Supply Chain Metrics That Matter: A Focus on Chemical, and Oil & Gas Companies - 2016

A Focus on Chemical, and
Oil & Gas Companies
A Ten Year View of Progress on Supply Chain Excellence
7/21/2016
By Lora Cecere
Founder and CEO
Supply Chain Insights LLC
By Regina Denman
Client Services Director
Supply Chain Insights LLC
Supply Chain Metrics That Matter

Contents
Research
Disclosure
Research Methodology
Understanding the Data
A Complex System with Nonlinear Relationships
Driving Profitability
Improving Cycles
Managing Complexity
A Closer Look at Value
Driving Value
Supply Chain Index: A Measurement of Supply Chain Improvement
Balance
Strength
Resiliency
Evaluating Supply Chain Excellence: Putting It All Together
Executive Overview
The Race for Growth
What Is Value?
Judging Supply Chain Performance
Managing Cash-To-Cash Cycles
Industry Focus
Recommendations
Conclusion
Prior Reports in This Series
Methodology: Understanding the Math and Ratios
Supply Chain Index Methodology: Formulas and Calculations
Balance
Strength
Resiliency
A Closer Look at Inventory Turns: An Important Measurement
Corporate Overview Data
About Supply Chain Insights LLC
About Lora Cecere
Endnotes
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Research
Supply Chain Metrics That Matter is a series of industry-specific reports published throughout the
year by Supply Chain Insights LLC. The series starts early in May when we can access full-year
corporate reporting for the prior year. Here we look at two industries within the Process Sector:
Chemical, and Oil and Gas companies. They are both tightly intertwined but distinct.
This analysis is based on data collected from financial balance sheets and income statements over
the period of 2006-2015. Here we take a look at pre- and post-recessionary trends. In this report we
examine how companies made trade-offs over the course of the last decade and determine which
process companies in the chemical sector did the best on the delivery of a portfolio of supply chain
metrics during that period.
Within the world of Supply Chain Management, each industry is unique. The pattern for Chemical/Oil
& Gas companies is distinctly different than consumer electronics, medical device or a
pharmaceutical company. It is for this reason we believe it is dangerous to list all companies across
many different industries in a spreadsheet, compare the results, and declare a supply chain leader.
Instead, we think it is more prudent to evaluate change over time, with a focus on business results
within an industry peer group.
Disclosure
Your trust is important to us. As such, we are open and transparent about our financial relationships
and our research processes. This independent research is 100% funded by Supply Chain Insights.
These reports are intended for you to read, share and use to improve your supply chain decisions.
Please share this data freely within your company and across your industry. All we ask for in return is
attribution when you use the materials. We publish under the Creative Commons License Attribution-
Noncommercial-Share Alike 3.0 United States and you will find our citation policy here.
Research Methodology
Supply chain leaders are in a race to deliver supply chain excellence. They are competitive. The
questions by their board of directors are “What defines excellence?” and “What defines value?” The
design of this report is to answer these questions. We believe that the best supply chains outperform
similar companies in their peer groups while driving improvement.

Performance is easier to measure than improvement. To build a method to measure improvement we
partnered with a research team from the School of Computing, Informatics and Decision Systems
Engineering at Arizona State University (ASU) during the spring of 2014 to develop the Supply Chain
Index™ methodology to analyze supply chain improvement. Details on the math used in this
methodology are outlined in the Appendix of this report. We have refined this methodology over time.
Understanding the Data
In this analysis we use supply chain financial ratios as opposed to absolute numbers. The use of
ratios allows us to compare large companies to small entities, and also to compare the progress of
companies operating in different countries using differing currencies. Additionally, it allows us to
easily track progress over time. Our goal was to define an industry standard definition that could be
used by all manufacturing, distribution and retail companies.
Our first step was to determine which metrics to use. In Table 1 we share the supply chain ratios we
considered.
Table 1. Financial Ratios Considered in the Development of the Supply Chain Index

We find that most supply chain leaders measure too many Key Performance Indicators (KPIs). To
select the metrics in the analysis we mined trends and discussed them with supply chain leaders
through phone interviews. After two years of analysis we determined that the patterns and trade-offs
between year-over-year Revenue Growth, Operating Margin, Inventory Turns, and Return on
Invested Capital (ROIC) were the most helpful in the determination of performance and improvement.
Since these metrics also have a correlation to market capitalization, we term this portfolio of metrics
as the Supply Chain Metrics That Matter™.
While there are other measurements which we believe are important in the determination of supply
chain excellence—like forecast accuracy, case fill rate, carbon footprint, and inventory write-offs—we
cannot find a reliable and consistent source of data for these metrics that covers all industries and
years studied. This does not make these metrics less important, but without a consistent source of
data we felt that we could not include them. In our research we found that the industry data sources
for these metrics are spotty and largely inaccurate due to the self-reporting of data. Without a
consistent data source across the industries we cannot include these factors even though we believe
they are important.
A Complex System with Nonlinear Relationships
The supply chain is a complex system with increasing complexity. A complex system has multiple
inputs and multiple outputs that are interrelated.
In the management of this system we believe it is the supply chain leader’s role to build and manage
supply chain performance to drive year-over-year improvements which are balanced, strong and
resilient. In our research we see that supply chain improvement takes at least three years.
The journey has no guarantees. Often we see a company hitting a plateau and regressing. On the
journey we also see companies throwing the system out balance. As a result, we often see leaders
able to only drive progress on a single metric, not the entire metrics portfolio. A balanced metrics
portfolio has a higher correlation to value-based metrics of either market capitalization or Price to
Tangible Book Value (PTBV).
Our goal was to select a portfolio that would be meaningful across all industries. It is important to note
that the maximization of market capitalization requires the management of a balanced portfolio on the
effective frontier of growth, cost, cycles and complexity. We believe that supply chain leaders improve
a balanced portfolio of metrics.

We call this balanced portfolio of metrics The Supply Chain Effective Frontier1
, shown in Figure 1.
Figure 1. The Supply Chain Effective Frontier™
In our writing it is deliberately not termed the ‘Efficient Frontier’—a term used in economic theory.
Why? Quite simply it is because the term ‘efficiency’ in supply chain processes is usually linked to the
lowest cost or the best revenue per employee. The concepts of the Effective Frontier are based on
the balance of growth agendas with cost, cycle metrics (a focus on inventory), and complexity. We
use Return on Invested Capital (ROIC) as a proxy for complexity.
Here we analyze the progress of the Process industry on the performance factors of Effective
Frontier. Progress is tough. These Process industries, post-recession, are struggling.
Across all industries we find that nine out of ten companies are stalled at the intersection of two
important metrics, i.e. inventory turns and operating margin. While some companies made no
improvement over time, most companies were able to either improve inventory turns, or cost, but not
both together. The reasons? One of the reasons is unchecked complexity. The second is the focus on
functional metrics to the detriment of corporate performance. As will be seen in this report, unchecked
complexity throws the supply chain out of balance.
Driving Profitability
Across industries there is an inverse relationship between margin and supply chain excellence.
Industries with the thinnest margins are more serious about delivering on the promise of supply chain
leadership. As a result, we see that the pharmaceutical and medical device industries have been
slower to adopt supply chain processes while the consumer electronics has been more aggressive.
Chemical companies, including Oil and Gas, are stuck in the middle. As a group, they are not pushing
1
Conquering the Supply Chain Effective Frontier, Supply Chain Insights, July 4, 2016,
http://supplychaininsights.com/?s=supply+chain+effective+frontier

aggressively to drive new innovation, but they are far from being the industry laggard.
Today with globalization, commodity price volatility, and an increase in regulatory compliance, there is
renewed focus on building a strong supply chain. In our analysis for this report we use operating
margin as the measure of profitability. The methodology is equally applicable to EBITDA, but does not
work well using the metric of cost-of-goods-sold.
Improving Cycles
When it comes to managing cash-to-cash cycles, a small number is better than a large one. The
question in the boardroom is “How small can supply chain working capital cycles be managed to
pump cash into the organization?” There is seldom the question of “How low can we go in working
capital cycles before we put the supply chain at risk?” Cash-to-cash is a composite metric of days of
receivables, days of inventory, and days of payables. As can be seen through the charts in most
industries, the greatest improvement in supply chain cycles in the last decade has been made in days
of payables—lengthening payment terms to suppliers. As will be seen in this report, inventory levels
and receivables have been more constant. Few companies in this industry made dramatic
improvement in cash-to-cash cycles.
In our analysis we use inventory turns as our measure of supply chain cycles. While companies want
a smaller number for days of inventory, they want to turn inventory faster. The higher the inventory
turn value, the stronger the results.
There are two primary ways to calculate inventory turns. (We detail the impact of the different
methodologies in the appendix.) In this report we measure inventory turns as:
Inventory Turns = Cost of Goods Sold/Inventory
Managing Complexity
By definition, the Chemical, and Oil and Gas industries are asset intensive. Smokestacks dot the
landscape, and manufacturing reliability is at the core of supply chain excellence. Most manage their
own factories with less than 15% of manufacturing is outsourced.
Within the Chemical and Oil and Gas company supply chains there are many forms of complexity:
increase in items, shifts in customer policies, product localization, geographic reach, changes in
manufacturing, serialization of items, and new product launch. In the last decade complexity
abounded. As complexity rises it is more and more difficult to drive asset effectiveness. In this report,
we profile this journey.

