable Product Cost/Month

Month 1 Month 2 …

Product A 100 107

Product B 100 98

Product C 99 88

Product D 97 105

Product E 102 103

…

- raw materials

- energy costs

- 'by-products' selling prices

- transport cost of raw material

between plants

- ...

BOM

- fixed production costs

- administration costs

- commercial costs Plant

frm

deliv.ite

m

Shippin

g

conditio

ns

Shipme

nt type

Gross wght per

stage

Net Weight

Transported

Loading

costs

7DYN 33 Road container 30ftZ3C0 ROAD standard2.469.100,000 KG 2.469.100,000 KG

Result 2.469.100,000 KG 2.469.100,000 KG

Result 2.469.100,000 KG 2.469.100,000 KG

7E9A 30 Road Z3C0 ROAD standard326.820,000 KG 326.820,000 KG

Result 326.820,000 KG 326.820,000 KG

Result 326.820,000 KG 326.820,000 KG

892P 30 Road Z3C0 ROAD standard753.290,000 KG 753.290,000 KG

Result 753.290,000 KG 753.290,000 KG

Result 753.290,000 KG 753.290,000 KG

8BWV 12 Road -> Sea ctn 20ftZ1B1 SEA booking main leg1.466.329,500 KG 729.680,000 KG 6.857,50 EUR

Z1F0 SEA FOB. 565.040,000 KG 280.000,000 KG 3.400,00 EUR

Z3P0 Road-Preliminary leg914.820,000 KG 907.680,000 KG

Result 2.946.189,500 KG 1.917.360,000 KG ############

14 Road -> Sea ctn 40ftZ1B1 SEA booking main leg############### 8.489.365,000 KG ############

Z1F0 SEA FOB.6.367.777,600 KG 3.099.150,000 KG ############

Z3P0 Road-Preliminary leg############### ###############

Result ############### ############### ############

30 Road Z3R0 ROAD returns1.410,750 KG 1.375,000 KG

Warehousing & Transportation costs

central DB for

analysis

Query tool

Ship-to party

Q ty in

R U

Av g.

NTV

Price

in RU

Trans

p. and

take

away

€/t

C redit

C ost

€/to

Net &

Cash

price

for

cust

€/to

A ll v bl .

m anuf.

costs

A verage

per ton

Contribut

ion

(Solv in) -

Av erage

per ton

Fix.

manuf .

costs -

Av erage

per ton

TOTAL

P rod.

Costs -

A verage

per ton

Contribut

ion

(solv in)

GROS S

MARGIN

COP A -

Av erage per

ton

53340 1275748 5038,5 385,3 10,5 4642,6 4227,8 383,7 778,0 5005,8 67058,1 -394,2

53345 170637,5 5329,0 309,2 66,7 4953,2 4443,1 445,5 976,3 5419,4 10414,7 -530,8

53459 171404 5219,5 434,3 44,4 4740,7 4480,8 260,0 638,3 5119,1 6104,0 -378,3

53508 178704 5402,0 402,2 45,1 4954,8 4158,4 796,4 778,8 4937,2 19496,2 17,6

53511 682550 5394,7 309,2 4,2 5081,3 4443,1 573,7 976,3 5419,4 53641,6 -402,6

54902 100375 9855,0 934,0 82,2 8838,8 4820,2 4176,4 1417,8 6238,0 57425,7 2758,6

55647 170637,5 5292,5 309,2 22,1 4961,3 4434,2 462,6 845,6 5279,8 10812,2 -383,1

56933 341275 5329,0 309,2 22,2 4997,6 4347,4 585,6 778,8 5126,3 27377,9 -193,2

80088 356824 5329,0 386,1 44,4 4898,4 4158,4 740,1 778,8 4937,2 36174,2 -38,8

80411 170637,5 5475,0 309,2 45,7 5120,2 4442,3 613,4 869,0 5311,3 14337,2 -255,6

80832 717152 5824,8 394,2 24,8 5405,8 4440,2 965,5 719,8 5160,1 94853,9 245,7

Resul t 4335944,5 5465,4 380,8 24,1 5060,5 4347,2 685,5 825,5 5172,6 409049,7 -140,0

SOLVAY

C2S within Solvin : how we put C2S into practice

� Not a perfect C2S approach as:

•Need to align commercial coststo customers

•Systematic cost of product to customer (new packaging)

• reverse logistics & cost of claims at customer level

• warehousing cost at customerlevel

•Some wrong data in system

SOLVAY

� The vision from the sales team : importance of your customer

70% of volumes are strategic. Shouldn’t it

be revised/refined?

C2S within Solvin : how we put C2S into practice

SOLVAY

C2S within Solvin : how we put C2S into practice

� Some differentiators for a segmentation

�sensitive for on-time delivery

�sensitive for exclusiveness Part of it is applied in a

differentiated supply

chain approach

-Security stocks

-Dedicated transport

-Customized

packaging

SOLVAY

Exclusives

C2S within Solvin : how we put C2S into practice

SOLVAY

C2S Conclusions

� Control your data

� Working with averages is not appropriate

� Keep a light system

� Do it

SOLVAY

Any question?