Trailblazing Transformation: The Journey to Next Generation Procurement
The Imperative for Futureproofing
The petrochemical industry is indisputably important to the global economy and its presence is ubiquitous in modern life. Beyond fueling cars and packaging goods, chemicals and polymers produce some of the most diverse end-products of any industry, including fuel, cosmetics, textiles, automotive parts and more. While a diversity of products spells out good news for long-term growth trajectories, it also provides insight into the vast complexity of the industry.
Complexity is only increasing as markets shift, with major disruptions to demand and customer expectations (Figure 1). Add on the deep impact suffered from the economic slowdown in 2020, which created additional strains from lower utilization, material shortages and hits on margin, and it comes as no surprise that petrochemical companies are looking for new ways to drive value and find competitive advantage. Futureproofing against these changes and adapting to complexity enables companies to build momentum and ensure resilience instead of falling behind.
Unlocking Value Beyond the Traditional
LyondellBasell executive Allen Yu describes his experience in the petrochemical industry, what the company aspired to do through transformation and the solution Aligned Automation built.
Why now? 5 ways the petrochemical market is changing
Petrochemical companies, like many industries, should consider the five following market priorities when evaluating their business strategy.
There is no better way to futureproof against market changes and drive competitive advantage than successful digitalization, which also serves as a foundational measure of resilience against market shifts.
Consider the coronavirus pandemic: while COVID-19 accelerated digital adoption across the board, companies that had already integrated digital technologies in their organizations more readily weathered the downturn. Many are embracing artificial intelligence and other tools to predict and respond quickly to demand and price fluctuations, streamline sustainability initiatives and adapt quickly to new protocols. These technologies play a critical role in building momentum and resiliency. The following provides a roadmap and real-world example for organizations to embrace the benefits of digital transformation.
Gain long-term competitive advantage with a successful digital procurement strategy
One area ripe for digital transformation in petrochemical companies is procurement. Handling the complexities of global market shifts is a demanding task felt acutely throughout the supply chain. An effectively executed digital procurement strategy will increase flexibility and the ability to adapt while unlocking new value streams by, for example, improving response time to price fluctuations or increasing the efficiency of the workforce. It has the potential to make a rapid, dramatic impact, helping teams procure materials from a volatile market or streamline transportation as goods move from pipelines to railroads to ships and beyond.
Landing on a clear digital procurement strategy is a top challenge for Chief Procurement Officers. Not only do they need to deliver on sourcing-specific cost savings, manage demand, equip manufacturing, manage suppliers, mitigate risks and extend business impact, but they need to do so while coaching their teams through new processes, strategically automating activities and shifting attention to higher value work. And they must look to “futureproof,” reducing risk now with an eye towards future challenges.
Add digital capabilities for a streamlined Next Generation procurement strategy
Many legacy structures have risks associated with multiple point solutions, dependence on human communication and bottlenecked processes. As a result, traditional models often have gaps such as a less integrated end-to-end value chain, fragmented internal processes and controllership issues with external entities including suppliers and customers. These gaps impact the bottom line, leading to service level issues, lower revenues and lower margins.
Next Generation Procurement fills the gaps and captures the otherwise lost value by integrating the end-to-end value chain, unifying internal processes, mitigating supplier risk and offering better foresight and control on the market. Execution of a successful procurement strategy requires maximizing the use of today’s digital tools, innovating for the future, providing deeper, more enriching connections across the value chain and embracing an organization-wide mental and cultural shift to digital thinking.
As globalized supply chains move toward fully integrated end-to-end digital networks, smart systems powered by artificial intelligence, data science, automation, machine learning and other digital technologies can mitigate risks by providing visibility into every step of the process. One company that has executed this successfully is LyondellBasell, which underwent a massive transformation of its procurement strategy and embraced a digital mindset that enabled the workforce, leveraged procurement strategically across the company, opened the door to innovation and unlocked over $100M in trapped value.
LyondellBasell’s Journey to Strategic Digital Procurement
LyondellBasell has a history of consistently distinguishing themselves in a consolidated petrochemical manufacturing industry by embracing new strategies and sources of value that have shaped the industry as it is known today. Their next frontier? Building a Next Generation Procurement organization that not only procures better but also shapes outcomes and benefits that reach value beyond traditional procurement.
Anup Sharma, LyondellBasell’s Senior Vice President of Global Business Services, and Allen Yu, VP Asia Pacific Region and former Chief Procurement Officer, collaborated on outlining key questions and priorities for success to implement a digital, customer-first approach (Figure 2).