While there are many measurements of asset effectiveness: Return on Assets (ROA), Return on Net
Assets (RONA) and Return on Invested Capital (ROIC), we use ROIC as a metric to analyze asset
utilization. Return on Invested Capital is a less well-known metric compared to Return on Assets.
The reasoning? Return on Assets has a narrower focus. Our research indicates that ROIC has a
better correlation with stock market capitalization, and provides a broad perspective on cash flow
generation and profitability based on shareholder equity. Companies with a singular focus on ROA
will throw the supply chain out of balance. The formula used for ROIC is:
ROIC is a measurement of the company’s use of capital. The goal of the measurement is for the firm
to drive higher returns than the market rate of the cost of capital. However, used alone as a singular
metric it will retard growth. As will be seen in this report, for many companies, maintaining high levels
of ROIC is a struggle.
A Closer Look at Value
Traditionally the supply chain team’s focus was a cost agenda. Increasingly the organization is asking
the supply chain team to focus on value. However, to guide this journey there has to be a clear
definition of value. There is no industry-standard definition.
To help, we started this undertaking with an analysis between supply chain performance and market
capitalization. In 2012 we calculated the correlation of seven years of financial ratios (based on
quarterly reporting) to market capitalization (the number of outstanding shares multiplied by the share
price) on a quarterly basis.
The results of this initial study on the correlation to market capitalization are presented in Table 2.

Table 2. Correlation of Supply Chain Financial Ratios to Market Capitalization
Driving Value
Traditionally, the supply chain leader drove a cost-reduction agenda. Within the firm, 60-80% of total
costs are controlled by the supply chain team, and the management of total costs was essential to the
evolution of the firm. Each industry operates within a value chain, and each value network is driven by
market shifts. As a result, a singular focus on costs is not sufficient. Increasingly, companies are
asking supply chain leaders to focus on value. The question most have is “What defines value?” Here
we answer this question.
In these turbulent years, supply chain excellence mattered more than ever. It was a period of change:
new business models, proliferation of items and increasing pressure to improve consumer product
safety. Leaders in the Chemical industry tried to offset the pressures by improving labor productivity,
but they could not reduce total costs. The relationships of the metrics for the industries within the
consumer value chain are depicted in Table 3. The first number in the table represents the average
value for the period of 2006-2015 while the second number shows the percentage change when the
full year of 2006 is compared to the full year period of 2015. (Reflecting pre- and post-recessionary
impacts for the reader.)

Table 3. Summary of Supply Chain Metrics That Matter within the Consumer Value Chain for 2006-2015
So while the mass merchants grew at a 6% rate, Chemical companies struggled to deliver a 4%
growth rate over the period of 2006-2015. While retailers adopted new business models, Chemical
companies powered growth through global expansion. In the process, they fought to maintain the
margins of 9%. When 2006 results (pre-recession) are compared to 2015 we can see that within the
industry there is no change in margins while inventory turns took a precipitous decline.
In this report we measure value by Price to Tangible Book. While market capitalization is often driven
by economic cycles we find Price to Tangible Book Value (PTBV) is a more disciplined look at value.
Price to Tangible Book Value is calculated by dividing the share price of a public company by its
tangible book value per share. For example, let's assume that Company XYZ has 10,000,000 shares
outstanding which are trading at $3 per share. Let’s assume that the same company’s tangible book
value was $15,000,000 last year. The calculation would be:

Price to Tangible Book Value = $3 / ($15,000,000/10,000,000) = 2.0
The PTBV ratio excludes intangibles: intellectual property, patents, goodwill and other intangible
assets. It is a representation of what debtholders or investors would receive if the company liquidated
all physical assets. We feel this is a measure which supply chain leaders can impact. In this report we
use the metrics that have the highest correlation to market capitalization and also evaluate which
companies have driven the greatest improvement on Price to Tangible Book Value.
Supply Chain Index: A Measurement of Supply Chain
Improvement
The Supply Chain Index™ is the measurement of improvement used in this report2
. This methodology
was defined by Supply Chain Insights in 2012. The foundation of the Supply Chain Index starts with
understanding the resulting pattern when two supply chain metrics (generally ratios) are plotted over
time on an orbit chart. As shown in Figures 2, 3 and 4, an orbit chart enables the visualization of
performance patterns. In each figure, the best scenario is notated in the upper right-hand corner.
Figure 2. Orbit Chart for BASF Showing Inventory Turns and Operating Margin for 2006-2015
2
The Supply Chain Index, Supply Chain Insights, July 4, 2012, http://supplychaininsights.com/the-supply-chain-index/

The Orbit Chart for BASF is shown in Figure 2. Known as a legacy supply chain leader, the BASF
team makes a slow rate of improvement. For the period, BASF had an average operating margin of
8% and operated with 5.6 inventory turns. The company lacked resiliency in the recession, but
showed supply chain improvement post-recession.
In a similar pattern, demonstrated in Figure 3, DuPont and Dow also struggled post recession.
Figure 3. Orbit Chart for Dow and DuPont Showing Inventory Turns and Operating Margin for 2006-2015
Things are similar for Ecolab shown in Figure 4.

Figure 4. Orbit Chart for Ecolab: Operating Margin and Inventory Turns for 2006-2015
Due to the complexity of the orbit charts and the patterns, our first challenge in the creation of a
methodology for The Supply Chains to Admire™ analysis was to define ‘Supply Chain Improvement’.
This was our goal in building the Supply Chain Index. We wanted to develop a means to analyze
improvement across a variety of industries, with applicability to an entire peer group. The analysis
enables comparison of companies with different levels of revenue, and at different levels of supply
chain maturity. With each chart we measure three factors--balance, strength and resilience in
performance metrics within a peer group—to gauge improvement in the metrics portfolio for the
Supply Chain Metrics That Matter.
Balance
Balance in the supply chain is a constant struggle. Growth requires an increase
in inventory. Forecasting and managing a new product launch is difficult.
Excessively long Days of Payables leads to weakened supplier health. The
examples are endless. The two metrics which comprise our balance measure
are Revenue Growth and Return on Invested Capital.

The balance measure in the Supply Chain Index is a mathematical calculation of the vector trajectory
of the pattern between growth and ROIC for the periods of 2006-2015 and 2009-2015. To understand
this measurement, imagine a four quadrant grid with growth and ROIC on the two axes. In our
calculation, the overall trajectory of this vector from Year 0 (2006) to Year 9 (2015) is simplified into a
single value which represents the company’s ability to balance growth while improving ROIC.
Companies that were able to drive improvement in both metrics scored the best, while companies
that deteriorated in both metrics scored the worst. The companies are then stack ranked based on
factor ratings. In Figure 5 we profile BASF at this important intersection.
Figure 5. BASF Orbit Chart of Growth vs. Return on Invested Capital (ROIC) for 2006-2015
The balance factor comprises 1/3 of the total Supply Chain Index calculation. Sustained improvement
on both year-over-year growth and ROIC indicates a balanced supply chain and is reflected in a high
balance score.

