RELATIONSHIP MANAGEMENT AND NETWORK CONSTRUCTION

Relationship Management and Network Construction in the Chemicals Sector

Relationship Management and Network Construction in the Chemicals Sector

Introduction to the specialty chemicals ChemCo

The specialty chemicals ChemCo can be described in one word, transition. D'Amico (1996) notes that traditionally, investors ran to specialty chemicals companies when poor pricing or mediocre demand growth plagued the industrial commodities sector. Today, many specialty ChemCo have enhanced their strengths to become more desirable to investors. In this transition, to stay competitive, Stinson (1997a) of Prudential Securities stated that internal development and more stringent cost-cutting measures are needed by companies to bring up the bottom line. Global competition and better development of innovation and technology are also a part of the transition. In addition, custom chemical production has become prevalent in the specialties market with the increased formation of partnerships and “virtual” companies (Stinson, 1997a; Peaff, 1996). In short, companies in the specialty chemicals ChemCo are turning to agility and agile practices in order to stay competitive and thrive in the global market.

Relationship Management and Network Construction in the Chemicals Sector

Chemco are two US chemical corporations, both leaders in their fields and with similar sales (around $2bn per year). Eight years prior to our study, the two companies formed a partnership with the strategic objective of gaining competitive advantage through mutual access to low-cost raw materials. One outcome was the establishment in the UK of a small Chemco facility (70 employees) on a large Wheatco site (700 employees). The Chemco facility was located next to the Wheatco “Basics” unit, and linked by a bridge. While a fence divided the two plants, selected employees were able to pass between the two by means of swipe card access. A Chemco manager commented:

We are symbiotically linked. If you take away the Chemco and Wheatco signs, we're really one site … we have a relationship and it's an umbilical cord.

Chemco was dedicated to production of a chemical additive used in the production of rubbers, paints and other compositions. The feedstock used in the Chemco process was supplied by the Wheatco “Basics” unit. The manufacturing process of the additive generated a gaseous by-product, which was recycled back into the Wheatco feedstock. Half of the additive made on the Chemco site was sold to Wheatco's “Rubber” unit, and the rest to other customers in Europe and the USA (Figure 2). The two firms thereby formed a “closed loop” supply chain - whereby they were both customer of, and supplier to, each other. The production processes operated on a round-the-clock basis and there was very little buffer stock within the supply loop: “if we have a problem, then Chemco has a problem 10 seconds later”. This close interdependency of the processes meant that the operating teams were in contact on a 24-hour basis. There was a direct telephone link between Wheatco and Chemco operators to allow easy communication and instant warning of changes in either of the processes, or to inform of production ...