Reinventingchemical company with digital transformation

Reinventing the chemical company with digital transformation

7:19 AM, 15th February 2018
Reinventing the chemical company with digital transformation
Chemistry 4.0 strives to digitize and transform every element in the value chain, but new technology is often limited to point solutions or upgrades to existing systems and processes. (File photo)

By Dr Bernhard Kneissel

Digital transformation has become a part of the fourth and latest industrial revolution. Although many industries are making great strides in digital transformation, the chemical industry has been more a laggard than a leader. However, to remain competitive and explore new opportunities, many chemical companies are using digital technology for smarter manufacturing, stronger customer relationships and faster innovation. In the front ranks of digital transformation are companies that are no longer selling chemicals; they’re selling solutions to customers’ problems through new business models for the delivery of enhanced services and customized speciality chemicals.

Making your next move

Maintaining a conservative attitude has often proved successful in the chemical industry. By its very nature, chemical manufacturing involves significant capital expenditures, long lead times for development, and massive infrastructures for supply and distribution. It’s a three-dimensional chess game where you want to think carefully before making your next move.

On the global chessboard of the chemical industry, leaders are well aware of the potential of digital technology, but many are still moving cautiously and selectively in their progress toward real transformation. Chemistry 4.0 strives to digitize and transform every element in the value chain, but new technology is often limited to point solutions or upgrades to existing systems and processes. In many cases, innovation is held back by a vicious cycle: the lack of budget for digital initiatives means that fewer resources and skills are acquired which, in turn, results in fewer digital achievements that could justify a larger budget for digital investments in the future.

In 2016, KPMG in Germany interviewed 75 CEOs, owners, managing directors and department heads from the chemical industry in Germany to ask for their assessment of the state of digital transformations in their company. Familiarity with digital transformation was a predominant theme among respondents, but 60 percent of chemical companies said their organizations did not devote sufficient resources and competencies to digital initiatives. A way out of this dilemma starts with the customer.

Customer-driven innovation

Today’s customers know what they want-and they want it now. That’s why increased growth and volatility in customer demand is helping to kick-start innovation for manufacturers and the chemical companies that supply them.

Adidas is developing a new way to manufacture and deliver sneakers in a fraction of the time with digital technology. Currently, their shoes are made mostly by hand in Asian countries. However, the cost of manual work outsourced to the region is rising and a labour shortage is anticipated in the years ahead.

More importantly, the manufacturing process takes up too much time for today’s customers. From the first sketch of a new pair of sneakers to making and testing prototypes, ordering materials, retooling a factory, working up production and eventually shipping the finished goods to the shops can take as long as 18 months. Even refilling orders for existing models can take 2 or 3 months. Meanwhile, three-fourths of new sneakers are on sale for less than a year.

With Adidas’s new SpeedFactory, most of the parts from raw materials such as plastics and fibres will be assembled onsite with computerized knitting, robotic cutting and 3D printing. This process is designed to reduce the delivery time of even a customized order to less than a week or even a day.

Another example of innovation is Asian Paints, the largest paint company in India. Previously, they sold only paints and coatings. Now they have shifted to a downstream position with over 10,000 retailers, selling to create a catalogue of over 1,800 hues, shades and themes to create a personalized customer experience.

In a similar way, a medium-sized German speciality paint manufacturer allows DIYers to configure their own colour from a palette of basic colours when ordering from the company‘s website. For each order, a radio chip is created to store relevant information that communicates directly with the embedded systems along the production line. This digitized chip enables the company to make its products more flexible, individualized and cost-effective as series production. Plus, the stored data ensures customers can reorder the same colour mixture next time.

For chemical companies, individualized production means new markets for speciality chemicals, but it also means developing a far more flexible, customized and diversified portfolio that is backed by leaner operations and faster delivery of products.

From plant to platform

One of the most innovative changes in the chemical industry is the shift that has seen chemical companies become software companies. In effect, they are no longer selling chemicals; they’re selling solutions to customers’ problems through connectivity or across digital platforms. These technology solutions open up new sales channels and enable a closer relationship with customers, matching demand and supply on a customer-by-customer basis.

A chemical company supplying chlorine for swimming pools now produces and sells sensor-based automatic dispensing machines. This makes it much easier for customers to keep their water chlorinated without testing and additional work. Instead of having to price based on a commodity (chlorine), the company can price based on value (pool cleanliness).

In another example, a German chemical company uses a business-to-business (B2B) online shopping platform from a Chinese provider to make its products more available to small and medium-sized companies in China. Similarly, other chemical companies have used a host of other online shopping platforms in the B2B area, including Alibaba, Amazon, Wer liefert, Europages and Marktplatz Mittelstand. Using these platforms, customers can easily compare products, services and costs, and providers have a direct overview of their competitors’ offers.

Steps toward transformation

Chemistry 4.0 is an imperative. The question is where to go next. Leading companies are positioning themselves to transform their business models to deliver tangible customer

results versus selling increasingly commoditized chemical products. The era of digital technologies transforming industries inevitably leads to a dynamic environment full of unexpected challenges and disruption. However, the chemical industry must make the process of digital transformation and Chemistry 4.0 their own. This is the only way to ensure sustainable, quick and financially viable development.

Depending on a company‘s requirements, the following steps should accompany the transformation process:

Author: Dr Bernhard Kneissel is Director - Deal Advisory, Strategy at KPMG in Germany.

© Chemical Today Magazine


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