The Global Impact of COVID-19 on the Chemical Industry
In this episode of the Industry Insights by SAP podcast, Josephine Monberg interviews Dr. Thorsten Wenzel, Vice President and Global Head of Chemicals at SAP. Listen now to hear Thorsten discuss the short- and long-term impact of the coronavirus pandemic on the chemical industry and how technology has helped in the recovery process.
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Welcome to the industry insights by SAP podcast series. My name is Josephine Monberg, and I am your host. You are now listening to the COVID-19 special edition of our show. Welcome to our podcast. Hello everyone. And welcome to this episode of deep industry podcast show. And today we are looking at an industry and we’re taking a closer look at how the industry has been transformed by code. But please understand this is not just about COVID. This is also about the industry in general and what kind of cool stuff is going on in the industry. And to do this, I am joined by a really awesome guests and I noticed, because it just chatted with him for maybe 20 minutes before the end of the year. Thorsten, thank you so much for joining us. Can you tell our listeners a little bit about what you do and I’ll let you introduce yourself to everybody.
Thanks, Josephine and hello to everybody on that call. My name is Thorsten Wenzel. I’m the vice president and global head of the industry business unit chemicals at SAP. Actually, I’m working in that team since 18 and a half years. And before I did that I actually studied chemistry. So I obtained a masters in chemistry and chemical engineering. Then I made my PhD in biochemistry. Then the big jump into the industry. I worked three years in shell at the lubricants department and petrochemicals business at my first contact with SAP products at shell found that interesting. And then I joined KPMG consulting, worked three years as an SAP implementer for chemical and pharmaceutical companies. And then I joined SAP and the industry business unit chemicals 18 and a half years ago, which is by the way, a very typical CV. So all my team has a similar CV. So very strong industry background. That’s actually the basis of everything. And then everybody puts the SAP knowledge and on top and how to apply business processes, how to apply, um, SAP systems on top of the chemical industry. So you therefore obviously have to understand the industry detail and that’s a must to work in my team.
First of all, what a cool resume didn’t even know that that is, I didn’t even know that you had a chemistry background, but like actual PhD. So that’s very, very cool, but so tell us a little bit more, your team is kind of, as far as I understand it, you were kind of the bridge between customers and also the development piece of SAP, right? So you kind of translate the knowledge between the two.
So there’s several ways to describe our function. Some people say we are the window for the customer into our development organization. And this is actually a nice description because everything which comes out of the industry as an industry specific requirement, based on trends we see in the industry that needs to go through our desks in my team, we have to consolidate that to really see, is this really the industry perspective or is it just the perspective of customer XYZ? We consolidate that and bring this, then as a business case into our portfolio around and make this then happen with development and what comes out of development is then rolled out to the industry. And we usually do that with a lot of strategic customers where we have a close relationship with but we actually prefer to do it with user groups and for historic reasons, we have a great relationship with the German chemical industry association in Germany. Everybody runs SAP, that’s a no brainer, but also in North America we have a strong footprint and with various industry councils, like the chemical industry council, we consolidate these requirements from the industry, bring it into development and later on, roll out the product portfolio and just a quick perspective on our history. AP was founded in 1972. I wasn’t kindergarten in 90, 72.
I wasn’t born then.
And a SAP in kindergarten was playing with a company called ICI. That was SAP. His very first customer was a chemical company from the UK and with the German subsidiary of ICI. At that point in time, our founders developed something which was later on, um, branded as our one there’s even people out there saying SAP wouldn’t even exist without the chemical industry. So our one product based on ICI requirements started in 1972 when them two and three, that generic product was very much driven by the chemical industry as well. Joining others like BSF Dow and DuPont and all the chemical companies brought in their requirements. So the generic product was always perfectly serving the needs of the chemical industry, which is an important fact because later on some industries thought they were different from the generic standard and created something called industry solutions because they were different from the standard. The standard SAP is the chemical and pharmaceutical industry primarily. And therefore we never had an industry solution because we didn’t, uh, we had, we did not have, uh, the requirements to, to implement that.
Hmm. I love how you just established the importance of the chemical industry, you know, ruling all the other industries. So that’s taking us off on a, on a good start, but actually just tell us a little bit more about the chemical industry and how it impacts our daily lives, because I will be honest and tell you that, um, my starting point on kind of that knowledge level is probably a little bit low.
It’s a great question. And it’s not a question easy to answer because the chemical industry is a very complex industry. Everybody has an idea of what an automotive company is doing, what a cell phone company doing. You see the products, you know, what they are useful for and how you can use them and apply them to your daily life. Chemicals is very different and it’s very complex as said, there’s some estimates around that there’s, uh, around 70,000 different products coming out of the chemical industry. So having the customer industries. So in the old days, the chemical industry was a purely B2B based business being somewhere between companies on the one hand side, on the supplier side, like oil and gas primarily, but also mining. So converting, uh, oil and gas or minerals into something. And, uh, for the ones of you who remember chemistry lessons in school, this is complex stuff, and it’s quite an investment.
