Six Ways Blockchain Impacts The Chemical Industry

Stefan Guertzgen

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?

About Stefan Guertzgen

Dr. Stefan Guertzgen is the global director of Industry Solution Marketing for Chemicals at SAP. He is responsible for driving industry thought leadership, positioning & messaging, and strategic portfolio decisions for chemicals.