At around $3 trillion, the chemicals sector is one of the biggest and most important in the world. And while the largest companies take the lion’s share of this pie, there is a thriving, 

fast-moving market for small and mid-sized players in the industry.

These companies typically have the same needs as the big guys – HR, finance, all of the standard line-of-business functions – plus chemistry-specific operations. But to find a competitive edge, they also need to be able to do flexible batch operations and rapidly set up new equipment and processes at a small scale.

Traditional operational models only go so far. To fight for a share and win it, they need every advantage they can get. In short, they need the cloud.

I can think of five compelling reasons why:

1. Mobile workforce. Whether on the floor at a processing plant, with a client or on the move, empowering employees to sift real time data and make decisions on the fly revolutionizes their potential across the board.

2. Minimize disruptions.Chemicals companies operate across a huge spread of regulatory environments. These aren’t all compatible and they often change. The right sort of cloud setup means that problems can be anticipated – and stakeholders informed – with time to do something about them.

3. Scalability. A cloud-hosted solution available at short notice and on a hosted monthly subscription basis does not need the up-front capital back-up that larger players enjoy. If there’s a peak in business in an emerging market, for example, you can meet that need quickly and easily.

4. Collaboration.In a flexible, fast-moving operation (and indeed many larger ones), not all of the key team members will use the same technologies. With the right technology, collaboration – as well as transparency and accountability – are easily managed.

5. Differentiation through Innovation.Product life cycles are shrinking, customers get more and more demanding and competition gets tougher in today’s global world. Product innovation, but also rapid business model or process innovation are powerful weapons to survive or thrive in such an environment. Here cloud solutions can help to secure rapid access to latest technology innovations without going through time consuming and costly (re)-implementation projects.

While cloud computing has yet to fully penetrate the chemicals industry, other sectors, such as retail and healthcare, have picked it up enthusiastically. You don’t have to look far to see some intriguing examples of best practice and unprecedented agility. Amazon, for example, in its warehousing, or UPS in its logistics, not to mention much of the technology you use without even thinking on a smart phone.

It’s no great leap to see that the technology is relevant to more than one sector. The real revolution cloud-based solutions promise is not so much what they deliver as it is how they deliver it – with unprecedented speed, simplicity and scalability, plus reduced cost and risk.

To learn more about we can help you with your business challenges please have a look at SAP’s Solution Explorer for the Chemicals Industry: https://rapid.sap.com/se/#index?indids=i_chemical and find out more about our cloud solutions: http://www.sap.com/uk/pc/tech/cloud.html

What do you think about the issues discussed here? Continue the conversation in the comments below and on Twitter @SAP4Chemicals

Dr. Stefan Guertzgen works for 6 years as Global Director for Industry Solution Marketing Chemicals at SAP. Prior to this assignment he has worked for 11 years in the chemical Industry (Chemtura) in various positions comprising R&D, Global Business Development, Sales and Business Process Management, and Sales & Operations Planning. In addition, he has 7 years experience in Presales and Management Consulting for the process industry (AspenTech, AT Kearney, and SAP Business Consulting) with focus on business operations.

The fact that big data is “big” does not mean we should be scared of it. In fact, harnessing its 

power is both easier than you might think and, for the chemical industry, essential. Whatever the business, chances are that the amount of raw data created is increasing all the time.

When we say “big data”, we are talking about being able to deal with it effectively, to process it efficiently in real time, to understand it and to use it for impactful decision support.

Other industries have already developed best-practice models, but we can see some key ways it would benefit chemicals:

• Handling shrinking product life cycles, mass customization and expanding regulatory frameworks in product innovation and R&D

• Analyzing the valuable data spawned by manufacturing and asset management to predictively model performance

• Taking care of complex shipment and logistics transactions in supply chain management, tracking and tracing goods – and being able to respond to any potential issues in real time

• Understanding the pipeline, customer and product profitability at any level of granularity in sales and marketing. With the right tools, you can carry out simulations to focus on or commit to the most profitable deals and respond to customer needs on the fly

Overall properly managing big data does not only allow faster and more efficient decision making, it even enables business transformation or innovative business models via processes which have not been possible before.. That’s what drives the need.

Harder to quantify, and yet perhaps most important of all is the way that big data empowers people by removing the need for endless chains of approval. With real-time cloud-based relevant data in their hands, people can make decisions on the plant floor or at the customer site without having to wait to talk to their boss at the end of the shift or when they get back to the office.

Ultimately, it’s about total cost of ownership. The end game is that we have a convergence between online analytical processing and online transactional processing, obviating the need for middleware and reducing layers so we need less hardware, software and IT operational support.  The result? Sustainable innovation via smarter, faster and simpler business processes.

To learn more about we can help you with your business challenges please have a look at Solution Explorer for the Chemical Industry and find out more about our cloud solutions.

Dr. Stefan Guertzgen works for 6 years as Global Director for Industry Solution Marketing Chemicals at SAP. Prior to this assignment he has worked for 11 years in the chemical Industry (Chemtura) in various positions comprising R&D, Global Business Development, Sales and Business Process Management, and Sales & Operations Planning. In addition, he has 7 years experience in Presales and Management Consulting for the process industry (AspenTech, AT Kearney, and SAP Business Consulting) with focus on business operations.

The world population is expected to reach 9 billion in 2050 and, along with providing clean water, sustainable energy and accessible healthcare, feeding the world is one of humanity’s top global issues. However, availability of arable land diminishes and regulatory requirements increase, both forcing farmers to do “more with less” and produce higher yields using fewer chemicals distributed in very precise ways – this approach is called “Precision Farming”. In order to drive sustainability and profitability goals, farms more and more consolidate into mega-farms managed by farm managers and corporations, ultimately increasing the power and influence of the farmer within the entire value chain.

On the other hand there are the producers and suppliers of seeds, plant protectants and fertilizers who want to maximize their business with farmers and differentiate themselves from competition through innovative products and service offerings.

So what’s the role of Big Data in this ecosystem? First and foremost farmers need to measure and understand the impact of a huge amount and variety of data which drive overall quality and yield of their fields. Among those are local weather data, GPS data, soil specifics, seed, fertilizer and crop protectant specifications and many more. Being able to leverage this data for running long and short term simulations in response to “events” like changed weather, market need or other parameters is indispensable for farmers in terms of maximizing their profits. From a regulatory perspective tracking and tracing products throughout the supply chain or Country of Origin labeling provides additional Big Data challenges.

Suppliers of seeds, plant protectants and fertilizers need to receive all this data, bring it into a cohesive model, and apply proprietary algorithms in order to provide best possible solutions and services to farmers.

Manufacturers of agricultural machinery are another essential part of the overall value chain. They not only need to ensure maximum uptime of their assets at lowest costs but also support mobile data collection (e.g. soil samples, moisture monitors and sensors, color of crops in the field, growing rate, weather damage, nutrient level, crop variety) and make this info available in real time for further processing within the value chain.

Besides farmers, agribusiness companies, suppliers and manufacturers of agricultural machinery, weather stations and laboratories, traders and industry partners and technology and solution providers are part of an increasingly complex ecosystem (see picture below) with a strong need to secure Big Data from a myriad of sources.

This calls for an independent, Big Data-enabled, trusted, and secure platform for all stakeholders in the agriculture supply network to deposit, share and exchange data for mutual benefit in support of the precision farming concept. Such platform should simplify and orchestrate farmers’ collaboration with seed producers, crop protection chemical suppliers, fertilizer companies, equipment manufacturers, commodity traders and data brokers with the ultimate goal to drive improved yields and sustainably feed the world’s growing population.

