5 minute read 1 Mar 2018
A forklift transporting barrels

How five drivers impact the chemicals supply chain of tomorrow

By

Frank Jenner

EY Global Chemical Industry Leader

Visionary in markets and business development for the chemical industry. Enjoys race boarding in the mountains. Enthusiastic golfer.

5 minute read 1 Mar 2018

Companies in the sector can no longer afford to focus solely on manufacturing and delivering products. Digitalization offers an advantage.

Chemicals manufacturers are under constant pressure to maximize profitability and operational efficiency. To survive in an increasingly challenging business environment, chemicals players must reinvent their processes and offerings to meet rapidly changing end-consumer preferences.

As global manufacturers move forward with Industry 4.0 — otherwise known as the tech-enabled “smart factory” — chemicals players need to follow suit in order to continue providing efficient and effective support to its customers. Along with aligning strategy to customer goals, chemicals majors must also integrate their process across the value chain

Additionally, a chemicals company can no longer afford to focus solely on manufacturing and delivering products. It needs to be a holistic solution provider for its customers with high focus on innovation and agility to quickly adapt to changing preferences.

Key chemicals challenges addressed by digitalization

The benefits are concentrated in three areas:

  • Operational efficiency. Digitalization promotes a continuous focus on supply chain visibility and agility to manage risk and cost factors. Digitally enabled predictive maintenance, which includes automated data collection and analytics, can help chemicals companies assess equipment health and suggest preventive measures to avoid major shutdowns.
  • Safety, security and compliance issues. Chemicals leakage in plants and transit can pose environmental and safety risks. Automated communication between machines can provide increased precision. Cybersecurity is becoming imperative for chemicals companies as they increasingly automate their operations.
  • Modernized business models. Digitally enabled business models help companies capture demand in real time and deliver the right products at the right time and place. Moreover, traditional business models that rely on a single or a few products for revenue are often not enough to sustain profits.

Chemicals supply chain of tomorrow

With chemicals becoming an integral part of a range of industries, including construction, heavy machinery and food additives, the industry can no longer be considered generic. The future of chemicals is closely linked to that of its customers, and hence it transforms in tandem with them. The chemicals industry of tomorrow will be a result of five major transformation triggers:

1. Increasing customer/supplier involvement

With increasing competition and heightened consumer awareness, the customer will be increasingly involved in the product development, thereby influencing the innovation strategy. In this case, a customer drives the development of products that addresses their specific requirements — leading to development of highly specialized products.

Also, it will feature collaborative R&D and innovation centers where customers can participate in product testing and contribute to product development. This will, in turn, drive increased collaboration with suppliers in product development and R&D, thereby developing an integrated product value chain.

2. Redefining product

Chemicals companies will enhance the value offered to their customers by offering additional services. The agrochemicals players are already on this path, where they are tying up with or acquiring data analytics companies to share recommendations with farmers for optimal quantities of water, fertilizers and agrochemicals based on big data analysis.

Similarly, other producers can offer technical recommendations via an app or software to help customers determine the efficient application of their products.

3. Digitalized plant operations

As digitalization becomes not a differentiator but the need of the hour, all functions — including procurement, R&D, planning, production and distribution — will be utilizing IoT, artificial intelligence, RPA and other tools. The future chemicals industry will witness an omnichannel commerce, where a combination of traditional and online models will be utilized to optimize cost and customer satisfaction.

With online portal technology being combined with blockchain, automated online transactions will become popular across customers, thereby ensuring quicker and more transparent transactions. Further, a smart factory floor supported by RPA and soft sensors for predictive maintenance will be essential for production and cost efficiency.

Additionally, distribution and transportation through automated vehicles equipped with temperature and pressure sensors will be an industry norm. This will drive chemicals companies to develop long-term partnerships with tech companies that provide holistic solutions across the floor.

It will also lead to development of centers of excellence for developing customized technology, in-house, in collaboration with these tech players or through acquisition of tech companies catering to specific functions.

4. Workforce of tomorrow

In an industry driven by innovation, chemicals companies will move toward dynamic R&D teams. In a digitalized environment, scientists will be required to develop a dual skill set of chemistry as well as digital tools.

Further, in R&D, repetitive and iterative experiments could be carried out by leveraging bots and artificial intelligence, thereby adding speed and efficiency. Similarly, bots will be utilized to deliver efficiency in repetitive processes across functions.

5. Evolving role of value chain participants

Additive manufacturing and need for customization will engage end customers with the chemicals players. In such a scenario, where consumers can make cosmetics at home using 3-D printers, a specialty chemicals company will directly be supplying them to the end consumer, thereby eliminating or modifying the role of cosmetic producers, distributors and retailers.

This customization, supported by commercial 3-D printing, may also be done by the retailer or distributor, thereby leading to a shorter, efficient and highly customized supply chain.

Further, as industries increasingly move online for sales, the chemicals industry will be skipping distributors and third-party logistics providers and directly serving their customers through owned or public online portals.

For example, in the automotive industry, the average number of visits to a dealer before purchase has dropped from four to one as customers conduct research and configure cars online. Consumer trust in dealers has been declining steadily.

Summary

With chemicals becoming an integral part of a range of industries, the industry can no longer be considered generic. The future of chemicals is closely linked to that of its customers, and hence it transforms in tandem with them.

About this article

By

Frank Jenner

EY Global Chemical Industry Leader

Visionary in markets and business development for the chemical industry. Enjoys race boarding in the mountains. Enthusiastic golfer.