Priorities for success
The organization defined five key priorities for successful execution of the nerve center. The challenge was clear: go beyond an off-the-shelf supplier relationship management solution. Build something more efficient than automated procure-to-pay processes and more insightful than typical analytics and reports. It needed to be predictive, prescriptive and a place where leaders could drive and track projects that would search out and find unexpected areas of cost savings or margin realization.
LyondellBasell envisioned a solution more akin to a centralized, holistic nerve center that would control the procurement body and help it interact cross-functionally. The integrated system would capture, create and monitor procurement initiatives and add value throughout the procurement processes. Yu emphasized finding a partner that had the right digital skillset, had an agile approach and could demonstrate a commitment to accomplishing LyondellBasell’s bold vision.
How LyondellBasell chose a partner to enable speed and momentum in digital transformation
Executing a Next Generation Procurement strategy requires a bold mindset shift from legacy practices. LyondellBasell’s procurement knowledge and experience combined with Aligned Automation’s domain expertise and application of proven change management frameworks allowed the teams to formulate an innovative approach that achieved desired outcomes quickly and also scaled to capture additional opportunities.
To navigate potentially complex implementation challenges, the Aligned Automation team supported the LyondellBasell procurement team in their effort to break down silos, create excitement and encourage adoption of new solutions. Simultaneously, the joint team managed the gravitational pull-back of legacy practices. Through collaboration with Aligned Automation, the procurement team implemented a modular, sprint-based approach to transformation. To facilitate LyondellBasell’s strategy, Aligned Automation enabled a Nerve Center to connect and enrich data systems, provide insightful analytics and coordinate critical stakeholders and functions (Figure 3). In practice, this simplified internal structure permits more integrated business planning and operations.
A Vision for Next Generation Procurement
LyondellBasell sought to align critical stakeholders and functions. Aligned Automation offered the capabilities and partnership necessary to make the abstract vision and outcomes a reality. In addition to technical capability, the team established an enhanced clarity on desired outcomes, a nimble approach to operations and the change management expertise necessary to run the last mile and embed the solution in the core operating layer.
5 Priorities of Successful Transformation
1. Encourage innovation and pioneering solutions
An agile sprint methodology enables timely deployment through low overhead, high collaboration and modular implementation.
Shifting LyondellBasell’s entire organization to a visionary, digital mindset required teams to execute new ideas and become comfortable with being uncomfortable. Discomfort proved worthwhile with the forward momentum experienced quarter-on-quarter using an agile-inspired methodology, called “Fast 90”. This structure, adopted, customized, and renamed “Advancing 90” by LyondellBasell, assigns teams to solve modular-based projects in quick sprints. It encouraged bold experimentation and allowed for rapid adjustments before rolling solutions out broadly. “Speed is the differentiator,” Yu said. “Aligned Automation provided less friction, more flexibility and more comfort with experimentation than the majority of vendors could offer. If you have to map out everything from start to finish, it’s likely that, by the time you finish the project, the scene has changed, and your solution is no longer relevant.”
Aligned Automation begins with a collaborative diagnostic process to assess digital vision, business strategy, and annual goals against the current state of technology, processes, data and analytics infrastructure, capabilities and resources. Curated data is used to develop a modular implementation plan. Each module is outcome-based, designed to deliver measurable results and forward momentum every 90 days. This plan breaks down the digitization of enterprise operations in fundamental, sequential and manageable building blocks tailored to the business needs and optimized for existing technology constraints.
2. Unlock trapped value
The Nerve Center gains insight and efficiency between the seams by uniting functions and processes.
LyondellBasell and Aligned Automation sought to improve procurement and better manage initiatives through a Nerve Center, which offers a breakthrough in the approach by streamlining the procure-to-pay process, connecting data and systems and driving key value capture initiatives. Built on a tapestry of connected data, enriched analytics and reengineered processes, and powered by ML and AI, the Nerve Center serves as a single source of truth for insights and risk mitigation, sensing upcoming shocks earlier, reimagining operating models and enabling improved decisions making.
With rapid access to advanced analytics, previously siloed functions are unified, and insight is gained into how the functions influence each other. The result is value unlocked across the organization. “There is value, beyond the traditional, trapped in the seams between processes and projects. Aligned Automation proved they could connect the dots to access it,” said Yu.
Yu challenged LyondellBasell procurement and Aligned Automation to get creative and see if there was other value they could deliver. Accelerating solutions for supplier relationship management, flare optimization analytics, regulatory compliance, data quality and future carbon credit modeling, to name a few, the joint team captured, reported and managed that value inside the Nerve Center.
Sitting on LyondellBasell’s existing data platforms, the Nerve Center pulls data from multiple internal and external sources to ensure an accurate global, end-to-end view that can be shared and reinforced with relevant stakeholders. From procurement category specialists to C-level executives, LyondellBasell now has access to analytics for improved decision-making and measurable KPI performance.