Strength
A successful supply chain is strong and reliable. Supply chain leaders strive to
deliver year-over-year improvements in both cost and inventory management.
Our research on pattern recognition has uncovered a rich relationship between
operating margin and inventory turns. For most supply chain leaders, these are
some of the most important measures of their performance. Not only are they
important, they are more directly influenced by day-to-day supply chain
decisions than other, and more broadly used, corporate metrics. It is for this reason they are the two
components of our strength factor in the Supply Chain Index.
The strength measure in the Supply Chain Index is a mathematical calculation of the vector trajectory
of the pattern between inventory turns and operating margin for the periods of 2006-2015 and 2009-
2015. Like the balance factor calculation, the work starts with understanding the orbit chart pattern.
To understand the calculation, imagine a plot—an orbit chart—of inventory turns and operating
margin. In this report, performance is graphed on an annual basis from an origination point
representing performance on the two metrics at Year 0 (2006). The overall trajectory of this vector
from Year 0 (2006) to Year 9 (2015) is simplified into a single value which represents strength.
Improvement on both metrics simultaneously is graphically shown as movement to the upper-right
quadrant with increasing values for both inventory turns and operating margin over the period. The
strength ranking is 1/3 of the Supply Chain Index.
Resiliency
Resiliency is an adjective easily tossed around as one of the important qualities
of a successful supply chain in today’s volatile world. However, the concept of
resiliency is difficult to define, and there is rarely clarity among stakeholders as
to what resiliency is or should be.
As we plotted orbit chart after orbit chart, we could see that some supply chains
had very tight patterns at the intersection of operating margin and inventory
turns, and that other companies had wild swings.
We wanted to find a way to measure the variation, so we turned to the experts at ASU. After
evaluating several methods to determine the pattern in the orbit chart, we settled upon the Euclidean
Mean Distance between the points.

These results were published in our March 2014 report, Supply Chain Metrics That Matter: Improving
Supply Chain Resiliency, where we define resiliency as the tightness of the pattern at the intersection
of inventory turns and operating margin. (The calculation is outlined in the Appendix of this report.)
These metrics, both critical for any supply chain, are components of both the strength and resiliency
metrics in our Supply Chain Index model.
The Euclidean Mean Distance indicates the ability of a supply chain to maintain a tight, consistent
pattern across these two metrics as the business environment shifts and changes over a ten year
period (2006-2015). As shown in Table 4, supply chain resiliency varies considerably by industry. The
Household Products industry is more resilient than contract manufacturing and consumer electronics.
Table 4. Supply Chain Resiliency by Industry
The resiliency metric is similar to the cash-to-cash cycle in that a smaller number is better. A lower
number for resiliency is an indicator of a tighter pattern, and greater reliability in results over the time
period. To drive resiliency requires a focus on the customer, an empowerment of the workforce, and a
focus on the Supply Chain Metrics That Matter. Process excellence needs to be aligned on corporate
outcomes, which is challenging for a traditional functionally-siloed organization.

Calculating the Supply Chain Index
After the three factors are calculated, we then ask the question, “Did the supply chain drive
improvement higher than the peer group average for the period of 2006-2015?” To calculate
improvement, we use the Supply Chain Index as a measurement. Each of the factors—balance,
strength and resiliency—as defined above, comprises 1/3 of the total score.
In Table 5 we share the Supply Chain Index, or relative improvement, for the supply chains serving
the Chemical industry.
Table 5. Supply Chain Index - Chemical Companies for 2006-2009, 2010-2015 and 2006-2015

In Table 6 we share the Supply Chain Index, or relative improvement, for the supply chains serving
the Oil and Gas industry.
Table 6. Supply Chain Index – Oil and Gas Companies for s 2006-2009, 2010-2015 and 2006-2015
Companies that are underperforming their peer group can drive supply chain improvement faster than
higher-performing companies. It is analogous to the story on the TV Show “The Biggest Loser.” The
company with the most “fat” or opportunity will make improvement the fastest whereas a strong
supply chain performer will hit a plateau and fail to drive improvement at the level of the peer group.
As a result, for the Supply Chains to Admire analysis, we take companies in the upper 2/3 of their
peer group on improvement while disqualifying the lower 1/3 from the competition. This is the first cut
in the analysis.
We feel strongly that, when evaluating supply chain excellence, it is important to look at improvement
and performance together. We use this analysis to determine the best performing supply chains
through our Supply Chains to Admire methodology. In this report, we share the details.

Evaluating Supply Chain Excellence:
Putting It All Together
In the overall analysis for the Supply Chains to Admire, each company is judged by their own
potential to make progress. While the average values of a
company’s performance may be higher, in the Supply Chain
Index we are evaluating companies on their ability to drive
year-over-year improvement and reliable progress on the
metrics that we believe matter.
The companies that are above the industry peer group on this balanced portfolio, and have driven
supply chain improvement, are given a “Supply Chains to Admire” award. This recognition award is
now in its third year. The 2016 winners are shown in Figure 6.
Figure 6. 2016 Supply Chains to Admire Award Winners

To meet the criteria for The Supply Chains to Admire for 2016, companies needed to score better
than their peer group average for performance metrics, while driving a higher level of improvement
than 2/3 of their industry peer group.
The calculation process is:
 Supply Chain Index. The Supply Chain Index is calculated for the peer group. A ranking in the top
2/3 of the peer group qualifies a company for further analysis. A company in the lower 1/3 for the
period is eliminated from consideration.
 Price to Tangible Book Value. This analysis determines which companies are driving the greatest
value. We first throw out the outliers in the (PTBV)i calculation. After the elimination of outliers, we
include companies that are at or above the PTBV value (allowing for no more than 5% below the
mean for the peer group to account for rounding).
Companies passing these two tests are then analyzed against the performance factors for 2009-
2015:
 Growth. Higher percentage growth than the industry average.
 Operating Margin. Greater margin performance than the industry average for the peer group for
the period studied.
 Inventory Turns. Better performance in inventory turns than the peer group average for the period
studied.
 Return on Invested Capital (ROIC). Higher performance on ROIC than the average for their peer
group for the period.
In the analysis of the performance factors, companies are divided into two classifications:
 Supply Chains to Admire Winners: In the analysis of the performance factors of growth, operating
margin, inventory turns, and Return on Invested Capital, companies scoring at or above the industry
peer group average for all four of the factors are listed as Supply Chains to Admire winners. (Must
be within 5% of the mean of the peer group to account for rounding.)
 Supply Chains to Admire Finalists: Companies meeting the Supply Chain Index and the PTBV
criteria, but falling below the peer group averages on the performance factors, are ranked as
finalists if they are no more than 10% below the industry average for three out of four of the
performance factors, and no more than 25% below on any single performance factor. After doing
this comparative analysis of the performance factors, we form a short list of companies. The
methodology is not limited to the best company in the peer group. Within a peer group, there can be
multiple winners.

Executive Overview
Chemical supply chains serve global markets and multiple industries at varying levels of maturity.
Over the last decade, only one company stands out as a leader. The industry is stuck unable to make
significant improvement on margin, inventory and asset utilization. The facts run counter to traditional
beliefs. In most companies, there is a pervasive belief that Chemical, and Oil and Gas companies
implemented new technologies, and evolved processes to drive improved balance sheet results. As
will be shown in this report, this is not true.
Why did this happen? The focus of the chemical companies remains functional and inside-out. The
industry is slow to build adaptive networks and even slower to adopt demand-driven processes. This
is in sharp contrast to an industry like consumer electronics where the thrusts and changes were swift
and direct. To survive, these companies adopted new processes and technologies at a quicker rate
than those in the Chemical, and Oil and Gas industries.
BASF wins the Supply Chains to Admire award while Statoil becomes a finalist. To help the industry
to understand the current state and benchmark current processes, here we share insights.
The Race for Growth
The Chemical industry experienced a post-recessionary boom with growth rates of 11% in the period
of 2010-2012. In the past three years growth rate has slowed to -1%. These recent growth rates were
greatly affected by the boom and slowing of the Chinese markets and by the ups and down in crude.
Over the period, AgroSciences and Specialty chemicals experienced the highest growth rates of the
sector.
With the dramatic impact of the economy on growth and industry sector performance, one would think
that the supply chain leaders of this sector would be aggressively pursuing market-driven supply
chain practices to forecast based on market indicators and translate channel demand to supply. This
is not the case. These processes remain very supply-centered with no chemical company driving
market-driven programs.

Table 7. Chemical Industry Growth Rates over the Last Decade with a Comparison to the Supply Chain Index
In contrast, the overall Oil & Gas Industry grew at a 14% growth rate. In the period of 2013-2015,
growth slowed to 6%. The demand patterns for Oil and Gas are not as lumpy as they are for the
Chemical Industry.

Table 8. Oil and Gas Industry Growth Rates over the Last Decade with a Comparison to the Supply Chain Index
What Is Value?
Companies want to improve value, but there is no standard definition. In this report, we are trying to
establish a methodology to shift the supply chain leader’s thinking from a cost-based agenda to one
that drives value for shareholders. The cost-based agenda is rooted in tradition with a focus on
functional metrics and continuous improvement, whereas the value-based agenda is outside-in with a
focus on horizontal processes. (Horizontal processes include Revenue Management, Sales and
Operations Planning (S&OP), New Product Launch, Supplier Development, and Corporate Social
Responsibility (CSR)).
Overall, the chemical industry improved market valuations during the period of 2006-2015. In this
report, we use Price to Tangible Book Value (PTBV) as the proxy metric for value. As noted in Tables
9 and 10, PTBV increased in the Chemical industry and decreased in the Oil and Gas industry over
the period of 2006-2015. When the values for DuPont and Ecolab are eliminated as outliers,
Chemical companies with a higher Price to Tangible Book Value than the mean PTBV value are Akzo
Nobel N.V., BASF SE, Cabot Corporation, Chemtura Corporation, FMC, International Fragrance and
Flavors, Kraton Polymers, Monsanto, Syngenta, Stepan, and WR Grace.

