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ANNUAL MEETING INTERCONTINENTAL HOTEL, MARRIOTT HOTEL, SOFITEL CHAIN BRIDGE HOTEL BUDAPEST, HUNGARY 6 –10 OCTOBER 2012

Talent and Technology   : Drivers of Innovation in the Chemical Industry Welcome address

Tom Crotty Director, Ineos Group EPCA President

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Welcoming delegates to the 46th Annual Meeting, Tom Crotty EPCA President and Ineos Group Director expressed his delight that so many delegates – over 2,600 – were in attendance and that EPCA had, once again, secured a distinguished panel of speakers to discuss talent and technology : drivers of innovation in the chemical industry. “This is my third and last year as President. I feel that you have put up with me long enough,” Crotty also joked. However, he described heading the EPCA as “a marvellous opportunity for me to represent an industry that I feel passionate about.”

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To ensure we have the right people for the future, we’ve got to ANNUAL MEETING enthuse young people throughout INTERCONTINENTAL HOTEL, Europe about science and MARRIOTT HOTEL, SOFITEL CHAIN BRIDGE HOTEL Crotty also took the opportunity to spotlight what he called “the great work engineering.

BUDAPEST, HUNGARY

That’s what inGenious is about : it’s a partnership between industry, national science platforms and ministries of education.

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going on with inGenious,” an organization represented at the conference with a stand, people and literature. “To ensure we have the right people for the future, we’ve got to enthuse young people throughout Europe about science and engineering.That’s what inGenious is about : it’s a partnership between industry, national science platforms and ministries of education.”

inGenious’s mission is to reinforce young Europeans’ interest in science and technology industry careers by influencing maths and science teaching, EPCA’s outgoing President explained. “That starts with getting involved with about 1,000 schools throughout Europe, to build strong links between young people, their schools and us – an industry that is a provider of what we believe are exciting and challenging careers. So do get involved,” he urged delegates. n

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ANNUAL MEETING INTERCONTINENTAL HOTEL, MARRIOTT HOTEL, SOFITEL CHAIN BRIDGE HOTEL BUDAPEST, HUNGARY 6 –10 OCTOBER 2012

DAY 1

DAY 2

General Business Sessions

Closing lunch

Official Opening and Introductory Petrochemical Industry Speech



Speeches



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• Tom Crotty, Director, Ineos Group, EPCA President— ——————— 1

•— Dr. Ajit Baron Shetty,

former Chairman of the Board, Janssen Pharmaceutica, former President Global Chemical Pharmaceutical Operations and Corporate Vice-President Enterprise Supply Chain, Johnson & Johnson— —————————— 6





•— Soumitra Dutta, Dean, Samuel Curtis — Johnson Graduate School of Management — Cornell University, Fellow of the World — Economic Forum——————————————— 9



• John Kao, Chairman, Institute for Large — Scale Innovation, past Chair of the World’s



— Economic Forum’s Global Advisory Council — on Innovation— ——————————————— 12

Panel Discussion _______________________ 14

“Talent, Technology and Sports. What Business can Learn from the 2012 Olympics and Paralympics”

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• RT Hon Lord Sebastian Coe KBE, Former Olympic Athlete, Politician and Chairman of the ANNUAL MEETING London Organising Committee of the Olympic INTERCONTINENTAL HOTEL, MARRIOTT HOTEL, SOFITEL CHAIN BRIDG and the Paralympic Games — ——————— 18 BUDAPEST, HUNGARY

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SU P P L Y C H A IN A ND LOGIS T I C S L E A D E RS B R E A K F A S T Geographical Scope, Technology, Sustainability, Complexity and Transparency in EPCA’s Supply Chain Spotlight Chairman : • Raf Bemelmans, Director Supply Chain Polymers Europe, Sabic Europe, Chairman EPCA Supply Chain Program Committee— —— 20

• Nadine Dereza, Moderator

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Evening Address

“What is it Going to Take to Be Successful”_ ______________________



Dr. Dambisa Moyo, Author & Economist

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The inGenious stand at the 46th EPCA Annual Meeting___________________________ 17

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Introductory Petrochemical Industry Speech Using Talent and Technology to Drive Chemical Industry Innovation and Keep Pace with Change Exploring the key theme of the conference, EPCA President Tom Crotty said : “Industries that fail to keep up with change simply fail. In the chemical industry we have shown that not only can we keep pace with change, we can – sometimes – do a pretty good job of anticipating it and driving it.We need to continue to do that if we are to thrive through the 21st Century.”

Tom Crotty Director, Ineos Group EPCA President

“We’ll need to get two interlinked things right : we have to innovate and continue to drive through those technological breakthroughs that meet the needs of an ever-changing world.To do that, we’ll need great people. Our ability to innovate is entirely dependent on and limited by the talents of our people.The combination of talent and technology is essential to ensure the future of the chemical industry in Europe and around the world.”

Moving on to the big issues that form the backdrop of today’s chemicals industry, Crotty noted that the last three EPCA Annual Meetings have looked at the challenges of population growth, sustainability, and at the global financial meltdown : demographics, ecology and economy. “We’re all aware of the challenges of a rising global population,” Crotty said. “Population growth is inexorable. At the time of the Black Death and Great Famine in 1350, there were 370 million people on the planet. It took almost 500 years until 1804 to get to 1 billion. It took another 123 years - to 1927 – to double to 2 billion, but then the pace picked up.We reached 3 billion by 1967, and 4 billion by 1974. Our population is now growing by a billion every 12-23 years, which gets us to 7 billion We have to innovate and continue to drive today, and the projections are that there will be 9 billion people on the through those technological breakthroughs that meet planet by 2050.”

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the needs of an ever-changing world. Our ability to innovate is entirely dependent on and limited by the talents of our people.

Some population growth is a consequence of the chemicals industry, Crotty continued. “Population increase is not just about a rising birth rate, it’s also down to longevity. And the chemical industry has probably done more than any other to improve the standard of living for human beings around the world, through making water safe to drink, food safer to eat, and providing medicines that prolong life.”

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“The challenge for our planet and our people is not just through the absolute number of people, it’s also about their distribution and aspirations.These extra 2 billion people by 2050 will be in the burgeoning economies of Africa and Asia and they will have aspirations the like of which we have never seen before.” “We live on a shrinking planet in terms of communication, and technology has liberated people from isolation and freed their minds to soar. Our new 2 billion will form part of a growing, aspirant global middle class.Why should their standard of living be any lower than someone living in New York or Hamburg ?”

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Crotty said he’d been struck by a picture that economist Jeffrey Sachs shared with EPCA in 2010, showing the distribution of world GDP over the past 500 years. “Until the industrial revolution, GDP was determined by population : the more people you had, the more wealth you created. Clearly, the industrial revolution turned that on its head and the technological advances developed in the West meant that this region dominated world GDP. But we’re now seeing signs of GDP reversing because technological advances are now being dispersed throughout the world. “

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“Now if that happens, over time we may well see a reversion to a situation where the regions with the biggest populations become much more dominant economic forces.” This is already becoming a reality in China, Crotty noted. Does this mean it will happen in India, and the countries of Africa ? Will there be a paradigm shift in world order ?

… the industry holds the key to resolving the twin challenges that face the world : how to meet the needs of a growing population while also reducing the impact of humankind on the ecology of a fragile earth.