It takes time to understand it and have the beauty. And, but also complexity of chemistry. I mentioned the 70,000 different products. So it’s also very challenging to segment the chemical industry. We usually use four main segments, which is basic chemistry, basic petrochemicals on the one hand side, then more the specialty side, and also agrochemicals including the seats, business and industrial gases. But, uh, to be honest with you, there’s many companies like, uh, starting with number one, the biggest one BSF, they are diversified and they are active in all areas. The important thing is, uh, I would say that there is a lot of, uh, developments in our modern society, which wouldn’t have been possible without the chemical industry. And usually if there’s a new I-CAR coming out, everybody speaks about the innovation power of the automotive industry. Lots of these innovations in the econ actually made in the chemical industry.
Because if you think about new materials, new plastics, which are way lighter than the old metals, like the steel and aluminum you use before, but as stable as the metal, this is coming out of the chemical industry and this innovation was made in the chemical industry, working on these specialty plastics for automotive industry, the same for batteries for the ECOS. Yeah. Everything happening on the battery technology and innovations are done are primarily done in the chemical sector. But then, um, yeah, everybody thinks, Oh, these cars are so innovative, but innovations actually happen frequently in the chemical industry. The other perspective on the chemical industry is certainly sustainability. So chemical in this industry had always an image problem because many people don’t understand the chemical industry are afraid of, um, uh, substances coming out of the chemical industry. And there’s some reason to be careful with one or the other substance, but it’s important to show that, um, the benefits are, um, um, way more important than the risks. And the chemical industry is absolutely committed to fight these risks, to work on topics like sustainability. So in the chemical industry, everybody has understood that today the chemical industry is considered to be part of the problem and everybody wants to be come part of the solution.
Hmm Hmm. So it’s really an important industry that also kind of creates the foundation for many other industries in new, new innovations and inventions as well. So we’ve just been through what we’re still going through, um, uh, global or worldwide pandemic. And I personally Denmark, so it’s, everything’s kind of opening up here, but it’s still really bad in other places. And there there’s been of course, huge impacts on various industries. So how has the chemical industry been impacted by COVID or still being impacted by COVID?
Yeah, I’d say they were beginning at Q three already. So quite advanced at the beginning of this crisis, we were hoping for this kind of V type recovery for the chemical industry, it looks a little bit more like a you type. I like for many other manufacturing industries, I mean, especially chemical companies, which depend on automotive industry construction industry and, uh, durable consumer products industry, um, are really, um, down, um, are they industry parts in the chemical industry? Like everything focusing on the packaging industry is actually almost not affected at all. I mean, we know that e-commerce, uh, got a huge push with COVID-19. So all the packaging materials, this is something we’re just as active before, if not even more active, uh, before COVID-19, but, uh, overall the chemical industry was hit badly by COVID-19. Most of the supply chains are broken. Um, one important reason is, uh, in the country where COVID-19 came out was China obviously.
And, um, uh, when I started at SAP 18 and a half years ago, the chemical industry of China was, is because the chemical industry of France and today it’s outperforming the rest of the world by volumes and revenue. So China is clearly produced a number one, and this was the first effect on global supply chains. This stopped immediately with COVID-19 already at the beginning of the year. And so companies had to think about, um, alternative supply chains. So that was something which was, had to be fixed at the beginning also to keep the cash flow up as high as possible. And then to think about portfolio changes and portfolio adaptions, there’s many chemical products. Um, uh, if you think about products like hand sanitizers face mask, which can easily or relatively easily produced by the chemical industry, and that was done at the beginning, but I see that the chemical companies more and more are using this pandemic to rethink the portfolio and become more flexible on midterm and long term as well.
So you think there’s a, there’s a transformation happening because of COVID the chemical industry. And of course in that sense, technology will always play a huge role in whatever transformation businesses go through in whatever industry they’re in. So what are you, how are you seeing the technologies kind of helping this transformation?
So what I saw immediately in the first customer facing meetings I had during this COVID-19 period and the lockdown, uh, I, I experienced here in Madrid in Spain is that most of the chemical companies, I talked to see, uh, this COVID-19 period, really as an accelerator for digital transformation and to whomever I talked, everybody was saying, okay, we need to accelerate our plans. Not only just thinking about the digital core, but thinking about digital transformation more holistically and take advantage of all these intelligent technologies which are available as of today. Plus I mentioned before that in the old classical world, the chemical industry was kind of purely B2B driven industry that is changing drastically. We see a lot of movement into a more B to B, to C oriented business models, where together with customers, you innovate, you develop something with your customers. And coming back to this automotive example, there’s a lot of segment of one relationships of chemical providers into automotive industry, into high-tech, um, into construction industry, developing some things specifically for this customer, providing a competitive advantage to this customer.
