Enhancing Value Stream Agility:: The UK Speciality Chemical Industry

European Management Journal Vol. 20, No. 2, pp. 199–212, 2002 2002 Elsevier Science Ltd. All rights reservedPergamon

Printed in Great Britain0263-2373/02 $22.00 + 0.00PII: S0263-2373(02)00030-0

Enhancing Value StreamAgility:The UK SpecialityChemical IndustryTHOMAS BURGESS, Leeds University Business SchoolBRIAN HWARNG, National University of SingaporeNICKY SHAW, Leeds University Business SchoolCLAUDIO DE MATTOS, Leeds University Business School

As part of a shift in chemical production occurringacross the globe, the UK chemicals industry isincreasingly moving from commodity to specialityproduction. In the UK the industry’s batch pro-duction methods are little changed from previousdecades and the speciality chemicals industry facesmounting challenges that argue for an increase inagility throughout the industry value stream. Indi-vidual companies and managers have responded ina variety of ways to these challenges. The Britestresearch project is a concerted industry responsethat seeks to improve the three key value streams ofthe industry by introducing new philosophies andmethods into plant and process design. This articleoutlines the Britest approach to introducing agilemanufacturing concepts in the speciality chemicalsindustry and then extends the approach to a moreholistic focus on supply networks rather than con-centrating on individual production units. 2002Elsevier Science Ltd. All rights reserved.

Keywords: Speciality chemicals, Value streams,Process improvement, Supply chain management

Introduction

Global chemical production is increasingly differen-tiated according to the stage of a country’s economicdevelopment. Corporations are focusing manufactur-ing located in developed economies on specialitychemicals to counter the comparative advantages in

European Management Journal Vol. 20, No. 2, pp. 199–212, April 2002 199

commodity chemical production enjoyed by newlyemerging economies. However, corporations aredoing more than simply concentrating on specialityas a strategic response; they are pushing to improvecompetitiveness in the crucial value streams thatdeliver speciality chemicals. Here we look at special-ity manufacturing in the UK, and at actions taken tomake manufacturing at the plant level more agile andthen we extend this thinking throughout the wholevalue stream.

The UK chemicals industry is traditionally a key con-tributor to the national economy, with total pro-duction value of approximately £33 bn in 1999, andan important player on a global basis since £22.4 bnof this was exported from the UK (Howitt, 2000). Thistradition, although under threat, e.g. ICI losing itsrole as “bellwether” company, is still in place today.The primary segment of the industry produces activeingredients for the pharmaceutical industry while thenext largest segment produces organic chemicals foruse as basic building blocks in the manufacture ofconsumer and industrial goods. Other segmentslying within the industry include plastics, perfumes,surface coatings, dyes and pigments, and fertilizers.In the past the UK has been home to a number oflarge trans-national corporations such as ICI, Zenecaand Glaxo Wellcome. However, significant changesare reshaping the (global) industry, such as the recentmergers of the last two mentioned companies withother partners to form AstraZeneca and GlaxoSmithKline. These mergers are part of a response tothe increasingly fierce global competition and to the

ENHANCING VALUE STREAM AGILITY

changing nature of the chemicals industry. The highlevel of competition is evident in that although UKchemical exports are substantial, imports have cap-tured 63% of the UK market (Howitt, 2000). Recentlythe industry has come under increasing pressure,particularly in commodities, from competition fromlower cost economies, e.g. China and India. The UKbased industry is continuing to evolve away fromcommodity products and moving more towards pro-ducing low volume, high value added specialitychemicals with the intention of leaving high volume,low value added to more emergent manufacturingcountries.

The speciality chemical industry is fundamentallyimportant to modern economies with its productsused by every consumer industry and in every indus-try application (Howitt, 2000). However, theincreased competition in the industry and other sig-nificant factors such as customer requirements forfaster response than hitherto means that companies,and the value streams that they are positionedwithin, need to be more agile to respond to the chal-lenges of this new regime. Surprisingly, despite thepresent and growing importance of the specialitymarket, UK industry relies substantially on methodsof batch production that have little changed over thelast half century. Major industry players believe thatif the UK industry is to survive then companies needto move on from this traditional approach to manu-facturing and thus imbue the industry value streamswith increased agility. In this paper we illustrate viacase studies this fundamental challenge to the indus-try and explore some of the ways that this challengecan be grasped. In particular we highlight the resultsof a particular industry and academia response torender more agile the key manufacturing elements ofthe industry’s value streams.

This paper starts by taking a brief look at the conceptof agility. Next the characteristics of the industry areexamined and a value stream view articulated. Thedriving forces that are moving the industry towardsthis more agile regime are highlighted and illustratedby industry “snapshots”. Some ways of enhancingagility are then investigated and in particular anapproach developed within a 3-year multi-disciplin-ary research project, Britest, is presented. Theapproach is then extended in scope to apply to sup-ply networks before concluding the paper.

Agility

The important manufacturing philosophy of leanness(Womack et al., 1990) has impacted significantly onWestern manufacturing in recent decades. However,more recently the philosophy of agility (Goldman etal., 1995) has been advocated to address what is seenas a gap in the capabilities of lean thinking(Christopher, 2000). However the nature and content

European Management Journal Vol. 20, No. 2, pp. 199–212, April 2002200

of both philosophies are subject to debate, perhapsmore so in the case of agility given its more recentappearance (Burgess, 1994). In their previously citedkey contribution Goldman, Nagel and Preiss (1995, p.42) describe agility, in very general terms, as follows:“Agility entails a continual readiness to change,sometimes to change radically”. Agility can also beseen as the ability to use market knowledge and toexploit profitable opportunities in a volatile marketplace (Naylor et al., 1999).