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Moving onto ecology, the EPCA President said population growth brought new challenges. “We’re already living beyond our means and consuming the earth’s resources at a rate that is – in geological time – the blink of an eye. And the rate of that consumption is increasing.” In light of the current population growth dynamic, is the world facing a doom-laden future, Crotty wondered. Will there be shortages of food, fuel and water ? His belief is that the industry remains at the heart of the solution. “In the short term, we are already using our talents and technologies to husband those scarce resources. Our chemistry is allowing the world to light-weight cars and planes and drive up their fuel efficiency to In the short term, we are already using our ease the environmental burden. Our industry is already underpinning talents and technologies to husband those scare renewable energy resources, whether by providing the materials for solar cells, the lubricants for wind turbines or the technology to make resources. Our chemistry is allowing the world to fuels from waste. As we speak, Ineos is in the process of commissioning light-weight cars and planes and drive up their fuel the world’s first bio-refinery – we’re making bioethanol fuel from waste efficiency to ease the environmental burden. Our carbon. And similar technologies are being developed by the chemical industry is already underpinning renewable energy industry around the world.”

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resources, whether by providing the materials for solar cells, the lubricants for wind turbines or the technology to make fuels from waste.

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Crotty said the industry holds the key to resolving the twin challenges that face the world : how to meet the needs of a growing population while also reducing the impact of humankind on the ecology of a fragile earth. “As we look further into the future, who knows what we could achieve as an industry if we can truly harness the twin powers of talent and technology.”

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He cited several outcomes from the recent Cefic meeting as evidence of the industry’s response to these challenges : “A commitment to zero plastics in landfill by 2020, and the major new SPIRE initiative - a public-private partnership to establish sustainable process industry in the European Union through resource and energy efficiency. And longer term, the R&D challenge to develop pathways from sunlight straight through to feedstock and fuels.”

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Our industry has a huge opportunity to remain at the heart of global development, Crotty continued. It is also his belief that the European industry can lead that development. “This isn’t only important for the reasons I have described, but it is also important because of the third big issue we face : economic imperative.” While every generation thinks it is living in unprecedented times, we surely are, Crotty said. “The shock waves from the 2008/2009 crisis are still felt around the world. Banks that once were the source of risk finance for our industry are now more risk averse. Indeed the financial regulations put in place to prevent a repeat of that crisis are now institutionalizing risk aversion and caution. And governments throughout the developed world have debt levels of unprecedented scale as a result of repeated financial sector bailouts.These debt levels could be with us for generations,” he said. What’s more, governments grappling with these “politically impossible tasks” are telling people that vote for them that things will get worse before they get better, which just adds fuel to the fire of recession because it undermines public confidence, the EPCA President continued. “Nowhere is this more keenly felt than in Europe, where there is the added challenge of trying to manage a single currency influenced by a number of independent and economically disparate states.” Now the short-term effect on the European chemical industry is very real but also being well managed. Demand is depressed, but in Crotty’s view an increasingly sophisticated offer to customers by European producers has limited the impact. “There are other big signs of economic change for our industry on the horizon.The shale gas developments in the US have led to a truly astonishing renaissance in US petrochemicals with no fewer than eleven ethylene expansions now announced and a further seven being considered.This has also led to major falls in US gas prices and a shift in US global competitiveness, pushing it right up the scale of competitive industries.” This has implications for Europe’s chemical industry, he continued. “It’s too early to say how the search for novel gas is going to impact Europe. A number of countries, notably the UK and Poland, have made statements of government support for novel gas developments. In the mean time some arbitrage between the US and Europe seems inevitable. In fact Ineos has just announced long-term arrangements to bring US gas into Europe. But whatever happens, feedstock development will remain a major issue for this industry in the coming years – whether through novel gas or through bio- or waste-derived feedstock or through blue-sky developments like artificial photosynthesis.” Crotty reiterated his confidence in the future of the industry : “I really do believe we are a force for good in the world and that the world needs us to address these major global issues. Meeting the needs and aspirations of a growing world population in a way that is sustainable is a huge challenge. How can we provide food, water, shelter, transport and entertainment for 9 billion people without depleting the world’s resources ? The answer, of course, is by harnessing our talents and harnessing our technology. ” “As a child, I could not imagine that one day I would carry around in my pocket a device that would let me talk to anyone in the world at anytime, let me read any book in any language, or read any book ever written, or listen to any music that had ever been recorded, or watch any television programme I wanted, wake me in the morning, tell me where I am, where I need to be and how to get there.Tell me the share price of my company, a device that would let me publish my thoughts for anyone in the world to read. Of course, now everyone has such a device. It’s science fact, not science fiction.That’s technology enabled by our industry. So who knows what technology will have enabled by the time our children have grown and their talents are driving our technology forward.The future is indeed a place of wonder.” n

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Speeches Talent, Technology and Innovation : a View from the Healthcare and Pharmaceutical Sector Drawing on the experiences of a long career in the healthcare and pharmaceutical sector, Dr. Ajit Baron Shetty told the EPCA : “Innovation is the lifeblood of our industry : we live by it and die by the lack of it.” With the global population set to increase by 2 billion between now and Dr. Ajit Baron Shetty 2050, he said the challenge for the healthcare sector is to make medicines and improvements in the quality of life both affordable and accessible to everyone. To do this, Shetty said … Shetty focused on the importance of great healthcare companies “will look to people like you in the chemical industry, to harness both your talent and leadership and the need to nurture a dynamic, technology.” creative working environment to foster and drive a Shetty, who recently retired as Chairman of Janssen Pharmaceutica, also served as Vice-President, global enterprise supply chain for parent company, Johnson & Johnson. In 2007, he was given the title baron by Belgium’s King Albert II.

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culture of innovation within enterprises. He also acknowledged that the rising costs of developing new products and medicines is a challenge which today is increasingly being met through collaborative relationships with a wide range of partners with their own special talents and technologies.

In his address to the EPCA, Shetty focused on the importance of great leadership and the need to nurture a dynamic, creative working environment to foster and drive a culture of innovation within enterprises. He also acknowledged that the rising costs of developing new products and medicines is a challenge which today is increasingly being met through collaborative relationships with a wide range of partners with their own special talents and technologies.

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Shetty explained that today’s new drug development is both risky and very expensive. “Back in the 1970s, the cost of innovation for a new drug ran at about $200-300m.Today, it’s north of $2bn and estimates suggest that it will reach $3.3bn by 2015. But this rise cannot continue because US healthcare costs as a proportion of GDP costs are close … Shetty said his career at Janssen to 18%, and have to be brought under control.”

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Pharmaceutica gave him the opportunity to work Having worked for one of the world’s leading healthcare and pharmaceutical groups, Shetty readily under the guidance of Dr. Paul Janssen, who he recognized the contribution the chemical industry describes as probably the most prolific researcher makes to the sector as a key supplier and in pharmaceuticals that ever lived technological partner. From the materials used in replacement joints such as knees, to polymers for contact lenses, and intermediates for hair and skins products and for pharmaceuticals, the healthcare sector relies heavily on chemical products. For example, Johnson & Johnson probably spends up to $1.5bn a year on chemical industry products. “Healthcare is a huge and growing market for chemicals,” he said.

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Turning to his experiences of innovation, Shetty said his career at Janssen Pharmaceutica gave him the opportunity to work under the guidance of Dr. Paul Janssen, who he describes as “probably the most prolific researcher in pharmaceuticals that ever lived.” Twice nominated for a Nobel prize, Janssen had research interests ranging from schizophrenia, pain management and gastroenterology, to mycology, tropical diseases and HIV Aids. “We were very lucky to grow up under him.The company was both releasing talent and creating new technology under his leadership,” Shetty continued.