Table 9. Chemical Industry Comparison of Market Capitalization, Price to Book, & Price to Tangible Book Value
The valuations in Oil & Gas are less volatile. With British Petroleum, Exxon Mobile and Statoil beating
the industry average for PTBV.

Table 10. Oil & Gas Industry Comparison of Market Capitalization, Price to Book, & Price to Tangible Book Value
Judging Supply Chain Performance
When it comes to overall supply chain performance industry averages, Tables 11 and 12 show the
performance and improvement trends of both industry sectors. During the period of 2006-2015 the
Chemical supply chain improved its strength factor (improving inventory turns and operating margins)
with no improvement in resiliency. The chemical industry, with lumpy demand, sitting four to five
levels back in the supply chain, struggles to drive consistent results through economic cycles.
Often companies push revenue per employee to attempt to gain operating margin advantage. In the
chemical industry, with labor as a low input, this is not a successful strategy. To illustrate this point
consider the case of Dow Chemical Company with a revenue per employee advantage of 2X their
peer group; yet, Dow underperforms in operating margin.
The chemical industry and oil and gas sectors have close ties. As a result, the performance patterns
are very similar.
 Growth. With the slowing of growth, supply chain core competencies matter more than ever.
Overall, the Chemical Supply Chain grew at a rate of 4% during the period of 2006-2015 with a
sharp increase in post-recessionary growth.

 Operating Margin. Companies fought through volatile times to protect margins. Overall margins
were 10% for the period of 2006-2015, but there was a small increase in the 2009-2015 period to
11%. The increase in post-recessionary volume helped the asset-intensive chemical companies to
improve cost structures.
 Inventory Turns. With the strong focus on working capital many companies invested in inventory
processes and technologies, but there is no improvement in inventory turns. Inventory is the most
important supply chain buffer for this industry. Most companies focused on safety stock; whereas,
leaders defined buffers and inventory strategies (definition of form and function of inventory using
advanced analytics). To make improvement in this metric, companies need to take a holistic view of
all inventory components.
 Asset Utilization. While ROIC performance improved in the industry, companies struggled to
balance inventory and operating margins with asset utilization. The industry improved ROIC by 1%
in the period of 2010-2015.
Table 11. Performance and Improvement - Chemical Group

Table 12. Performance and Improvement - Oil and Gas Group
Managing Cash-To-Cash Cycles
When it comes to managing cash-to-cash cycles, a small number is better. The question in the
boardroom is “How small can supply chain cash-to-cash cycles be managed before we put the supply
chain at risk?” Supplier viability is an issue in the industry and retailers are increasing receivables.
Cash-to-Cash is a composite metric of days of receivables, days of inventory, and days of payables.
Cash-to-Cash Cycle= Days of Receivables + Days of Inventory- Days of Payables
As can be seen in Tables 13 and 14, the Chemical and the Oil and Gas industries have very different
cash-to-cash cycles. The Chemical sector requires 6X more working capital than the Oil & Gas
sector.
While the Oil and Gas industry decreased the Cash-to-Cash cycle by 8 days, the Cash-to-Cash cycle
in the Chemical industry increased by 11 days. The Oil and Gas industry positively improved all three
of the components of Cash-to-Cash while the Chemical industry was forced to increase the number of
days of receivables by 11 days and the number of days of inventory by 10 days. This was partially
offset by elongating payables by 10 days.
One of the drivers of the elongation of the cash-to-cash cycle for the chemical industry is the shift in
focus. AgroSciences companies by definition require higher Days of Inventory to store seeds and
accommodate traits for the development of new products.

Table 13. Comparison of Cash-To-Cash Components: Chemical Industry During 2006-2010 and 2011-2015
Table 14. Comparison of Cash-To-Cash Components: Oil and Gas Industry During 2006-2009 and 2010-2015
The biggest shifts in the chemical industry between the periods of 2006-2010 and 2011-2015 were a
decrease by Akzo Nobel of 120 days, while BASF increased the number of days in the cash-to-cash
cycle by 38. The breakout data for the Chemical industry is shown in Figures 7 and 9 and for the Oil
and Gas industry in Figures 8 and 10.

Figure 7. Cash-To-Cash Cycles for Major Chemical Companies for the Period 2006-2010
Figure 8. Cash-To-Cash Cycles for Major Oil and Gas Companies for the Period 2006-2010

Figure 9. Cash-To-Cash Cycles for Major Chemical Companies for the Period of 2011-2015
Figure 10. Cash-To-Cash Cycles for Major Oil and Gas Companies for the Period of 2011-2015

Industry Focus
Over the past decade the Chemical and Oil and Gas industries transitioned through multiple mergers
and acquisitions, increased regulatory compliance, defined corporate social responsibility programs,
fought commodity price increases, and raced to drive growth through globalization projects in Asia,
the Middle East and South America. Many companies focused on funding growth through the
management of working capital programs. The goal is to drive their supply chains upstream in the
value chain. What does this mean? Instead of producing ingredients for consumer products
manufacturers to consume, many are attempting to produce value-added end products. In addition,
the AgroChemicals sector grew in importance with industry leaders like Bayer, BASF, FMC, DuPont,
Dow. Here are relevant excerpts from selected industry reports for the period of 2010-2015.
2010
BASF. When it comes to cosmetics, every age has specific product requirements. This will lead to greater
demand for new ingredients in the future. With the acquisition of Cognis, BASF is becoming the leading
supplier of ingredients to the cosmetics industry. Our portfolio is not only now more diverse, it is also more
cyclically robust.3
The year 2010 was both eventful and successful. We took advantage of the strong economic upturn and put
BASF on the right track for future success. We achieved record sales and earnings, but even more importantly,
we once again earned a high premium on our cost of capital. And we are becoming even stronger thanks to
our acquisitions of Ciba and Cognis as well as our innovations in future markets. Overall, we have emerged
from the economic crisis stronger, demonstrating that in recent years we have successfully implemented our
long-term strategy for profitable growth and made our business more cyclically robust.4
In order to continue to grow profitably, we are active in growth markets. Between 2011 and 2015, we are
planning investments of €12.6 billion, including projects with our strong partners. These include the expansion
of our Verbund site in Nanjing, China, with Sinopec and investments in world-scale production plants for
specialty chemicals in Malaysia with PETRONAS.Furthermore, we are also active in exploration and pipeline
projects in the Oil & Gas segment, some with our partner Gazprom.5
For example, we are working with partners from science and business to conduct research on materials and
components for innovative battery systems for electromobility and electricity storage. Other areas include
higher-yielding crops, new catalysts and processes to manufacture petrochemicals from alternative raw
3
BASF 2010 Annual Report, p. 6, https://www.basf.com/documents/corp/en/about-us/publications/reports/2011/BASF_Report_2010.pdf,
accessed June 2016.
4
accessed June 2016.
5
accessed June 2016.

