The Power of Digital in Chemicals
Digital technology has the potential to have a significant impact on the chemical industry if new models are created specific to the sector's unique requirements.
- Oct 16, 2019
- 15 min read
Digital opportunities in the chemical industry are substantial, but what are those opportunities and how can business leaders capitalize on them?
In the current environment, there has been a great deal of focus on the potential of digital in chemicals, like there has been on digital across general society. It is recognized that digital technology will have a significant impact on many divisions of the chemical business – improve the value chain process, increase productivity and innovation, and develop new market channels. It is, however, critical to differentiate actual value from myths about digital and identify its potential impact on the industry.
There are a number of changes associated with digital. The cost of creating, gathering and storing of data has reduce significantly as computational capability touch new heights at reduced costs. Simultaneously, society has developed a stronger intent to engage with digital technology and also increased expectations for the quality of user interfaces and service levels.
Together, these aspects have produced new ways of doing business in the chemical sector. Organizations have the capacity to use sophisticated analytical tools to obtain useful data from a large amount of raw information generated for management teams. Based on the knowledge gained, companies can improve their plant productivity and operations and make smart and quick decisions on all aspects of chemical business processes. In the broad sense, the chemical sector is a key supplier to other companies. For most chemical companies, the changes caused by digital technology create both opportunities and challenges.
The main challenge facing major chemical organizations is to understand the specific areas of digital in the sector and the corresponding implications. It is important to understand the interaction between digital technology and the value chain in the chemical sector, the impacts created on the operational processes and the justified actions that industry leaders must take.
What are the paths in which digital technology will change the chemical business landscape and which areas will have the greatest impact?
Digital technology can have an impact on the chemical sector in three key ways. Firstly, companies can improve their operational processes through digital-oriented methods – referred to as functional excellence. Secondly, digital can potentially influence demand trends in the markets, in turn affecting value chain framework. Thirdly, digital can create powerful changes in current business models that allow chemical organizations to generate and tap into value for their customers.
Achieving functional excellence in new ways
Chemical organizations can capitalize on the potential for performance improvement in their processes – manufacturing, sales, marketing, research and development through data collection and analysis. In the last decades, functional excellence has resulted in substantial productivity improvement. Digital technology has made it possible for chemical companies to access further higher productivity improvements.
Manufacturing operations are recognized as a substantial and easily accessible opportunity for all types of chemical companies – from petrochemical firms to pesticides manufacturers. There is a considerable margin for improvement in profits associated with the use of digital in manufacturing operations. There is a large amount of data generated continuously by chemical plants, but it is mostly abandoned. Executives should instead gather this data and examine it in order to identify ways to achieve higher output, reduced energy consumption and establish efficient maintenance protocols. By doing this, companies can easily improve performance by using current IT systems and process management procedures. Additionally, organizations that enlarge the types of data they retrieve may benefit from additional benefits.
Substantial returns can be gained this way. A polyurethane manufacturer used sophisticated analytical tools to generate large data points from the production process of its plant. As a result, the company was able to identify critical factors for operational improvement. They increased the isocyanates output without investing any additional capital and reduced the plant’s high-pressure steam usage to achieve significant savings. Another, leading specialized chemical manufacturer used analytical knowledge on its production model to achieve higher levels of accuracy. They utilized the new model to generate in-depth, real-time insights and guidance by a customized app designed specifically for plant’s operation to modify parameters to maximize performance. The modification resulted, within a short period, in significant output increase which translated into higher profits and a reduction in energy consumption, resulting in savings in raw materials.
There are additional digitally-oriented opportunities that can generate value in the operation and manufacturing area. For example, companies can use automated guided vehicles such as self-driving forklifts or use robots to fill larger bags. These digital improvements can reduce costs and improve process consistency and safety. Simultaneously, using an automated plant performance management model, direct operation processes can be optimized and quick action can be taken when rectification is required.
In many divisions of the chemical sector, this prospect can be further extended to the production process and to the entire supply chain. Advanced analytical data enables accurate projections, resulting in improvement across the sales and operational planning framework. Additionally, this can improve scheduling of batch production, reduced lead times and enhance safety procedures with higher flexibility. The integrated “no touch” system of ordering and scheduling will assist in providing consistency beyond production planning.
Digital technology can potentially generate value in sales and marketing units. Digital data centric decision making can produce major sale opportunities and corresponding profitability increase. Digital data-centric decision-making can lead to major sales opportunities and a corresponding increase in profitability. These digital initiatives can include advanced analytics-enabled pricing models, improving data-based progress prospects, and using algorithms to project customer dissatisfaction, and formulating corrective actions for sales teams. The effects of such measures can be important. A major nutrition company used inside and outside data to generate a transparent system at an extensive customer product level. Advanced analytics examined millions of data points to devise improvement measures for marketing reps to boost sales and provide guidance through an easy-to-use app. As a result of these actions, the company experienced substantial growth in the final markets.
Another aspect of potential importance is the improvement of customer experience and the development of digital channels. It has been observed that the majority of business-to-business buyers in chemicals favor digital channels for reordering instead of in-person communication. Digital channels coupled with process digitization can lead to better customer experience with lower operating costs. The realization of this potential will be different for different segments of the chemical industry based on their relative competitive edge.