In some respects agility can be interpreted as a returnto emphasizing flexibility, but in a more dynamicsense than hitherto, by privileging new product ornew supply capability introduction. While leannessis seen to focus on resource frugality, i.e. keepingcosts to a minimum, agility is seen as more clearlyaddressing the need to respond speedily to changesin customer requirements (Christopher, 2000). In thecontext of the chemical industry it can be argued thatlean thinking is ideal for commodity production,where price is often the order winner, while agility ismore suited to speciality production where deliverytimes can be the key order-winning criterion. Unfor-tunately such a renewed emphasis on flexibility, ifagility is interpreted in this way, does not augur wellfor UK industry given its past poor record onimproving flexibility (Ackroyd and Procter, 1998).

The UK Industry

Arora, Landau and Rosenberg (1998) give threereasons why the chemical industry is important:

1. chemicals were the first science-based high-tech-nology industry whose inception can be tracedback to the dyestuffs industry of the 1850s;

2. the sheer size of the industry;3. its role in providing products and technologies

that support other industrial sectors.

In the 1830s through to the 1870s Britain dominatedthe world’s chemical industry, but advantagesslipped away and Germany became pre-eminent. TheFirst World War shattered Germany’s industry, ledto the expropriation of its technology and resulted inBritain catching up while the industry in the USAgrew in strength. In the mid-1920s both Germany andBritain sought to re-affirm their positions by estab-lishing companies that would be national standardbearers; in Britain’s case Imperial Chemical Indus-tries was formed in 1926 by merging a number ofsmaller companies. Similar industrial consolidationtook place in the USA but the two areas, Americaand Europe, differed to the extent that America reliedon cheap petroleum as the feedstock while Europerelied on coal. The Second World War once againdevastated the German chemical industry but thiswas rebuilt in the succeeding decades. However, thewar led to USA gaining the dominant global position


in chemicals, partly fuelled by the increasing use ofoil as the base material for much of the global chemi-cals industry. In more recent decades other countrieshave developed their chemical industries, e.g. Asiaand oil-rich countries of the Middle East and thewhole industry has become more competitive. Inrecent times Japan has become the second largestchemical industry in the world after the USA but hasnot as yet become a major player in internationalmarkets. Recent decades have seen ICI lose its crownas the leader and “bellwether” of British industry.ICI’s fall from grace illustrates one of the key dynam-ics of British and European industry, namely theflight from commodities in to speciality chemicals(Moretti, 1999), seen by some as concentrating on“core competencies” (Arora and Gambardella, 1998).In 1993 the de-merger of ICI and Zeneca took placewith the intention of the former concentrating on tra-ditional chemicals (commodities) and the latter onlife sciences (specialities). However, latterly ICI hashad to revise its strategy to focus more on specialitiesand more recently has had to relinquish its crown asthe leading chemical company to the newly mergedentity of Glaxo SmithKline.

The market sectors presently constituting the indus-try can be gauged from Table 1 while Table 2 showsthe top ten chemical manufacturers measured byturnover.

A Value Stream View of the Industry

The concept of value chain (Porter, 1985) is a familiarframework that is often applied to a single organiza-tion. The phrase “value network” is used to refer tothe connected activities that span a number of organi-

Table 1 Value (£m) of Chemical Manufacturers’ Sales by Market Sector (1999)a

Sales value (£m) forMarket sector Percentage of total

1999

Pharmaceutical products 6962 21.1Organic-based chemicals 4947 15.0Plastics 4202 12.7Paints, varnishes, printing ink, mastic and sealants 2869 8.7Man-made fibres 2473 7.5Perfumes and toiletries 2448 7.4Soaps, detergents, cleaning, polishing preparations 2203 6.7Inorganic base chemicals 1568 4.6Pesticides and other agrochemical products 1275 3.9Dyes and pigments 1172 3.6Fertilizers and nitrogen compounds 814 2.5Industrial gases 461 1.4Glues and gelatines 400 1.3Synthetic rubber 347 1.1Other chemicals 825 2.5

Total 32,966

aSource: Howitt (2000).


zations. In this paper we use the term “value stream”(Jones et al., 1997) to emphasize the value-addingflow through the value network that we intend tofocus on. We apply this at a high level to the industryto identify three primary value streams:

❖ the project value stream associated with introduc-ing the new product and delivering the main sup-ply capability;

❖ the capital asset value stream that provides thebuildings, equipment, etc.; and

❖ the core value stream whose ongoing function isto reliably and efficiently supply the product at theright cost and quality from market introductiononwards.

The first two of these value streams have a major rolein establishing the third, core value stream. Typicallydiscussions of value streams focus on the core valuestream since, certainly in the past, this was moreprominent than the other two and tended to be wherethe most value was directly created on an ongoingbasis. However, now with reducing productlifecycles and heightened competition the otherstreams also need to be increasingly focused on. Inthis paper we focus on the connected nature of thesevalue streams and look at improving all three by ren-dering them more flexible and agile. A schematic dia-gram depicting the interrelationships of these threevalue streams is shown in Fig. 1.

