Sector News

‘Local-for-Local’: chemical supply chains and the circular economy.

April 16, 2022
Energy & Chemical Value Chain

Once in a while on a Saturday morning I need to visit the local Post Office to pick up registered mail or perhaps more fortunately a case of wine which the post was unable to deliver. I never cease to be amazed, or perhaps appalled, by the line of customers waiting to return their Amazon, Zalando, or other e-retailers’ packages. Having worked a lifetime in supply chain, focused on improving efficiency, productivity, and cost performance, this whole process seems somehow counter-intuitive and environmentally absurd.

But one has to admire the efficiency of the business model and processes that the e-retailers have put in place, recognizing that customers are ordering products unseen. Orders are delivered promptly, the packaging is designed for reuse, the self-adhesive return label may already be included in the package, and the Post Office seems increasingly set up to handle the explosive growth in volume which has occurred in the past two years as a result of Covid lockdowns.

This is reverse logistics on steroids.

On the other hand, chemical supply chains are mostly designed to be unidirectional, with production sites ill-equipped to receive, store and rework returned product, especially in the case of customer specified products, or products containing a variety of inhibitors or additives.

Chemical assets are often located in clusters, close to deep water, and at a distance from customers. The economics are driven by scale and globalization (powered by low freight rates), and this has reinforced the reality of this ecosystem, particularly for high volume, upstream feedstocks, polymers and intermediates.

For Supply Chain Managers in the chemical industry reverse logistics is often their worst nightmare. Transaction systems are not always set up for returns, so this will probably require manual effort to manage the exceptions. Every effort will be made to find an alternative outlet, engaging customer service and sales in the process, and which may necessitate some commercial consideration. But whatever you do, please don’t bring the stuff back!

However, the industry today is presented with a fresh set of challenges. The EU Green Deal, the pursuit of Net Zero, the circular economy etc. will inevitably cause the industry to rethink conventional business models, and the impact that this will have on chemical supply chains. Similarly, signals that globalization is slowing, and in some cases going into reverse will eventually impact supply chains, although as we reported in a recent article, these extended global supply chains with all the associated assets, contracts, and source and product qualifications have been established over many years and cannot be un-picked overnight.

But recycling initiatives are happening now!

Whereas previous recycling projects have had varying degrees of success, we are now witnessing more intense efforts, supported in some cases by regulation, to move the agenda forward. The Agilyx / Cyclyx alliance for polymer chemical recycling for example is gaining traction in terms of technology uptake as well as the number of producers joining. Cyclyx International has signed a MoU between the City of Houston, ExxonMobil, LyondellBasell, and FCC Environmental Services to form the Houston Recycling Collaboration with the intention increasing Houston’s rate of conventional as well as advanced plastics recycling.

This is a collaboration between government, industry, and the community. It is the first of its kind in the US, and likely to be the blueprint for similar initiatives, and not just in the US.

The fact that this is a local community initiative recognizes the reality of recycling ecosystems. The collection of the materials and return to the recycling plant has to be local in order to keep the logistics costs to a minimum. The solutions have to be scalable, but at the same time community focused, so finding that sweet spot will necessitate the development of new business models, challenging the innovative skills of the chemical industry, and its relative inexperience with returns.

At the same time we should consider including chemical distributors in this equation. Their business is by definition regional, with a strong logistics component featuring storage, break-bulk, packaging, and reverse logistics. So it seems reasonable to expect that they could be part of future collaborative recycling efforts.

For chemical industry supply chain managers these are exciting times, demanding vision and new skill-sets, an understanding of a new business model, and building relationships with completely different logistics partners. Perhaps they should take a leaf out of the e-retailers’ play-book and see if there are lessons to be learned from their experience…

By Paul Gooch. Paul Gooch is Managing Director of The Logical Group GmbH and a non-Executive Director of Borderless

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