So what are your thoughts on precision farming and the role of Big Data?

Dr. Stefan Guertzgen works for 6 years as Global Director for Industry Solution Marketing Chemicals at SAP. Prior to this assignment he has worked for 11 years in the chemical Industry (Chemtura) in various positions comprising R&D, Global Business Development, Sales and Business Process Management, and Sales & Operations Planning. In addition, he has 7 years experience in Presales and Management Consulting for the process industry (AspenTech, AT Kearney, and SAP Business Consulting) with focus on business operations.

Chemical companies are finally starting to see the light after a decade of struggling for survival. The future is looking bright with forecasted growth rates the highest the industry has seen in more than 20 years. Billions upon billions of dollars have been pledged in support of new chemical plant projects around the world and Exxon Mobile Corporation chairman, Rex Tillerson predicts, “Global chemical demand will grow at a faster pace than GDP” (ExxonMobile). With the chemical industry back in the game, so to speak, executives can finally start to relax and enjoy the ride, right? Wrong. A new threat is looming on the horizon with the potential to seriously jeopardize projects and the progress of the industry as a whole. The issue now keeping chemical CEOs up at night is the limited supply of skilled labor.

Availability of talent is a top CEO concern

In its 17th annual global survey of CEOs, PricewaterhouseCoopers (pcw) found that the availability of key skills was one of the top five most pressing concerns of CEOs in the chemicals industry. (Other concerns were volatility in economic growth, capital markets and exchange rates, as well as energy costs.) Skilled labor is becoming increasingly difficult to find. Market drivers affecting the availability of qualified talent for chemical companies include:

• International competition. As chemical companies continue to expand globally, they now face competition for skilled workers from across country borders. For example, Canada’s Oil & Gas Industry is competing for the same workers as United States companies and they are willing to pay well to attract qualified talent. As a result, the labor shortage is no longer just regional but global as well.

• Worldwide operations. International chemical companies often must establish operations in close proximity to their customers. This requires hiring from the local talent pool or relocating existing workers. In both scenarios, addressing cultural diversification and differences can increase the complexity of workforce management.

• Aging workforce. In many of the world’s developed countries, retirement-age employees from all types of industries are exiting the workforce at a faster rate than qualified workers are being hired to replace them. According to Ernst & Young, both Japan and Europe have more people exiting the workforce than there are workers prepared to enter it. More specifically, by 2030, the labor gap in Europe is expected to reach 8.3 million workers and by the end of this decade, countries such as Russia, Canada, South Korea and China will also have more retirees than new hires. This labor gap not only leaves companies with a lack of manpower, but older workers take with them valuable tribal knowledge gained from years on the job. Again, according to the survey by pcwPwC, more than 50% of chemical CEOs are concerned about the impact pending retirements will have on their workforces.

• Evolving skill sets. Despite a growing number of college educated workers, many global chemical companies are having a difficult time finding employees with the needed skill sets. This is partly due to the rapid, and continuous, deployment of advanced technologies throughout the company. For example, the explosion of data and its real-time application at a plant site requires a different level of knowledge than needed by workers just a few years ago. Another factor in the labor shortage is that although educational access is growing worldwide, not enough students graduate with the skills desired by global employers.

Part 2 of this blog will talk about how technology-based strategies can be used to close the talent gap.

In the first part of my blog I pointed out that availability of talent is a top CEO concern. Let’s now discuss how technology-based strategies can be used to close the talent gap.

The long-term success of chemical companies depends on finding effective ways to attract, retain and grow a skilled workforce. One way to do this is to implement the latest technology solutions, allowing employees to work in an environment that is familiar and comfortable. For example, Gen X and Gen Y workers have grown up in a world of instant communications, 3D graphics and open system architectures that provide access to information how and when they want. By offering a work environment featuring the latest technology systems, companies can give themselves an important edge over competitors trying to recruit the same talent.

Effectively collecting, storing and using data is another strategy for maintaining a strong workforce. To begin with, having an integrated, high-speed technology platform allows companies to process information quickly in order to match skill sets to needs. From there, putting data in the hands of employees, at the time they need it, empowers them to make informed, real-time decisions and leads to high levels of improved job satisfaction.

A third opportunity to retain and grow talent is by creating a work environment focused on collaboration and information sharing. Giving employees access to one integrated technology system ensures everyone is working from a trust single source of information. When content is changed in one location, such as the layout design of a new plant facility, it is updated throughout all other departments. Integrated processes also have significant implications for ongoing employee training and growth. When systems are integrated, maintaining updated training and compliance materials is less of a challenge. A final benefit of a connected, collaboration environment is that it allows companies to capture and store the knowledge of long-term employees so that it can be accessed at a later date by the next generation.

The above mentioned strategies are just a few of the solutions chemical companies can use to help address the growing labor shortage. Whether it is due to competition, demographics or job skills, the demand for high-skill labor is growing faster than supply. Chemical companies must find a way to hire and retain workers if they are to take full advantage of positive market conditions and reach their maximum growth potential. It is not an easy problem and there are no easy answers, which is why it’s no wonder chemical executives are not sleeping easy at night.

Please share with us your opinion on the Future of Work in the Chemical Industry.

Chemical companies are investing billions of dollars in technology solutions designed to capture, process and use data generated from a myriad of devices, partners and industry systems. As companies explore what is being called the Internet of Things, they are seeing substantial return on investment in the form of equipment effectiveness, reduced quality costs, improved supply chain visibility and much more. Chemical executives that know how to successfully navigate this era of Big Data are transforming the way business gets done, while those that lag behind are jeopardizing the future.

The Internet of Things

The Internet of Things (IoT) is defined by Gartner, Inc. as a network of physical objects that contain embedded technology to communicate and interact with their internal states or the external environment. The amount of information flowing to and from these smart machines is incredible. Yet, data by itself is relatively useless. It is only when chemical companies have the intelligent systems and technology backbone in place to capture the data and convert it into action that the true value of the Internet of Things can be realized. For example, IDC forecasts the IoT revenue opportunities for process manufacturing industries (including chemicals) will be $167 billion by 2018.

Actionable data

A lot has been written on the data being generated by sensors embedded in everything from test tubes to turbines. Yet it’s difficult to understand the tangible benefits of the Internet of Things without some concrete examples to explain how newly available information is being used to change the business of chemical manufacturing. Below are a few ways chemical companies are capturing data and using it to make insightful business decisions. Of course, it is important to remember that companies are just beginning to understand how to operate in this new, data-intensive environment.

• Predictive maintenance: Today’s assets like chemical reactors are more intelligent thanks to embedded software and analytics that can diagnose their health. Assets send signals about their status and performance to predict possible malfunctions and maintenance needs. 3D asset visualization delivered in a spatial context, known as augmented reality, further enhances maintenance from a service perspective.

• Operational intelligence: Chemical firms generate volumes of data during manufacturing, but they exploit only a small amount to improve decision making and add value. By blending all your data, analyzing it in real time, and federating results for intelligent decision making, you can improve operational, safety, and environmental performance.

• Quality assurance: The ability to analyze large quantities of data quickly can improve quality assurance and processes. Many chemical companies focus on the last 30 batches of materials to manage process quality and controllability. Today, companies can analyze tens of thousands of batch results across the enterprise and use the broader data set to change operating conditions and improve quality.