There are important opportunities in R&D to rapidly generate higher value-added profitable products, particularly for specialized and crop protection chemicals. Chemical organizations can use optimization methods to develop and modify molecules to generate value. Advanced analytics and automation learning can be used to simulate experiments, to use digital predictive capabilities to maximize formulations and cost models, and to extract data from previous projects – both successful and unsuccessful. Additionally, digital tools can be used to set up an optimal resource allocation system to improve R&D department performance and innovative capabilities. These methods are widely used in the pharmaceutical sector but have been far too expensive for other chemical organisations. However, as digital technology develops and becomes cheaper, the majority of companies can afford such an approach.
Changes in Chemical End Markets Caused by Digital
Many value chain models and end-market trends can potentially be modified by digital changes in the chemical industry, which in turn can alter demand trends and requirements.
Consider the automotive value chain approach framework. Digitalization has played a key role in the clear and rapid progress made in the development of self-driving cars, but their impact on the chemical industry is less evident. One such impact may be linked to an improvement in the safety of traffic provided by self-driving cars. As the rate of accidents decreases, the need for refining of coatings also decreases, which, in turn, has a significant impact on coating manufacturers as well as on chemical organizations producing coating ingredients. In addition, if collective self-driving vehicles were to replace individual cars, the resulting demand for new vehicles would be reduced – there is a wide range of implications for chemical producers involved in this major industry.
Developments made possible in the agriculture sector by digitisation – precision farming, for example, has the potential to influence chemical demand. Over the last few years, organizations dealing with services related to crop protection and similar have been working towards an analytical integration approach using, satellite imagery, navigation, computerized projections and learning capability to enable fertilizers and pesticides to be applied to specific portions of the field, such as a square meter area or a single plant. In the event of success, the need for agricultural chemicals will be significantly reduced.
Increased use of online platforms also affects chemical demand. For example, grocery goods are purchased at an increasing rate through online platforms, where buyers make purchases without viewing the physical product. This has a significant impact on the end-market of the packaging, petrochemical and plastics industries. Since the way a product looks or feels will become less significant in purchasing decisions, trends and practices in the packaging sector will change. The use of decorative packaging will decrease and functional packaging factors will become more significant, such as the design of packages that can allow maximum packages to fit into a truck. Such changes in trends will have an impact on the chemical manufacturers supplying these packaging value chains.
Digital Centric Business Models in Chemical Sector
Can digital technology have the potential to change the sale and distribution of chemicals and, if so, how the value of the product will change? Is it foreseeable that product sales will shift to service sales? Would there be factors to interrupt the relationship between manufactures and their customers, like business to consumer companies in other sectors? Different players in the chemical sector will respond differently to these questions: As an overall observation crop-protection chemical manufacturers and some specialty chemical producers may be at the brink of business model disruption, while industry-related distributors see potential future opportunities for themselves. Petrochemical companies may remain least affected.
First, business models with the flexibility to remain linked to the product used give rise to considerable opportunities in certain segments of the chemical sector – for example, via systems that monitor the chemical application in industrial operations. For example, in the catalysts segment of the chemical sector, products are moving towards a “performance pay” methodology over a mere product sales approach. By maintaining a link with used catalyst, they can maximize their production efficiency for customers and take advantage of the prospect of establishing an extensive information database capable of enhance catalyst utilization of the entire customer pool and charge for this service. Numerous models, such as this one, are being developed for years partially for the specialty chemical sector and the likelihood of their implementation is increased by digital technology. However, these models may not be viable for all segments of the chemical industry. Their main emphasis is on specialty chemicals such as catalyst chemicals.
Second, the emerging prospects for intellectual-property-oriented systems dealing with licensing or consultation are increasing. According to these approaches, organizations may convert their guidance on the optimal use of their products as a chargeable service or may license the production of proprietary molecules to other manufacturers. However, the effectiveness of such models remains to be determined.
Third, data-and analytical-centric operating models appear to be increasing in specific segments. In the agricultural sector, for example, an organization can combine geological, geospatial and meteorological information with knowledge of seeds, crop protection products and fertilizers, and instead of selling such inputs, it can negotiate payments on the basis of the yield or profit earned by the farmer.
Many successful and effective business models in other sectors may have little or no impact on a large part of the chemical business sector. Establishing platforms as channels to link third parties have been successful in other industries. However, this may not be feasible to put into practice for the chemical industry ecosystem, where suppliers are scarce and already known to prospective clients, and a good number of chemical manufacturers have proprietary knowledge that they will not be willing to share. These models, on the other hand, are likely to be effective in fragmented parts of the chemical industry with manufacturers operating plants at low utilization rates, but requiring rapid product movement to increase sales – and therefore highly interested in new channels.
Supporting Digital Changes in Chemical Industry
In chemicals and in other major business-to-business industries, successful approaches to digital address the following six requirements:
There are many opportunities for digital technology in the chemical sector, but organizations need to devise new strategies and models to capitalize on them. The scope of success is wide for early adopters of digitally enabled approaches. Recent years have seen substantial changes at an amazing rate, but the consequences of such changes are irregular and are associated with a high level of uncertainty. Strategizing requires a drastic and irreversible decision-making process to tap economic returns ahead of time and in uncertain situations. Companies must follow this rule aggressively and devise specific digital polices related to their specific industry.
In short, major chemical organizations have been working towards developing and implementing digital-centric strategies. These changes have the potential to be a valuable competitive advantage over a short period of time relative to other competitors.