materials as well as processes to capture and use carbon dioxide as a synthesis building block. Overall, we
are investing up to €350 million annually in research projects related to these growth clusters, amounting to
25% of our research and development expenditures.
We are increasing investments in research and development because we consider innovations to be the key to
profitable growth. Our focus is on developing solutions for global challenges, with a particular emphasis on
future markets and technologies with high growth potential. These include energy management, raw material
change, nanotechnology, plant biotechnology and white biotechnology. Our research activities are grouped
according to these growth clusters. We acquire knowledge and new technologies in numerous cooperative
partnerships worldwide with universities, research institutes, customers and industrial partners.6
Dow. The Company achieved its synergy targets related to the acquisition a full quarter ahead of schedule,
with realized savings of $1.4 billion including increased purchasing power for raw materials; manufacturing and
supply chain work process improvements; and the elimination of redundant corporate overhead for shared
services and governance. The integration of Rohm and Haas was substantially complete at December 31,
2010.7
EBITDA for 2010 was $1,311 million, up from $1,107 million in 2009. Compared with last year, higher prices
and volume, improved operating rates, and lower R&D and SG&A expenses more than offset higher raw
materials costs, higher manufacturing and supply chain costs, and lower equity earnings due to costs
associated with the start-up of a new joint venture. EBITDA for 2010 was negatively impacted by $15 million in
adjustments to the 2009 restructuring plan and asset impairment charges and related costs of $48 million in
the Polyurethanes business and a $34 million write-off of capital project spending and related costs in the
Epoxy business, and was favorably impacted by a $13 million net gain on the sale of Styron. EBITDA for 2009
was positively impacted by a gain of $145 million on the sale of the Company’s ownership interest in
OPTIMAL, partially offset by restructuring charges of $73 million, an increase in cost of sales of $22 million
related to the fair valuation of Rohm and Haas inventories, and a $7 million charge related to the impairment of
goodwill associated with the Dow Haltermann reporting unit.8
Dow continues to work collaboratively across the supply chain on Responsible Care, Supply Chain Design,
Emergency Preparedness, Shipment Visibility and transportation of hazardous materials. Dow is cooperating
with public and private entities to lead the implementation of advanced tank car design, and track and trace
technologies. Further, Dow’s Distribution Risk Review process that has been in place for decades was
expanded to address potential threats in all modes of transportation across the Company’s supply chain. To
6
accessed June 20, 2016.
7
Dow Chemical 2010 Annual Report, p. 31, http://www.dow.com/en-us/investor-relations/financial-reporting/annual-reports, accessed June 20,
2016.
8
2016.

reduce vulnerabilities, Dow maintains security measures that meet or exceed regulatory and industry security
standards in all areas in which the Company operates.9
Goodwill largely consists of expected synergies resulting from the acquisition. Key areas of cost savings
include increased purchasing power for raw materials; manufacturing and supply chain work process
improvements; and the elimination of redundant corporate overhead for shared services and governance. The
Company also anticipates that the transaction will produce significant growth synergies through the application
of each company’s innovative technologies and through the combined businesses’ broader product portfolio in
key industry segments with strong global growth rates.10
Eastman. During 2010, the Company recorded $29 million in asset impairment and restructuring charges,
consisting primarily of severance, pension curtailment, and intangible asset impairment. Severance charges of
$18 million included $15 million for the previously announced voluntary separation program in fourth quarter of
2010 of approximately 175 employees and $3 million primarily for severance associated with the acquisition
and integration of Genovique in second quarter 2010. Restructuring charges of $2 million for pension
curtailment also related to the previously announced voluntary separation program in fourth quarter 2010. Due
to environmental regulatory change during gasification project, the Company recorded an intangible asset
impairment of $8 million.11
2011
BASF. Both new and existing suppliers are selected and evaluated not only on the basis of economic criteria,
but also on standards for environmental protection, occupational safety and social responsibility. Our Code of
Conduct for suppliers is based on internationally recognized guidelines: It includes environmental protection
and compliance with human rights and labor laws, as well as antidiscrimination and anticorruption policies. In
2012, we aim to include compliance with the Code of Conduct in our supplier contracts. We conduct risk-based
assessments of our suppliers through on site visits. Risk matrices help us to identify high risk suppliers based
on country and product risks. In response to this country and product risk analysis, we paid on site visits to a
total of 206 raw materials suppliers in 2011 to assess environmental, health and safety aspects. If our audits
find need for improvement, we take corrective measures. We perform a follow up audit a few months later. If
we do not see any improvement, we terminate the business relationship. This occurred in eight cases in 2011.
To check their compliance with international labor and social standards, new suppliers from countries outside
the OECD are required to fill out a questionnaire. A total of 665 suppliers received our questionnaire on labor
and social standards in 2011.
BASF is currently participating in an international initiative of the chemical industry to standardize suppliers’
9
2016.
10
Dow Chemical 2010 Annual Report, p. 95, http://www.dow.com/en-us/investor-relations/financial-reporting/annual-reports, accessed June
20, 2016.
11
Eastman 2010 Annual Report

self-assessment and self-auditing processes worldwide. This initiative aims to use a globally uniform list of
questions modeled after international guidelines like Responsible Care, the International Labor Organization
(ILO) standards and the principles of the United Nations’ Global Compact, and to develop uniform criteria for
auditing suppliers.
In 2011, we provided compliance training to our employees in procurement on topics including sustainability. In
order to further minimize supply chain risks and offer information on the opportunities available through
sustainable business practices, we held a Supplier Day in 2011 with around 70 suppliers in China. There, we
recruited more participants for the “1+3” project begun in 2006, in which suppliers pledge to pass on our
sustainability standards to at least three of their cooperation partners in the supply chain. BASF purchased
approximately 500,000 different raw materials and technical goods as well as services for plant construction,
maintenance and logistics in 2011. We procured raw materials from over 6,000 suppliers.
We expanded our network for transportation, distribution and warehouse safety in 2011. For example, in North
Africa, we conducted employee training, reviewed processes, and defined consistent requirements for our
logistics companies. In 2011, we introduced a new global directive for the uniform assessment of transportation
safety in deep-sea tankers. At sites which have joined the BASF Group as a result of acquisitions, we
reevaluated the transportation risks for selected critical products and improved their transport processes,
making these safer.12
Dow. The Company achieved its synergy targets related to the acquisition a full quarter ahead of schedule,
with realized savings of $1.4 billion including increased purchasing power for raw materials; manufacturing and
supply chain work process improvements; and the elimination of redundant corporate overhead for shared
services and governance. The integration of Rohm and Haas was completed in the first quarter of 2011.13
Major projects underway during 2011 included: the design and construction of a new chlor-alkali production
facility to replace existing facilities in Freeport, Texas; construction of a new propylene oxide production facility
using hydrogen peroxide to propylene oxide technology, a distribution terminal and related infrastructure and
utilities in Thailand; design and construction of a new research and development facility in Indianapolis,
Indiana, for Dow AgroSciences; construction of the new Business Process Service Center in Midland,
Michigan; upgrades of low density polyethylene facilities in Freeport and Seadrift, Texas; a new centrifugal
ethylene compressor in Freeport, Texas, to reduce spot purchases of ethylene; continued furnace
rehabilitations to increase energy utilization and to maintain continued operations of ethylene production at St.
Charles, Louisiana; the drilling of new brine wells in Freeport, Texas, and Aratu, Brazil; and construction of a
market development and production plant in Midland, Michigan, for future battery component initiatives.
Additional major projects included installation of a new furnace system in Deer Park, Texas, to support methyl
12
BASF 2011 Annual Report, p. 92, https://www.basf.com/documents/corp/en/about-
us/publications/reports/2012/BASF_Report_2011.pdf, accessed June 18, 2016.
13
Dow 2011 Annual Report, p. 31, http://www.dow.com/en-us/investor-relations/financial-reporting/annual-reports, accessed 18 June 2016.

methacrylate production; and design and construction of a global research and development center in Seoul,
South Korea, to support Dow Electronic Materials. Because the Company designs and builds most of its capital
projects in-house, it had no material capital commitments other than for the purchase of materials from
fabricators and construction labor. The Company expects capital spending in 2012 to be approximately $2.5
billion.14
On July 27, 2011, the Company entered into a definitive agreement to sell its global Polypropylene business (a
Performance Plastics business) to Braskem SA. The definitive agreement specified the assets and liabilities
related to the business to be included in the sale: the Company's polypropylene manufacturing facilities at
Schkopau and Wesseling, Germany, and Freeport and Seadrift, Texas; railcars; inventory; receivables;
business know-how; certain product and process technology; and customer contracts and lists. On September
30, 2011, the sale was completed for $459 million, net of working capital adjustments and costs to sell, with
proceeds subject to customary post-closing adjustments to be finalized in subsequent periods. The proceeds
included a $474 million receivable that was paid to the Company on October 3, 2011. Dow's Polypropylene
Licensing and Catalyst business and related catalyst facilities were excluded from this sale. The transaction
resulted in several long-term supply, service and purchase agreements between Dow and Braskem SA, which
are expected to generate significant ongoing cash flows. As a result, the divestiture of this business was not
reported as discontinued operations.15
DuPont. Differential management translates to a disciplined, systematic approach to prioritize resources
across businesses and geographies. By differentially allocating our R&D, capital expenditures, and M&A
toward growth opportunities, we accelerate our trajectory toward our sales and earnings targets. In 2011, we
acquired Danisco, a company with strong market positions in food ingredients and enzymes, thereby
increasing our presence in the industrial biotechnology and food space.16
Eastman. Sales revenue for 2010 increased compared to 2009 primarily due to higher sales volume and
higher selling prices. The higher sales volume was attributed to strengthened end-use demand in packaging
and transportation markets primarily in Europe, Middle East, and Africa and the United States and Canada
regions, in part due to the recovery in the global economy, and the positive impact of growth initiatives,
including the hydrogenated hydrocarbon resins manufacturing capacity expansion in Middleburg, the
Netherlands which was completed in fourth quarter 2009. The higher selling prices were primarily in response
to higher raw material and energy costs, particularly for propane.17
In first quarter 2010, the Company transferred certain intermediates product lines from the discontinued
14
15 15
16
DuPont 2011 Annual Report, p. 1, http://s2.q4cdn.com/752917794/files/doc_financials/2011/AR/CRP_DuPont_2011_DataBook.pdf,
17
Eastman 2011 Annual Report, p. 20. http://www.eastman.com/Company/investors/Financial_Information/Pages/Financial_Reports.aspx,