• Smart products and connected logistics: In a complex and heavily-regulated, global business environment, it is important to have an integrated supply chain. Data from sensors embedded in product packaging or transportation assets can help to track and trace the location, condition, and authenticity of products. For example, alerts or signals from RFID tags can identify when temperature or moisture levels deviate from acceptable ranges or provide evidence for counterfeiting of shipped products on their way to the final destination. Also, sensors can help with locating containers and even track moving assets to prevent loss.

• New business models: Today’s farmers want to produce higher yields using fewer chemicals in a very precise way. Called “precision farming,” this approach relies on an ecosystem of farmers, agribusiness suppliers, equipment manufacturers, traders, and technology providers. These stakeholders need a secure, Big Data–enabled platform for accessing and sharing data to support precision farming. Sensors capturing and transmitting information such as local weather data, GPS data, or soil specifics including fertilizer and crop protectant levels are pivotal to success of such innovative business models.

Part 2 of this blog will elaborate on the role of technology as foundation for IoT driven business transformation.

Read also the CEO Perspective on the Internet of Things for Chemicals and follow us on @sapindustries for the latest updates on SAP Industries news, insights, and events.

As illustrated in part 1 of this blog series, the business benefits associated with converting data into action are significant. From increased responsiveness across entire supply chains to operational processes that drive growth and enhance performance, there are clear advantages for nearly every department.

Effectively leveraging the IoT for your organization requires a willingness to embrace recent technology advancements. First, organizations must have the ability to capture store large amounts of data. Second, you need processing capabilities powerful enough to analyze the information quickly and apply advanced algorithms for predictive insights. Companies should also have an integrated architecture capable of combining big data, analytics, mobile, cloud and social media on a single platform. It is also helpful to have a user-friendly, graphical interface to make sense of the data results and support augmented reality. Lastly, embracing cloud-based solutions that provide real-time access to the right data at the right time can save considerable amounts of time and money.

The Internet of Things is opening up opportunities we are just beginning to understand. Using technology to connect assets, people, products, and processes is helping chemical companies to make data-driven decisions, allowing them to capitalize on new growth opportunities while simultaneously saving money through more efficient operations. In what has been described as the “era of Big Data,” chemical companies that can take information and transform it into innovative action will be the undisputed leaders.

Read also the CEO Perspective on the Internet of Things for Chemicals and follow us on @sapindustries for the latest updates on SAP Industries news, insights, and events.

Companies in the chemical industry are facing fierce competition as they strive to drive sustainable innovation, growth, and profitability – especially after a decade of financial struggle and consolidation. And even though the future looks bright, with the highest forecasted growth rates the industry has seen in more than 20 years, there are still immense challenges.

Like almost every other industry, chemical companies are looking for new ways to manage highly fluctuating economic conditions, uncertain markets, global competition, and continuously increasing regulatory requirements. So what will help these organizations drive innovation and value?

Looking ahead, here are six strategies that the forerunners in this industry are already adopting to advance beyond surviving to thriving.

1. Fully prepare for rapid globalization and growth. Leading chemical companies understand that rapid growth in new regions and markets via mergers and acquisitions is a key critical success factor. To achieve this, they are entering these markets with preconfigured, field-proven best practices and adaptive business processes for core functions that can be deployed and ramped up quickly. And they are eliminating historically grown complexity as they harmonize processes and operations on a global basis to establish a business model that is poised for sustainable growth and expansion.
    
2. Drive sustainable product innovation and integrity. Increasing global competition and new demands from the growing middle class in emerging countries is driving reduced product lifecycles and mass customization. But industry leaders know that speed to market must not compromise product quality and integrity. Therefore, they are accelerating the speed of innovation with integrated processes that drive rapid time to market while ensuring product safety and stewardship throughout the entire product lifecycle. And they are adopting holistic concepts, such as Cradle to Cradle, which target zero emissions and 100% recycling of waste.
    
3. Make the most out of existing assets. Chemical industry assets are capital-intensive – and because of the nature of the industry, there are always inherent risks associated with hazardous materials. Given this, the leading companies are using Big Data to maximize the use of their assets in a safe manner that doesn’t compromise performance or safety. In the past, this huge amount of valuable data wasn’t fully exploited because of the volume and its dispersed nature. But now, smart companies are leveraging that data for real-time analytics, performance insights, and predictive models to maximize overall plant and asset performance. This is a key success factor that adds tremendous business value and is clearly distinguishing leaders and innovators from average performers.

4. Excel at managing complex and volatile supply chains globally. There are major global shifts in demand and supply, triggered by the shale gas revolution in the United States and the rapidly increasing middle class in the emerging countries. These shifts add elements of volatility, uncertainty, complexity, and ambiguity (VUCA) to chemical supply chains. The leaders are responding with fully integrated processes, from planning to execution, that provide end-to-end visibility and compliance. These processes also allow for real-time event response, and leverage predictive models to overall mitigate short- and long-term risks of supply chain disruption. Consequently, the leaders are equipped with the necessary agility and responsiveness in their supply chains to stay ahead of competition.

5. Focus on greater profitability through customer-centric sales and service. Poor customer segmentation and pipeline visibility as well as inconsistent pricing policies can cause lost revenue and erode margins. Leaders are finding ways to increase visibility into sales performance, pipeline and price waterfall at individual customer and product level, and regional and channel performance so they can proactively manage prices and margins. In addition, they are implementing consistent policies around price setting, price execution, and delivered services across all channels to ensure sustainable growth of revenues and margins.

6. Proactively manage knowledge and talent. The issue of talent management is certainly one that can keep the CEO of any chemical company up at night. Global competition for talent is increasing and worldwide expansion requires relocating workers or recruiting from local talent pools, all while being sensitive to cultural issues. In addition, the issue of the aging workforce is quickly becoming a major concern, as the loss of institutional knowledge and a lack of manpower for the factory floors is threatening to undermine the forward movement of these companies. Therefore, to master talent management, market leaders are taking measures to better understand strategic workforce needs and, at a tactical and operational level, better manage the entire people lifecycle – from hire to retire. This includes looking into how to make jobs more appealing to the Millennials and exploring how to capture the life-long knowledge of Baby Boomers who are leaving the workforce.

Chemical companies merely need to look at the leaders in the industry – the companies that have a competitive stronghold – to see how these critical practices are leading to great success. And while it may seem like a daunting list, the adoption of some form of these success factors is truly what will take companies from merely surviving to thriving.

To learn more about how SAP is helping chemical companies address each of these practices, visit sap.com/chemicals.

For years, we’ve been flooded with reports detailing how new drilling and fracking technology will unleash a supply of natural energy that will change the world. Suggested benefits of shale gas include energy independence, a resurgence in manufacturing, lower energy costs, and new jobs.

Indeed, studies indicate that the United States possesses enough natural gas to supply the nation for upwards of a hundred years. And while estimates vary on the actual amount of natural gas hidden beneath the earth, the initial results have stimulated a surge of investment in U.S.-based chemical manufacturing.

Along with an increase in supply, global economic changes are causing a shift in energy demand. According to the Organization for Economic Cooperation and Development (OECD), the size of the global middle class is predicted to increase from 1.8 billion in 2009 to 3.2 billion by 2020 and 4.9 billion by 2030. This larger middle class will consume its fair share of resources, including modern electronics, energy, and fossil fuels. The intersection between greater supply and greater demand is creating some exciting new opportunities for chemical manufacturers.

According to the EIA 2014 Annual Energy Outlook report, U.S. shale gas production is projected to grow from 9.7 tcf in 2012 to 19.8 tcf in 2040. Driven by horizontal drilling and hydraulic fracturing, the “shale revolution” is prompting many chemical manufactures to make changes to their current operations. Three strategies that offer the most benefits are moving closer to feedstock, importing shale gas or use alternative feedstock, and securing first mover advantage to push sustainable technology innovations into the marketplace.