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From its early days, Janssen had focused heavily on research for the development of new drugs. When acquired by Johnson & Johnson, the new parent company sent a message that this focus would continue by naming its pharmaceutical division after Janssen. Recalling Paul Janssen’s leadership style, Shetty said “he always used to ask us : what’s new ? It may sound trite, but it sent a very powerful message. He was always interested to know what was new in everything, from research to every functional area of the business.” Paul Janssen’s management style “was based on motivation : on the carrot not the stick,” said Shetty. He described how a newly installed leader “tried to manage by hierarchy and fear, but only succeeded in destroying in a few months what took decades to build.” Under Paul Janssen, the company’s business was based on strong, empowered teams. “His door was always open if you needed advice, but people felt empowered to take responsibility and decisions. They felt they were running their own businesses, but everyone was also aligned to the business of improving healthcare and saving lives.We used to have a joke about the flat organizational structure : one horizontal line with a dot at the top – which was Dr. Janssen,” recalled Shetty. Shetty also urged managers to be visible. “Leaders who are visible, people in white coats and on the shop floor, asking questions and offering support, send signals to their organization that what people are doing is important.”

Paul Janssen was also keen to extend his business horizons from an early stage, and Shetty recalled how his boss had a vision about using tropical medicines to make a difference in places like China. He set up a young, high-potential team working in one of China’s emerging cities, and gave them the scope to be creative, Under Paul Janssen, the company’s business innovative and to make mistakes as long as it learned from them. was based on strong, empowered teams. His door “This business grew into one of the most successful joint ventures operating was always open if you needed advice, but people in China by the late 1990s and early 2000s,” the baron noted.

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Another important ingredient for innovation is passion, Shetty continued. This passion led Janssen to continually explore new ways to enhance pain control and eventually led – via collaboration with a California-based company – to a trans-dermal pain killer delivery system that provided constant levels of pain relief. “This trans-dermal delivery enabled us to transform a $100m brand into a $2bn brand and Johnson & Johnson’s fourth largest pharmaceutical product,” said the former Janssen Chairman.

felt empowered to take responsibility and decisions. They felt they were running their own businesses, but everyone was also aligned to the business of improving healthcare and saving lives

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While the health of any company is based on its product pipeline, it is also vital to focus on the talent pipeline. “We need talented people and talented leaders,” said Shetty. Managers need to undertake succession planning, to ensure their companies can operate on new and different technology platforms, and that leaders of the future can be even more effective than their predecessors. The former Janssen Chairman also urged his audience to focus on their customers. “Within Johnson & Johnson, the credo is that the company’s first responsibility is to the patient. In some companies, you see employees with faces to their bosses, not their customers. But Janssen constantly has patients and doctors coming through its doors.” These open doors are really important, Shetty noted. By welcoming in academia, doctors, patients, customers and suppliers, Janssen and Johnson & Johnson are able to build and maintain both product and people pipelines. Today, diversity has a huge part to play in any company’s development of talent, Shetty added. He recalled how “during the 1980s the product management team for women’s sanitary products was driven by men. But today, ¾ of consumer product purchasing decisions are made by women.

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We need more women in our companies, in our development teams.We need that gender difference and more ethnic diversity to better meet customers’ needs. And we also need more diversity of thought.We need our future managers to develop outside their comfort zones.”

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We need more women in our companies, in our development teams.We need that gender difference and more ethnic diversity to better meet customers’ needs. And we also need more diversity of thought.We need our future managers to develop outside their comfort zones.

Today’s healthcare sector is witnessing changing technologies, Shetty explained. We’re moving from product solutions to integrated therapeutic solutions, from chemical design to predictive models based on biology and biomarker technologies, and from internal industry discovery to innovations networks linking across companies and industries and with academia. Another feature of healthcare innovation is the emergence of convergent technology. Good example of these are the combination of a drug with a stent via coating technology, and the use of skin patches containing drugs that enable trans-dermal delivery of chronic pain relievers.

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In healthcare we are moving ... from internal industry discovery to innovations networks linking across companies and industries and with academia.

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Concluding, Ajit Shetty said it was also important to ensure companies employed the right enablers to support their enterprise operating models. Be decentralized to ensure end-to-end supply chain focus and a strong link with R&D and the business, while also standardizing to leverage scale and increase performance. Also use cross-cutting enablers such as performance management, IT, Finance & HR systems, good governance and structures, and nurture talent and capabilities. Finally, make sure people feel they are part of something great. In healthcare, foster a passion to not only improve lives, but also save lives. n

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Speeches Turning Innovation into Sustainable Profit

Academic, author and businessman, Soumitra Dutta, offered EPCA some thoughts on the importance of digitalization and social media technologies in innovation processes for businesses. He said industry needed to address three key challenges : close the technology gap; be open and work across boundaries; and balance learning with efficiency.

Soumitra Dutta

Dutta believes the chemical industry is “the sweet spot between the real world and real life, transforming resources into real products with real value for changing people’s lives.” His view is that innovation is at the heart of successful businesses and that the future looks extremely bright, especially for the chemical industry, which sits at the cusp of innovation. Currently Dean of the Samuel Curtis Johnson Graduate School of Management, Cornell University and fellow of the World Economic Forum, Dutta is an authority on all aspects of innovation in the knowledge … combining people with technology in economy. A prolific author, a recent work – Throwing the right way leads to innovation. But innovation sheep in the boardroom – highlights how online social in itself does not necessarily result in sustainable networking is transforming our personal lives, our organizations, and our behaviour as consumers and profit. Leadership is required to achieve citizens. Two of his recent collaborative studies – the sustainable profit. Global Innovation Index 2012 and The Global Information Technology Report – have looked at technology policies of different nations and tried to identify the most successful.

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“My core message,” Dutta told EPCA, “is that combining people with technology in the right way leads to innovation. But innovation in itself does not necessarily result in sustainable profit. Leadership is required to achieve sustainable profit.” Echoing Tom Crotty, he said, “Today, we have devices in our pockets that can do magic. Technology is about people. It has a human face, and has become an integral part of our daily lives.” For many people, now the first act of any day is to check their phones for messages and appointments, Dutta noted : “If you’re awake, you’re online.”

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Technology is also empowering people, a phenomenon particularly visible in many emerging markets because poverty is not just about lack of access to resources, it is also about lack of access to information, he said. “Today, the penetration of mobile phones into emerging markets is extensive, and we have stories of farmers using mobile phones to check the price of products before deciding when to sell.” Technology, said Dutta is Consumers are adopting technology faster helping people across the globe to access information and make decisions that increase their efficiency and and faster … organizations are now behind productivity and improve their lives.

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people when it comes to the adoption of

Technology is also helping us to connect with each other, technology. Dutta continued. This is bringing people together in new networks to create actions of different kinds. “In Estonia, about two years ago, people came together in a campaign to clean up the whole country. It was called Let’s do it. Essentially, over one weekend teams of volunteers went out and identified garbage dumps, then working together with civil authorities they came together a few weekends later to clean up.” This kind of social campaign enabled by technology is becoming increasingly common, he added. So in the face of these developments, what is the challenge facing industry ? “It is both very simple and very important. We all know that technology is progressing very rapidly, so we have to close the technology gap.”

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Consumers are adopting technology faster and faster, Dutta noted. For example, it took almost 90 years for fixed line telephones to reach a penetration of 150m households. Televisions took about 40 years to gain similar penetration, while mobile phones took 14 years, the iPod about 7 years, and Facebook around 5 years, he said. This means that organizations are now behind people when it comes to the adoption of technology : “Just compare what you can do with technology in the comfort of your own home and what you can do today in most office environments.” Our basic philosophy about technology needs to be re-thought, Dutta believes. For example, today, most management platforms and processes are built around emails. But the use of email is already declining amongst most young people. So if companies How can an organization adjust (from email see email volumes going up year after year, they are not in communication) to the new reality (of digital social what Dutta called “digital native space” but “are digital immigrants.” How can an organization adjust to this new reality if it media) if it doesn't have the right technology base to doesn’t have the right technology base to communicate with communicate with the young people who are its the young people who are its employees and with those employees and with those among its customer base ? among its customer base? “Close the technology gap,” Dutta "Close the technology gap" ... counselled. “If you don’t, you won’t be able to optimise the combination of talent and technology in your organization.”