Performance Polymers segment to the PCI segment to improve optimization of manufacturing assets
supporting the three raw material streams that supply the Company’s down stream businesses. The revised
segment composition reflects how management views and evaluates operations. Accordingly, the amounts for
sales, operating earnings and assets have been adjusted to retrospectively apply these changes to all periods
presented.18
2012
BASF. As the largest German producer of oil and gas, we focus our exploration and production on oil and gas-
rich regions in Europe, North Africa, South America, Russia and the Caspian Sea region. Together with our
Russian partner Gazprom, we are active in the transport, storage and trading of natural gas in Europe.19
The startup of several production plants will lead to higher fixed costs. Nevertheless, we strive to improve
earnings by growing significantly faster than the market, with margins remaining stable overall. Only in the
oilfield and mining chemicals business area were we able to achieve considerably higher sales volumes.
Income from operations grew significantly. This was mostly due to higher prices, the stronger U.S. dollar and
our measures to reduce fixed costs. Insurance payments for damage caused by the earthquake and tsunami in
Japan in 2011 also boosted our earnings development.
In our plastic additives business, we want to get even closer to our customers in fast-growing regions; to this
end, we began construction of a production plant for antioxidants in Singapore. We strengthened our business
with water treatment chemicals through the integration of inge watertechnologies AG and the creation of a
customer-focused platform.20
Dow. The Company's Board of Directors approved two restructuring plans to optimize the Company's portfolio
and to address macroeconomic uncertainties. The restructuring plans, approved in the first and fourth quarters
of 2012, will accelerate the Company's structural cost reduction program and will affect approximately 3,750
positions and result in the shut down or idling of nearly 30 manufacturing facilities. These actions are
necessary to manage the Company's earnings growth in volatile and challenging economic conditions. These
restructuring charges totaled more than $1.3 billion in 2012.21
Dow continues to work collaboratively across the supply chain on Responsible Care®, Supply Chain Design,
Emergency Preparedness, Shipment Visibility and transportation of hazardous materials. Dow is cooperating
with public and private entities to lead the implementation of advanced tank car design, and track and trace
technologies. Further, Dow’s Distribution Risk Review process that has been in place for decades was
18
Eastman 2011 Annual Report, p. 80., http://www.eastman.com/Company/investors/Financial_Information/Pages/Financial_Reports.aspx,
19
BASF 2012 Annual Report, p. 2. https://www.basf.com/documents/corp/en/about-us/publications/reports/2013/BASF_Report_2012.pdf,
20
us/publications/reports/2013/BASF_Report_2012.pdf, accessed June 18, 2016.
21
Dow 2012 Annual Report, p. 29, http://www.dow.com/en-us/investor-relations/financial-reporting/annual-reports, accessed June 18, 2106.

expanded to address potential threats in all modes of transportation across the Company’s supply chain. To
reduce vulnerabilities, Dow maintains security measures that meet or exceed regulatory and industry security
standards in all areas in which the Company operates.22
DuPont. DuPont Photovoltaic Solutions and Yingli Green Energy Holding Company Limited announced a
collaboration to advance technology for higher efficiency solar cells, new module manufacturing processes and
innovative component designs. Through technical collaboration, the two companies plan to speed development
and adoption of solar energy.
Building Innovations became completely landfill-free, reducing its environmental footprint from 81 million
pounds of landfill waste annually to zero. Through the “Drive to Zero” landfill program, none of the waste
generated by the business from the manufacture of DuPont™ Corian® solid surfaces, DuPont™ Zodiaq®
quartz surfaces, DuPont™ Tyvek® weatherization systems products and geosynthetic textiles is sent to
landfills.
DuPont Circuit & Packaging Materials, part of Electronics & Communications, announced a production
expansion project is underway at its Circleville, Ohio, facility. It will add up to 400 tons of available production
capacity, as well as new manufacturing capabilities for its leading DuPont™ Kapton® brand polyimide films.23
2013
BASF. The Verbund system is an important component of our resource efficiency strategy: The by-products of
one plant often serve as feedstock elsewhere, thus helping us to use raw materials more efficiently. In 2013,
BAS purchased a total of around 30,000 different raw materials from more than 6,000 suppliers. Some of our
most important raw materials are naphtha, natural gas, methanol, ammonia and benzene. We examine the use
of renewable resources in our Verbund system and are involved in the responsible cultivation and utilization of
renewables in numerous projects along the value chain.
Production Verbund are replaced by renewable resources with sustainability certification. The formulation and
quality of the corresponding end products remain unchanged. In this process, renew able raw materials are
used as feedstock at the very beginning of production in the Verbund, and allocated to the respective sales
products using the new certification methods. The certified products thus contribute to sustainable
development by saving fossil resources and reducing greenhouse gas emissions. We are supplying the first of
these products – dispersions for construction adhesives – to a major manufacturer in adhesives whose
products include flooring adhesives for the construction industry.24
Dow. Within our integrated value chains, we have businesses where our previously announced cost actions
22
23
DuPont 2012 Annual Report, p. 2, http://s2.q4cdn.com/752917794/files/doc_financials/2012/AR/Final%202012%20Data%20Book.pdf,
24
us/publications/reports/2014/BASF_Report_2013.pdf, accessed June18, 2016.

are well underway – such as in our Polyurethanes and Dow Coating Materials businesses. We expect demand
to regain pre-2008-crisis footing in these markets and see the opportunity to leverage our cost advantage and
innovation expertise to accelerate returns. Additionally, we expect margins to further strengthen in the near
term as we implement key integration investments across this portion of our value chain.
DuPont. Market-Driven Science: Today, our core technologies – biology, chemistry, materials science and
engineering – uniquely position us to address needs of large, profitable secular growth markets. And our
science is helping to solve global problems such as provide ding safer and more nutritious food reducing our
dependence on fossil fuels and protecting people and the environment.25
Eastman. The China JV acetate tow plant is running at commercial quantities and both the Tritan and
Eastman 168 expansions are expected to be operational later this year.26
2014
Dow. As we look forward, we are focused on making the critical, strategic choices that are needed to drive
lean, disciplined operations; grow leading businesses; and further strengthen our earnings foundation — all
while leveraging our strategy to navigate fast-moving market dynamics.27
Dow announces it will begin construction on the world’s first large-scale, cadmium-free quantum dot
manufacturing facility at its Cheonan, South Korea, site. The new facility will enable the manufacture of millions
of quantum dot televisions and other display applications to meet growing consumer demand.28
Scale and operational excellence – We are optimizing our operations and work processes through our science
platforms and our global technology centers. At the same time, we are maintaining a focus on increasing
Dow’s overall asset utilization and closely monitoring the efficiency of our capital allocation.29
DuPont. Productivity, efficiency, and accountability continue to be ingrained in the next generation DuPont.
Our redesign will help us to continue to deliver on our cost and value initiatives, and drive growth across our
three strategic priorities: extending our leadership in agriculture and nutrition, strengthening and growing our
advanced materials capabilities, and leveraging our science to develop a world leading bio-based industrial
business.
Market-Driven Science Capabilities and Operations With greater emphasis than ever before on science-driven
innovation, we are facilitating an even closer connection between our laboratories and the marketplace, and
faster, more effective execution in delivering innovative solutions for our global customers. We are enhancing
25
DuPont 2013 Annual Report, p. 1, http://investors.dupont.com/investor-relations/filings-and-reports/quarterly-and-annual-
reports/default.aspx, accessed June 18 2016.
26
Eastman 2013 Annual Report, p. 4, http://www.eastman.com/Company/investors/Financial_Information/Pages/Financial_Reports.aspx,
27
28
29