The Capital Asset Value Stream

In the capital asset value stream, suppliers such asequipment manufacturers sell their wares for incor-poration into the asset base used within the corevalue stream. In the chemical industry the asset base


Table 2 Top Ten Chemical Manufacturers on Turnover for 1998–99a

Manufacturer Turnover (£m) Pre-tax profits (£m)

ICI plc 9286 293SmithKline Beecham plc 8082 902Glaxo Wellcome plc 7983 2671AstraZeneca plc 5510 1045BOC Group plc 3053 363Burmah Castrol plc 2837 235Reckitt Benckiser plc 2202 228Cookson Group plc 1760 9DuPont (UK) Ltd 1145 (20)Elementis plc 974 10

aSource: Howitt (2000).

Figure 1 The Three Primary Value Streams and theirInterrelationships

required by the core value stream can be substantial(Moretti, 1999) and can include: the processing equip-ment, supporting infrastructure to provide utilitiessuch as high pressure steam, control systems, andbuildings. Discipline in using capital in the core valuestream is needed to improve capital returns (salesdivided by invested capital) from which real value-creation can be measured (Chang, 1999a). To savecapital expenditure assets might be refurbished andrecycled or might be designed originally to give ahigh degree of reconfigurability that enables repeateduse on successive core value streams. However, stan-dard off-the-peg equipment tends not to provide ahigh degree of flexibility in use and although the con-cept of modularity is being explored in the industrymuch could be done to standardize and modularize.

The Project Value Stream

The project referred to here is that set of activitiesthat results in the establishment of the core valuestream, i.e. the bringing in to existence of the newsupply capability (production capability in the ter-minology of Pisano (1997). This new capability couldarise from a new product (and new process), or anew process coupled with an existing product. Pro-


ject life cycles can be extended, particularly in thepharmaceutical sector when research and develop-ment (R&D) and clinical testing are considered.Shortening the time-scale associated with the projectvalue stream is seen as the key to market penetrationand building up market shares. However, other con-siderations than speed need also to be taken intoaccount, in particular the efficacy of the resulting corevalue stream is important in securing cost competi-tiveness. Chopey and Armor (1999) believe that ulti-mately processes should be simplified, cheaper, moreefficient, safer, and environmentally friendly.Reliable scale-up, i.e. moving from pilot to full-scaleproduction is often identified as a critical capabilityin the industry that is needed for excellence, giventhat emergent properties of the scale-up process oftenresult in unforeseen difficulties and delays.

The Core Value Stream

The core value stream constitutes what could bereferred to as the supply chain for the focal product.This might typically comprise the following activi-ties: material supply, primary manufacture of theactive ingredient, secondary processing, formulation,packaging and delivery. It is only recently that theindustry has begun to think in terms of managingholistically the activities making up the supply chain(Mullin, 2000). Responding to changing customer–supplier relationships stimulated by business consoli-dation will require that supply chain managementbecomes an increasingly important issue. Lean pro-duction and cost reduction through efficient oper-ations and even recycling may well be necessary butnot sufficient. To cater for a variety of orders withsmaller quantities, faster changeover will be essential.The concept of design for changeover will need to beapplied in the project value stream (Mileham et al.,1999). The ability to eliminate cross-contaminationduring changeover will determine the efficient use offacilities and the reliability and consistency of pro-duct quality. Of course, on-time delivery and goodcustomer service will continue to be the basic require-ments.


The Interaction of the Value Streams

The opening comments in this section indicated theinter-dependency of these three values streams. Inpractice, ownership and control of these three valuestreams is not necessarily segregated. For example, alarge engineering contractor may be employed by alarge trans-national corporation to be involved inboth project and capital asset value streams for pro-cesses that may be both undertaken in the premisesof the trans-national corporation and in manufactur-ing sub-contractors. The situation is further compli-cated by the difficulty of separating value streamsthat may be tightly associated. For example, two pro-ducts may be made on the same set of assets, or anindividual product might be manufactured as a by-product of another product but marketed separatelyto meet an unconnected customer need. A key inter-action is learning-related in that accumulated experi-ence from the existing core value streams informsthinking within both project and asset value streams.However, in the past, equipment manufacturers havenot been seen as substantial sources of innovation todrive technological change in the industry partlybecause of the activities of third parties, i.e. contrac-tors, who mediate between the equipment manufac-turers and the companies operating the core valuestream (Hutcheson et al., 1996).

Industry Driving Forces

Witcoff and Reuben, 1996, p. 19) identify a numberof characteristics of the chemicals industry:

❖ Maturity and its consequences (the market is near-ing saturation, technology is well diffused andbarriers to entry are low);

❖ participation in international trade (chemicals istruly a global industry);

❖ competition from the developing countries;❖ capital intensiveness and significant economies of

scale apply (particularly for commodities);❖ criticality and pervasiveness (chemicals is critical

to the economy of a developed country);❖ freedom of market entry (providing capital is

available turnkey plants can be readilypurchased);

❖ strong regulation (particularly for environmentalprotection and individual safety);

❖ high research and development expenses (theindustry relies on engineers and technologists);

❖ dislocations (i.e. the industry is vulnerable to ran-dom events).

When focusing more specifically on the specialitychemicals side of the industry, Moretti (1999) ident-ifies similar characteristics. A number of commentsare made next about key driving forces in that con-text.


Changes in Industry Demand Levels

Though the speciality chemicals industry has, in gen-eral, matured to some extent, the fine chemicals sec-tor (i.e. the very low volume end of the industry) hasexperienced a decade of double-digit growth(Anonymous, 2000). This is mainly attributed to thegrowing demands for drugs and the outsourcingtrend among pharmaceutical companies. Thedemand for agricultural chemicals is “softer”, butcompanies are still faced with elevated pricing press-ures, eroded margins, and reduced opportunities inproduct differentiation and innovation (Scheraga,1999).