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Connections are at the heart of how the world is changing and networks are redefining the world for us, Dutta said. “People are connecting, collaborating and creating, and there are all kinds of business models that are reflecting this development. For example, in 2009 the US Defense Department decided to celebrate the 40th anniversary of the internet by launching 10 red weather balloons.The department then issued an open national challenge to see if and how quickly anyone could identify the locations of these balloons. Despite being a virtual mathematical impossibility, the winning team from MIT provided the answer in about six hours by adopting the power of social networking.”

What’s interesting about this, Dutta explained, is that the same power of technology and collaboration could be used to identify a missing child, a terrorist, or any other object that could be found in the world around us. Netflix is another organization using the power of digital social media to transform its own business space, and – as Dutta pointed out – is well known for having destroyed Blockbuster. Netflix operates a subscription model that enables subscribers to rent – online and by post - as many videos as they want in return for a monthly fee. Despite employing many bright young people, Netflix struggled to find the best algorithm to predict the next high-demand movie. So Netflix launched a prize of $1m for anyone who could improve predictional algorithms. Tapping into external networks of trained mathematicians and scientists, Netflix found an algorithm that improved the accuracy of prediction by 50%, which translates into a lot of money.

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Clearly, responding to the challenge of being open and working across boundaries pays dividends … Working in formal silo structures – common in many companies – is far more restrictive and less creative and innovative than self-organized networks of people, which are not formally managed but are based on shared cultures and values.To leverage connectivity, it is essential that companies match their structures and processes with the outside world.

Many companies have been caught flat-footed by technology and networking, Dutta continued. For example, Bank of America was forced to withdraw a flat $5/month fee for customers using debit cards after a 20 year-old wrote a post on the change.org website complaining about these charges. In less than a week, 300,000 people had registered their support and Bank of America was forced to withdraw the charge, and other banks also withdrew charges to pre-empt and avoid similar campaigns. Clearly, responding to the challenge of being open and working across boundaries pays dividends, Dutta stated. Working in formal silo structures – common in many companies – is far more restrictive

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and less creative and innovative than self-organized networks of people, which are not formally managed but are based on shared cultures and values. To leverage connectivity, it is essential that companies match their structures and processes with the outside world. Turning to his third challenge, Dutta urged his audience to balance learning with efficiency. To illustrate this, he asked how many people wore watches, and how many used other devices to track time and date. Was anyone wearing a timing device anywhere other than on their wrists ? How many people did not have watches with round faces and two or three hands ? Why do all watches look so similar, he asked. Why has watch and clock design changed so little over many centuries ? Similarly, why do all cars essentially conform to a single dominant design ? Organizations are designed to support a certain focus, Dutta explained. For example, the most innovative period in the automotive sector was in the first 20 years of the last century, a period when horse carriages were overtaken by automobiles. There were 75 automobile makers in the US alone trying to identify what a car should look like. In the car industry a dominant design became accepted when in 1926 the Dodge car company introduced a four-wheel closed body design made of steel, We have wonderful with the driver sitting in front.

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organizations ... with management processes and incentives all Once a dominant design is accepted, there is usually a rapid consolidation in designed for execution.The challenge is to any industry and a period when typically the focus on experimentation and balance learning - exploration - with efficiency learning decreases and the focus shifts on to trying to make products as execution.The answer lies with leadership. cheaply and efficiently as possible. It’s a shift from exploration to execution,

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Dutta noted. “This is true for most sectors – from education to chemicals – which all have a predominant orientation towards a focus on efficiency. The fact is that our organizations are not structured to focus on big, breakthrough changes.” What are the big, breakthrough innovations that will be needed to meet the world’s future challenges, and are our organizations designed to deliver those innovations, Dutta asked. “We have wonderful organizations, wonderfully designed for execution not exploration.The focus and management processes and incentives are all designed for execution.The challenge is to balance learning – exploration – with efficiency – execution.” The answer, Dutta suggested, lies with leadership. n

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Speeches Defining and Adopting Appropriate Models for Innovation John Kao, Chairman of the Institute for Large Scale Innovation, and past Chair of the World Economic Forum’s Global Advisory Council on Innovation, explained that his aim was to try to sharpen understanding of the terms “innovation” and “creativity”, both of which – he claimed – are widely misunderstood and misused.

John Kao

“Once we’ve defined innovation, we can look at how to do it,” he began. Introduced by EPCA as “Mr. Creativity, a serial innovator, and the innovation Sherpa”, Kao is the founder of the i20 group, which is an association of innovation leaders from around the world. He has advised a wide range of organizations on innovation, counting the governments of Finland and Singapore and companies such as Nike, Intel and BASF among his clients. For EPCA delegates, Kao also solved a mystery : why was a grand piano sitting on the speakers’ stage ? As he soon revealed, Kao is an accomplished pianist and intended to play his beloved jazz music to illustrate his contentions. Kao said : “I’ve been in the innovation field for over 30 years, and still feel innovation is a poorly understood and misused word. I ‘Googled’ innovation and got 400m results this morning. It’s groaning with meaning. My aim today is to try to get a more nuanced definition of innovation because without this it’s hard to grasp how to get innovation done.” Adding that he hopes to infuse some enjoyment and some “aha!” moments, Kao seated himself at the piano, a page of sheet music projected onto the large screen behind him. “Sheet music tells you where to put your fingers on the keys, and often provides expression markings indicating where to play quickly, slowly, loudly or softly – or start loud and grow softer. Sheet music has asterisks indicating pedal use.”

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Playing the notes without expression, and according to the Innovation is a capability, not a wish. sheet music, Kao noted how flat and dry the tune sounded. Adding expression according to the instructions, Kao livened up the performance, but added : “Classical sheet music doesn’t support innovation and creativity. Bach was a very creative guy, but he wants you to play his music the way he created it, giving you no freedom to introduce new notes.“

By contrast, Kao noted : “Jazz starts with a tune, perhaps an old standard. But the job of jazz musicians is to go somewhere new with it, that hopefully sounds good. Jazz would say let me go to a place that’s shaped by the framework, but involves exploring new notes.” Accompanied by “robot” bass and drums, Kao then tinkled his way through an improvisation on a standard tune. “It’s hard to get into nightclub atmosphere at 9 am, but I‘m trying,” Kao joked. However, on a more serious note, Kao continued : “Unless someone’s been practicing in secret for 10 years, they’re not going to be able to just play jazz.What’s determinative is whether there is focal practice of core skills. So you need to ask : what’s the focal practice of innovation in your industry that will give you the basis on which to innovate ? Are they customer insight practices, insights into social networking, or linking innovation to strategy ? What are the concrete practices you have been focusing on that are like years spent practicing scales ? ” Kao said that Malcolm Gladwell “talks about the 10,000 hour rule to achieve mastery in something. What is it that your people have done for that period of time that leads to them having innovation capability ? This is the fundamental question about how to do innovation : the rest is about motivation.” Innovation is a capability, not a wish, Kao said. “Jazz musicians don’t get up on stage and wish to play.They don’t pray, they don’t rub chicken bones together. It’s a job.They get up on stage, they count off, play new notes.They have to sound good or people will not stay in the jazz club or buy the CD.” How should we define innovation ? It’s a challenge, because there are so many sub-definitions, said Kao.

