Commentary: Dow Chemical puts analytics to work for logistics

   When Dow Chemical plans for the future it follows the approach that IBM gets the most headlines for: it looks decades down the road and prepares for trends and crises related to energy, environment, population, food, and other demands.
   The company is now shifting focus because of a trend that shippers can’t stop hearing about today: analytics. Dow has morphed from a supplier of basic chemicals and supplies to narrowing in on high-margin specialty and value-added products. The company has invested heavily in analytics engines and employees who can read this data and fine-tune the results to facilitate changes.
   Dow has used various predictive analytics services for decades, snapping up as many math graduates as it could get, but in the mid-2000s Chief Information Officer Dave Kepler expanded the analytics group’s abilities to the supply chain, purchasing, and environmental science groups. This was the genesis of Dow’s freight and logistics models. The company told InformationWeek these models analyze about $2.8 billion in annual freight costs as well as $4 billion in annual raw materials spending.
   The company has used its ability to process economic data and projections to put together business units focused on the future, which may have helped it to shift gears ahead of recently rising costs in the chemical industry.
   According to an analysis by PricewaterhouseCoopers, makers of chemicals and metal industrial components are likely looking at ways to move their production units back to the United States from Asia due to projected increases in shipping costs.
   The analyst said higher shipping costs and lower energy prices in the United States – which have come about from an increase in domestic natural gas production – will likely force production to shift as factories use more energy and the heaviness of their products makes them costlier to ship.
   Dow was already ahead of this as it announced in April plans to build a multibillion-dollar plant in Texas to convert natural gas into the building blocks for plastics. At the time, the company said one reason it planned to build in the United States was its predictions on the labor force and continued gas production. Dow said the cost inflation related to competing for workers and supplies were not projected to reach levels that would undermine the viability of the Texas plant or other operations it has in the area.
   While the company may not have foreseen all the coming changes to its industry, its recent moves and prior statements all pointed to the use of analytics.
   According to the U.S. Labor Department, 12 million Americans worked in factories as of August, a 3.6 percent increase from 2010, and independent analysts point to rising costs on foreign soil as a significant factor in much of this growth.
   If analytics were truly able to help companies react to those changes in the labor market, as well as changes in shipping costs and priorities, is there any excuse left for anyone in this industry not to begin looking at the benefits of predictive analytics? – Geoff Whiting