our agility and responsiveness to market conditions, a necessity to win in a globally competitive environment.
The cultural shift we’re driving started with the global financial crisis, and has been reinforced by portfolio
changes large and small and the recast of our corporate and functional support. This is enabling us to capture
the enormous opportunity ahead and provides a clear understanding of how each of us can contribute in new
ways to the DuPont that has emerged post-separation.30
Eastman. We continue to have double-digit earnings growth in our Eastman Tritan™ copolyester due to
market adoption, which is being supported by planned additional capacity. We completed and expansion at our
Kingsport site in fourth quarter 2014 and began additional 60,000 metric to expansion, which is expected to be
operational in early 2017.
Productivity projects across the company are not only generating significant savings that fund growth, they are
also helping us identify and remove waste, refine processes, and increase yields, all of which strengthen our
competitiveness and maximize earnings potential. Lower operating costs in 2014, principally increased raw
material process improvement and direct spending costs. Our world-class proficiency in process and
improvement and new process development enabled manufacturing operations to account for approximately
40 percent of those productivity savings. The company exceeded every key productivity initiative target in
2014, and we have set aggressive new productivity goals for 2015. The men and women at Eastman have
embraced productivity as an essential, continuous key delivering increased earnings from our efforts to grow
revenue.31
2015
BASF. With our sustainability-oriented supply chain management, we contribute to risk management by
boosting our suppliers’ awareness of our expectations and standards, and by supporting them in carrying out
our specifications. We count on reliable supply relationships and want to make our suppliers’ contribution to
sustainable development transparent. In order to achieve this, we set ourselves an ambitious goal: By 2020,
we aim to evaluate the sustainability performance of 70% of the BASF Group’s relevant suppliers pursuant to
our risk-based approach and develop action plans for any necessary improvements. The proportion of
evaluated relevant suppliers was at 31% by the end of 2015. Furthermore, our Procurement competence
center supports BASF’s business units in developing solutions to stand out from the competition in addressing
market-specific requirements.
From our suppliers, we obtain raw materials, technical goods, and services – from technical to logistics and
building facility services. BASF acquired raw materials, goods and services for our own production totaling
approximately €35 billion in value from more than 75,000 suppliers around the world in 2015.
30
DuPont 2014 Annual Report, p. 2, http://s2.q4cdn.com/752917794/files/doc_financials/2014/Databook-2014-FINAL.pdf, accessed June 18
2016.
31
Eastman 2014 Annual Report, Letter to Shareholders p. 2,
http://www.eastman.com/Company/investors/Financial_Information/Pages/Financial_Reports.aspx, accessed June 18, 2016.

Around 90% of this was locally sourced. With regard to our suppliers, there were no substantial changes in our
value chain in 2015.32
In 2015, we held our first global Supplier Day in Ludwigshafen in order to set up new modes of collaboration
together with selected suppliers. Using TfS evaluations, we pursue a risk-oriented approach with clearly
defined, BASF-specific follow-up processes. We drive these processes through a sustainability-oriented IT tool.
Suppliers with an elevated sustainability risk are identified using risk matrices. Furthermore, our purchasers
indicate the suppliers for whom they see a potentially elevated sustainability risk. We additionally check various
information sources to see if any suppliers have been observed in connection with negative sustainability
incidents. Based on these analyses, we conducted sustainability standard audits for a total of 135 raw material
supplier sites and initiated 1,044 sustainability assessments through an external service provider in 2015.33
Eastman. Clearly we have our challenges but we also have a proven plan of attack. We will approach these
headwinds as we did in 2015 – with focus and determination.
We are concentrating on our efforts in 2016 on:
 Driving organic growth and continued growth in our specialty products.
 Accelerating growth through innovation and improved product mix.
 Aggressively reducing costs and doubling down on our productivity efforts, which was perfect will continue
about $.50 per share EPS
 Optimizing our business structure
 Continued portfolio management
Early in 2016, we announced the decision to streamline our business structure, which reduced the segments in
which we report our financial results from five to four. With integration of our Taminco acquisition substantially
complete, we are able to better align our business and combine those with similar strategies and operating
models, helping to facilitate greater collaboration and spur innovation. This also enables us to reduce
complexity and enhance visibility of our reporting structure34
32
BASF 2015 Annual Report, p. 94, https://www.basf.com/documents/cz/about%20us/BASF_Report_2015.pdf, June 18, 2016.
33
BASF 2015 Annual Report, p. 95, https://www.basf.com/documents/cz/about%20us/BASF_Report_2015.pdf, June 18, 2016.
34
Eastman 2015 Annual Report, Letter to Shareholders p. 2,
http://www.eastman.com/Company/investors/Financial_Information/Pages/Financial_Reports.aspx, accessed June 18, 2016.

Recommendations
In supply chain benchmarking it is important to look at performance and improvement of peer
companies over time. Here we look critically at two sectors of the Chemical Process industry for the
period of 2006-2015. In these sectors, a focus on historic continuous improvement and best practices
made the industry slow to shift to market dynamics. As a result, the industry is stuck and often going
backwards. Each industry sector analysis tells a different story.
As companies study supply chain excellence and corporate performance, we recommend that they:
1) Build a Guiding Coalition to Drive Improvement Based on Industry-Specific Data.
Organizations should benchmark companies within an industry. Each industry has unique rhythms
and cycles. As a result, supply chain excellence analysis needs to be within an industry.
2) Understand Supply Chain Potential and Orchestrate Trade-offs on the Effective Frontier.
Supply chain leadership teams should analyze the total portfolio of metrics and study progress at
the intersections of the Effective Frontier. Companies with higher performance are using more
advanced analytics to plan outcomes and design the supply chain
3) Apply Systems Theory. Teams should evaluate performance over time to understand
improvement while realizing they are managing a complex system. The functions should be aligned
to a balanced portfolio of metrics representing the Effective Frontier, while functional metrics should
be focused on improving reliability (e.g., first-pass yield, hands-free orders, and supplier quality,
etc.).
4) Focus on Building Value Networks. While many of these companies could be a powerbroker in
the industry to redefine outside-in processes, all companies are accepting the limitations of the
inside-out supply chain.
5) Learn from Other Industries. Use a Steady Hand/Focused Leadership to Drive Improvement.
Companies within the Consumer Products industries were early adopters of supply chain analytics
and Supply Chain Operating Network technologies 20 years ago. In the last decade, with a focus
on cost mitigation and M&A, the company’s focus on efficiency and continuous improvement were
not adequate. There was a need to drive a redesign. To make the necessary improvements,
companies today, must move past an “ERP-centric view” and build outside-in processes with a
focus on value-based outcomes. They can learn how to power these outside-in processes from the
high-tech industry.

Conclusion
The shifts in the consumer value chain ups the ante for the supply chain team in the Chemical, and
Oil & Gas industries. Overall, the performance on the Supply Chain Metrics That Matter is stalled. To
reverse this trend, it is time to cast off traditional practices and redesign the supply chain, from the
outside-in, to better sense and translate demand. In this report, to understand who performed best
within the peer group, we systemically analyzed Chemical, and Oil and Gas company performance on
the Effective Frontier. In the final analysis, BASF qualifies for the Supply Chains to Admire list for
2016, while Statoil is a strong finalist in the Oil and Gas sector.

Prior Reports in This Series
Over the course of the last four years our methodology has changed and matured. You can track our
progress and find industry-specific information here:
Supply Chain Metrics That Matter: A Focus on Retail
Published by Supply Chain Insights in August 2012.
Supply Chain Metrics That Matter: A Focus on Automotive
Published by Supply Chain Insights in September 2012.
Supply Chain Metrics That Matter: A Focus on Automotive
Published by Supply Chain Insights in August 2015
Supply Chain Metrics That Matter: The Cash-to-Cash Cycle
Published by Supply Chain Insights in November 2012.
Supply Chain Metrics That Matter: A Focus on the Consumer Products Industry
Published by Supply Chain Insights in December 2012.
Supply Chain Metrics That Matter: Driving Reliability in Margins
Published by Supply Chain Insights in January 2013.
Supply Chain Metrics That Matter: A Focus on Hospitals
Published by Supply Chain Insights in January 2013.
Supply Chain Metrics That Matter: A Focus on Brick & Mortar Retail
Published by Supply Chain Insights in February 2013.
Supply Chain Metrics That Matter: A Focus on Consumer Products Manufacturers
Published by Supply Chain Insights in February 2013.
Supply Chain Metrics That Matter: A Focus on Consumer Electronics
Published by Supply Chain Insights in April 2013.
Supply Chain Metrics That Matter: A Focus on Apparel
Published by Supply Chain Insights in May 2013
Supply Chain Metrics That Matter: A Focus on Contract Manufacturing
Supply Chain Metrics That Matter: A Focus on the Automotive Industry
Published by Supply Chain Insights in October 2013
Supply Chain Metrics That Matter: A Closer Look at the Cash-To-Cash Cycle (2000-2012)
Published by Supply Chain Insights in November 2013