Moving Production Close to Supply: According to industry experts, approximately 60-70% of the costs of chemical production is in the feedstock or raw materials. Companies seeking a long-term competitive advantage can lower these costs by reducing the distance between the source and their manufacturing facility. It is this strategy that has chemical companies flocking to build plants in the United States. From 2011 to August 2014, there were close to 200 announcements of new chemical plants or upgrades to existing ones in the United States, with investments totaling $124 billion (MIT Technology Review.) Leading chemical companies such as ExxonMobil, Chevron, Saudi Basic Industries, and Dow Chemical have plans to invest billions of dollars in future plants. Interestingly, nearly half of all the new investment is coming from foreign companies. For example, South Africa’s Sasol is planning to invest $21 billion into at nine Louisiana plants that turn gas into plastics, and Taiwan’s Formosa Plastics plans two new factories in Texas to make ethylene and propylene (Bloomberg BusinessWeek.)

Importing Less Expensive Shale Gas: Another strategy for benefiting from natural gas availability is to import it to be used in facilities closer to the demand. In the current shale gas situation, this could mean importing feedstock for non-U.S. based companies, particularly those in EMEA, to serve regional or local demand. The obvious downside to this strategy is that transportation costs incurred to some extent compensate for the low feedstock costs. However, the fact that companies like INEOS continue to import natural gas proves there is still an overall net gain in operating their assets and serving their markets based on shale gas feedstock.

Leveraging Technology for Product and Process Innovation: Sometimes it is not possible to relocate or import shale gas. In those situations, companies need to turn inward to implement or develop innovative technologies that improve current feedstock or use existing resources in new ways. As the saying goes, “necessity is the mother of invention,” and for companies without access to less expensive shale gas, innovation is critical to survival. For example, Brazilian-based Braskem, one of the world’s largest producers of thermoplastic resins, has developed an ethylene value chain based on readily available bio-ethanol feedstock. Also, companies in China, as well as Sasol in South Africa, seek competitiveness by leveraging advancements in methanol-to-olefin technology.

If predictions for shale gas exploration within the United States come to fruition, which is still to be determined, it will have far-reaching global impact. Already we are seeing chemical manufacturers adjust their processes and products to take advantage of the lower-cost feedstock through relocating operations to the United States or increasing shale gas imports. But it is the innovation that will come from the shift in the existing trade balance that is perhaps most exciting. Chemical companies that are able to assess the changing landscape and respond with innovative technologies, processes, and products will emerge as the undisputed global leaders.

Want more thought leadership on emerging markets? See How to Make a Smarter Entry into Emerging Markets.

The plentiful natural gas unleashed by new fracking technology has spawned a surprising resurgence of U.S.-based chemical manufacturing. An abundance of shale gas has made the U.S. the lowest-cost chemical producer outside the Middle East, attracting billions of dollars in investments and transforming the United States from an energy importer to an energy exporter. As a result, the global landscape is changing, not only in how countries are interacting with each other, but also in supply chains and manufacturing operations and processes.

It is important to note that while many positive changes are predicted to occur from shale gas manufacturing, there are plenty of forces working against it. Environmental concerns over drilling, political issues, and legislation including land rights continue to be vigorously debated. Additionally, the economics of horizontal drilling require shale gas manufacturers to sell at a certain price point. When oil prices drop, it is extremely difficult to sustain gas exploration while operating at a loss. Although it is believed the potential upside of shale gas availability will eventually overcome the objections, it is not as straightforward an issue as many would believe.

Impact on global supply chains

To take advantage of lower feedstock costs and increased supply, chemical manufacturers are racing to establish more U.S.-based facilities. This is resulting in an investment boom and creating an opportunity for new U.S. exports, including selling shale gas to Europe and importing feedstock to Europe, Africa, Asia Pacific, and Japan, to be used in downstream products. As a result, the industry is beginning to see major changes to the global petrochemical supply chain, such as:

• The flow of basic petrochemical products from the Middle East into the Asia Pacific and Japan (APJ) as well as to Europe and Africa likely will decline over the next few years.
• China´s basic petrochemical industry, along with petrochemical producers from Russia or other emerging countries out of the CIS, might offset the decline from the Middle East.
• Additional capacity will be built in the U.S., whereas non-profitable capacity will be shut down in EMEA.
• New demand centers will be established in emerging countries.
• There will be an increase in joint ventures, mergers, and acquisitions as companies strive to move closer to the source, closer to demand, or implement cutting-edge technologies.
• As demand and supply centers are shifting locations, the industry will experience an increase in cross-border or cross-continent shipments, which will result in the need to manage numerous global, regional, and local regulatory requirements around global trade and transportation.
• Changing dynamics and increased uncertainties on the demand and supply side are calling for reduced sales and operations planning cycles, more predictive modelling and advanced supply chain risk management.
• Optimizing multi-level inventory systems will become imperative to ensure responsive order fulfillment at minimum costs. This includes implementing integrated technology platforms to track of items such as levels of raw material, intermediate, or finished products.
• Local or regional warehouses will increase their efforts to offer value-added services such as local formulations or blending.

While these are just a few of the changes predicted to occur in the near future, it is clear that the entire existing supply networks will need to be redesigned. In doing so, manufacturers should keep in mind that using collaboration tools and data analysis for real-time decision making and predictive modelling will be critical to success.

Impact on global manufacturing

The type of products and services offered by manufactures in various regions will be impacted as well. For example, it is anticipated that new crackers will be built in the U.S. for “light feedstock,” and that gaps in the feedstock will foster growth of alternative innovative technologies such as bio-refineries or propane dehydrogenation. Countries that do not enjoy the advantageous feedstock situation will also begin to focus on new technologies, particularly those that leverage coal.

Another expected change in global manufacturing is that some countries like EMEA will either retrofit their crackers for light feedstock or shut down non-profitable capacities, based on closed integration with naphtha-based feedstock. In fact, according to research by KPMG International, “changes in global capacity will render 14 of 43 crackers in Europe uneconomic by 2015. The closure of these plants would correspond to the loss of 26 percent of total cracker capacity in Europe.” Hopefully, a shift in production toward more value-added downstream products, built on proprietary technology or intellectual property, will offset the impact of these forecast closures. Finally, MENA countries will most likely remain the lowest-cost producer, despite a new shale-age market equilibrium albeit with much less margin differentials to U.S.

Impact on innovation

In general, it can be expected that shale gas will drive down global pricing. Manufacturers that cannot directly capitalize on low feedstock costs will be pushed toward achieving operational excellence through not only innovative process technology but also real-time IT platforms to maximize production performance and asset utilization. In fact, the industry has already started seeing enhancements around existing coal-to-liquid, gas-to-liquid, and bio-to-liquid technology. Local bio-refineries are emerging to complement feedstock needs with their own production trees, while also supplying sustainable products and production. It is predicted that additional process innovations will emerge as more countries start exploring natural gas opportunities like shale gas deposits or methane hydrate extraction. MENA has already begun finding innovative ways to bypass refining altogether by converting oil directly into chemicals.

Shale gas exploration, when performed in an environmentally safe way, is expected to have a great global impact on chemical manufacturing. The new supply of natural gas will make chemical products more competitive and sustainable (e.g. lightweight materials in automotive, building and construction, aerospace, etc.) A new world is upon us and visionary leaders have the opportunity to improve people’s lives through safe and sustainable chemical innovation. However, an unpredictable variable in the equation determining the overall scope and impact on global supply chains, manufacturing, and innovations coming from shale gas will be the short- to long-term price differential between shale gas and crude oil.

