Maximizing Value in the Petrochemical Industry through Performance Excellence

The petrochemical industry's sustained growth faces challenges from increasing capacity additions and slowing demand growth. Petrochemical companies must prioritize performance excellence across all functions to navigate this evolving landscape.

FREMONT, CA: The petrochemical industry has experienced remarkable growth in recent years, with the value pool expanding at a compound growth rate of 8 percent annually since 2010. Many factors have contributed to this growth, including using advantageous feedstock in the Middle East and the United States. Furthermore, the industry has benefited from high-profit margins driven by robust demand from packaging and consumer-goods companies, along with supply disruptions caused by the COVID-19 pandemic, albeit with regional variations.

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However, as the industry faces significant capacity additions and a potential slowdown in demand growth, the value pool is at risk of shrinking. Early signs of this shift are evident through declining integrated margins of petrochemical products. Petrochemical companies must prioritize performance excellence as a key strategy to navigate the challenges of an uncertain and volatile market. Achieving excellence across all functions, from operations and maintenance to supply chain and talent management, is essential for companies to outperform their competitors and tap into new value pools.

To capture value comprehensively across the various workstreams of a transformation framework, organizations should employ best practices and utilize both top-down (financial) and bottom-up (functional) benchmarks. These benchmarks serve as a starting point and guide for prioritization. Still, true insights emerge through intensive internal interactions, such as analyzing data sets, conducting idea-generation workshops, and engaging with subject-matter experts within the organization. Solid initiatives can be developed by dedicating focused efforts to extract ideas from the results, leading to a bankable plan that generates tangible impact. Let's delve into the key functional areas in petrochemical companies that can derive the most value from a transformation.

Operations improvement enables companies to maximize revenue without significant additional capital spending. Companies can improve by enhancing yield, energy efficiency, throughput, and product quality while maintaining safety and reliability. Combining top-down benchmarking of individual unit performance and bottom-up idea generation empowers process engineers and operators to contribute ideas that enhance yield and throughput with minimal capital expenditure. Integrating digital tools and data analytics has also proven beneficial for the industry, optimizing operations by improving yield, quality, throughput, and reliability.

Maintenance plays a crucial role in ensuring reliability at the lowest cost. Efficient maintenance is key to reducing costs and enhancing reliability. Labor costs typically constitute more than half of routine maintenance expenses. Inefficiencies often arise in maintenance tasks, such as unnecessary work duplication, time wasted searching for parts, or technicians waiting for machine availability. Therefore, assessing and improving "wrench time" efficiency is fundamental in optimizing maintenance costs. Whether maintenance is outsourced or performed in-house, inefficiency incurs a financial burden.

Realizing the full value of wrench-time improvements involves a two-step approach. Firstly, there must be improvements in end-to-end management processes for maintenance work, including work planning, scheduling, and execution. Companies can leverage various lean and digital tools to enhance wrench time. Secondly, optimizing in-house or contracted labor becomes essential to monetizing the improved wrench time once efficiency initiatives are implemented.

Procurement represents a critical area where companies can capture sustainable value. Often treated as a transactional function, procurement needs more strategic focus for significant bottom-line impact. Transforming the procurement function requires a holistic approach that balances quick wins, such as expanding the supply base and optimizing demand, with long-term initiatives like capability building and digitalization. Organizations can achieve short- and long-term objectives using tools like clean sheet and should-cost models, incentives, and influencing mindsets. For example, the clean sheet approach allows companies to capture substantial value by improving cost estimates through granular breakdowns of materials, labor, equipment, time, and energy during product development.