And then maybe in a second step, this product might be also positioned to others, but the development is purely, uh, happening in a one to one segment relationship, which is something new. When I started 18 and a half years ago at, uh, this department at SAP, I was CRM solution manager for the chemical industry. At that point in time, B2B was the model, a little bit of e-commerce and a segment of one was just not existing. I knew that from my times in shell, in the lubricants business there, we had already in the nineties, a lot of segment of one relationships with customers, but not in the chemical industry. And this is drastically changing. And I see this more and more, and this is by the way, way more profitable than the classical approach we have in the chemical industry. And the chemical industry was always struggling with profitability and metal industry is actually a low profitability industry in compared to both sides to suppliers, but also to, um, other customers and due to market capitalization, there was never a big chance for, um, chemical companies. If the oil price went up to push prices through to their customers, because from market capitalization point of view, there was just no chance to push that through into automotive industry or consumer products.
Hmm. So this is really the time to reimagine business models to actually make more money essentially. So that it’s interesting, right? Like something huge happens that really has a detrimental effect, but then if you turn it around, you can create something positive out of it. Um, so you talked just quickly about customer suppliers. So do you think there’s new ways that chemical companies are going to interact with those stakeholders to also as a result of what you were saying, you know, about reimagining the business model to operate differently?
Absolutely. So, uh, coming from this, uh, outcome oriented business model where you work with customers in a segment of one relationship, you don’t do that alone. So in many cases, what you do is you’re bringing a lot of partners into the game. Uh, especially we are universities and research institutes and do this co-innovation, um, together with the customer. Sometimes it’s even, uh, competitors, uh, being in the boat. So in the chemical industry, it’s a little bit like in software, you have a lot of competitors around you, which are partners at the same time. And, uh, um, in many cases it’s just not possible to work as one supplier with one strategic customer, you need more to join the bandwagon. And, um, this is what we see that more and more, it’s becoming a business of networks, not only between supplier and customer, but also with partners and, uh, in the chemical industry, for instance, logistic providers always have been, uh, an essential role, um, and, um, in partner management, but more and more, we see this also for the development part. So the ecosystem is growing and both, um, competitors, partners, uh, but also research institutes are part of this development network and need to talk to each other and more and more business processes go across ERP systems. So the future really is going into the business of, of networks and then ERP systems have to talk to each other, especially if you have, um, R and D departments talking to each other on both sides, customer side and supplier side.
Right. So sharing is caring, we’re sharing in the future. And what do you, what do you tell your customers then when you, I’m assuming you, you talked to her, I know that you talked to a lot of customers, so what are some key takeaways, but perhaps also, what do you tell them? How do you advise them to move ahead?
Well, this is obviously a little bit, depending on their situation. What I see first of all, is that, and I just had a very good discussion with a U S based chemical company yesterday. They were close to start their S four HANA move project. So coming from ECC, moving into as far HANA now with COVID-19, they stop this planning for a short period of time they’re to reorganize themselves. And, um, uh, everybody is going virtually. So everybody is working from home. So you need to set that up. Not everybody was as well prepared at SAP to move into that world. Especially if you think about a more classical industry, like the chemical industry, it’s completely new to them that everybody’s working from home. So they had to set up, um, the network and the platform accordingly that everybody is empowered to work from home. So that took some time and that kept the CIO busy, but that was the only delay in the whole thinking.
So I haven’t seen a single as for HANA project delayed very much because of COVID-19. It was just this short period of reorganizing everything. But then the pace of the [inaudible] implementation was exactly the same as before. And coming back to this customer, I talked to yesterday, so they are a once again, you are now planning the S four HANA move. They also confirmed that this is a huge accelerator for them. They want to be part of the S four HANA community with the clear purpose, to be able to connect with others. I asked that partners and customers, and this is a discussion we have since many, many years. So a lot of chemical companies have gone through consolidation already. And the previous years for ECC systems, the ones who haven’t now take this, as far as the big consolidation step to have a system, which is able to talk to others because it’s based on the more or less basic principles.
And this is something we are living in chemicals since more than 20 years. Um, based on the standard, we implemented something called best practices for chemicals, which was a pre-configured system of typical business processes, which work in most of the chemical companies. We did it together with a huge group of customers and partners. And this is now part of what we call our SAP model company. So the best practices, heritage fully entered into the SAP model company for chemicals. And this is something everybody loves in the chemical industry and everybody trusts because this is coming out of the industry and not out of SAP mind or ivory tower. Right.