For more insight on future-focused business strategy, see First Thoughts on the Future of Business – Business Networks.

The global economic situation is extremely volatile, especially for the chemical industry. According to the 18th Annual Global CEO Survey from pwc, there are five global trends that are expected to create profound and sweeping changes in the way companies operate.

Savvy chemical company CEOs are watching these global megatrends to try to stay ahead of the competition, and many are turning to technology to help them address the changes.

Increased competition requires agility

Staying ahead of traditional competitors is challenging, but for the chemical industry, new competitors are coming from outside as well as from inside the industry. Emerging competition is coming from nontraditional sectors such as energy, utilities, and mining, and it’s especially heavy from healthcare, pharma, and life sciences companies. Chemical companies hoping to retain or grow market share are looking for ways to become more agile. Companies find that their IT teams are torn between strategic initiatives to increase agility and tight budgets. As a result, many are adopting a cloud strategy. Using the cloud can relieve IT from mundane day-to-day tasks so they can focus on streamlining business processes to increase agility while controlling overall costs.

Customers—even B2B customers—want more intimacy

Customer behavior is changing rapidly. Customers of all types have a stronger desire for more information and intimacy than ever before. They want to see information about their orders and track delivery status to the minute. They want to interact and consult with development and service teams on upcoming projects, and they expect advice and input from their chosen suppliers.

To address the customer’s desire for connection, it’s no longer enough to have just a website, no matter how informative it may be. Today, companies are fielding their own mobile apps so that customers can have constant connection. In fact, Gartner predicts that by 2016, use of mobile apps will exceed Internet access to domain names. The best apps will include product specifications, guidance on applications, and customer-specific inquiries. Many in-house IT teams will need to strengthen their expertise to tackle this challenge, which has not been part of the traditional operational role.

Chemical companies strive to keep pace with rapid regulatory changes

The chemical industry must show compliance with a complex tangle of overlapping regulations governing everything from labeling, handling, and manufacturing to shipping and storage of the products. Every country–and even many localities–enacts its own rules, and U.S. chemical companies alone spend more than $12 billion a year on compliance. Yet the changes keep coming, and companies must respond quickly to the required reporting as well as the mitigation processes. Here aspects like real-time simulations of the impact of new regulations in certain countries or regions become pivotal to success.

Also many companies have found that running their business systems in the cloud help them manage the cost of compliance. Unlike complex on-premise systems that are costly and disruptive to upgrade, cloud solutions are typically updated on a frequent basis. As report formats change or new requirements are added, cloud-based reporting systems mean companies have faster access to solutions that conform to the latest regulations.

Business is happening in real time

Business is moving faster than ever, and business systems need to keep up. New transaction processing systems that run completely in memory have raised expectations for how quickly information can be available. Chemical companies are hungry for the fast insights they can get from big data, IoT (Internet of Things), predictive analytics, and in-memory databases. As technology advances, companies are using more data sources to help hone their predictions. Plants monitor production in real time using sensors that feed quality and performance data to dashboards in real time. Weather patterns or politics on the other side of the world may affect demand for products, and chemical companies are tapping into both structured and unstructured data for insight.

Preparing for distribution channel changes

Trends like mass customization and “lot size 1” have also reached the chemical industry and are expected to have a pronounced impact on chemical manufacturing and supply chains. Rather than shipping product to a few manufacturers that create their own products and manage the distribution, chemical companies may soon begin shipping directly to a variety of new customers who will use the chemicals to create products or formulations with distinguished properties right at their facilities rather than buying finished products from suppliers. In the near future, companies might be selling the information about how to make a product rather than the product itself. Physical supply chains might evolve to consist primarily of raw materials and chemicals, while the bigger supply chain will shift to becoming more about moving and accessing information.

Chemical companies will need to gear up for both types of supply chain challenges. More customers will be placing smaller orders, so distribution will need to be much more efficient. The information supply chain will require major enhancements to ensure that information flows as quickly and seamlessly as customers require.

Rising to meet the future challenges can be a challenge in and of itself, but you don’t need to solve every problem on your own. Having the right systems and technology in place can make everything simpler. Contact us today to find out more about how the chemical industry of the future will use technology as the cornerstone of global growth.

Here’s why simplification is crucial to your business’s path forward: Taking Charge of Business Simplification: Why Simplification Initiatives Succeed Only When Executives Lead.

The IoT is a hot topic. But while everyone agrees that it’s here—or at least is coming—not everyone in the chemical industry knows exactly what the Internet of Things is, or what it will mean to them.

The Internet of Things refers to the emergence of an information system made up of sensors linking physical objects together using Internet technology. Gartner predicts that 25 billion such devices will be linked by 2020, and this vast network will work together to automate, monitor, and analyze information from machinery and equipment in exciting new business models.

Equipment monitoring and predictive analytics

Unplanned downtime and high unpredictable maintenance costs are common problems throughout the chemical industry. Sensors attached to equipment will monitor quality and throughput continuously, and real-time, in-memory computing will provide insight to enable near-instantaneous interaction to prevent equipment failures and breakdowns. Companies that adopt sensors and in-memory analytics are able to react more quickly to alerts and alarms, resulting in a higher overall equipment effectiveness, longer mean time between failures, and more efficient maintenance.

Predictive quality helps create a “golden batch”

Many chemical manufacturers have insight only into the operating conditions for a set number of batches, which limits their ability to optimize conditions. Using big data and predictive analytics across thousands of batches enables them to establish operating conditions that result in more predictable quality. By better balancing controllable variables, they increase first pass yield, improve their order fill rate, and reduce total quality costs.

Energy management

Energy makes up a large chunk of the cost of chemicals manufacturing, and compliance with increasingly stringent regulations is difficult and expensive. Using connected sensors to monitor energy consumption helps control costs and ensure compliance.Energy consumption patterns are an important part of the big data analytics for predicting failures, and better insight into usage patterns enables purchasing energy at the best price and the highest value for the organization. Actively managing energy consumption results in greener operations, lower energy and compliance costs, less unplanned downtime, and more consistent quality.

Cybersecurity

In a PwC Global CEO Survey, cybersecurity was the top strategic issue cited by respondents. Security incidents exceed 42.8 million in 2014, a 48 percent increase over 2013 results. Since chemical plants may be potential targets for terrorist attacks, cybersecurity is understandably top of mind. Chemical companies must consider physical security, industrial systems security, and data systems security whether they run their business in the cloud or on premise. The problem becomes more complex as the amount of data companies manage and maintain continues to grow.

Using in-memory computing and big data analytics, chemical companies can bring data together into a single repository, enabling them to quickly identify unauthorized access or hacking attempts so they can cut off affected user accounts or lock down systems or connections to prevent further intrusion. Once they’ve gained access, it takes only a few moments for hackers to access sensitive data, so it’s imperative that the evaluation of attack patterns occurs in real time.

Call to action

Margins are thin and competition is fierce in the chemical industry, so it’s imperative that companies use all the technology they have available to control costs and improve efficiency. The IoT is helping to simplify business processes and provide more insight that can help improve quality, reduce downtime, decrease the costs of maintenance, and increase on-time delivery, but in-memory computing and big data analytics are prerequisites to effective adoption of the IoT.

Please share with us how far you are with your IoT-related initiatives and where you see the most compelling benefits.

Want more insight on the IoT? See Big Data, The Internet Of Things, And The Fourth V.

