Digital Transformation In The Chemicals Industry

Dr. Thorsten Wenzel

The chemicals industry is more than a single industry. It is a group of industries that produce a wide range of products across many unique segments. Base chemicals, paints, beauty products, fragrances, and food flavorings all face pressure due to rapid changes in digital technology, consumer demand, and global competition.

In the past, large producers dominated the market. These large producers valued operational efficiency over flexibility and adaptability. Today, the market is challenged by niche players that strongly focus on consumer demand. These players have prompted incumbents to differentiate themselves by producing smaller batches for individual customer needs and selling services, experiences, and outcomes, while being early adopters of digital technology at the business core.

Large established firms and smaller emerging competitors deal with the same dynamics. Rapid commoditization of the industry has accelerated as oil prices have remained low. Volatile feedstock prices have added an element of cost variability.  New technologies, such as 3D printing, have provided new opportunities for plastics, resins, ceramics, and powders.

Globalization has also altered the chemicals industry. New competitors, markets, and regulatory issues have changed industry dynamics. Economic and manufacturing growth in Asia has made its mark. As a result, many firms have moved towards mergers and acquisitions to remain competitive and drive growth. For such firms, the daily challenges of integrating operating systems into a single system have become a reality.

There is also the threat of the innovative companies that have reimagined their markets, products, services, and technology. An example of this is the paint and coatings market. Companies are selling customer experiences instead of products: It’s not about the color of the paint, but how the paint looks on the wall and fits into the larger home experience. Companies are using an integrated digital supply chain along with consumer data to create a direct-to-consumer model. By working with retail outlets and automated sensor-enabled mixing systems, they are also moving closer to first -pass quality for custom products. During the process, they are gaining valuable customer data and insights.

Gaining the edge

The impact of these industry changes is easy to see, as are the challenges they create: Chemical companies must identify new revenue streams, including innovative services and outcome-based models. To do this, they must address an aging and non-digital workforce and find a way to attract new talent that embraces the digital workplace. This talent will be key to leveraging technology to offer core business value. For this to happen, companies must leverage large amounts of data to better understand their operations and their customers.

Overcoming these challenges is the only way to address the single largest challenge the industry faces today. The future of the chemicals industry is no longer the one-shot, blockbuster product model. It’s in the creation of an ecosystem focused on improving the customer experience.

The right technologies, the right approach

Digital technology, and the data it brings, holds tremendous promise for the chemicals industry. These technologies can all play a role in driving business value.

  • The Internet of Things (IoT), leveraging sensors to capture data from manufacturing, storage, and distribution
  • The cloud, a platform to support a common system of record for both suppliers and customers
  • Analytics, to correlate supply data to product quality and customer satisfaction
  • Machine learning, to assist in predictive maintenance of operational equipment
  • Blockchain, to better track transactions for assets, materials, and products

But technology alone isn’t the answer. In the chemicals industry, it’s the use of technology against the right digital strategy that holds the real value. This requires a focus on implementing a true digital core that enables a common system of record through the business. It also requires a corporate mindset that embraces agility, adaptability, and innovation. It requires a mindset that is driven by a customer-first, design thinking perspective.

For an even more in-depth look into the future of the digital transformation that will continue to be integral in the chemicals industry, download our special white paper “Digital Transformation in Chemicals.” Learn more about the role SAP will play in implementing and driving the digital transformation in the chemicals industry.

Turn thinking into doing at Mobile World Congress 2018 in Barcelona February 26 – March 1, 2018. Learn more!

Dr. Thorsten Wenzel

About Dr. Thorsten Wenzel

Thorsten Wenzel is Vice President and Global Head of Chemicals at SAP.