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Ge neral Bu sin ess Se ssi ons “I always ask people : What do you mean by innovation ?” Kao then offered some clarity. “Reverse innovation is what is now happening in problem rich emerging societies, but this also has an economic value to the developed world. For example, why has GE got healthcare projects in rural India ? It’s because they may be poor there, but they’re problem rich. And if you develop an EKG machine that costs less than $1,000 and is hardy in a rural area of India, you’d have to be an idiot not to buy the same machine on Park Avenue or here in Budapest.”

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Open source innovation and digital innovation, which were both discussed by Soumitra Dutta in the previous presentation, means : “All of us may be smarter than some of us.There’s the whole notion that a societal brain is now being enabled by social media.” “Blame me for the term ‘large scale innovation’,” Kao continued. “However, I believe it’s important to look at innovation as a societal not just an enterprise phenomenon.There are 46 countries worth of national innovation officers in my group. Each one has a job making sure their country is competitive through innovation. But my first question is : what do you mean by innovation, because every country has a different view about what innovation is and how you get it?”

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All of us may be smarter than some of us. There's the whole notion that a societal brain is now being enabled by social media.

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User-centred innovation means putting the customer at the centre of design innovation, Kao continued. “Indigenous innovation ? This is China : a theory of innovation against which they are putting $0.5 trillion in real money, not slogans.” Another example is sustainability innovation. “This is how Nike talks about the merging of sustainability and innovation as the two corporate functions that now have to become one. So they don’t make a distinction between the two from an organizational perspective, which is an interesting and provocative way of reorganizing in an innovative way for innovation.” Kao also explored some other terms. “What is creativity ? We all have the ability to create new ideas, right ? Imagination is the ability to see things that do not exist.” However, innovation is not creativity, Kao explained. “Innovation is creativity that is applied to a purpose to create some value, and it’s not invention either.When Edison got the idea to make the first light bulb, he was an inventor. When his company sold lots of light bulbs, he was an innovator. Innovation is about changing the way things are done.”

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Innovation is about changing the way things are done.

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Kao said : “There is a lot of confusion about innovation and entrepreneurship. I advise governments where there is a department of innovation and a department of entrepreneurship and they don’t talk to one another because they think they are doing different things although they are really doing the same thing. Entrepreneurship is the process of pursuing opportunities without regard for the resources you have under management. Entrepreneurs are the people that make things happen. It could be making more McDonalds franchises happen.That’s not particularly creative but still illustrates the raw power to realise value.”

Kao said that he views the innovation process as the whole spectrum. “Idea generation, development, driving towards the finish line of value creation. Innovation has to have a purpose and be about something. Countries are not in the business of just making profits and EPS improvement and managerial bonuses.They’re in the business of providing for the welfare of citizens and pursuing the human adventure.” Innovation is complex, and Kao suggests it has gone through three different historical periods. Industrial innovation is about the industrial revolution, about mechanised production and efficiency. “We haven’t abandoned efficiency, we like that ! But we’ve had a period of high-tech innovation, which is about killer apps, venture capital, more joint ventures, and being part of ecosystems. Now we’re into an age of 3.0 human centred innovation and design thinking.This means using the skills of an anthropologist, observing behaviours and things that people can’t put into words about themselves. But it’s about much more than profit. Just like Government 2.0 is about a new relationship between government and the governed, human centred innovation puts human experience at the centre of innovation process” Kao says that innovation is more than the combination of technology and talent : “It’s also about process innovation, about business models.” Like jazz, Kao says innovation is about finding the “sweet spot”, and resolving creative tensions. “The sweet spot,” he suggested, lies “between the old familiar stuff and the new. Between sheet music and random notes, between top down versus bottom up, core and edge, legacy and possibility, evidence and intuition and between incremental and disruption.” n

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EPCA Monday Panel Discussion At the conclusion of the presentations, conference Chair Nadine Dereza led a panel discussion with the speakers. Noting that innovation needed to have a purpose, she suggested the catalyst for chemicals innovation is to respond to the global megatrends facing societies around the world. Dereza asked the speakers to define what they regarded as the big takeaway points about talent, technology and innovation.

Nadine Dereza, Moderator Tom Crotty : The big takeaway for me, which covers most industries not just chemicals, is that we are incredibly structured in the way we go about things, in our management styles. This is not allowing us to find the “sweet spot”, and it holds us back. So the challenge for us is : how can we free ourselves, and go back to that innocent mind that allows us to think differently.

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One formula that is often used in industry to

John Kao : One formula that is often used in accomplish things differently, is to create a hybrid industry to accomplish that, is to create a hybrid organization ..., a kind of company within a organization - aside from the concerns about efficiency, safety, product standards, etc. - a company, that is allowed to create an officially skunk-works, a kind of company within a company, sanctioned counter-culture where things can be that is allowed to create an officially sanctioned done differently. And there needs to be leadership counter-culture where things can be done to integrate these things from the top. differently. And there needs to be leadership to integrate these things from the top. It may well be John Kao that skunk-works is one half of one percent and everything else is operational, but without some kind of hybrid you are not going to get where you want to go.

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Nadine Dereza : We talked earlier about changing mindsets, and – for example - becoming partners rather than just suppliers. It’s interesting, because if you think of a car, 80% is from the chemicals … the chemicals industry can play a much world, and 90% of a mobile phone is as well. What bigger role in the future by partnering with is your perception of the chemicals industry ? healthcare in terms of innovation because a lot of Is it innovative ?

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the cost is in active ingredients.There is lots of

Ajit Shetty : There is no doubt in my mind available knowledge - and skill sets - in the that there is tremendous opportunity for the chemical industry. I showed you that the current chemicals industry that hasn't been released to its [healthcare] model is not really sustainable, and full potential to its customer base. that the chemicals industry can play a much bigger Dr. Ajit Baron Shetty role in the future by partnering with healthcare in terms of innovation because a lot of the cost is in active ingredients. How can you reduce the number of synthesis steps ? Collaboration through open platforms ? There is lots of available knowledge - and skill sets - in the chemicals industry that hasn’t been released to its full potential to its customer base. We need to be more aligned, and there are many more diseases to be addressed. We’ve already talked about open innovation, and we’re already using that in chemical manufacturing process where we call on chemists across the world to help us solve problems that we cannot solve alone. And we had a 30% success rate. So there’s no question that this whole area of collaboration has been underutilised.

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Soumitra Dutta : The chemical industry is very creative, but hasn’t generated the visibility for its actions that it perhaps could. So maybe the industry could take some lessons from Intel, which launched the “Intel Inside” campaign because people didn’t know what was inside the microprocessors within the computers they were buying. Similarly, people don’t know about the value being generated from within the chemical industry and that has to be brought out more visibly. …people don’t Nadine Dereza : We’ve seen many innovations over the years. Mobile telephone companies potentially becoming banks through the convergence of technology. Do we see any potential outside competitors coming into the space within which the chemicals industry operates?

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know about the value being generated from within the chemical industry and that has to be brought out more visibly.

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Soumitra Dutta

John Kao : One thing that is pretty evident if you adopt a life sciences perspective, is that there are a lot of amateurs that are now engaged in synthetic biology research in their basements.You can be a teenager and buy bio bricks from a commercial supplier and create new life forms in your basement. I don’t want to overstate this, but this idea of diversity isn’t just about putting a prize out to chemists or whoever, but rather saying you all have a stake in the chemical lifestyle, and if the tools for addressing some of the substitutes or new material science elements are now increasingly in the hacker world or the subject of college and high school science experiments, and chemistry is not so esoteric and with barriers to entry that you have to have billion dollar factories and 30 PhDs, then the playing field opens up dramatically. Ajit Shetty : A point I would like to add is about the question of role models. I think we have too few examples of role models, which also relates to visibility, which can encourage young people and release their imagination. Nadine Dereza : So does the chemical industry need some “rock star scientists” like the physicist Brian Cox who used to play in a rock band and has excited youthful imaginations ? Tom, could you be the rock star? Could we get a rock ‘n roll or jazz band from the industry ?