The cost of adopting IoT is falling rapidly, with the cost of sensors now about 20 percent of what it was just a few short years ago. Just as telling, Forrester Research predicts that by 2020, U.S. companies alone will have spent more than $3 billion to manage the APIs that enable sensors to communicate. With APIs making it easier to connect sensors to software, and the falling price of the sensors themselves, the time is right for an explosion of new use cases that will transform the chemical industry.

Counterfeiting

Counterfeit chemicals cost more than $250 billion annually, but just as critical is the fact that counterfeit chemicals can be dangerous, or even lethal, when used in place of the real thing. Using sensors to communicate lot and serial numbers at every point in the supply chain can reduce the risk of counterfeits in real time. Companies that use sensors to identify lots can protect their revenue and margins, avoid potential costly recalls, and protect the brand from bad publicity when counterfeit products cause problems.

Dock shipment coordination

Managed logistics is a prime use case for the IoT. Hub operators can monitor traffic and maintain geo fences that ensure that materials stay quarantined or remain in specified locations. Sensors can notify them automatically about incidents and send notifications to interested parties automatically, reducing manual effort and ensuring up-to-date information. Dispatchers can monitor the locations of their own fleet and even leased units to provide real-time information on deliveries and insight that makes dispatching more efficient. The result: Both inbound and outbound traffic is more visible and efficient. The entire logistics chain has less friction and greater velocity, resulting in increased infrastructure utilization, more throughput, and lower overall costs.

Augmented reality in warehouse management

Augmented reality adds useful information into a user’s view in real time. The user may see pictures of products that can help improve picking accuracy, or see location data that eliminates the need for pick lists. Quality information such as specifications or expiration dates by lots can help to ensure that picking, packing, and put-away activities are as efficient and error-proof as possible. The result is a more efficient warehouse, with faster and more accurate fulfillment.

Precision farming

Sensors continuously measuring soil parameters improve the efficiency of farming by ensuring the right mix of water, nutrients, and crop protection chemicals. Big data analytics can be used to predict weather and the effect on the farm to ensure that the right quantity and mix of products is available when needed. The result is better crop yields and less environmental impact, helping to feed more people while expending fewer resources to help keep costs in line.

The chemical industry can benefit greatly from adopting the IoT to control costs and quality while improving visibility and throughput.

Feel free to share your ideas on possible use cases around IoT and possible benefits with us.

How will IoT and other cutting-edge technology affect the way business is done? See Big Data, The Internet Of Things, And The Fourth V.

Chemical companies are usually considered quite conservative. But according to McKinsey and Company research, the chemical sector is among the highest-performing industries. Total return to shareholders for chemicals is nearly double that of the world equity market, and the CAGR for the period from June 2008 to March 2015 for the chemical industry runs about 9 percent, compared to 6 percent for all markets. Clearly the industry has been doing something right.

By executing on capital investments that enabled access to abundant low-cost feedstock, commodity chemical firms have been able to control costs in a corner of the market that typically struggles for margins. They also placed an emphasis on operational efficiency and streamlining business processes.

Working closely with customers to ensure alignment in objectives and supply chains has provided insight into future requirements for specialty chemical manufacturers, who focused on developing and leveraging intellectual property. This strategy allowed them to innovate and quickly introduce new highly differentiated products that serviced needs customers may not have even yet been aware of.

The customer focus of specialty chemical companies, and the operational excellence strategy of commodity chemical companies, have both required skillful use of technology and intellectual property to achieve superior returns for investors. However, the question remains whether these strategies will be sustainable without an additional component.

Both specialty and commondity chemical companies will need to continually transform their businesses to achieve the same rates of growth and profitability in the future. New digital business models are the key to ensuring continued growth.

Some companies have already begun their digital transformation, which will enable them to transition to new, reimagined business models. Some companies are testing the move from a business model, based on delivering products, to a new model, based on delivering outcomes. Others are looking at a consolidated supply chain ecosystem that functions as a single entity competing on overall efficiency and service. By pooling R&D, production, or logistics resources, these companies are able to outmaneuver the competition and provide better service to customers.

The digital transformation is giving rise to reimagined business models that turn established notions of the “right” way to run a company into vibrant new models that compete and win on entirely new criteria.

In order to participate in the digital transformation of the chemicals industry, companies must find ways to share information across company boundaries without complex and time-consuming integrations, and to analyze large volumes of data in real time to provide insight into decisions and strategies. Having the right IT foundation in place is the most critical building block of digital transformation and reimagined business models.

Start your journey now! Learn more about the value digital transformation brings to your company, and establish the right platform and road map for transition.

In a volatile industry such as chemicals, the nimblest organizations prosper the most. Recent research from McKinsey and Company shows that those companies that frequently and strategically reallocate resources across businesses in response to changing conditions easily outperform those that don’t. The companies with the most frequent reallocations had a CAGR of 10.8 percent, with thos that reallocated the least had a CAGR of only a 2.5 percent.

The analysis spanned 23 years—from 1990 to 2013—and showed that companies that started the period with similar prospects had markedly different values at the end of the study, with the most frequent allocators having a market capitalization 6 times higher than the least frequent allocators. In addition, frequent allocators had a 30 percent higher chance of remaining independent in addition to better total return to shareholders.

Companies generally react to changes in market conditions rather than anticipate changes, so reaction time is critical to a successful reallocation strategy. When the shale-gas boom began in 2009, it took even the fastest companies two to three years to react. However, the companies with the fastest reaction times were able to pivot their strategy and reallocate resources to take advantage of the change in the situation. The fastest companies were able to begin building the required infrastructure well ahead of their less nimble counterparts, enabling them to lock down a lower cost structure that provided a significant margin advantage.

While companies must still take basic steps to clarify their business strategy, new technology has enabled a digital transformation that supports both rapid analysis of complex situations and the ability to quickly align budgets to strategy.

A successful business strategy should act as a road map to the company’s goals—covering at least five years, and including investment priorities and targeting business and portfolio composition. With this idea in mind, companies can use Big Data and in-memory analytics to combine large volumes of disparate data from multiple sources to provide insight in real time. The companies that undergo this digital transformation soonest will have an advantage over their less-agile competitors. As a result, they will be able to quickly move resources and reallocate budgets and priorities so that projects and businesses with the greatest growth potential receive the greatest share of the available resources.

This digital transformation enables rapid analysis and implementation of such strategies, driving enhanced business processes and creating fully empowered workforces that are able to make informed decisions at anytime, anywhere, and at any appropriate level.

Establishing the underlying foundation of real-time, in-memory analytics, flexible and adaptable business processes, and a culture attuned to digital transformation of business will help enable companies in the chemicals industry to quickly take advantage of business opportunities that reduce costs, return shareholder value, and increase competitiveness. Those companies that fail to adopt the tools for digital transformation will find themselves lagging their competitors in operational efficiency and every meaningful financial metric, while those that embrace it will prosper.

Start your journey now! Learn more about the value digital transformation brings to your company, and establish the right platform and road map for transition.

Chemical firms are embracing the Internet of Things, and in doing so, they are making new partnerships possible.

Technology improvements allow firms to partner with companies in many fields. With chemical manufacturing’s thin profit margins, these partnerships make prudent business sense.

Energy and tech firms are new potential partners, as are equipment makers. Firms with vision see possible ties with customers and subcontractors as well.

The Internet of Things (IoT) is driving these new connections. The IoT refers to the use of sensors, computers, and wireless connections to connect physical objects to each other.

By 2020, it’s estimated that between 30 billion and 50 billion objects will be connected. These connected objects will automate processes, find and self-correct problems, and record and send data to central servers. All of this data can be analyzed to modify and improve products and processes.