More Sophisticated and Demanding Needs ofCustomers

The external customers of the speciality chemicalsindustry are mainly comprised of other industry seg-ments. As a result of the changing industry land-scape, customer needs have changed. In the past,small and medium-sized independent companiescould excel by simply concentrating on their expert-ise in product, process development, or production.But now companies have to have capabilities to pro-vide customized services in addition to quality pro-ducts. Some industry commentators see competingby creating value for customers through cutting-edgetechnology and cost-effective operations as the keyto success (Hume, 1999).

Environmental Issues

Heightened environmental concerns contribute tohigher operating costs through various mechanisms.Apart from increased public scrutiny of the activitiesof chemical firms leading to more socially responsibleactions, more stringent regulatory requirements forplant safety and waste disposal for example, haveplaced increased burdens on companies.

Illustration: Case of Company AA factory owned by company A, a major trans-national, was located in the town centre of a majormarket town of a rural area. Increasing environmen-tal concerns for the consequences of an excursionincident, in conjunction with the need to replace keycapital equipment led to the decision to withdraw themajority of manufacturing from the site and transferproduction to another location where capacityexisted. The site was sold off to a smaller chemicalmanufacturer who undertook some residual sub-con-tract manufacture for the trans-national.

Illustration: Case of Company BCompany B is a single-site, medium-sized inde-pendent manufacturer of speciality chemicals thatprovides a contract development service and pro-duction capability to the larger players in the indus-


try. One of the key strategic criterion that guides thecompany when deciding to bid for work is whetherthe manufacture involves chemicals that will need tobe registered under EINECS (Geiss et al., 1992). If sothe company rejects the invitation to bid because theeffort and time to obtain registration is, in theirview, excessive.

Globalization and Industry Restructuring

The chemicals industry, including both commoditiesand specialities, has been global for some time, asevidenced in the introductory comments on the his-tory of UK industry. However, industry consoli-dation appears to have picked up speed, particularlyin the European Union (Chapman and Edmond,2000). With this recent trend of business consoli-dation, small and medium-sized independent compa-nies are finding it increasingly difficult to survive inthis restructuring industry. The trend is for suchcompanies to be taken over by larger groups whostrive for global reach of the markets, but need tohave local touch in their business practices and ser-vices to be successful in different regions.

One outcome of consolidation, whether mergers,alliances and retrenchment, is that reducing the over-capacity created in the industry has been, and con-tinues to be, one of the major driving forces.

Illustration: Case of Company GSKThe long-trailed merger of the two major pharma-ceutical companies, Glaxo Wellcome and SmithKlineBeecham, has created the new entity GlaxoSmithKline (GSK) with anticipated annual sales of £18–19bn and 7% of the global market for drugs. Annualcost savings of £1 bn were expected after 3 years witha substantial element flowing from rationalization ofmanufacturing (Pilling, 2000, 2001).

Increasing Competition

One of the key dynamics in the chemicals industryis the low cost competition, stemming in particularfrom newly industrializing countries (NIC) such asIndia and China (Arora and Gambardella, 1998). Theimpact of this competition is evident in the after-effects of the de-merger forming ICI and Zeneca tofocus on commodity and speciality chemicalsrespectively. ICI have had to reverse their strategy tofocus on specialities, thus ratcheting competition upin this area. However, even more competition isanticipated in future since an NIC developing a pro-duction capability in commodities is potentially aprecursor to developing a capability in specialitychemicals.


Supplier Power and Materials Costs

A key feature of the industry is the high proportionthat materials comprise of the production costs(CEFIC, 2000). The sourcing of materials in thespeciality industry is a key issue since in general ifthe materials for a specific target chemical are notcommodities then they will be speciality chemicalsthemselves that either are pre-existing or have to besourced within the industry. This leads to some com-plex and recursive relationships within the industryvalue streams. One particular issue of concern at themoment is the high price of oil since this is animportant feedstock material for the chemicals indus-try.

Illustration: Case of Company DCompany D manufactures speciality chemicals usedwithin the North Sea by oil producing majors. Thefeedstock material for the speciality chemicals is oil;i.e. the Company’s customers and suppliers are thesame group of companies. The company was recentlytold by one of its major customers, a petrochemicalscompany active in the North Sea, that it had toreduce costs by 10% i.e. the customer is exertingpressure on its supplier in its own capacity as sup-plier.

Illustration: Case of Rohm and HaasRohm and Haas is also not only faced by giant raw-material suppliers but by powerful retailers at bothends of the supply chain (D’Alessandro and Baveja,2000).

Reliance on Outsourcing

The chemicals industry in general, and specialitychemicals in particular, has a long history of relianceon sub-contract manufacture or “toll manufacturing”as it is usually called. In line with general trends, theindustry’s recourse to outsourcing is on the increase.Jones (2000) highlights the increasing importance ofoutsourcing to the pharmaceutical industry whereeven what one might call the core competence ofResearch and Development is increasingly bought in.

Illustration: Case of GSKOne of the interesting features of the merger creatingGSK is the contrast in value placed on manufacturingby the two previously separate constituent compa-nies. The management of GW saw manufacturing asa key competence while SKB was of the opinion thatmanufacturing is a capability that can be bought in.How this clash of values is resolved remains to beseen.

Illustration: Case of Company ECompany E obtained a contract to process andextract a chemical from vegetative matter. New plantwas constructed on the company E’s premises andthe multi-million pound capital investment under-


written by the bank on the strength of the contracttoll manufacture the required chemical.

