October 8, 2020
A study done by Accenture indicates that 55% of chemical companies that invested in digitalization report profit increases of 5–20%, while about 25% of the companies saw profits grow greater than 20%. Ongoing industry trends have amplified the need for chemical companies to digitize the supply chain; some of these developments include:
Commoditization: The increasing commoditization of chemicals is already becoming a challenge for US chemical companies. Cheap material and lower transportation costs enable basic chemicals to pour from Asia (especially China) into much of the western hemisphere.
Risk mitigation: The current global situation is unpredictable—with events such as trade wars, port backlogs, and plant shutdowns (from pandemic response, hurricanes, or other unanticipated calamities). This should act as a strong motivator for chemical companies to reduce supply chain disruptions by building flexibility and resilience up and down the chain.
Globalization vs. localization: Historically, supply chain digitization was developed to enable longer supply chains. But as tariffs increase for imported products and plant shutdowns impact the supply of products, manufacturers find producing, sourcing, and serving customers from local facilities an increasingly attractive option.
Customer expectations: Another development that’s been affecting chemical manufacturing is “the Amazon effect.” Consumers are used to tracking orders and shipments and knowing the estimated time of arrival. They expect to be notified about delays and contingency plans. Consumers also expect quick resolution to complaints and questions. They value the availability of all product data and information in advance (or at least with the shipment). Many of these expectations have increasingly carried over to the business world.
Innovation or new product introductions: To meet growing customer expectations, avoid commoditization, and make a better case for localizations, chemical companies are continually trying to innovate. Product innovation often introduces new raw materials and trial products/processes in the plant—which can disrupt normal plant operations. It also forces the supply chain planning team to try to strike the right balance between the cost of losing throughput and changing customer commitments vs. the upside of new opportunities from those innovations.
Old clunky ERP systems and spreadsheets aren’t enough to keep up with these ongoing developments. To stay competitive, chemical companies should invest in modern supply chain technologies that allows them to create a collaborative, cloud based, data driven, and intelligent, delivery-based supply chain ecosystem that delivers savings, value additions, and tangible returns.
To learn more about this topic and gain some practical information about steps your organization can take to create an end-to-end digitized supply chain, download the best practice guide “Achieving end-to-end supply chain excellence in the chemical industry.”