The Internet of Things and the chemical industry

As the cost of sensors and storage drops, so do the barriers to entry into the many possibilities available to the chemical industry. The technologies allow improved product security and safety. With connected products, processes, and people, firms can improve performance, minimize supply chain issues, and improve product quality.

Let’s take a closer look at some of the possibilities and partnerships these smart technologies offer.

Predictive maintenance

Downtime and unplanned maintenance are common issues in the chemical industry. Smart technology is solving those issues through the use of sensors that track quality and performance. Computers are raising or even addressing issues in real time to reduce equipment breakdowns. Equipment is more effective and maintenance is more efficient.

Connected devices generate vast amounts of data. Powerful analytics programs can interpret that data to improve quality. Augmented reality uses 3D visualization tools to improve maintenance and service.

Take, for example, the issue of batch quality. Most chemical makers can only assess a limited number of batches at a time. Big Data tools now enable thousands of batches to be analyzed together. This metadata lets companies improve production processes, yield rates, order fill rates, and per-batch costs.

Precision farming

Farmers today want to use chemicals in precise ways to produce higher yields. This “precision farming” requires a trusting partnership among many vested partners. Farmers need to work with agribusiness suppliers and chemical makers. Tech firms, equipment makers, and traders are also key players.

Successful precision farming requires tech platforms to handle large amounts of data. All stakeholders need to be able to access the data and collaborate in a secure virtual environment.

How does it all work? Imagine a system where sensors are constantly measuring soil quality. Data on water, nutrients, and pesticides are recorded and correlated. Analytics predict weather and its impact on a crop and adjust the rates and amounts of applied materials. Yields and quality are tracked and analyzed to find optimal ratios. Overlaid pricing and expense models recommend crops with the highest possible profit margins.

The results are significant in many areas. Farmers are more profitable. More people are fed with less environmental impact. Manufacturers improve future versions of equipment, seeds, and chemicals.

Improved logistics

Reducing friction along the logistics chain is much improved with the IoT. Sensors and RFID tags can ensure products remain quarantined or in specific locations. Contamination and attacks, either physical or cyber, can be detected faster and authorities alerted. Dispatchers can track transportation fleets in real time to predict and track deliveries.

Warehouse operations become far more efficient with these newer tools. With virtual reality, users can “see” products in real time, reducing the need for warehouse pick lists. Trackable specs and expiration dates can improve the efficiency of picking, packing, and put-away work. Data analysis can reveal the best use of available space and how to coordinate with suppliers on receivables.

Reducing energy expenses

Energy usage and regulatory controls are significant costs for most chemical manufacturers. IoT devices can address both concerns.

Installed sensors track energy usage and predict outages. Collected data ensure and verify regulatory compliance.

Analytics identify usage patterns and inefficiencies. Firms can make better decisions about energy purchases. Conservation measures can be identified. Not only do these tools offer cost reduction, they create greener operations.

Developing a strategy

So how do chemical firms develop a strategy that allows for these complex partnerships to develop and persist? Here are six considerations.

Innovate: Rapid advances in mobile. cloud and Big Data technologies are bound to continue. Firms that embrace these technologies and infuse them in planning are likely to take the lead and increase market share.

Think green: Whether your firm is B2B or B2C, IoT products can lead to greener outcomes and add marketable value to your line.

Global view: Connected supply chains, distribution, and products allow for a global operational perspective as well as global business opportunity.

Data and analytics: With more connected products comes more data. Chemical firms need to address storage capacities and tools to crunch all those numbers. Fortunately, cloud-based storage costs continue to drop and Big Data analytics tools are becoming more robust.

Infrastructure partners: Hardware, software, sensors, applications, telematics, and mobile devices are a part of your business now. View the vendors as strategic partners. Collaborate with them on new products and procedures.

Vigilance: Threats of attack and contamination are all too real in the chemical industry. Today firms need to also consider customer data protection and privacy. One downside to IoT is the proliferation of products that can be hacked, stolen, or tampered with.

Conclusion

Smart products provide extraordinary opportunity in the chemical industry. Firms that embrace the need to change and find vertical and horizontal partners will be well positioned. Rich data will allow for better-informed decisions on operations and revenue opportunities.

Start your journey now! Learn more about the value digital transformation brings to your company and establish the right platform and road map for transition.

According to the most recent PwC CEO Survey, the chemical industry faces continuous challenges to growth and profitability, even in the best of times – over-regulation, geo-political unrest, and scarce resources and feedstocks come to mind as perennial issues. In addition, volatile energy costs have caused some chemical companies to move production facilities to the U.S. due to the current availability and low price of oil and gas from shale, but others have adopted a wait-and-see attitude because of uncertainty about the long-term sustainability of that price advantage. Chemical companies must continue to address these challenges with cost-cutting and margin-sustaining actions, but to support long-term growth will take more.

Deep customer knowledge is the key to growth

The most innovative chemical companies are focusing on understanding customers’ mindsets rather than simply relying on low prices to fuel growth. By understanding what customers truly want, these companies are using innovation and digital transformation to create distinctive new products and services that set them apart from competitors who compete on price alone.

For example, chemicals are not only important building blocks for many products, they also form the backbone for strategic initiatives that chemical company customers and their customers focus on. Sustainability and climate change come to mind as significant examples of a business concern that affects nearly every company in both developed and emerging countries.

Investing in R&D resources can create new products that help chemical industry customers be more sustainable or have less damaging environmental impact, hence standing out from their competitors. The Industrial Internet of Things (IIoT) also helps create stronger connections with customers and cements customer relationships based on differentiated products, new services, and shared values.

Digital transformation

Progressive companies in every industry have started to use sustainability considerations as input to both long-range strategy and everyday decision-making. Big Data enables these companies to use high volumes of both structured and unstructured data from many sources to quickly evaluate the cost of sustainability choices or the climate impact of today’s product and service choices. This helps to align the value chain with suppliers whose value systems closely align with the company’s own. Just as importantly, when the entire supply chain is motivated by the same core values, it provides true differentiation in the eyes of customers who share those values.

The talent impact

Chemical companies with a reputation for being environmentally responsible, progressive thinkers have an easier time attracting top talent than their industry peers who stick with the status quo. People prefer to work for organizations that reflect their own values and priorities, so innovation that focuses on top-of-mind issues such as sustainability and climate change helps chemical companies recruit individuals with the necessary skills to drive new product innovation to fuel future growth.

Understand more about the value digital transformation brings to your company and establish the right platform and road map for transition.

According to McKinsey, the chemical industry rests on a volatile foundation: the price and supply of oil. The oil price declines that began in 2014 found many chemical producers unprepared for the speed of the coming changes.

Drivers of oil price volatility

Oil prices have grown more complex as new supplies from U.S. light tight oil (LTO) drilling and new sources such as Brazil, parts of Africa, and other regions have opened up. At the same time, global economic growth has slowed, OPEC did not curtail production to keep prices stable as it has in the past, and energy use overall declined due to increased efficiency and green initiatives.

Impact on chemicals

LTO drilling production tends to have short life cycles – coming online quickly and falling off within a year to less than half of peak output. Producers tend to gravitate to LTO as a group, ramping up as oil prices start to rise rather than keeping output steady despite price volatility. Socioeconomic and political volatility in other regions tends to affect output. Taken together, these factors create supply and demand shocks that affect costs and margins in the chemical industry.