Traditional Processing Culture

Many in the industry believe that too much relianceis placed on manufacturing processes that havechanged little in decades. An aspect that surprisesoutsiders coming fresh to the industry is the lack ofbasic knowledge of the chemistry that takes place onthe factory floor (Charpentier and Trambouze, 1998);this conflicts with their preconceptions of chemistryas a scientific, purposeful activity. Reflecting the con-servative risk-averse nature of the industry, processesfor new products are based on variations to existingprocesses using equipment in the same way that ithas always been used (Stephanoupolos et al., 1999).The equipment itself has undergone little innovationin design over the past decades and consists of stan-dardized units that are used to provide basic pro-cessing capabilities. Although mention of the pro-cessing industries tends to bring to mind continuousproduction, batch processing is used widely in theindustry.

Illustration: Case of company FThis company has been in existence in one form oranother for over two centuries with one of its majorproducts produced for approximately 150 years. Theexisting manufacturing process has changed little indecades with no significant capital investment sincethe inception of the plant.

Industry Responses

As indicated above the speciality chemicals industryfaces various challenges. UK based industry hasresponded in a number of ways, one of the mainways being through mergers, alliances and new com-petitive entities constructed from elements of pre-viously competing companies. Apart from commer-cial restructuring attention has focused on (other)ways of improving value stream efficiency. Theindustry has relied in the past on outsourcing as away of achieving flexibility and agility, and this maycontinue to be a suitable strategy for some compa-nies. However, outsourcing only works if suitableoutside capacity is available and has the drawbackthat, if pursued without any regard to improving theperformance of remaining in-house industry, it couldlead to the complete hollowing out of UK manufac-turing.

One of the important ways for a company to survivein uncertain environments by dealing with constantlychanging customer requirements is through flexibleand agile product development (Thomke and Rein-ertsen, 1998). A company that intelligently designs aproduct for manufacturing would be expected to


ensure that the manufacturing process is also flexible.A company may capitalize on design expertise, adoptflexible technologies, but ultimately it is the manage-ment of the development process and of its most pre-cious resource, people, that matters. In the case ofthe chemical industry the traditional orientation ofproduction methods has been questioned(Stephanoupolos et al., 1999) and their role in con-straining agility recognised. One specific initiative to“reengineer” the development process, i.e. the waythat new production methods are developed, andhence improve agility is described below.

The Britest Project

The recently-completed three-year project, Agile Pro-cess and Plant Design in the Speciality Industry(Britest), started at the end of 1997. The EPSRC IMI-funded research project involved substantial collab-oration between three UK universities, large trans-national companies and small/medium sizedenterprises. The £1.3 m funded project set out to gen-erate a radical change in the approach to chemicalprocess development linked to the design of readilyre-configurable plant and an integrative businessmodel that facilitated balanced assessment of techni-cal options. The project aimed ambitiously to providemethods to render the value stream more agile by:

❖ halving the total project time from start of processdevelopment to manufacture;

❖ reducing significantly the total manufacturingtime measured from materials entering to productleaving the factory gate;

❖ selecting appropriately-sized and -specified plant,leading to a 30–40% reduction in capital cost ofnew investments compared to conventionalapproaches;

❖ leading to plant which is inherently more versatile,making it quicker and cheaper to reconfigure fordifferent processes.

A key aspect of the project was the use of industrialcase studies to refine and validate the new methods.

The Britest Diagnosis

The diversity of the markets supplied by the industryparticipants is conveyed in the matrix (Fig. 2) thatwas devised as an early part of the research project.

The matrix was developed from questionnaire dataobtained from collaborating companies and ispresented along similar lines to those used by Puttick(1986) and Pisano (1997). The needs and product sup-ply criteria across each quadrant differ substantially;all of which needed to be incorporated into anyapproach developed to improve the developmentprocesses.


Figure 2 Matrix of Speciality Chemicals Markets

The central issue that the research focused on wasdesign and development of new productionmethods, whether associated with new, or existing,products. These new methods emerge from the “tech-nical core” of the companies and in general involvespecialists such as chemists and chemical engineers.In essence the new methods implemented in the corevalue stream are an output from the project valuestream and rely on the deliverables of the capitalasset value stream. Research uncovered the extent towhich decisions taken in the project value stream tospecify new production methods were conditionedby:

❖ disconnected business and technical agendas;❖ poor knowledge of chemical processes that could

and did occur;❖ over-reliance on production methods that had

worked in the past in similar circumstances.

It became clear that a more structured and informedapproach to designing new production processes wasrequired; one that attempted more fully to integratebusiness and technical requirements. This would becarried out by interactive stages: business require-ments would influence the whole procedure ident-ifying an appropriate set of conditions (to supportmarket and business requirements) for a suitablechemical process and then selecting the equipmentthat provided these conditions. A crucial differencehere is that the new approach would need to bebased on more rigorous abstract and conceptualdesign of the chemical process that was not “contami-nated” by existing manufacturing processes in exist-ing plant. Only later in the design and development


cycle was the physical plant to be selected for thechemical process. This new process of designing pro-duction processes should deliver more optimally per-forming production methods than conventionalapproaches.

The Britest Response

The above diagnosis identifies the need to “reengin-eer” the activities in the project value stream butparticularly the “upstream” activities where the cre-ative, design processes are undertaken. This is in con-trast to a number of prior initiatives within the indus-try where traditional project management regimesare introduced “downstream” to manage activitiessuch as planning and control of plant constructionthrough to commissioning. To contextualize these re-engineered activities and provide a comprehensiveapproach, the unfolding of a project through to itsimplementation as a core value stream was concep-tualized in what is referred to as a Business GateFramework (see Fig. 3). The research approach usedto develop the re-engineered activities and frame-work can be best characterized as action research(Gill and Johnston, 1997, chapter 5) where researcherscollaborated with industrial partners on industrycase studies.

