The chemical industry is at a crossroads. Faced with market unpredictability, increased regulations, and products that are quickly moving toward commoditization, it is becoming increasingly difficult to maintain reasonable margins. A few companies are finding success by developing breakthrough products, but true revolutionary innovations are hard to uncover.

Instead, most chemical manufacturers have responded by reducing costs with operational efficiencies. One area that is often overlooked, however, is sales and marketing. This department continues to deploy traditional approaches to selling, despite rising expenses. In fact, a recent study from McKinsey indicates that average sales, general, and administrative (SG&A) costs increased by as much as 10% over the last decade.

Fortunately, new technology solutions and data analytics are offering surprising models for selling products and related services. With these new strategies, chemical companies are finding it is possible to preserve margins while adding new revenue streams.

Traditional approach to sales and marketing

In the past, chemical companies developed specialty products that met individual customer requirements. To help justify the high purchase prices of these custom solutions, chemical companies included free, comprehensive support services. Rather than limiting top-tier services to top-tier customers who are willing to pay for them, the same deep level of service was provided to all customers. By following a “same level of service to all” approach, some chemical companies ended up hurting their own profitability and devaluing the provided services.

New approaches

The old-school approach still works well when there are strong margins and customers see value in both the customized products and the support services. However, when customers make purchasing decisions based on the lowest price and feel they no longer need support, chemical manufacturers must find new ways to add value and differentiate their offerings. Fortunately, some visionary companies are leading the way by combining the latest technology with insightful customer knowledge to develop innovative approaches to selling. Below are three examples of new sales approaches made possible by the digital economy that could bolster revenue:

1. Offer multiple service levels: Rather than bundling the same service with all product purchases, chemical companies could offer multiple service levels at different price points based on customer need. For example, chemical companies could start by including only essential services with their standard products. To lower costs, technology could be used to automate and standardize business processes such as delivery and payment terms. However, in addition to basic services, chemical companies also offer additional layers of services if a customer wants to upgrade and pay for it. Data analytics can help provide direction as to which level of service would be most appealing to which customers. From an IT perspective, this requires customer segmentation supported by a thorough price waterfall analysis, along with real-time insights into prices and margins at customer and product level.

2. Product-only pricing: Some customers view chemical products as pure commodities. To accommodate this mindset, chemical companies could unbundle services from their products. With this model, customers can purchase products only online. Digital technologies with artificial intelligence help determine the rules. Dow Corning adopted this approach in 2002 when it launched Xiameter, an online, low-cost sales channel for its silicone products. Through this online channel, Dow can meet the low-pricing demands of customers willing to buy in bulk that do not need support services. Seven years later, Dow Corning reported the new sales model resulted in five times the number of products sold and sales continue to grow (McKinsey & Company, May 2011). This is an ideal application for the IoT, where chemicals may be ordered machine-to-machine, and many sales may proceed entirely without human intervention.

3. Separate business units: Developing a separate business unit often is an effective strategy to compete in situations with intense competitive pricing pressure. In this way, companies can be low-cost providers without the risk of “cross-contamination” with services they still provide to customers who are paying high prices for chemicals that retain specialty status. Using a separate business unit is clear cut and eliminates confusion in both customers and employees about the services provided as well as the processes used.

The role of technology and a 360° view of the customer

In order to define and implement the right service strategies for each customer segment, companies need the latest technology, not only to gain a deep understanding of customer needs, but also to drive seamless, end-to-end execution of process automation and execution along different channels. Here are a few examples:

• Leverage sensors and telemetry to implement vendor/supplier-managed inventory concepts and completely automate the replenishment process (no- or low-touch order-to-delivery).

• Monitor your customers’ manufacturing process parameters in real-time via sensor technology. Leverage advanced algorithms to correlate process parameters with quality of (semi-) finished products. Start selling first-pass quality as business outcome instead of selling products, which provides an opportunity to offer benchmark data as a service.

• Use advanced algorithms to better understand customers’ buying behavior/patterns, adjust product and service portfolio, and identify cross-selling opportunities to increase customer loyalty and share of wallet. With this information, it is possible to better understand and respond to demand patterns without direct point-of-sale information.

• Get visibility into customer/market sentiment via capturing and processing unstructured data from social media, then responding with appropriate marketing campaigns and innovative service offerings.

Commoditization in the chemical industry is not going away. To be successful, chemical companies must move beyond selling products. Instead, to improve profitability, they must be willing to transform their business models in a way that allows them to sell business outcomes and results. Top performers have already started bundling products with value-adding services that differentiate their offerings, increase customer loyalty, and grab a larger share of the customer wallet.

For more on marketing in a data-driven era, see Influencing Customers Through Infinite Personalization.

Original article posted on Manufacturing Today

As we approach the end of the year, it is time to look into next year’s trends and drivers for the chemical industry. Here are three major trends that will drive the chemical industry in 2018:

1. Accelerated globalization. Supply centers are shifting due to the advent of shale gas in the U.S. or coal to olefins in China. Also, demand centers are shifting thanks to a rapidly growing middle class in the emerging countries. In addition, new market entrants drive shrinking lifecycles and rapid commoditization of products.

2. The circular economy. Key raw materials are getting scarce. Regulatory requirements exponentially increase as the environmental impact of emissions and waste becomes more and more evident. Chemical companies are in the driver’s seat to respond to this, and some are already extending their ecosystems with the purpose to establish end-to-end concepts.

3. Digitalization will drive a tremendous wave of innovation. Recent advancements in digital technology offer unprecedented levels of connectivity, granularity, and speed in accessing, processing, and analyzing huge amounts of data. Besides mobility, cloud and in-memory computing, the Internet of Things, machine learning and blockchain will start acting as game-changers in the chemical industry.

All three trends are coming together to challenge existing strategies and create a perfect storm for the chemical industry. Customer and feedstock proximity, intellectual property, and technology know-how may no longer secure a sustainable competitive advantage. Early adopters of innovative business models have the unique opportunity to act as game-changers or digital disruptors.

Emerging business models

What innovative business models are emerging for companies in the chemical industry?

First, companies will start to adopt strategic agility. The need to rapidly transform product and service portfolios in response to dynamically changing market and stakeholder needs will continue unabated in 2018. Preparing for ongoing mergers, acquisitions, and divestitures will be a critical success factor.

Second, we’ll see more companies going beyond their traditional value chains and start competing as entire ecosystems. Such ecosystems are presently built around hot topics like precision farming or the “circular economy.”

Third, we’ll see companies become more customer-centric and focus on selling business outcomes instead of products. In that context, think about delivering first-pass quality products instead of paints, coatings, or reactive resin components.

Fourth, companies will get another push towards operational excellence and business process automation. With digital technologies becoming scalable and commercially feasible, companies can now realize concepts like lights-out manufacturing and touchless order fulfillment.

However, to enable these innovative business models, a 4^th-generation platform as foundation for business processes and IT infrastructure, as well as the right skills in your workforce, will be pivotal to success.