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…I think we have too few examples of role models, which also relates to visibility, which can encourage young people and release their imagination.

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Tom Crotty : I play, but not as well as John Kao ! But I think that’s right.Young people coming into our industry today do not come in for the same reasons as we did 30 years ago – the car, the salary, the pension. They come in because they want to do good. So role models would really help.

Dr. Ajit Baron Shetty

Nadine Dereza : Maybe we don’t understand what young people want today, but surely creativity and innovation need to be at the top of the management agenda to make sure this young and diverse voice is heard throughout the industry, and that products reflect the diversity of your customer base. Ajit Shetty : It is really important to have different ways of thinking wherever it comes from. You need to free your mind from all the shackles and get people who have no shackles to bring in new insights that can lead you to a new place. Nadine Dereza : If we are looking for examples, and I know one size doesn’t fit all, Singapore is often mentioned. John can you tell us why Singapore is different ? John Kao : Well, every country and example is different, so it is hard to generalize. But if you look at the Singapore story – basically going from a smelly fishing village to being a very sophisticated OECD level economy - there are a few temples : the primacy of education and technology at the highest levels of government. The joke is that Singapore is a venture fund

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masquerading as a country. They certainly run the country like a corporation. The council for innovation and science has a multibillion dollar budget and is attached to the Prime Minister. It is like the CEO having oversight. They have also created societal skunk-works called “One North” which contains the Singapore Biopolis – the life sciences city within a city – the Fusionopolis – the digital media platform – and soon there will be a materials’ science centre as well. Fusionopolis uses prizes to lever innovation. And I sat on a committee that has half a billion dollars to give away to someone with a digital media idea that could be commercially realisable in Singapore. Soumitra Dutta : Singapore is unique because it has a cultural competitive advantage, which is the ability to take people of different nationalities from different backcloths and to make them feel at home. To be able to take talent, and make them feel at home is vital today. I would argue that if you look at Asia, there is no other city like Singapore that acts as a home for talent.

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What is your definition of innovation and does it serve you well, and what are your focal practices in which you would like to invest in order to create those capabilities separate from management initiative to energize people more.

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John Kao

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I would go back to the challenge of balancing exploration with execution and efficiency, because both are important, and you have to design innovation into your organizations.

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Nadine Dereza : One last thought on best practice, Ajit ?

Soumitra Dutta

Ajit Shetty : I think the trans-dermal delivery example, where the customer and the supplier have collaborated to bring a completely new dimension to the management of pain. Where working together can create something that didn’t exist before. Nadine Dereza : Last thoughts ? John Kao : What is your definition of innovation and does it serve you well, and what are your focal practices in which you would like to invest in order to create those capabilities separate from management initiative to energize people more. Soumitra Dutta : I would go back to the challenge of balancing exploration with execution and efficiency, because both are important, and you have to design innovation into your organizations.

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There is a tremendous opportunity for collaboration, and if we can take it to a new dimension we can unleash a lot of new opportunities.

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Dr. Ajit Baron Shetty

Ajit Shetty : There’s a tremendous opportunity for collaboration, and if we can take it to a new dimension we can unleash a lot of new opportunities. n

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Evening Address “What is it Going to Take to Be Successful” During the EPCA press conference that preceded her speech at the 2012 EPCA Annual Meeting, Dr. Dambisa Moyo shared the following observations with the journalists.

Dr. Dambisa Moyo addressed the issue of China’s need for access to resources / commodities. She explained how fundamental global supply (scarce, finite and depleting Dr. Dambisa Moyo, supplies of water, arable land, energy and minerals) and demand (population growth, rapid Author & Economist wealth increases and urbanisation) imbalances were driving global commodity prices higher and increased the likelihood of conflicts around the world. Despite the significant risks of higher commodity prices, the incidence of conflict and the declines in living standards, Dr. Moyo wondered why there exists no international body whose sole mandate was to focus on the threats of resource scarcity and the global challenge that commodities pose. Dr. Moyo pointed to many positive attributes of China’s global resource campaign despite negative reporting on labour laws and environmental issues. Across the emerging world (South America, Africa, Middle East, Asia), for example, where up to 70 percent of the population is under the age of 25 years old, China’s investment and foreign policy, was broadly welcomed as it fostered trade, helped create jobs and offered much needed infrastructure investment. Dr. Moyo cautioned that in the current stressful economic times (particularly in the developed economies) protectionism was prominent on policymaking agendas, with governments increasingly pursuing national interests over cross-border co-operation. Moreover, in the current circumstances with high unemployment, the notions of free market and corporate capitalism risked being less popular. Regarding the job markets, Dr. Moyo referred to an ILO report that says that over 80 million young people between 18-25 are unemployed around the world. Dr. Moyo pointed to the need that in an age of technology and robotics, young people need to develop their technical skills in order to be globally competitive. n

The inGenious stand at the 46th EPCA Annual Meeting EPCA is an Associate Partner to inGenious inGenious’ mission is to reinforce young European’s interest in science and technology industry careers by influencing science, technology, engineering and math education.

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Talent, Technology and Sports. What Business can Learn from the 2012 Olympics and Paralympics The Chemicals sector helped make 2012 Olympics and Paralympics a huge success, Chair of London Organizing Committee tells EPCA.

Rt. Hon. Lord Sebastian Coe

EPCA 2012’s Closing Lunch speaker was the Rt. Hon. Lord Sebastian Coe, the Chair of the London Organising Committee for the 2012 Olympic and Paralympic Games. A double Gold Medal-winning former athlete, Seb Coe is the only person to have retained – in 1980 and 1984 - consecutive Men’s Olympic titles for 1500m. From 1981-1997, he was the Men’s 800m world record holder. After retiring from competitive athletics, Coe was elected as a Conservative Member of the UK Parliament, The delivery of an Olympic and Paralympic becoming a government minister. Subsequently, he was made a life Games is the most difficult project any city can peer. Lord Coe headed London’s successful bid to stage the implement … Without the chemical industry, Olympics, and is a Vice-President of the International Association of Athletics Federations. it wouldn't have happened.

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Fresh from his role overseeing “the greatest show on earth”, Lord Sebastian Coe told EPCA 2012 that the chemical industry deserved thanks for helping to make this summer’s London Olympic Games a success.

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“The delivery of an Olympic and Paralympic Games is the most difficult project any city can implement,” he said. “Without your industry, it wouldn’t have happened.” In addition to providing sponsorship and wide-ranging expertise on issues ranging from management to cultural values, Coe said, the chemical industry also gave this sporting extravaganza an array of products that helped transform the London Olympics and Paralympics infrastructure as well as the participants’ equipment and their sporting achievements. From surfaces and coatings and materials used in buildings, to equipment ranging from running shoes, rowing and sailing boats to almost every part of racing bikes, the chemical industry’s products were ubiquitous, the Chair of the London Organising Committee of the Olympic Games and Paralympic Games (LOCOG) said. Furthermore, Coe also acknowledged the role the sector – represented by companies such as games sponsors Dow Chemicals and BP – had played in helping to put sustainability at the heart of this global sporting and cultural festival.

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Lord Coe acknowledged the role the chemical sector ... had played in helping to put sustainability at the heart of the 2012 Olympics and Paralympics, the global sporting and cultural festival.