The Business Gate Framework (BGF) illustrates, inthe top part of the diagram, the business decisionsassociated with new product development (NPD)while the technical activities associated with thosedecisions are indicated in the bottom half of the dia-gram. The framework comprises, at its core, five


Figure 3 BRITEST Business Gate Framework for the NPD Process

phases and five gates. The role of each phase is todetail, structure and generate the informationrequired at each gate, where a decision is to be madeconcerning the project. Each gate serves to focus thedecision of whether to continue developing the prop-osition at the heart of the project, shelve the projectuntil a different time, or terminate development alto-gether. The relationship between the Business GateFramework and the value stream perspective is asfollows. The first three phases are located firmly inthe project value stream and are associated withinitially appraising, evaluating the feasibility andfinally developing the initial design of the core valuestream (or supply capability as it is referred to in theBGF). The fourth phase is also seated within the pro-ject value stream but concerns the physical bringinginto existence of the core value stream (the supplycapability). The final phase is the ongoing operationof the core value stream; a set of activities that fallsoutside the project value stream.

(a) The Project Value StreamTo modify the project value stream the industry spe-cific framework described above has been developedto encompass the redesign of both the business andtechnical processes. On the technical side speedier,more efficient methods have been developed whichresult in faster, more efficient manufacturing pro-cesses in the core value stream. A major change inphilosophy underpins the technical process ofdeveloping the manufacturing method. This new


philosophy is manifested through new methods sup-ported by revised conceptual frameworks supportedby software-embedded models. Specifying processesas far as possible in an abstract manner that is inde-pendent of plant avoids constraining processes toequipment of the type that is already installed on thefactory floor. These major changes in the philosophyof the selection and design method for capital assetsin the project value stream have major impacts on theasset base deployed in the core value stream. Overallprojects will be executed more speedily leading tofaster new product introduction and a lower assetbase capable of rapid reconfiguration. For example,the introduction of “natural rate processing” willreduce substantially manufacturing lead times andhave knock on effects on working capital. This isbecause it is not unusual when manufacturing largebatches for the reactions to be given extended pro-cessing times to ensure adequate mixing or for reac-tions to be deliberately slowed down from their“natural” rate to reduce hazards.

(b) The Capital Asset Value StreamAt the moment the key impact of Britest on this valuestream will be via organizations selecting differentcombinations of equipment than those identified byconventional methods, and putting these together innovel configurations that provide increased flexi-bility. Through designing processes where reactionprogresses at natural rates, the equipment will bemore compact and of different types than used in tra-


ditionally designed plants. This means a lower assetbase in the company but requires a different relation-ship with equipment suppliers. Companies will needto build closer partnerships with their equipmentsuppliers to support the design and development ofmore flexible, innovative equipment types. Supplierswill need to emphasize more in their offerings theservice component associated with responsivenessand collaborative design capabilities. An additionalarea that Britest has investigated is the standardiz-ation across the industry of capital equipment inmodular form. Such an initiative would impact evenmore significantly on equipment suppliers and couldbring significant benefits to the whole industry byfurther speeding up the acquisition and com-missioning processes, and by further reducing over-all capital costs. However, mobilizing such an indus-try-wide change as standardization requires time andcommitment from critical masses of both suppliersand purchasers of equipment.

(c) The Core Value StreamBecause of the speedier project development indi-cated above, a crucial outcome will be that the corevalue stream for a new project becomes functionalfaster than by conventional approaches. In essencethe changes in the two prior value streams will havethe important results of introducing a new productfaster than conventional methods. The benefits of fas-ter new product introduction can be measured in £millions of additional revenue per day; this is parti-cularly evident in the pharmaceutical sector that thespeciality chemical industry serves. However inaddition to faster new product introduction, manu-facturing throughput time will be reduced, materialusage improved and quality improved. A knock oneffect will be that working capital will be reduced.These coupled with the other factors should contrib-ute to lower production costs. A significant benefit isthat improving the core value stream will strengthenthe overall competitive position for the company thusleading to increased business volume.

(d) Linking the Three StreamsHowever, the process of improving the value streamsdescribed above is not a simple linear relationshipwhere the project and capital asset value streamssupport the core value stream. The three valuestreams interact and reinforce one another. To illus-trate, consider company X that produces largebatches of a particular chemical type. Production hasbeen carried out on the site for over 40 years and themethods of production have changed little over thattime. The existing facilities comprise ten differentplants that are dedicated to specific products withinthe range. The production of products in differentplants has been determined by the risk of hazardousoutcomes arising from cross-contamination. The mar-ket for the chemical type has evolved so whereas inthe past the demand was mainly for large repeatbatches, now customers increasingly require smallquantities of made-to-order products. Unfortunately


the company’s inability to respond to such changingbusiness needs with its existing facilities will havesevere repercussions if not addressed. Traditionalthinking is that designing a small volume productionunit that is flexible and able to cater for potentiallyhazardous rapid change-overs is not feasible. How-ever, with Britest project value stream thinking sucha new unit is achievable but depends on innovationin the capital asset value stream to provide the newflexible equipment configuration.