Want to learn more about trends, drivers, and new business models around the chemical industry? Visit us at the Best Practices for Chemicals Conference in Austin, TX on March 6-7, 2018.  View the agenda and register now! We look forward to seeing you there.

If chemical companies want to stay competitive in a changing world, they need to rapidly adopt innovative technologies. Incorporating IoT – especially combining IoT with machine learning – can move the chemicals industry forward to work more efficiently and create better results.

Improving the chemical industry with IoT

Andy Chatha, president of ARC, explained in a presentation for the ARC Advisory Group 2014 Industry Forum how the IoT is as important to the chemical industry as it is for other industries. Chatha said that the IoT can streamline many parts of industrial companies, including providing smart machines, offering better capacity for Big Data storage, and helping optimize systems and assets. The benefits of IoT within this industry are far-reaching. They include better productivity, improved asset utilization, and higher revenue.

Fostering innovation

Significant opportunities exist in R&D to create higher value and higher margin products at a faster pace, particularly in specialty and crop protection chemicals. Advanced analytics and machine learning enable high-throughput optimization of molecules as well as simulation of lab tests and experiments for systematic optimization of formulations for performance and costs (“from test tube to tablet”).

In addition, advanced analytics and machine learning can drive the allocation of best-available resources to research projects in line with portfolio priorities.

They also enable screening of internal knowledge and patent databases to maximize use of intellectual property and fill gaps.

Machine learning can also help chemical manufacturers run simulations on sustainability and environmental impact across a product’s lifecycle.

Changing the game in plant operations

IoT builds the foundation for machine learning in manufacturing and asset management, as it can capture real-time data on asset status and performance, process parameters, product quality, production costs, storage capacity and inventory (telemetry), inbound/outbound logistics, workers’ safety, pairing products with services, and more.

With today’s advanced capabilities in capturing, storing, processing, and analyzing data, a vast amount of plant, asset, and operational data can be used in conjunction with advanced algorithms to simulate, predict, and prescribe maintenance to increase assets’ availability, optimize uptime, improve operational performance, and extend their life.

In this context, digital twins play a major role in managing asset performance and maintenance. Once plants and processes have been designed and engineered, digital twins can be used to train operators by simulating special plant and process conditions related to safety and/or performance (like flight simulators). Digital asset twins can be used in maintenance to predict the impact of certain process parameters on asset performance, asset lifecycle, and maintenance needs. A Deloitte University Press document, “Industry 4.0 and the Chemicals Industry,” says with digital twins, “organizations create value from information via the movement from physical to digital, and back to physical.” An IDC whitepaper, “The IoT Imperative for Energy and Natural Resource Companies,” notes that a petrochemical company that used a digital twin model created a 20% improvement in product transitions.

Completely new opportunities for the chemical industry arise from distributed manufacturing/3D printing in terms of developing innovative feedstock and driving new revenue streams. While more than 3,000 materials are used in conventional component manufacturing, only about 30 are available for 3D printing. The market for chemical powder materials is predicted to be more than $630 million annually by 2020.

Worker safety can be enhanced by the addition of smart tags on wearables, which could alert workers on exposure to dangerous substances (like toxic gases) or help locate workers in cases of emergency. Moreover, alerts could be triggered if employees work out of their designated or authorized working area (“connected worker”).

Taking your supply chain to another level

There is a lot of untapped potential for new IoT and machine learning technologies in supply chain. Think about using advanced analytics to increase forecast accuracy leading to improvements along the entire sales and operations planning process and related KPIs.

Advanced analytics and machine learning could be used for mitigating risks of supply chain disruptions. For example, in natural disasters shipments could be automatically re-routed to meet on-time delivery goals and customer commitments at minimum costs.

Another opportunity resides in optimizing the use of transportation assets and related costs. Moving chemicals often means considering special equipment and complex compliance requirements so empty backhauls are the norm rather than the exception. Machine learning could better leverage transportation assets to drive waste out of the logistics function, decreasing costs and optimizing asset utilization.

Innovate by getting closer to your customer

Over the last few years, the “asset-intensive” chemical industry has focused its efforts towards optimizing plant and asset operations. However, there is huge untapped potential to develop innovative, customer-centric business models and services. Here are a few examples of how chemical companies could benefit by better leveraging IoT and machine learning at the customer frontend:

• Leverage sensors and telemetry to implement vendor/supplier managed inventory concepts and completely automate the replenishment process (“no” or “low-touch” order-to-delivery).

• Monitor customers’ manufacturing process parameters in real-time via sensor technology, leverage advanced algorithms to correlate process parameters with the quality of (semi-) finished products, sell first-pass quality as a business outcome rather than selling products, and offer benchmark data as a service.

• Use advanced algorithms to better understand customers’ buying behavior and patterns, adjust product and service portfolio, and identify cross-selling opportunities to increase customer loyalty and purchases.

• Get visibility into customer/market sentiment via capturing and processing unstructured data from social media, then respond with appropriate marketing campaigns and innovative service offerings.

Moving forward with IoT

By using IoT with machine learning, chemical companies can move forward and gain positive business results. Chatha said industrial businesses already have or are building the foundations for incorporating IoT and machine learning. Overall, IoT can help the chemical industry keep up with changing times and better meet the needs of shareholders and customers. However, having clean and abundant data available to train algorithms and build high-quality models that predict high-quality results is pivotal to success. Another critical success factor is having highly skilled data scientists; they are key to rapid adoption of IoT and machine learning in the chemical industry.

Learn how to innovate at scale by incorporating individual innovations back to the core business to drive tangible business value by reading “Accelerating Digital Transformation in Chemicals.” Explore how to bring Industry 4.0 insights into your business today by reading “Industry 4.0: What’s Next?”

Changes in technology provide an opportunity for growth and development in any industry. The challenge is identifying the right tools to obtain the goals of the business. Understanding the impact of a blockchain on the chemical industry can help your company grow.

What is blockchain?

According to Investopedia, a blockchain is a public ledger used to record transactions or keep track of data. The Harvard Business Review suggests that it may also refer to a type of database of information. It is not limited to transactions and may focus on information that benefits a business.

Since the data or ledger is not owned by any individual, each person in the chain has the opportunity to keep track of data, or mine the data, and follow the transactions. It limits the risks of inaccurate documentation and keeps individuals honest in their transactions.

Innovating in the chemical industry

Innovation in the chemical industry is more important than ever before since new competitors and technologies are entering the market and product cycle times are continuously reduced driving to faster commoditization of products and services. By using blockchains, a chemical company may improve their ability to innovate and create interesting solutions for their customers. A blockchain facilitates close collaboration in an open or closed community (a dedicated community of experts) by sharing information safely with all stakeholders in real time, following the rules set by this community without the need for validation or authorization by third parties. As everybody works from the same data and information, costly redundant work can be avoided, increasing overall return on innovation and reducing time to market.