“We had to do things differently,” Coe continued. “People were asking : are you going to do it responsibly ? Are you going to deliver it sustainably ?” This impacted every aspect of the games from food to energy. It also meant London needed to become the public transport games for spectator access, with low emission transportation for athletes and officials, sustainable buildings, and social and economic transformation. The chemicals industry played a key role in making these aims achievable, he noted. Coe also acknowledged the industry’s great contribution to sport. Using cycling as an example,

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he pointed to Great Britain’s 7 Olympic cycling Golds : “Chemicals were at the heart of this sport.Whether it was the nature and weight of the machinery, the materials used in the helmets, in gear shifts, wheels and spokes, and the materials that the cyclists were wearing.” Recalling the Olympic bid process, the LOCOG Chair said that when he joined “the great race” in 2004, London was one of nine major global cities vying to stage the games. “Many people felt it was a two-horse race between Paris and Madrid.” However, London eventually triumphed by offering the right type of games with an appropriate legacy at the right time, including an array of sporting, cultural, social and economic features, which helped win the judges support. Coe said his own sporting journey was a history of surprises throughout which “I learned many lessons from losing that helped define my athletics career.” To succeed, it is necessary to learn from mistakes, learn from the best, to challenge orthodoxy, and do things differently, he said. “You have to define what you know and what you don’t know, then try to fill the gaps in your knowledge. And be creative and innovative.” These were the guiding principles that had helped Coe, backed by an outstanding coaching team including his father, win medals and break world records.

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People were asking : are you going to do it responsibly ? Are you going to deliver it sustainably ? This impacted every aspect of the games from food to energy. It also meant London needed to become the public transport games for spectator access, with low emission transportation for athletes and officials, sustainable buildings, and social and economic transformation.The chemical industry played a key role in making these aims achievable.

In marketing terms, the Olympics challenge was to make track and field sports attractive to a younger audience. Coe pointed out that at the pre-games, the average age of the UK track and field sports spectator was 56. London 2012 needed to connect with a new and younger generation, and get them attracted to and excited about sport.

But to make the connection, it is essential “to use language and technology that young people understand.” Old media don’t work. Today, there are 3 billion people under 25, and they are online, Coe said. “Texting is the new talking and tweeting is the new channel,” said the double Olympic 1500m gold medal winner. “Today’s youth may be highly individual, but they are also engaged through collaborative networks.” For the 2012 Games, LOCOG strived to create a “global conversation around London” that would engage young people.

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Summing up London’s Olympic Games success, Lord Coe said there were five keys to its delivery. “First, understand why you are doing this before trying to decide how you are going to do this. It’s important to articulate this inter… to make the connection, it is essential to nally first, then do so externally.” Focus on use language and technology that young people proportionality : “Understand and define what’s understand. … Today, there are 3 billion people important and what’s not. Prioritize!” Communicate, and do it all the time : be transparent, and explain under 25, and they are online, … Today’s youth why and how things are being implemented. may be highly individual, but they are also engaged As Abraham Lincoln (Coe’s political hero) through collaborative networks. For the 2012 suggested : without public support you will fail. Olympics, LOCOG strived to create a “global With public support you cannot fail. Finally, know who your real friends are (by separating good conversation around London” that would engage friends from bad friends and identifying your avowed young people. enemies), and make sure everyone has fun and that there is lots of laughter.

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Looking ahead to the Rio Olympic and Paralympics Games in 2016, Coe explained that today’s Games are not organized in a vacuum, and that the most recent games have all benefited from the extensive experience handed on from those most recent hosts, including cities such as Sydney, Athens and Beijing. “We are already working with the people responsible for Rio, and I have no doubt they will deliver a different and very successful Games,” said Coe. n

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Geographical Scope, Technology, Sustainability, Complexity and Transparency in EPCA’s Supply Chain Spotlight Chairman : Raf Bemelmans, Director Supply Chain Polymers Europe, Sabic Europe, Chairman EPCA Supply Chain Program Committee

Despite the early hour, and the lingering legacy of the EPCA Happy Hour still evident on many faces, some 60 dedicated and enthusiastic supply chain and logistics representatives from producers and logistics service providers alike gathered on the morning of October 9, 2012 for the Supply Chain and Logistics Leaders Breakfast. This popular event has become a regular feature of the EPCA Annual Meeting agenda and is seen as a welcome opportunity to debate the issues facing the industry in a relaxed and informal environment. Nourished and fortified by the rich and extensive EPCA breakfast buffet, the delegates settled down to a thought-provoking introduction from the Chairman of the EPCA Supply Chain Program Committee, Raf Bemelmans. Consistent with the Annual Meeting theme of leveraging talent and technology to drive innovation, Raf explained that this year’s breakfast meeting would focus on the breakthroughs and progress that the industry is making, the challenges which will be faced in the near future, and the reasons why in some respects we are still “off the pace” in terms of innovative supply chain progress. The program would include a film from Cap Gemini on supply chain challenges to 2016, as well as a review of the Gartner Supply Chain Top 25, which would whet the delegates’ appetite for the round table discussions. However, before getting to the meat of the session, Raf briefly reminded the delegates of the recent EPCA initiatives resulting from the Supply Chain Workshops in Frankfurt and Brussels, and the Breakfast meeting from 2011. These initiatives are being addressed by three EPCA Supply Chain Work Groups, focusing on: WG1 - Global and more Complex Supply Chains WG2 - New Technology as an enabler of Sustainable Chemical Supply Chains, and WG3 - Transparency and Openness in Chemical Supply Chains The plan is for these Work Groups to complete the written report in time for the EPCA Annual Meeting 2013, and the results will be presented at a special supply chain business session in Berlin on Tuesday morning 8 October next year, replacing in 2013 the current Leaders’ Breakfast. Raf confirmed that theme of collaboration and cooperation continues to have difficulty in gaining traction in WG3, and wondered if instead the focus should be on “pro-competitiveness”.

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Returning to the Breakfast theme of innovation, the Cap Gemini film on “Future Supply Chain 2016 – Serving Customers in a Sustainable way” was shown to the audience. Although the film focuses on the retail industry and retail customers, Raf summarized three key themes and messages, which also have relevance for the chemical industry : 1. The Challenges of oil price, urban and other regulatory issues, and sustainable total supply chains will clearly have a direct bearing on the chemical industry 2. There will need to be Breakthroughs in both financial and environmental performance, and a move away from the historical supply chain models to incorporating information in innovative and efficient supply chains (actionable visibility), and 3. Recognizing that no one enterprise controls a whole supply chain, and therefore Collaboration will be essential between suppliers, manufacturers and customers to reduce complexity and improve efficiency. Raf then introduced the Gartner Supply Chain Top 25 report for 2012, a study and publication new to many in the audience. The Gartner study surveyed 298 global companies with sales in excess of $10 billion (so including many chemical companies). It explores how companies are moving from “Supply Chain to a given demand point” to a “Demand-driven Value Network”, integrating demand, supply, and product, whilst ensuring a continued profitable response to demand. Companies are positioned in terms of their degree of Innovative Excellence (time to value, return on R&D) measured against Operational Excellence (perfect order and supply chain costs). 50% of the score is based on historical value performance (RoA, Inventory Turns, Revenue Growth), and 50% on future potential based on peer opinion of companies demonstrating leadership towards a demand-driven ideal.

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… the Gartner Supply Chain Top 25 report for 2012… surveyed 298 global companies with sales in excess of $10 billion. … Companies are positioned in terms of their degree of Innovative Excellence measured against Operational Excellence. … There are several key chemical customers in the Top 25 …, but significantly no chemical companies.

There are several key chemical customers in the Top 25 (e.g. Procter & Gamble, Unilever, Johnson & Johnson, and Kimberley-Clark), but significantly no chemical companies. Raf reminded the audience that there have been numerous EPCA initiatives including the 2004 study on Supply Chain Excellence in the European Chemical Industry, The Power of Supply Chain Collaboration in 2005, and Supply Chain Collaboration and Competition in and between Europe’s Chemical Clusters in 2007, all of which have identified opportunities which could have helped companies to position themselves as exponents of supply chain best practice. Metrics such as innovative and operational excellence, as well as RoA, inventory turns and revenue growth are clearly of major importance to the chemical industry, but it seems we are not in the leading pack when it comes to delivering on those parameters.

