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 have one thing in common. These segments are under 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 who strongly focus on customer or even consumer demand. These have prompted incumbents to differentiate themselves by producing smaller batches for individual customer needs, selling services, experiences, and outcomes, and 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 from innovative companies that have reimagined their markets, products, services, and technologies. An example of this is the paint and coatings market. Companies are selling customer experiences instead of products. It’s not the color of the paint, it’s 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 the quality of 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, non-digital workforce and find ways 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’s experience.
The right technologies, the right approach
Digital technology and the data it brings hold 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.
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?“