Fostering commodity trading

Trading is a key part of particularly commodity chemical value chains. It allows the business to buy and sell more products through networks at the best prices and margins by leveraging current market conditions. In the chemical industry, a blockchain provides a new way to engage with potential clients. As chemical manufacturers produce as well as consume electricity, machine-to-machine integration and interaction is an innovative vehicle to safely and efficiently (Science Direct) trade electricity, utilizing data produced by process flow sheet models of industrial equipment.

Another example is the ZrCoin Network. A group of Russian scientists has developed a new manufacturing process for Zirconium Dioxide using waste material as feedstock instead of the traditional mining process. Instead of funding the construction of the new ZrO2 plant, the group founded a ZrO2 trading market on a blockchain platform called ZrCoin. Here investors trade ZrCoins, a derivative representing a physical amount of ZrO2. After having reached a critical threshold of investment, a buyback program will start where the initial investors will be repaid at a premium for the assets that they currently hold, with compensation being either monetary or in an equivalent of ZrO2. The ZrCoin team can retain full ownership of their business. The blockchain platform offers the speed, transparency, and safety that is inherent in its design, but most importantly, it will enable the creation of a market without the need for a third-party organization to regulate and facilitate trade. This has the potential to dramatically cut down on trading fees since all trades will be B2B.

New avenues for manufacturing

3D printing, also called distributed manufacturing, is proving to be another revolutionary technology that is moving manufacturing closer to mass customization. In particular, the chemical industry can benefit developing tailor-made proprietary formulations and systems.

However, a much-discussed but unresolved issue is intellectual property protection. Similar to the way digital music is shared, 3D printable digital blueprints could be shared illegally and/or unknowingly either within a company or by outside hackers. In addition to digital files, users can print molds from a scanned object and use them to mass-produce exact replicas that are protected by copyright, trademark, and patent laws. The problem will continue to grow as companies move to an on-demand manufacturing network, requiring digital blueprints to be shared with independent fabricators. Gartner predicts that by 2018, 3D printing will result in the loss of at least $100 billion per year in intellectual property globally.

With blockchain, data and rights holders could store metadata about any substance, from human cells to powered aluminum, on the blockchain, in turn opening up the limits of corporate manufacturing while also protecting intellectual property. New markets could enable buyers and sellers to contract more easily in an open market.

Validating asset history and employee qualification

Blockchain can be used to prove ownership when procuring or disposing of an asset. It can also help to track the history of an assets and related maintenance activities. Furthermore, it can serve to validate qualification of employees and certifications of contractors in chemical plants. The latter is particularly important since with new technologies and millennials entering the plant floor completely new skill sets are required. Those skill sets need to be certified to ensure safe operation of plants and assets.

Tracking information for improved integrity and accuracy

Some segments in chemicals (e.g., pesticides) are threatened by counterfeiting. Blockchains single ledger verifies the integrity of a product as the record can be traced back to the product manufacturer and even the manufacturer of its precursor agents.

Also, as complexity in chemical supply chains increases tracking products and shipments becomes more and more important. Contemporary logistics solutions must deal with transportation, location services, regulations, hazards, packing requirements, security, customer engagement and more. Accounting for these variables requires a lot of planning, and complex expensive systems. Even with extensive planning, billions of dollars of goods are lost each year through mismanaged transportation or fraud. Logistics companies are beginning to turn to blockchain for a solution.

Competing as an ecosystem

As companies are spun off in a stream of M&As, many stil have the R&D know-how, business relationships, and the brand recognition of their parent companies. These organizations will compete as part of an ecosystem rather than a single business with broad coverage. They will have minimal inventory and will therefore apply products made by organizations with a core competency around manufacturing into their overall “solutions.”

So how does blockchain fit in? Blockchain technology provides an agile commerce platform in which these next-generation chemical companies can compete. The new ecosystems fit nicely into the consortium blockchain model, providing a platform for safe, efficient, traceable, resource trading. These trades will also be done without the need for a third party and will be pure B2B transactions.

Learn how to innovate at scale by incorporating individual innovations back to the core business to drive tangible business value: Accelerating Digital Transformation in Chemicals. Explore how to bring Industry 4.0 insights into your business today: Industry 4.0: What’s Next?

In mid-February, I attended the ARC Forum in Orlando, Fla. There was a strong emphasis on digital transformation as well as platforms and standards supporting it.

Within the digital transformation, a variety of platforms are emerging, such as Infrastructure-as-a-Service, IoT edge, cognitive computing, and cloud application platforms. This makes it even more important to integrate these platforms and establish a semantic layer across them to ensure they can be orchestrated towards company strategies and business goals.

To help companies in today’s world digitally transform their business, here are some trends and observations:

• IT, operations, and engineering departments need to ensure interoperability between and across their domains. Historically, these three entities have all operated in their own silos under different standards set by different organizations with different goals.

• More and more associations and companies are starting to collaborate and converge on open standards that support end-to-end processes, cycles, and value chains. For example, Namur Open Architecture, ZVEI Modul Type Package, and the Open Process Automation Group have a memorandum of understanding in the works to promote common standards and frameworks. Besides integration and simplification, avoidance of vendor lock-in is another key driver behind this.

• Cloud platforms are starting to gravitate around functional needs with an underlying common IT technology (enterprise system of record platform, enterprise innovation platform, intelligent supply chain platform, operations and maintenance platform, asset network platform, product design platform, and so on).

• Seamless, bidirectional data and information flow, supported by rules and workflow engines, are indispensable ingredients for turning data and analytics into action. This goal will be supported by an “intelligent and agile core” enhanced by a peripheral layer of microservices that can be easily consumed via APIs (IT landscape of the future).

• The importance of the “intelligent edge” is increasing. Initially focusing primarily on reducing-data security risks, now operational issues such as analyzing and controlling devices, improving process speed, and reducing latency issues will prompt end users to get a much broader perspective on edge computing. Overall, this is driven by the ongoing need to maximize asset maintenance and production performance. Innovative models are now run on the edge, leveraging inexpensive cloud space for optimization.

• People and processes are as important as technology for the adoption of digital transformation. In other words, machine learning, IoT, and blockchain don’t excel by themselves. They need to be embedded into industry and business contexts as well as processes. From a hiring perspective, the data engineer is an emerging species, as special skills are needed around data mining, data analysis, data orchestration, and data governance. Such data engineers need to be paired with business and process-domain experts to ensure innovative technologies unfold their true potential.

• Change management is more important than ever before. Consistent and clear top-to-bottom communication and measuring transformation program progress by a common set of clearly defined KPIs are pivotal to successfully building relationships and trust across all enterprise entities.

What do you think? Please share your thoughts and observations with us.

For more insight on emerging tech, see Future Of Work 2018: 10 Predictions You Can’t Ignore.

According to Wikipedia, a ”smart city” is an urban development that integrates information and communication technology (ICT) and Internet of things (IoT) technology in a secure fashion to manage its assets. Multiple industries and stakeholders collaborate on platforms owned and run by local communities. Arup estimates that the global market for smart urban services will be $400 billion per annum by 2020. Examples of smart city technologies and programs have been implemented in Milton Keynes, Amsterdam, Barcelona, Madrid, Stockholm, and in China.