3. Remove friction across the value chain
Flexible managed services reduce friction and provide a deeper understanding of the end-to-end value chain.
Aligned Automation embedded a Center of Excellence team to streamline practices and drive efficiencies along the value chain. These Aligned Automation consultants – an extension of the primary procurement organization – use the connected Nerve Center to drive initiatives; manage, monitor and connect data; drive value capture initiatives; and enhance supplier relationships across procurement (Figure 4). Capabilities such as advanced analytics, data engineering, automation and natural language processing are applied to areas like commercial excellence, process efficiency, negotiating better pricing, mitigating risks across the value chain and minimizing leakage so that the CoE can quickly optimize solutions.
4. Scale and integrate more functions
Aligned Automation solutions are designed for growth and adaptation to future goals and outcomes.
The Nerve Center is not static but rather a living, evolving platform, able to be adjusted, added to or modified as business goals change. By digitizing their enterprise operations one step at the time, LyondellBasell is constantly applying lessons learned to create efficiency and speed as solutions scale out to additional sites. In this way they can accommodate teams as they mature throughout the transformation and ultimately reinforce the digital strategy so important to LyondellBasell’s continued competitive advantage. In one example, by cross-applying early work on the Nerve Center to a site maintenance process, the team scaled the solution to capture an 80% decrease in implementation time.
5. Enhance employee decision-making
Enable employees to perform higher-value work
For LyondellBasell, generating more business value had to go hand in hand with generating value for their employees. With that in mind, the companies worked together to upskill LyondellBasell employees within the system, transforming roles from heavy manual data processing to more enhanced decision-making. Access to enriched, proactive advanced analytics provides the foundation necessary for employees to focus on how to use information strategically rather than how to obtain the information. With data sources streamlined in the Nerve Center, teams are assured the data is accurate, recent and the same as what their counterparts in other functions would see.
Procurement employees laid out additional applications for key performance indicators where they believed the technology could accelerate outcomes and collaborated with Aligned Automation to create new solutions. By making employees a key part of the digitalization process, the company increased employee efficacy and functional knowledge.
Improved Outcomes Make the Case for Digitalization
Since partnering with Aligned Automation and implementing a scalable Next Generation procurement solution, LyondellBasell has saved over $100M and is on track to save another $100M in the second year. The team has integrated countless data sources, including spend data, turn around tracking, CO2 emissions tracking, supplier metrics and operating margins for more efficient, valuable insights into the organization. With a user-friendly interface and high level of accessibility, the Nerve Center has become a digital workbench for all procurement employees and their counterparts in plant operations, engineering, finance and supplier contacts.
Using the Accelerating 90 agile-inspired methodology improved speed to scale and replication efficiency across the global footprint by 80%, bolstering rapid adoption and value capture. With new capabilities supported by the Center of Excellence, overall data quality has increased and employees across the company utilize the CoE to access 350+ projects. Based on these results, LyondellBasell and Aligned Automation continue to push conventional thinking of procurement, unlocking additional capabilities and value savings.
An Ongoing Digital Partnership
LyondellBasell’s digital vision does not stop with procurement – the Nerve Center and Center of Excellence are the first among many steps in the company’s journey to futureproof more of their business. Already LyondellBasell and Aligned Automation are scaling up the solutions, adding new capabilities, features and functions by rolling out the solutions and services to additional sites. “It’s a mutual sense of trust that enables our teams to work together in this more entrepreneurial style — with less friction, more speed and more experimentation — and produce the successful execution and expansion of our original vision,” said Yu.
Looking ahead, LyondellBasell and Aligned Automation envision further scale, expanding the Nerve Center to an end-to-end smart platform that utilizes more integrated workflows and prescriptive and predictive analytics across multiple functions and silos. Potential initiatives include everything from performance management to variable cost optimization and supplier management for LyondellBasell sites around the world. Predictive forecasting will enable the company to stay ahead of market shifts. Continued digital integration up and downstream has the potential to include areas as broad as payments to transportation.
Together, LyondellBasell and Aligned Automation have reimagined procurement operations for the next generation. With a strong digital culture, the organization can better respond to future changes such as shifting political climates and issues of environmental sustainability. LyondellBasell is poised for continued dominance in the global petrochemical industry, fortified and ready to embrace a rapidly changing market.
About the Authors
Hardik Bhatt, Procurement Practice Lead
Sarang Kulkarni, Senior Manager of Operations
Keri Walter, Product Marketing Manager
Edited by Dean Zimmerman, Arielle Cardona, Megan Pearl Brooks and Matt Martin (LyondellBasell).