Although the viability of the core value streamdepends crucially on the effectiveness of the twoother value streams, their effectiveness is a necessarybut not a sufficient condition. Even if the projectvalue stream and the capital asset stream havedesigned a unit capable of rapid, safe changeovers;reliability of supply and consistency of the productquality will not be achieved if the operations in thecore value stream fail to adequately adjust to the newoperating regime. For example, operating philo-sophies, expressed as working practices, have tochange to be congruent with the philosophy invokedwhen designing the value stream. Traditional cost-focused operating practices are not appropriate foragile modes of operation.

Success of Britest Thinking

Britest as a process has been successful so far in rais-ing awareness of the problem, developing frame-works and tools to embed the new thinking in com-panies, and applying these fruitfully in case studies.A culmination of the Britest project was the testingout of the key aspects of the methodology in threesubstantial industry cases. Each case study resultedin a convincing business case for major capital invest-ment. As indicated earlier the key aspect of the Brit-est approach is the reengineering of the chemical pro-cess design activities. A follow on initiative to Britest,value £1 m, is now being jointly funded by the DTIand industry with the key intent to transfer this newtechnology into UK-based companies. This initiativewill take place under the auspices of a newly-consti-tuted organization, Britest Ltd, that will comprise thecollaborators in the original research programme. Aswell as focusing on specific transfer of knowledgeand skills mentioned above, Britest Ltd is also look-ing to extend and further refine the approach throughactivities such as commissioning collaborativeresearch projects involving academia and industry.

Extending Britest Thinking

As indicated earlier the new “paradigm” for agilecompetition concerns the ability to respond to unex-pected change, to survive unprecedented threatsfrom the business environment, and to exploitchanges as new business opportunities (Goldman et

The lengthy supply lead

times existing currently in the

pharmaceutical industry call

for significant compression of

total cycle time


al., 1995, Kidd, 1995). We believe that in the changingcompetitive landscape the speciality chemical indus-try must accelerate the pace of modernization to bet-ter serve the customers and other stakeholders. Tothis end the Britest approach has so far emphasizedimproving the process (located within the projectvalue stream) of designing and developing the pro-duction processes (to be located within the core valuestream). Although couched within a value streamphilosophy, the approach can be adopted piecemealby the individual entities comprising the valuestreams. However, adopting the approach holisticallythroughout the value streams offers a more powerfulmechanism for improvement. It is to be expected thatthe Britest approach will have to evolve to embracethis wider scope, just as agile thinking needs to growto accommodate the full gamut of supply chainactivities (Kasarda and Rondinelli, 1998). We nowconsider some of the additional issues related to sucha more holistic approach.

Supply Chain Management as a Strategy to AttainValue Stream Agility

Narasimhan and Das (1999) point out that a com-pany’s agility may be improvedby properly managing its sup-ply chain, which, according toBal, Wilding and Gundry(1999), can become a virtualcorporation. This “proper”management is founded onclose partnership and collabor-ation among supply chainmembers (Bal et al., 1999, Car-rie, 1999). While many collabor-ative initiatives have been undertaken in other indus-tries, such as automotive (Bal et al., 1999) andelectronic (Naylor et al., 1999), the speciality chemicalindustry has not proactively responded to this call sofar to any substantial degree.

Collaboration often means sharing informationamong members of the supply chain to remove anypotential barriers to effective co-operation or to pre-vent distortion of the actual picture of the materialand information flows (Lee et al., 2000, Cachon andFisher, 2000). Automatic data collection and infor-mation generation becomes a critical part of sophisti-cated supply chain management. Electronically col-lected data serves to ensure the complete tractabilityof every action and step associated with a specificbatch (Harrold, 2000), something that is crucial inconnected industries such as pharmaceutical. Thus,we firmly believe that information sharing and col-laboration will be a key to remaining agile in thechanging landscape of the speciality chemical indus-try. The reality however, of sharing such informationusing sophisticated technologies, may be difficult toperpetuate through more rural vendor agents in thedeveloping world, for example.


Collaboration is also a prerequisite of early involve-ment of suppliers and customers in product and pro-cess design. Similar to what is taking place in manyother industries, close partnership with suppliers andwith customers will be crucial to shortening productdevelopment cycles and securing the market share.Merenda (1999) comments on an industry exemplarwhere a cross-functional team comprising users andsuppliers has been assembled to custom developcatalysts.

Shortening supply lead times contributes to improv-ing the responsiveness to order volume changes. Asthe supply lead time to the ultimate customers is thetotal cycle time of every supply unit along the supplychain, a prime imperative is to reduce the total cycletime throughout the whole supply chain (Mason-Jones and Towill, 1999). The lengthy supply leadtimes existing currently in the pharmaceutical indus-try call for significant compression of total cycle time.Equally, management of the push versus pull manu-facturing interface typically experienced in the latterstages of manufacture presents complexity. The co-ordination of not only drugs, but also dosage instruc-tions, pack information and packaging, all in the cor-rect language are critical for on-time supply; whilst

finished goods storage, trans-portation and vendor storagetimes must all fall within theidentified product life span.

Innovative business models areincreasingly required as thecompetition gets fiercer, a com-pany will need new businessmodels to differentiate itselffrom others. For example, Min-

erals Technologies, the world’s largest producer andsupplier of PCC (precipitated calcium carbonate) tothe paper industry, designs, builds, and operates sat-ellite PCC plants at customers’ paper mills undermutually agreed long-term partnerships (Chang,1999b).

In contrast to traditional lean production, one funda-mental approach to attaining agility in supply chainsis to shift some of the company’s fixed cost basetowards variable costs (Katayama and Bennett, 1999).Reducing the fixed cost base, thus freeing more capi-tal for adaptive purpose, lowers the break-even pointand a company thus becomes more agile and lessvulnerable to market volatility. In fact, Britest’sinnovative approach to product and process designembraces this principle, albeit at the moment practicemay be restricted to individual companies in the sup-ply chain.