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So before breaking out into round table discussions, Raf left the audience with four questions: - Why is the chemical industry not making progress with regard to collaboration, or is the progress simply not being recognized ? - Are we listening to our customers ? - What are we doing to develop demand driven value networks, collaborating with suppliers and customers ? - Where does sustainability fit into supply chain strategy, particularly the environmental and social aspects ?

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The discussion tables then turned their attention to a series of questions presented by the table chairmen. There was a general consensus that although the industry is making progress, real breakthrough or paradigm shifts are not happening in chemical supply chain. There are examples of enhanced electronic connectivity between producers and LSPs, vertical and horizontal collaboration, increased awareness of sustainability generated in part by pressures from our customers, and some infrastructure improvements. However, the focus is still on internal costs, driven by the capital intensive nature of the business, and with a relatively short-term horizon. Following the financial crisis the industry is generally operating with lower inventory levels (especially at the customer) which are creating There was a general consensus that although the increased supply chain volatility and stress levels in the system, industry is making progress, real breakthrough or which tends to exacerbate “short-termism”. There are positive signals that some companies are starting to address the critical paradigm shifts are not happening. decoupling point between push and pull, and there is evidence of supply chain being increasingly seen as an integrated function. Overall however the results were seen as disappointing.

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The discussion on the relevance of the Gartner Study for the chemical industry generated a wide range of views and comment. There was a strong body of opinion which believed that it was less than relevant; chemicals cannot be compared with FMCG (fast moving consumer goods). The value drivers in the retail industry are different from those in chemicals. It was felt that FMCG companies have better customer information than the supply chain practitioners in the chemical industry. FMCG brands were perceived to have a more stable customer base, and it was supposed that through long-term contracts partners in FMCG brands can engage in more constructive collaboration. On the other hand, the view was also expressed that as demanddriven supply chains will become prevalent the Gartner study should be a wake-up call and inspiration for the chemical industry. There was also the feeling that the Top 25 companies can drive large fluctuations in demand … the Gartner study should be a wake-up call for chemicals, and therefore there is a strong motivation to inspiration for the chemical industry.There was network and collaborate with some of these companies.

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also the feeling that the Top 25 companies can drive large fluctuations in demand for chemicals, and therefore there is a strong motivation to network and collaborate with some of these companies.

In answer to the question if customers (of the chemical industry) are changing demands on suppliers, there was a strong view that one size does not fit all. There is a need to distinguish between base chemicals and specialties, and between make to stock/ forecast and make to order business models. There is more collaboration with suppliers, but one table felt that access to customers is often limited by the protective nature of the producers’ sales organisations, despite increasing demand variability and the difficulty in managing the trade-off between stock-outs and excess inventory. Flexibility and supply security are critical for customers, but as long as Supply Chain is viewed as a cost factor, and not a differentiator, opportunities to collaborate with customers and to optimize the total, end-to-end supply chain will be rare. Lack of coordination on inbound and outbound flows is also creating sub-optimal use of logistics assets.

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In view of these comments it was no surprise that evidence of sophisticated relationships between producers, and customers and suppliers was in short supply. The chemical industry still appears in many respects to be a traditional and conservative industry, and continuing cost pressure and short-term, opportunistic commodity strategies were seen as barriers to open information exchange and collaboration. If the value of supply chain collaboration is not transparent and visible, then successful collaborative initiatives will be rare. Apart from some very

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S UPPLY CHAIN AND L OGISTICS L E ADE RS BREAKFAST – O R FOOD FO R THOU GHT selective examples (e.g.VMI, LSP panels, e-tools for control towers and dashboards, and customer in-plants) there was not much to take away, although there are likely to be some company specific developments which did not surface during the discussions.

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… evidence of sophisticated relationships between producers, and customers and suppliers was in short supply.The chemical industry still appears in many respects to be a traditional and conservative industry, and continuing cost pressure and short-term, opportunistic commodity strategies were seen as barriers to open information exchange and collaboration.

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Nevertheless, after the inventory depletion and demand destruction in 2008/9, is the industry now better placed to respond to demand volatility and variability ? Necessity is the mother of invention, and a number of tables confirmed that, as a result of the crisis, degrees of manufacturing flexibility have been discovered which had not been apparent before. There is evidence of investment in cluster infrastructure, with ports taking a leading role. However, it seems there is an increasing trend to holding stock in railcars, isotanks and IBCs, and therefore increased storage flexibility will be required. There is more awareness of risk, and cost pressure, and this has led to improved forecasting and more supply chain transparency. There is evidence that LSPs are managing fixed and variable costs more effectively and consequently having more … one continuing concern expressed is the operational flexibility. However, on the other hand higher volatility can constant change in the organisation and loss of also drive short-term design of activities, and the availability of timely expertise and experience.When the next financial information has not necessarily kept pace. And one continuing concern expressed is the constant change of staff in the organisation and loss of crisis arrives … will there be human resources in expertise and experience. When the next financial crisis arrives place who know how to respond. (is it every 7 years ?) will there be human resources in place who know how to respond ?

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Finally, the table discussions turned their attention to sustainability and how this fits into Supply Chain strategy. One table felt strongly that sustainability is a discussion point, NOT a decision point. If you’re not sustainable, you’re out of business. It is a given, not a differentiator, so it will be increasingly built into Supply Chain strategy over time. The social acceptance of the industry is at stake, and this implies more than just being environmentally responsible. There was also a strong case made on several tables that Supply Chain sustainability means less waste (e.g. reducing empty miles), and was described as the bi-product, or Yin Yang, of cost efficiency. There was a broad consensus on the view that sustainability still lacks clear targets and this is reflected today in soft KPIs. One view was that sustainability and end-consumer pressure will eventually help to drive investment decisions, new customer approaches, and modal shift, although today the latter is often seen as a function of cost pressure. In conclusion, Raf Bemelmans thanked the participants for their contribution and advised that the various table inputs would be reviewed and a summary of the discussions circulated shortly. The suggestions for future topics would be reviewed by the Supply Chain Program Committee. n

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There was a broad consensus on the view that sustainability still lacks clear targets and this is reflected today in soft KPIs. One view was that sustainability and end-consumer pressure will eventually help to drive investment decisions, new customer approaches, and modal shift, although today the latter is often seen as a function of cost pressure.

EPCA 46th Annual Meeting

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Contact details a.i.s.b.l. The European Petrochemical Association i.v.z.w. Avenue de Tervueren 270 Tervurenlaan B-1150 Brussels-Belgium T + 32 (0)2 741 86 60 F + 32 (0)2 741 86 80

© EPCA, 2012

EPCA

The European Petrochemical Association (EPCA) is a Brussels-based chemical industry-led international non-profit association. As legitimate network and platform to meet, communicate, exchange of information as well as transfer of learning for more than 650 international member companies, EPCA operates for and through its members. These are chemical producers, their service providers, their customers and their suppliers. With more than 45 years’ experience, EPCA is a service provider for its member companies. EPCA organizes meetings, seminars, workshops and think tanks for its members and stakeholders. Purpose of these activities is to open debate to the long term sustainable development of the petrochemical industry all over the world and to contribute to the improvement of the public image of the chemical industry. EPCA meeting venues are located in Europe. EPCA also supplies meeting facilities in the format the chemical business community needs and appreciates. Given its large and global membership base, EPCA has never been, nor intended to be, a lobbying organization. As such EPCA does not have any international or national federations or associations in its membership.

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