Often overlooked for their benefits, chemical companies can play a major role in the digital economy and the efficiency of smart cities. How could chemicals benefit a smart city?

Utilities and environmental benefits

Chemical companies can contribute to the energy needs of a smart city and improve better environmental practices. For example, many chemical companies operate their own power plants. When these plants create energy surpluses, they could offer the energy to local communities in a smart energy initiative. Since plants are connected to the grid, the infrastructure for this application is already in place. This solution could eliminate the need for additional power plants, minimizing environmental repercussions.

There are also many potential applications for the chemical industry to support breakthrough innovations that reach beyond their usual boundaries. For example, chemical companies that produce hydrogen could be integrated into a fuel cell-driven connected-car concept.

Chemical companies could also be tied into water systems. Many chemical companies produce chemically treated clean water as a service. In addition, using treated water for municipalities and cooling the power generation units of chemical and utility plants would help to streamline wastewater treatment processes and cut overall costs.

Safety protocols

Chemical companies could easily be aligned with emergency services, providing emergency workers and first responders with training and relevant information on chemical usages and hazards. Smart cities would need to be able to track chemicals being transported and implement safety guidelines such as specific truck routes to minimize risk.

Further, smart cities could collaborate with chemical companies on real-time models to predict the impact of the wind direction, air temperature, and other factors in the event of a chemical release.

Smart regions

Chemical companies could have further applications by combining smart cities with nearby rural areas. For example, these areas could use precision agriculture, which creates better yield with less irrigation, less use of chemicals, and reduced labor.

Also, chemical parks could be established as “smart regions” that incorporate transportation and logistics solutions to help areas run more efficiently. Chemical parks could also include smart buildings, facility management, and other solutions that align with the smart city concept.

Many people see chemical companies as a danger or health threat, but these companies also enhance life and boost civic efficiency in many less visible ways. Offering plant tours, sustainability reports, and other local public relations activities could improve the perception of the chemical industry and help the public understand its important role in everyday life.

Learn how to innovate at scale by incorporating individual innovations back to the core business to drive tangible business value: Accelerating Digital Transformation in Chemicals. Explore how to bring Industry 4.0 insights into your business today: Industry 4.0: What’s Next?

Find out how to unlock the value of IoT for your business.

A recent S.M.A.C. Talk Technology Podcast delves into the trends that make the global chemical industry tick and how its progressive use of technology appears to be reshaping grassroots businesses within the sector.

Hosted by Brian Fanzo and Daniel Newman, the 15-minute audio interview of industry expert Thorsten Wenzel, vice president of the worldwide chemical business unit of SAP, illuminates some practical success stories.

Without a doubt, Wenzel possesses a cutting-edge and global understanding of the chemical sector, where the forward-looking innovation resides and misconceptions about the industry’s willingness to embrace technology. He points out that industry analysts have too often claimed chemical-focused companies had fallen behind other industries.

“A digital transformation is not really new for the chemical industry,” Wenzel says. “We are doing that since 25 years, and if you think about it, there’s lots of truth about that at the plant level where a lot of automatization efforts and digitalization efforts were done in the last 20 years already.

“But on the other side, if you talk to analysts and compare industries, it seems to be that the chemical industry is somehow a laggard and little bit delayed in comparison to other industries, which are way more advanced in that. So this is somehow contradictory, but I can tell you, wherever I go, whenever I talk to customers, digital transformation and IoT topics are on top of the agenda.”

He also sees things such as predictive maintenance, shutdowns, turnaround, outages, and profitability as driving force issues going forward. But Wenzel enjoys the unique talent of breaking down complex theoretical ideas into tangible lessons. And real-life success stories are things non-theorists can really wrap their heads around.

Technology transforms businesses in practical ways

During the podcast, Wenzel provides examples that make sense to real meat-and-potatoes business decision-makers. During his time in the chemical industry, he watched as a paint outfit completely shifted its marketing strategy and to some extent, its customer base by integrating virtual technology.

“Let me just give you one example: This is Asian Paints from India, which was the classical producer selling their paints and coatings via the classical channels; wholesale, distribution, the big supermarkets,” Wenzel says. “And they confirmed … They changed their business model from a just producing-oriented model to a more service-oriented model. That means today, Asian Paints is a company which visits the big customers they have, like companies with big corporate offices, offices that would like to change their interior, who want to paint their offices in a new way.”

Asian Paints, Wenzel says, changed directions by integrating virtual design applications. These programs allowed them to go into high-end corporate spaces, photograph, image, and create design proposals for the customer. They transformed from a one-dimensional manufacturer to a “service-oriented” outfit that went beyond just selling paint products. Basically, virtual design helped them become profitable on two fronts.

In the agricultural industry, organizations like Monsanto have morphed from product producers and sellers to developing hands-on relationships with salt-of-the-earth farmers.

“Monsanto is doing something where they really use machine learning for seed optimization,” Wenzel says. “They let the machine bring out the seeds, put on the fertilizer, the plant protection chemicals, and then see which plants grow best and what do we have to do from the seeds producer perspective to really have the optimum seed portfolio for our customers, plus plant protection, plus disease protection. So that’s an interesting thing we are seeing with these customers, both based on machine learning.”

By using machine learning, farmers can convey images directly to Monsanto, which can advise them on plant-protection and seed protocols. Just as IoT, Big Data, and blockchain provide beginning-to-end technology that has reformed much of the retail industry, the chemical sector is immersed in stakeholder connectivity.

Regardless of insider and outsider differences of opinion about the chemical industry embracing technology, digital transformation is having a profound impact on businesses and the economic advancement of people everywhere. That extends from the chemical product manufacturer to the end customer. In effect, things like digital boardrooms put all the key stakeholders in the same virtual space.

Take 15 minutes while enjoying your beverage of choice and immerse yourself in the cutting-edge thinking of this S.M.A.C. Talk Technology Podcast featuring SAP chemical industry expert Thorsten Wenzel.

Hear the full episode here. Learn how to innovate at scale by incorporating individual innovations back to the core business to drive tangible business value by reading Accelerating Digital Transformation in Chemicals.

The Chinese zodiac calendar says it’s the Year of the Dog, but in the chemicals industry, 2018 might be more appropriately dubbed the Year of the Tiger for the pace at which the business is changing its stripes.

This year we’ve seen a continued shift in supply centers due to the rise of shale gas in the United States and the move from coal to olefins in China, for example. Demand centers are shifting, too, due to a rapidly growing middle class in such places as the Asia Pacific region and Latin America. The accelerated globalization of the chemicals market is one of four major trends that we see shaping the chemical industry through the remainder of 2018 and beyond.

1. Rapid globalization

As part of this rapid globalization, new market entrants – from emerging countries and adjacent parts of the supply – are emerging with innovative business models, concepts, and processes. In turn, this drives shrinking lifecycles and rapid commoditization of products as innovators rapidly catch up with or even exceed incumbents in terms of the speed and responsiveness in which they are developing new products, formulations, and services.