Despite generally advocating agility as beneficial tothe speciality chemical industry, we also believe inthe adoption of appropriate “paradigms”. In somesegments of the industry, the production in theupstream part of the supply chain is mainly forecast


driven while downstream of the supply chain is mar-ket driven. It becomes plausible that upstream com-panies may strive for lean production while down-stream companies may more profitably pursue agilemanufacturing (Naylor et al., 1999). A “decouplingpoint” can be identified that separates the applicationof the two paradigms (Hoekstra and Romme, 1992).The strategic decision on where the decoupled pointis located can have a significant impact on the totalcost of supplying a product and the agility of thewhole supply chain.

It is true to say that supply chain design, not just inthe chemical industry but in general, is still in itsinfancy. Organizing one company for change is com-plex enough; the complexity of co-ordinating, align-ing, and managing the whole supply chain is evengreater. In fact, chaotic behaviours often exhibit insupply chain systems as a result of interactionsamong members of the supply chains (Wilding,1998a,b). Inspired by natural, biological systems,some complex adaptive principles and theories havebeen suggested. For example, as many argue thatorganizations are not machines, therefore, to remainflexible and agile, intricate strategic plans could bereplaced by simple documents describing the generaldirection that the company is pursuing and a fewbasic principles for how the company should getthere (Plsek, 2000). In this way, there is much roomfor flexibility, adaptability, and creativity. The abilityto learn as one ventures into a new environment andfaces new challenges will be crucial to remainingagile. Co-ordinating agility along a typical chemicalsindustry supply chain would certainly be complexand present many challenges for managers. Flexi-bility and agility would be achieved in different waysat different points along the value stream, forexample within a manufacturing plant versus a ven-dor distribution system. Whilst the high level per-formance objectives for a value stream might be read-ily identifiable, the identification and measurementof such performance at a daily level at, and between,different nodes of the supply chain requires substan-tial further work.

Applications of the above principles have beenreported in some successful companies like DellComputers and 3M (Brown and Eisenhardt, 1998;Dell and Freedman, 1999). We believe the specialitychemical industry, and particularly pharmaceuticalindustry, should strive for organizing for change.This is even more important in today’s changinglandscape of mergers given that, as Zweig (1995)reported, most mergers looked good on paper butmost were failing. One major cause for failing is themerged company’s inability to cope with theincreased complexity and changes resulted from themerger (Plsek, 2000). Adaptive organization and cul-ture is needed for this industry to survive mergers,remain agile, and truly create value for customers.


Conclusion

The paper has mapped out the increasing emphasison speciality chemical manufacture in developedeconomies as a strategic response to pressures includ-ing the burgeoning production of commodity chemi-cals in emerging economies. The need for enhancedcompetitiveness in speciality chemical productionthrough improved agility has been outlined andtaken as the starting point for reporting a key aca-demic and business research initiative to enhanceproduction capabilities in the UK. Much is beingdone, and still remains to be done, to embed theimproved process development methods from thisinitiative in industry and further refine them. How-ever we have chosen in this paper to move the focusbeyond improving agility at the individual pro-duction unit level, where companies are tending todirect these new methods, and have explored thepotential for improving agility throughout the valuestreams that comprise the industry. Three valuestreams were identified: the project, core and capitalasset value streams.

This paper has investigated challenges to companiesin the speciality chemical industry and illustrated theneed for industry participants to enhance their agil-ity. UK-based companies collaborating in the originalresearch initiative are already taking steps toimprove by adopting, with the assistance of a DTI-funded technology transfer project, the new pro-duction development methods stemming from theoriginal initiative. Assuming successful technologytransfer, the participating companies will benefitfrom a first mover advantage but it is to be expectedthat the improved methods will eventually diffuse toother companies. Thus the collaborating companiescan seek to achieve additional benefits by extendingthe concepts of flexibility and agility beyond the pro-duction unit and taking a holistic value stream(supply chain) approach. The Britest approachaddresses the intersection of at least three valuestreams and does not preclude addressing supplychain issues squarely; however the case studies con-ducted have tended to focus on processes in a singleorganization, and therefore we believe that there isfuture scope for a more holistic approach. The focushas been primarily on the project and core valuestreams, and in some cases on subsets of the corevalue stream. It is evident that there is still majorscope for initiatives primarily located in the capitalasset value stream, e.g. relating to equipment modu-larity and standardization, that if pursued could havesignificant impact on the other two value streams.Similarly the focus of Britest has been on the chemi-cals industry that contributes to wider value streams,such as that of the pharmaceutical industry, andtherefore scope appears available for an even widerperspective to be brought to bear.

In addition it is apparent from our involvement with


the collaborating companies that the current rash ofmergers and commercial restructuring are presentingsubstantial opportunities for reconfiguring existingvalue streams. It is also clear that companies are tun-ing in to this need to think at a supply chain level(Mullin, 2000). Manufacturing rationalization planswould both inform and be informed by a clearerunderstanding of plant-level capabilities’ influenceupon overall supply chain characteristics. We believethat further development of Britest thinking shouldrespond to these aspects and firmly adopt a widersupply network perspective that would generateeven more substantial benefits than those projectedso far.

Acknowledgements

The authors wish to acknowledge the contribution to theresearch discussed here of funding from the InnovativeManufacturing Initiative of EPSRC.

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