Supply Chain Metrics That Matter: Third Party Logistics Providers
Published by Supply Chain Insights in December 2013
Supply Chain Metrics That Matter: A Critical Look at Operating Margin
Published by Supply Chain Insights in December 2013
Supply Chain Metrics That Matter: A Closer Look at Consumer Products Companies
Published by Supply Chain Insights in April 2014
Supply Chain Metrics That Matter: A Closer Look at Chemical Companies
Supply Chain Metrics That Matter: A Closer Look at Consumer Products Companies
Published by Supply Chain Insights in June 2014
Supply Chain Metrics That Matter – A Focus on Consumer Products Companies
Published by Supply Chain Insights in April 2015
Supply Chain Metrics That Matter – A Focus on Chemical Companies – 2015
Supply Chain Metrics That Matter: A Focus on Consumer Products Companies-2015
Supply Chain Metrics That Matter: A Focus on Consumer Products – 2015
Supply Chain Metrics That Matter: A Focus on the High-Tech Industry – 2015
Published by Supply Chain Insights in January 2016
Supply Chain Metrics That Matter: A Focus on Pharmaceutical Companies – 2016
Supply Chain Metrics That Matter: A Focus on Medical Device Companies – 2016
Supply Chain Metrics That Matter: A Focus on Food and Beverage Companies-2016
These reports, and additional information on the Supply Chain Metrics That Matter methodology, are
available at our Supply Chain Insights website and in the Beet Fusion community.

Appendix
Here we share more data to help the reader understand the math behind this report.
Methodology: Understanding the Math and Ratios
Throughout this report we reference a number of commonly used financial ratios. Each company has
a unique potential. The potential is based on the size of the company and the drivers within the
industry. As shown in Figure A, each has a major impact on the company’s potential on the Effective
Frontier.
Here is a summary of the definitions of the ratios used in this report.
Figure A. Measurement Definitions

Supply Chain Index Methodology: Formulas and
Calculations
Supply chain leaders are competitive. Each wants to drive performance improvement faster than the
peer group. To gauge improvement, companies need to compare and benchmark. To make this
easier, we developed the Supply Chain Index. In the building of the Index, we used financial ratios
versus absolute numbers. The use of ratios allowed us to compare companies regardless of size, and
also compare companies across currencies.
The Index has three factors: balance, strength and resiliency. In this report, the three factors were
calculated for the periods of 2006-2009, 2010-2015 and 2006-2015. Our goal was to understand pre-
recession and post-recession trends while also looking at progress over the longer-term view. The
companies within the industry are stack ranked based on performance within each factor and given a
ranking. The rankings are then built into an index based on overall performance of the three factors.
The math behind the Index is defined below. This methodology was built in cooperation with the
Operations Research faculty at Arizona State University (ASU) in the spring of 2014.
Balance
To develop the balance factor used in the Index, we evaluated a scatter plot of revenue growth and
Return on Invested Capital (ROIC) for a specific company. The balance factor (B) is the proportional
difference of points on an orbit chart for the period of 2006-2012 at the intersection of revenue growth
and Return on Invested Capital. To calculate the balance factor, let iREV denote the revenue growth
of the ith
time period, iROIC denote the return on invested capital of the ith
time period and n denote
the total number of periods under consideration. Thus the balance factor is defined as:





 




1
1
1
1
1
1
ROIC
ROICROIC
REV
REVREV
n
B nn
.
Strength
Strength factor is a similar calculation to balance factor, but with a focus on the intersection of
operating margin and inventory turns. For this analysis, we used a scatter plot of operating margin
and inventory turns on an orbit chart for a specific company. Let iOM denote the operating margin of

the ith
time period (e.g. ith
year), iIT denote the inventory turns of the ith
time period and n denote the
total number of periods under consideration. The strength measure (S) is defined as:





 




1
1
1
1
1
1
IT
ITIT
OM
OMOM
n
S nn
The denominator reflects that there are n-1 differences between n time periods. Figure B depicts the
intersection of operating margin and inventory turns for an example company. The difference in
operating margin and inventory turns between the first and last time period is shown.
Figure B. Inventory Turns and Operating Margin Intersection for an Example Company
Resiliency
The resiliency factor is a measurement of the tightness of the pattern at the intersection of operating
margin and inventory turns for a given company. For companies that did well, and had a tight pattern,
the value will be lower than companies that lacked reliablity for the period. To develop the value, we
considered a scatter plot of operating margin and inventory turns for a specific company.

Let dij denote the Euclidean distance between a pair of points i and j and let m denote the total
number of pairs. The resiliency measure (R) is defined as the mean distance of all possible pairs of
points at the intesection.
That is,


i ij
ijd
m
R
1
A Closer Look at Inventory Turns: An Important
Measurement
In an ideal world, companies want to turn inventory faster. The faster the turns, the faster the cash
turnover, and the greater contribution to market valuation.
There are two primary measurements for inventory turns. Both are used in the industry. Often they
are used without clarity of the underlying definition. The results are very different.
One is based on inventory turnover as a ratio based on revenue, and the other measures the
inventory turnover ratio based on cost of goods sold. In the period of 2013-2014, at Supply Chain
Insights, when calculating the Supply Chain Index rankings, we used financial information from
YCharts. The methodology used by YCharts is to calculate inventory turns as:
Inventory Turnover = Revenue / Average Inventory
where Average Inventory is equal to the average of the last two reported inventory levels of the
specified frequency. However, in this report, and the subsequent series of industry-specific reports,
we will be using the cost of goods sold formula:
Inventory Turnover = Cost of Goods Sold/Inventory
As can be seen in Tables A and B, the two calculations yield very different results. The larger the
margin in the industry, the greater the difference. With operating margins of 22%, the difference in the
measurement is especially relevant for Consumer Products companies. Consider the differences
between Table A and Table B. When viewed as a ratio based on revenue, the inventory turns value
for the industry for the period of 2006-2015 is 8.44 versus 2.43 for the same period when measured
based on cost of goods sold.

It is for this reason that in the calculation of the Supply Chain Index methodology in this, and
subsequent reports in this series, we are using the cost of goods sold method in the calculation of
inventory turns.
Table A. Inventory Turns Analysis for All Industries Using Revenue/Average Inventory
.

Table B. Inventory Turns Analysis for All Industries Using Cost of Goods/Inventory Analysis
In our countdown for the Supply Chain Insights Global Summit, we will be publishing a series of
reports on the Supply Chain Metrics That Matter by industry. In this series we will use the cost of
goods definition for inventory turns.

Corporate Overview Data
In looking at the data, it is useful to understand the size and scope of the company. The larger the
company, the more difficult it is to drive year-over-year improvement. As can be seen in the analysis,
it is difficult to gain economies of scale and maintain the competitive position. To help the reader,
here we share some overarching corporate data.
Tables C. Chemical Companies Overview

Table D. Oil and Gas Company Overview

About Supply Chain Insights LLC
Founded in February, 2012 by Lora Cecere, Supply Chain Insights LLC is beginning its fifth year of
operation. The Company’s mission is to deliver independent, actionable, and objective advice for
supply chain leaders. If you need to know which practices and technologies make the biggest
difference to corporate performance, we want you to turn to us. We are a company dedicated to this
research. Our goal is to help leaders understand supply chain trends, evolving technologies and
which metrics matter.
About Lora Cecere
Lora Cecere (twitter ID @lcecere) is the Founder of Supply Chain Insights LLC and
the author of popular enterprise software blog Supply Chain Shaman currently read
by 15,000 supply chain professionals. She also writes as a Linkedin Influencer and
is a a contributor for Forbes. She has written five books. The first book, Bricks
Matter, (co-authored with Charlie Chase) published in 2012. The second book, The
Shaman’s Journal 2014, published in September 2014; the third book, Supply
Chain Metrics That Matter, published in December 2014; the fourth book, The
Shaman’s Journal 2015, published in September 2015 while the fifth book, The Shaman’s Journal
2016, published in June 2016.
With over 14 years as a research analyst with AMR Research, Altimeter Group, and Gartner Group
and now as the Founder of Supply Chain Insights, Lora understands supply chain. She has worked
with over 600 companies on their supply chain strategy and speaks at over 50 conferences a year on
the evolution of supply chain processes and technologies. Her research is designed for the early
adopter seeking first mover advantage.

Endnote
i
How to Find Outliers, July 4, 2016, http://www.varsitytutors.com/ap_statistics-help/how-to-find-outliers

Supply Chain Metrics That Matter: A Focus on Chemical, and Oil & Gas Companies - 2016

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