Amid such a dynamic and pressurized global environment, the onus is on chemical companies to explore new ways to maintain a competitive edge. Many are doing so by reimagining fundamental business processes through a digital lens. They’re investing substantial amounts in new digital solutions and applying them in areas like sales and operations planning, demand planning, supply, and response, with the goal of making them real-time ready, more collaborative, and better integrated with the entire ecosystem – within and beyond company boundaries.

This move to integrated business planning and execution provides an agile decision-making framework for realigning strategy with execution plans across all business functions. It also goes a long way toward ensuring that business goals and targets are consistently aligned while minimizing business risks.

2. The circular economy

The rise of the circular economy is another trend worth watching in 2018 and beyond. Scarcity of raw materials is a reality that chemical companies must factor heavily into their strategic thinking. So, too, is regulation. Amid a drive to reduce material, energy, resource consumption and waste, and emissions, regulatory requirements are rapidly expanding their reach at the global, regional, and local levels.

To put themselves in the driver’s seat to respond to stricter regulation, chemical companies are extending their ecosystems to establish end-to-end, “cradle-to-cradle” approaches. As companies like SAFECHEM Europe GmbH demonstrate, these approaches are as much about competitiveness as they are about compliance. SAFECHEM Europe has developed a sustainable solution using chlorinated and non-chlorinated solvents for high-precision metal surface cleaning and dry cleaning applications, where high quality is a must. Here, the solvents are managed in a closed-loop process without any release to the environment.

Critical to innovations like these are digital platforms that allow the rapid, highly collaborative development of new products and services in a way that minimizes their impact on people and the environment along the entire lifecycle. It’s important that these platforms also embed safety and compliance requirements along those lifecycles and monitor the impact of changes in regulatory requirements on products and services in real time so chemical companies can respond accordingly.

3. Digitalization

The trend toward digitalization in the chemicals business goes hand-in-hand with globalization and the emergence of the circular economy. A massive wave of digital innovation shows no sign of cresting this year. Recent technological advancements such as in-memory processing power along with almost unlimited data storage capabilities at low cost offer unprecedented levels of connectivity, granularity, and speed in accessing, processing, and analyzing huge amounts of data.

The Internet of Things, machine learning, and blockchain are also fueling the digitalization movement within the chemical industry. Big players like BASF are using the IoT to improve efficiency in its engineering and maintenance processes throughout the asset lifecycle, while also increasing reliance on machine learning for invoice matching and on blockchain technology to more efficiently manage the supply chain with a “smart pallets” approach.

To capitalize on the potentially massive efficiency and competitive gains that accompany an embrace of digital solutions, chemical companies need an agile business process and IT foundation, one that combines a stable core system – a “system of record” for running day-to-day transactions, including real-time insight and decision support – with a “system of innovation” that allows an organization to leverage external data in order to rapidly develop new business processes and even entirely new business models. Tight integration between these two systems on a single platform provides the foundation to rapidly scale such innovations for maximizing business value across the entire enterprise.

4. New business models

Digitalization is indeed helping to feed the emergence of new business models, another key trend that figures to shape the chemical business for the foreseeable future. How companies fare in that future will depend largely on their strategic agility. They need the ability to rapidly transform product and service portfolios in response to dynamic market conditions and changing stakeholder needs. Döhler is among a wave of chemical companies that are demonstrating that kind of agility. One of the world’s most venerable food and beverage companies, Döhler also happens to be one of its most innovative.

The drive to explore new business models is prompting companies to look beyond their traditional value chains and start competing as entire ecosystems. Such ecosystems are presently built around hot chemical segments like precision farming and the aforementioned circular economy. As they become more customer-centric, expect to see more chemical companies positioning to sell business outcomes instead of products. So it’s less about delivering paints, coatings, or reactive resin components and more about delivering first-pass-quality products.

New business models also are emerging around operational excellence and business process automation. With the aforementioned digital technologies becoming scalable and commercially feasible, companies can now realize concepts like “lights-out manufacturing” and “touchless order fulfillment.”

For these innovative new business models to prosper, companies will need a solid foundation that includes a fourth-generation platform for business processes and IT infrastructure, as well as a skilled workforce. Machine learning, IoT, and blockchain won’t succeed in a vacuum. They need to be embedded into our thinking and into our processes. But they will go only as far as you and your people carry them – people such as the emerging data engineer with the specialized skills to perform vital data mining, data analysis, data orchestration, and data governance functions. Such data engineers need to be paired with business and process domain experts to ensure that innovative technologies tap their true potential.

A perfect storm

The convergence of these trends – globalization, digitalization, new business models, and the circular economy – is creating a perfect storm for the chemical industry, challenging strategies that companies have relied upon for a generation. In today’s chemical business, factors such as customer and feedstock proximity, intellectual property, and technology know-how no longer guarantee a sustainable competitive advantage.

Hard-to-anticipate geopolitical risks and an emerging protectionism movement in some countries may adversely impact free trade and the availability of critical raw materials, further clouding the competitive outlook. Still, the edge goes to early adopters of innovative business models, which have a unique opportunity to act as game-changers and digital disruptors, even amid so much uncertainty.

Visit the SAP Experience Area at SAPPHIRENOW to learn more about this topic and others from customers and experts in the chemical industry.

With digital disruption changing our world, chemical companies are facing challenges to their processes and business models. How can they adapt and thrive? Leading companies in the chemical industry are succeeding by becoming intelligent enterprises.

Facing modern industry challenges

Chemicals companies face challenges from numerous areas. These include factors like the changing price of raw materials and geopolitical climates, erratic demand patterns, mass commoditization and customization of products, complex supply chain management, the transition to digitalization, competition from new companies, and more regulations and environmental expectations than before.

Challenges like these are not always negative but instead can present opportunities. Smart chemical companies are already shifting their models and offering new services, selling business outcomes instead of products, further automating processes leveraging machine learning, collaborating beyond traditional boundaries and competing as ecosystems, or developing strategic agility as a new core competency.

Mastering the challenge

With the mass adoption of cloud, Big Data, and mobile technologies over the last 20 years, chemical companies are generating an overwhelming volume of data. But most of them are unable to leverage this data effectively. As data becomes the new “oil,” most companies are simply building up larger reserves without a clear path for how to cash in this new asset. To make sense of all the noise, draw meaningful insights from their data, and dynamically allocate resources, our customers must become intelligent enterprises.

Intelligent enterprises operate with visibility, focus, and agility to achieve game-changing outcomes. They do more with less and empower employees through process automation. They deliver a best-in-class customer experience by proactively responding to customer expectations. They invent new business models and revenue streams.