Crude oil and petrochemicals are coupled, given that oil is the basis of many commodity chemicals and others require oil for their production processes. Changes in the price of crude oil immediately impact the cost of basic building-block chemicals such as ethylene, propylene, naphtha, and LPG.

Commodity chemical prices are driven by the production costs of the marginal producer. Oil price shocks affect the cost structure of marginal producers, and the ramifications continue to downstream chemical producers who are forced to pay more for feedstocks or find alternatives.

Consumers also play a role as oil prices affect disposable income. This changes behavior at the gas pump and the thermostat, but also has profound effects on industries as diverse as housing, construction, and automotive. While demand shifts are more gradual than the abrupt shocks experienced in the early stages of the value stream, their effect is real albeit gradual.

Cost and price patterns

For chemical producers with prices and costs linked to the same commodity, oil shocks have minimal impact. However, agile producers who have undertaken a process of digital transformation may find that their ability to react quickly allows them to realize source savings faster than their prices decline.

Some manufacturers have an advantage based on regional conditions during price shocks. For example, North American companies used their access to low-cost shale gas ethylene to keep margins relatively high by avoiding high-cost Asian naphtha. However, as Asian naphtha prices have fallen recently, shale-based gas prices have not kept pace, resulting in margin pressure for these companies. Specialty chemical companies often fall into this category, benefiting from low oil prices but feeling the pressure on margins as they rise.

Other chemical manufacturing companies feel minimal price or cost impact from oil shocks. Specialized lubricants, additives, and chemicals whose value stems from their usage rather than the composition fall into this category.

Building the process and IT foundation

Chemical companies must transform their business process and IT landscape to respond to these volatility issues with the necessary agility and speed. Capabilities like real-time price and margin management at the lowest levels of granularity, multi-channel management with a single brand experience across all channels, extended partner collaboration, automated role-based workflows, and enhanced sales and operations planning processes all need to play hand-in-hand and allow predictive simulations to proactively serve customer and market needs at the best possible margins.

Start your journey now. Understand more about the value digital transformation brings to your company and establish the right platform and roadmap for transition.

The chemical industry is essential to our world economy, and innovation sits at the heart of it. New technologies have paved the way for future growth and are becoming essential to the success of chemical businesses. These innovations, which span from research and development to business processes, customer relationships, and knowledge, have led to cost reductions and increased productivity, making the chemical industry a $797 billion enterprise that supports nearly 36% of the U.S. GDP.

When evaluating chemical companies today, we look at more than just annual sales. We dive deeper, recognizing the importance of customer relationships, knowledge and intangible assets, and unique skills or knowledge. We are finding that intangible assets such as patents, employee knowledge, brands, and data are increasingly defining what value means for chemical companies, and business strategies are in turn focusing on how to innovate to make these areas even more successful.

The two main categories of research are basic and applied. Basic research refers to an original investigation for the advancement of scientific knowledge, whereas applied research usually uses the knowledge from basic research to accomplish a specific objective.

Investment in research and development involves allocating resources and can involve a high degree of risk, because there is no guarantee of return on the investment. Successful innovations, however, could have a 20-30% return. R&D spending usually includes research in the sciences, engineering, design and development, and prototype processes and products, which are the driving force of continued competitiveness in the business of chemistry. Today, most chemical companies allocate 2-3% of their sales towards research and development.

Successful innovations from the research and development standpoint usually take into account time to market and time to value, both of which are critical in today’s world of rapid product commoditization and increasing competition from emerging countries and markets. Companies need to reimagine their objectives and start considering new business models, focusing more on outcomes and services than on products.

In addition, companies should reimagine their business processes. They should consider leveraging open innovation platforms and crowd-sourcing new ideas and concepts. They should look at simulating new product and formulation properties instead of running comprehensive and time-consuming lab trials. Furthermore, existing intellectual property should be repurposed and sustainability, compliance, and quality-assurance aspects should be embedded into each and every process step – from product or service idea to product end-of-life. Keywords or concepts here include cradle-to-cradle and circular economy. Also, a smooth handover of recipes to manufacturing, and integration of pilot production campaigns into S&OP, should be part of the overall approach to faster innovation.

The bottom line is that innovation and learning are critical to the success of any chemical firm. To achieve peak success, you need a transformative IT and business process platform that provides research and development departments with the necessary agility and speed to develop innovative products, solutions, and services that stay ahead of competition while still controlling costs. With this strategy, companies can create additional value for shareholders.

Innovation has become a long-term driver of future financial performance and value creation, and it can provide enormous competitive advantage for companies. Because innovation is at the heart of the chemical industry, it has become crucial to growth and achievement. Today, investment in research and development is a necessity rather than an option.

Have you started looking into the value digital transformation can bring to your company? If not, start your journey now and establish the right platform and roadmap for transition.

Given the fast pace of digital transformation in every industry, board members need to become more familiar with technology and its transformative properties if they hope to keep company executives thinking strategically.

According to McKinsey & Company, traditional boardroom roles and qualifications are changing rapidly in response to the digital shift. Companies and their boards should address these four areas to ensure that the board is an effective catalyst for digital transformation.

Stay abreast of technical shifts

It’s easy to underestimate how quickly technology is enabling digital transformation of many business processes, and the appetites of customers to embrace and adopt these new models. But without the proper safeguards, digital transformation can introduce increased risk. Boards must ensure that digital transformation stays within the bounds of the company’s appetite for risk and that executives are mindful of the steps they must take to ensure the safety and security of information.

Focus on digital fundamentals and business models

Digital transformation is less likely to come from traditional competitors than it is to come from adjacent businesses or technology upstarts. Boards should take the time to understand how the availability of data and the confluence of multiple digital initiatives can rapidly transform customer expectations and indeed, entire industry paradigms. For example, IoT, Big Data, and in-memory analytics together have transformed business models in industries ranging from aerospace to chemicals, utilities, and industrial manufacturing.

The common factor in all these digital transformations has not been simply the addition of technology. The real driver has been a singular focus on improving the quality of the customer’s experience by adding digital insight or services. Boards must ensure that executives don’t lose sight of their customer focus in their zeal to adopt new technologies—and that they don’t allow old-style notions of customer service to blind them to the transformative capabilities of technology.

Revisit strategy frequently

The speed of digital disruption can be breathtaking, catching unwary companies in obsolete business models. To prevent this, board members must engage with executives and each other more frequently to ensure a laser focus on strategy and managing risk.

The traditional quarterly board meeting has gone the way of the dinosaurs. Today’s digital-savvy boards meet in ad hoc committees focused on specific technologies or transformations and to stay in touch with market trends that provide early warning about impending digital shifts.

Nurture digital czars

Some boards address the need for more technology insight by bringing on a superstar from the world of technology. While at first glance this seems like an ideal solution to the problem, this action frequently backfires because of the lack of sophisticated business knowledge and teamwork skills such individuals often exhibit. In addition, startup leaders may underestimate the level of commitment necessary to manage their board role effectively, especially in conjunction with guiding their own technology business successfully.

A better approach may be to create a specific advisory role for technology stars to meet with a subset of board members. These consulting engagements may prove mutually beneficial by providing examples of good corporate teamwork to the technologist while keeping less technology-savvy board members abreast of changes. If the board does choose to bring an unproven technology czar into the fold, it’s a good plan to create an extended onboarding process so the new board member has a chance to absorb the details of the business.

Digital transformation is happening quickly, in every industry. It is incumbent on boards to both drive and moderate this transformation with a judicious combination of business acumen and technology awareness.

Have you started your digital journey yet? Learn more about the value digital transformation can bring to the chemical industry, and establish the right approach, platform, and roadmap for transition.