Right. So, so kind of, so if you’re, you’re talking to customers, you’d say, you know, focus on how you reimagine your business model now is the time to transform both, of course, because of the COVID, that’s accelerated that digital transformation, but also just because there’s so much more revenue to gain, if they think differently and then sharing is caring, collaborate more with your suppliers and create communities where you share knowledge, which will also then help you, um, make more money, essentially.
Yes. And two more things to add here. really everybody in the chemical industry sees this crisis also as an opportunity and as a good point in time to invest, I recently had a good discussion with the Indian chemical user group and a couple of customers out of different segments out of the chemical industry. And everybody was saying, this is an accelerator for digital transformation. And now is the time to invest into areas like asset intelligence network, thinking about digital twins, understand what’s happening on the plant level. And how can I optimize that, have the full picture. And on the other hand, it’s also the time to say, um, we can live with a portfolio, which is a fixed which is too stable. We have seen the impact of COVID-19. We have to prepare even in the petrochemicals business for a future where this kind of pandemic might come back or a different one might come or any comparable crisis.
And we need certain flexibility which is not that easy in the chemical industry, especially in the parts which are asset intensive. Because if you build something it’s quite an investment, and if it’s like a very stable investment, but even though in petrochemicals, you have to, um, be prepared for such kind of situation. And you need to show certain flexibility to shift your portfolio from one angle to the other, if such a pandemic occurs. And this is something everybody has on high on the radar screen to be more flexible with the portfolio and the portfolio planning.
Yeah. That’s interesting. That’s, I mean, that’s something I’ve done a lot of these industry interviews, and that’s the one thing that keeps getting mentioned is how do you become more resilient? How do you, how do you build a more recently in business, also more resilient supply chain and how do you better? Because even if it’s not a pandemic or a second round of COVID-19, it might be something else. So
Josie, just two other things to add, as of changing a little bit perspective coming from what are your roots, what is your product portfolio now, now what’s your impact of your products? And obviously the chemical industry is an impactful industry, same as oil and gas on environment and on society. And, um, there’s clearly these two topics I mentioned before. So climate 21 is a huge topic. I’ve mentioned that one, I haven’t mentioned yet the circular economy, circular economy is another mega topic we have now in the chemical industry. So once again, everybody knows today, the chemical industry is part of the problem, but wants to become part of the solution. And if you think through circular economy, the only ones, and just take the plastics example, there’s too many plastics out there in the world. And it’s also the responsibility of the consumer to recycle the plastics and don’t leave them in the environment in the ocean. But the only one who is really able to do the recycling of plastics is the chemical industry, because what happens is usually plastics are collected somewhere and then they get a huge bunch of different plastics. And the only one who really can separate these and recycle them a mixture of different plastics is what comes again. The chemical industry and the chemical industry has understood that and has taken action to, to help that and really become part of the solution and not just being part of the process.
Hmm. So that’s another transformational point where you can, as a business, you go in, and then you say, how do you, how do you become part of the, of the, of the circular economy and how do you use the strength that you have as a, as a unique industry to actually help fix that?
Absolutely. And you never can lose a trace of your own product. Where does this go into which products on the consumer side, you’re still somehow responsible for that in a perfect world, in a circular economy based world, this will come back to you and what you will be handling it in a recycling process, which should be way more than just waste management, Joe. So we are really taking this very seriously in the chemical industry. It’s not about waste management only. It’s primarily about a circular economy. It’s about a recycling of these materials and do something meaningful with it again. Right,
Right. Such an interesting industry. That’s, you know, that’s what I love about my job is I get to talk to really interesting people who have so much knowledge about the industries that, that do impact us, right? Every single day, like you said, in the beginning, it’s actually something that impacts us much more than we think about. And the decisions that this is making these various industries also impact us. So I’m glad that we’re working so closely with our customers to figure out, well, what’s next? How can we work together? How can you not only, you know, essentially make more money in the future, but also use a business model that’s sustainable and actually helping our world as a, as a whole. So those words Torsten, you were an absolute pleasure. I’m so glad you came on the show. So thank you so much for, for coming on.
Thanks very much. I’m actually a little bit disappointed that it’s over already time was flying. Good. F continued for a few hours more. Yeah,
Well, you know, we can always do a follow up episode. So I think that maybe that’s something we should, we should work on in the meantime, but yes, I agree. Time did fly and I had so much fun and I really enjoyed learning more about the chemical industry. So thank you. And to everybody who listened to this episode, thank you so much for tuning in. Hopefully I’ll see you. I appreciate it. Thank you for listening to this episode of her podcast. Please subscribe to our channel industry insights by SAP and open SAP apples on podcast. To learn more about what SAP is doing to help you cope in COVID-19. You can go to sap.com about global health safety and find free access to select SAP software tools to support your business and much more. Stay safe, everyone.