Key capabilities of an intelligent enterprise

Intelligent enterprises differentiate with three key capabilities. They operate with:

• Visibility: the ability to collect and connect data that was previously siloed and recognize unseen patterns

• Focus: the ability to simulate the impact of potential options and direct scarce resources to the areas of maximum impact

• Agility: the ability to respond faster to changes in the marketplace or the business and pivot business processes towards the right customer outcomes

Business outcomes

By adopting the capabilities of an intelligent enterprise, chemical companies can achieve game-changing outcomes faster, more effectively, and with less risk:

• Do more with less and empower employees through process automation, freeing time for people to do more meaningful work

• Deliver a best-in-class customer experience by anticipating and proactively responding to end-customer needs

• Invent new business models and revenue streams by monetizing data-driven capabilities and applying core competencies in new ways

Technology enablers

For enterprises to become intelligent enterprises, they must invest in three key areas of technology:

• An intelligent suite bringing intelligence into the applications used to manage customers, supply chains, networks, employees, and core business processes

• A digital platform to manage data from any source (first or third party) in any format (structured or unstructured), and support the development, integration, and extension of business applications

• Intelligent technologies to apply intelligence to data and processes through innovations such as machine learning, advanced analytics, and IoT

Learn how you can transform your company into an intelligent enterprise. Start today!

As one of the world’s best-known manufacturers of the rolling rubber objects that populate landfills by the millions — automotive tires, specifically — Michelin seemingly was destined for a role in the Circular Economy. Michelin further embraced that role last October with its acquisition of U.S. specialty chemicals company Lehigh Technologies, which produces a material called micronized rubber powder (MRP) from waste tires. These powders are capable of replacing oil- and rubber-based feedstocks in a variety of applications, including the production of high-performance tires.

It’s exactly the type of business, and the type of closed-loop, zero-waste process, that manufacturers are pursuing as they move away from the traditional linear “take-make-dispose” model of creation and consumption, to a circular model in which materials are continuously looped back into the value chain for re-use, resulting in less energy and resource consumption.

Chemical manufacturing and plastics in particular have emerged as a key target for the Circular Economy movement. And for good reason:

• 95%, approximately, of plastic packaging material value, or $80-$120 billion in economic value, is lost annually because of a short first use, according to a 2016 report by the World Economic Forum.

• 72% of plastic packaging is not recovered, according to the WEF report; 40% ends up in the landfill and 32% leaks out of the collection system.

• $13 billion in damage to marine ecosystems caused by plastic waste each year, the United Nations estimates.

Although Europe is the movement’s epicenter, the circular economy has become a global imperative. In July, China and the European Union (EU) agreed to cooperate on circular economy initiatives. In the United States, meanwhile, the American Chemistry Council’s Plastics Division this spring committed to a goal of recycling or recovering all plastic packaging used in the U.S. by 2040, and along the way, to make all plastics packaging recyclable or recoverable by 2030.

“Together with our value chain partners we intend to transition to increasingly circular systems for designing, manufacturing, recycling and recovering our plastic packaging resources,” explained Steve Russell, the ACC’s vice president of plastics.

As the Michelin-Lehigh alliance illustrates, some manufacturers view that transition as an opportunity to cultivate new business opportunities while closing the loop on their products. But the business case for embracing the Circular Economy extends well beyond the creation of new, high-value product applications. It also gives chemical producers an opportunity to optimize their manufacturing processes, to increase vertical integration of the supply chain, reduce resource consumption, and gain greater control over the entire product lifecycle, including the ability to sustainably manage the end-of-life of a product such as tires.

Realizing these benefits takes a creative strategic vision along with a robust digital technology foundation, one that enables a manufacturer to explore, design and scale up new products and processes quickly and efficiently. Here are several ways technology is positioning chemical manufacturers to capitalize on the opportunities the Circular Economy presents:

• A digital platform can enable rapid development of innovative products and services in a collaborative fashion. Manufacturers can bring together suppliers, customers, and other relevant parties, relying on the “wisdom of the crowd” to design products that fit the tenets of the circular economy: built-to-last, built-to-repair and/or built-to-recycle products, made from homogeneous materials to facilitate full recycling at end of life. This open innovation could be guided by goals that are commonly agreed-upon via blockchain. During the design process, machine learning tools attached to that platform can predict the environmental performance and impact of a new product, forecasting its carbon footprint along the entire lifecycle.

• Such a platform can enable manufacturers to track and trace production materials (including rare earth and noble metals, etc.) along their entire lifecycle, using blockchain, allowing them to authenticate the origin of raw materials, which helps to reinforce fair trade and labor practices.

• Digital tools can be the catalyst for optimizing manufacturing and business processes across an enterprise to gear up for the Circular Economy. With machine learning tools, manufacturers can predict new product quality in the manufacturing process while minimizing waste and energy consumption. Additive manufacturing and 3D printing technologies allow manufacturers to explore innovative applications for high-value materials (such as high-performance composites) with little to no waste or inventories, for example. 

• An open digital platform can transform a manufacturer into a network orchestrator. For example, instead of funding construction of a new recycling plant, a group of investors could create a collaborative trading platform, enabled by a blockchain, to trade derivatives that represent a physical amount of a chemical product. Once a critical threshold of investment in a buyback program has been reached, initial investors are repaid at a premium for the assets that they currently hold, with compensation being either monetary or in an equivalent of the chemical product. Platform owners retain full ownership of their business.

• A digital platform with embedded and regularly updated safety and compliance requirements can enable manufacturers to monitor and measure the impact of changes in regulatory requirements on their products and services in real-time, allowing them to design products, formulations, and composites to meet prevailing regulatory standards in specific markets — and to rapidly adjust those products or find acceptable alternatives as regulations change. Using machine learning tools, manufacturers also gain the ability to rapidly simulate the impact of new regulatory policies and laws on sales in certain regions or countries.

Whether the market is Europe, China, the U.S., or elsewhere, digital technologies figure to play a key role in helping chemical manufacturers develop the low-carbon innovations they’ll need to thrive in the Circular Economy. When earlier this year the CO2Value Europe Consortium launched the H2020 BioRECO2VER project to pursue more efficient, sustainable processes for commercially producing platform chemicals like isobutene and lactate from carbon dioxide, it acknowledged facing formidable technical and economic barriers. “To name a few: gas pretreatment costs are still too high, gas transfer in the bioreactors is suboptimal, product recovery costs are still too elevated, and the scalability has not sufficiently been proven.”

Overall, companies setting the foundation now for operating with visibility, focus, and agility through becoming “intelligent enterprises” are predestined to gain a first-mover advantage in addressing the circular economy and help the world to become a safer, cleaner, and better place.

Learn more about to turn your company into an Intelligent Enterprise!

This article was originally published on ChemInfo.

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.

In a recent episode of Game Changers, host Bonnie Graham explored digital transformation in the chemical industry. I had the opportunity to participate in this radio program with two other industry experts: Bob Parker, group VP of research direction at IDC Manufacturing Insights and Retail Insights, and Michael Casey, managing director at Accenture North American Chemicals and Natural Resources Industry Group. Here’s what we discussed.

Buzzwords with real-world applications

Cloud and digital are two of today’s big buzzwords. But beyond those words is real technology that is tangible and available today to push ahead businesses and the industry as a whole. We have the opportunity to advance operations and behaviors to make the disruptive changes.

These changes are vital to a business’ future operations and profitability. Conventional business models are being challenged. New technology is entering the game, but it can be difficult to integrate into current operations. Reimagining business models, processes, and how people work will make a big difference in how competitive a business can be in the future.

How to get there

The challenges and the opportunities for new business models, products, and services can create problems. Innovation is accelerating; the problem is that there is no existing roadmap to get from one maturity level or stage to the next. How do you create a roadmap for a place you’ve never been?

A better analogy would be the historic explorers who used a compass or star navigation to figure out where they were headed. In today’s move towards digital innovation, we have a direction, even when we’re walking into completely new territory. Businesses need to abandon limited, conventional thinking during that journey. Refusing to go on the journey of digitization and innovation will simply leave you disrupted. Why? Competitors are not shy about making this exploration.

Digital transformation and maturation in the chemical industry

IDC industry research shows a multi-tiered maturity model. It contains over 100 elements based on over 1,000 companies across the industry. Most businesses are still early in maturity; behind in some areas and ahead in others. But it’s a sign that the market is ready to take off.

Chemical companies, from the CEO down, are making the decision to build technology capabilities; the Economist recently referred to the chemical industry as being in the golden age of materials.

Redefining the industry

In the past, the industry has been based around demand for particular chemicals. Now we’re seeing a shift from products sold in high-volume, well-margined markets. Digital transformation is streamlining the industry. It’s changing markets for commodity chemicals as well as specialty chemicals. Chemicals are now being tailored to their end application.

A third tier is developing beyond commodity and specialty markets, focusing on the versatile molecule. Molecular structures can be mapped, similar to a genome, and allow the industry to develop chemicals tailored for very specific purposes and customers. Having these tight specifications allows for finer control and specialty expertise within the industry.

Commodity chemical companies are losing ground with these new options and must be reimagined to remain competitive. New competitors are springing up all over the world. The commodity companies must adapt or lose out. But whether they move upstream or downstream in the value chain, a new business model is vital to success.

Examples from the industry

But what industry giants are making the shift to digitization and new business models? Here are a few examples discussed during the Game Changers program:

• Asian Paints previously sold only paints and coatings. They’ve shifted to a downstream position with over 10,000 retailers. They sell color as a personalized experience for the end user.

• Monsanto’s focus was selling seeds and agricultural chemicals. They’ve shifted to answering pain points for farmers. The company now provides increased yields based on proprietary recipes leveraging advanced analytics that are customized to a farmer’s field.

• A chlorine company looked at its biggest customers. Instead of remaining in the commodity chemical business, it shifted to producing sensor-based automatic dispensing machines. This made it much easier for customers to keep their water chlorinated without testing and additional work. Instead of having to price based upon a commodity (chlorine), the company could price based upon value (pool cleanliness).

Industry collaboration

Similar businesses regularly run common equipment. What if you could share the data from that equipment to compare how it performs across the industry? You could even receive maintenance tips to improve asset availability.

In-memory engines and cloud computing add unprecedented levels of granularity and speed to data processing and analytics, helping you to gain real-time insight into things such as asset performance across your or your customers’ network in order to make innovative, service oriented business decisions.

Many companies are no longer selling chemicals. They’re selling solutions to customers’ problems. Muntajat in Qatar is selling millions of tons of chemicals without any production assets. It provides chemical logistics for companies. Its shift to more granular customer needs and experiences is creating an effective new business model.

Are you ready to make the change? Take the Digital Readiness Survey to learn where you stand on your Digital Journey and how we can help you plan your platform and roadmap for transition.

Learn more about SAPPHIRENOW and secure your spot today!

A few short years ago, 3D printing was a novelty. Today, it’s a major driver in business process transformation and the digital economy.

Already nearly every industry is finding unique ways to use 3D printing to reduce inventory, save money, and increase time to market. 3D printing also easily relates to innovative industry trends like robotics, digital logistics, rapid prototyping, digital spare parts management, and others. According to a study from Fredonia Group called “World 3D Printing,” the world demand for 3D printers and related materials and software is projected to rise 21 percent per year, to $5 billion in 2017.

Here are some real-world examples:

Discrete industries

Grounded airplanes are expensive, and that’s without considering the lost revenue from cancelled flights. Historically, airlines have kept millions of dollars of spare parts inventory on hand in an attempt to minimize downtime. Today, many airlines and aircraft manufacturers have turned to 3D printing and digital spare parts management.

With 3D printing, the airline simply prints the required spare part on site rather than flying it in from centralized spare parts depots. As a result, the airline reduces investment in inventory and increases the utilization of its planes. Moreover, focus is on “light parts” in support of the goal to globally reduce CO₂ emissions. Recently announced at the annual Farnborough International Airshow, APWorks, an Airbus subsidiary, will make use of SAP’s 3D printing services to operate a “bionics network” that is planned to bring together 3D printing experts and end users. Companies like Airbus are targeting the entire value chain for 3D printing, from planning and design over rapid prototyping to after-sales services.

The automotive and industrial machinery and construction industries also use 3D printing to rapidly create prototypes or machine parts and to create spare parts. Ferrari, for example, uses 3D-printed models in original size for wind tunnel testing as well as racing car component manufacturing. Rapid prototyping generally helps reduce the cost and the time to market for new equipment and machinery. Once the new models are ready for production, 3D printing farms churn out components and spare parts, enabling simpler integration of design changes and enabling customized options without increasing inventory.

Consumer products

Custom-crafted desserts, fanciful shaped pancakes, noodles, cheeseburgers, New York-style pizza—the list of 3D printed foods is growing each day. As interesting as 3D printing foods sound, food isn’t the only consumer product that’s coming from printing farms. Toys, shoes, and household products are also part of the 3D printing revolution. Consumers want customized products, and creating them on a 3D printer is fast and economical.

Building and construction

People tend to think of 3D printing for small,or at most, medium-sized items, but in China, The Netherlands, and the U.S., building innovators have already created 3D printers capable of printing an entire house quickly and cost-effectively. These are full-sized houses, comprising up to 2,500 square feet, printed using concrete, specialized plastics, and metal.

Process industries

Industries like utilities, oil & gas, chemicals, and mills & mining are also looking closely at the innovative potential of 3D printing. Imagine having assets like pipelines, oil rigs, or mining vehicles operating in remote and hard-to-access areas that must be inspected and maintained on a regular basis to ensure safe, smooth operations. You could, for example, leverage drones to inspect such assets and determine maintenance needs and have spare parts 3D printed locally on demand to make repairs. This would help reduce downtime without increasing MRO inventory.

The chemical industry also has the unique opportunity to drive 3D printing adoption through development of innovative plastics, metal powders, ceramic materials, and proprietary formulations that feed 3D printers. Covestro, for example, currently develops a portfolio of powders and resins for all established 3D printing processes.

Life sciences

Healthcare workers and surgeons can print artificial joints custom fitted to a patient’s exact specifications. Dental crowns can now be printed while you wait, with no messy measuring and fitting. Custom medications, printed on demand, help doctors regulate dosages more accurately. Artificial skin is printed for use in grafts or to protect burn victims. It sounds like science fiction, but it’s the reality of the digital transformation that 3D printing is driving.

Conclusion

3D printing is a rapidly growing business that affects almost every industry and has the potential to redesign entire value chains. Large, expensive global or regional production plants could be supplemented or even replaced with small, highly flexible 3D printing farms serving local needs on demand, hence becoming a key driver of the digital economy. This would significantly reduce inventory as well as transportation costs.

Moreover, ownership of the digital files that drive the 3D printers will become a critical success factor and key differentiator in the market. Today, ownership of the digital file to drive the 3D printer is as valuable as the printer itself. SAP, Stratasys, and UPS have already started to collaborate on building 3D printing farms along with standards to exchange design docs, formats, and certificates.

For more insight on the impact of digital innovation on the future of business, see Supply Chain Futurists Predict The Impact Of Digital Transformation.

It’s been nearly 30 years since Chuck Hull, the “Thomas Edison” of the 3D printing industry, introduced the first 3D printer. Since that time, 3D printing, otherwise known as additive manufacturing, has been used to create everything from shoes to airplane parts to even food. Although issues such as durability and speed have kept 3D printing from being used in mainstream manufacturing to date, the industry is making tremendous advancements.

The growing adoption of 3D printing by more markets is being driven by three primary developments. First, the cost of 3D printing is rapidly decreasing due to lower raw material costs, stronger competitive pressures, and technological advancements. According to a recent report by IBISWorld, the price of 3D printers is expected to fall 6.4% in 2016.

Second, printing is getting faster. Last year, startup company Carbon3D printed a palm-size geodesic sphere in a little over six minutes, which is 25 to 100 times faster than traditional 3D printing solutions. The company’s unique printing approach applies ultraviolet light and oxygen to resin in a technique called Continuous Liquid Interface Production to form solid objects out of liquid. Traditional additive printing is getting faster as well.

The third driver of 3D printing growth is the ability of new printers to accommodate a wider variety of materials. Aided by innovations within the chemical industry, a broad range of polymers, resins, plasticizers, and other materials are being used create new 3D products.

While it is impossible to predict the long-term impact 3D printing will have on the world, the technology likely will transform at least some aspects of how nearly every company, in nearly every industry, does business. In fact, the chemical industry already has implemented 3D applications in the fields of research and development (R&D) and manufacturing.

Developing innovative feedstock and processes

Chemicals is a highly R&D focused industry. In 2014, $59 billion was invested in R&D to discover new ways to convert raw materials such as oil, natural gas, and water into more than 70,000 different products. There’s a vast opportunity for 3D printing to develop innovative feedstock and corresponding revenue in the chemical industry . While over 3,000 materials are used in conventional component manufacturing, only about 30 are available for 3D printing. To put this in perspective, the market for chemical powder materials is predicted to be over $630 million annually by 2020.

Plastics, resins, as well as metal powders or ceramic materials are already in use or under evaluation for printing prototypes, parts of industry assets, or semi-finished goods, particularly those that are complex to produce and only required in small batch sizes. Developing the right formulas to create these new materials is an area of constant innovation within chemicals, which will likely produce even more materials in the future. Below are a few examples of recent breakthroughs in new materials for 3D printing.

• Covestro, a leader in polymer technology, is developing a range of filaments, powders, and liquid resins for all common 3D printing methods. From flexible thermoplastic polyurethanes (TPU) to high strength polycarbonate (PC), the company’s products feature a variety of properties like toughness and heat resistance as well as transparency and flexibility that support a number of new applications. Covestro also offers TPU powders for selective laser sintering (SLS), in which a laser beam is used to sinter the material.

• 3M, together with its subsidiary Dyneon, recently filed a patent for using fluorinated polymers in 3D printing. There are many types of fluorinated polymers, including polytetrafluoroethylene (PTFE), commonly known as Teflon, which often is used in seals and linings and tends to generated waste in production. The ability to print fluorinated polymers means they can be manufactured quickly and affordably.

• Wacker is testing 3D printing with silicones. The process is similar to traditional 3D printing, but uses a glass printing bed, a special silicone material with a high rate of viscosity, and UV light. The printer lays a thin layer of tiny silicone drops on the glass printing bed. The silicone is vulcanized using the UV light, resulting in smooth parts that are biocompatible, heat resistant, and transparent.

The chemical industry is also in the driver’s seat when it comes to process development. Today about 20 different processes exist that have one common characteristic – layered deposition of printer feed. The final product could be generated from melting thermoplastic resins (e.g. Laser Sinter Technology or Fused Deposition Modeling) or via (photo) chemical reaction such as stereolithography or multi-jet modeling. For both process types, the physical and chemical properties of feed materials are critical success factors, not only for processing but also for the quality of the finished product.

3D printing of laboratory equipment

Laboratory equipment used for chemical synthesis is expensive and often difficult to operate. Machinery and tools must be able to withstand multiple rounds of usage during the product development process. With 3D printing, some of the necessary equipment can be printed at an affordable cost within the lab. Examples of equipment already being created with 3D printing include custom-built laboratory containers that test chemical reaction and multi-angle light-scattering instruments used to determine the molecular weight of polymers. Some researchers are also using 3D printers to create blocks with chambers used to mix ingredients into new compounds.

3D printing for manufacturing maintenance and processes

In addition to printing equipment used in laboratories, some chemical manufacturers are using 3D printers for maintenance on process plant assets. For example, when an asset goes down due to a damaged engine valve, the replacement part can be printed onsite and installed in real time. Creating spare parts in-house can significantly reduce inventory costs and increase efficiency because there is no wait time for deliveries. Chemical manufactures are also started to print prototypes (e.g. micro-reactors) to simulate manufacturing processes.

For companies that don’t want to print the parts themselves, there is now an on-demand manufacturing network that will print and deliver parts as needed. UPS has introduced a fully distributed manufacturing platform that connects many of its stores with 3D printers. When needed, UPS and its partners print the customer-requested part and deliver it. Connecting demand with production capacity is known as the “Uber of manufacturing.”

While not all parts will be suitable for 3D printing and work still needs to be done in terms of durability and materials, the potential reduction in inventory costs is significant. In the United States alone, manufacturers and trade inventories were estimated at $1.8 trillion in August 2016, according to the U.S. Census Bureau. Reducing inventory by just two percent would produce a $36 billion savings.

For more about 3D printing in the chemical industry, stay tuned for Part 2 of this blog, which will address commercial benefits, risks, and an outlook into the future. In the meantime, download the free eBook 6 Surprising Ways 3D Printing Will Disrupt Manufacturing.

Learn more about SAPPHIRENOW and secure your spot today!