Transcript Blog: SAP and Oxford Economics: Building Interconnected Companies in the Chemical Industry
In this episode of Industry Insights by SAP, host Josephine Monberg and guest Alex Pierroutsakos take a closer look at a report that was done in collaboration between SAP and Oxford economics. The report surveys about 3,000 senior business leaders and looks at how they were able to build an interconnected company and how these companies show great resiliency. View the report.
Hi everyone. And welcome to this episode of our podcast industry insights by SAP. Today, we’re actually going to take a closer look at a report that was done in collaboration between SAP and Oxford economics. And this report was done in August, 2020. And what it does is that actually surveys about 3000 senior business leaders and looks at how they were able to build an interconnected company. So not only in how they’re able to do that, and if they were able to do that, but also how an interconnected company actually usually shows more resiliency and tends to be a leader within whatever industry that company is in. And so what I’m going to do today is with my guest, who’s in his virtual studios to take a closer look at a specific industry and to kind of look at the industry and compare it against the report to see how that industry is performing.
And that industry is the chemicals industry. And so to do this, I am joined by Alex Pierroutsakos, who is an industry executive advisor in the chemicals industry at SAP. So hello Alex, and thank you so much for being with us.
Thank you for having me. First of all, as an industry executive advisor, what SAP has done is they’ve made a large investment in bringing folks out of the industry to really help us work with our customers and help our product innovation teams with what is the best solutions that we can help to address the business challenges of today. I had a chance as a CIO working for a chemical industry to really get that exposure, as well as I also worked in the business leading chief sustainability, as well as, being able to be a global quality assurance director. So then I was able to really understand and work in operations to get a better picture of what the business and the challenges of the business are having. So we could drive innovation within our organization. Now, today I work with customers helping them do the same thing and working with our internal teams to drive that innovation and help address the business challenges of our clients today. So pleasure.
Pleasure to have you so Alex, to start off by looking at supply chain, because I know it’s something that’s of course, critical to the chemicals industry. So I want to start off by asking you how chemical companies today are working on, not just focusing on optimizing their supply chain costs, but also improving the resilience in their supply chain.
So I think what’s important is first is to set some context on what’s going on and What’s really driving the need for resilience. I think everybody’s always talked about it, and this is something that we’ve always communicated with our customers. But what one has to first understand is what is the dependence of chemical companies in the industry to the rest of the products that are made across the world. Many don’t realize this, but 96% of all the products that are manufactured all come in some shape or form from the chemical industry. As you look at what’s happened over the last nine months, there have been industries in markets that have done extremely well, for unfortunate reasons, but at the same time, a large amount of demand in the PPE personal protective equipment, single use plastics, healthcare, but to counter that the automotive industrial manufacturing, some levels of retail have seen a dramatic decrease. So what chemical companies have to do is they have to handle that large increase in some areas in large decreases, in other other areas. So companies have to look at that data have to make real-time decision-making on how they adjust their product portfolios to scale up in some areas and to decrease in other areas. So at the end of the day, what resilience really means is being able to manage change as a part of a process, a part of life, and have the information and have the connectivity with your customers and suppliers to be able to make those changes as part of a normal process and not by exception.
Right? And I think you kind of hit the nail there too, especially the time we’re in with COVID where everything seems to be an exception. It almost becomes the new normal, which means being resilient is even more critical as part of your normal process. But so you’ve talked about this as kind of like a more theoretical basis. So do you have any real, real life examples that you can use, to back it up where companies
I like using one company that we begin to build collaboration with their suppliers, and what that really means is being able to understand what the suppliers can provide. A lot of them are tollers. A lot of them do external contracting by being able to push that information and integrate that information back and forth. It has allowed them to ramp back up in weeks versus months. That was a huge, significant definition of resilience. I think. And one of the things you’re going to find in the report is that many are far from that. And many are just embarking upon that. And I think a lot of that is driven when you look at the report, is looking at what are the cultural issues and challenges that drives the fact that they’re still trying to work to open themselves, to collaboration with suppliers and with customers and managing the data issues that comes from that. I think another great example is getting information from the markets and being able to bring external data and information to make decisions and look at that predictively. Our clients are now being able, customers are not able to see what’s happening in given markets, as I mentioned before. And what is the impact on profitability and demand on skews and looking predictively? So that’s another area around analytics that’s allowing them to not just react, but begin to start being a bit more proactive in being able to address the potential changes that are happening in the market based upon this external data and merging it with internal data.
Hmm. So bridging the two worlds and Alex, I think we’re, it’s so obvious that we are in a time today where being sustainable showing that you have purpose as a company is something that’s absolutely critical to any industry today. And I think chemicals industry sometimes struggle a little bit with having a perception that they are not sustainable. So what do you think, like how can chemical companies, both accelerate their digital strategies and how they are addressing those culture shifts to being coming more sustainable, environmentally friendly and having a clear purpose while also meeting the needs of their customers? Because sometimes it’s kind of like the two conflict. So I’m wondering if there’s a way that can do both.
I think when answering this question, I think first of all, it comes down to perception plastics, using, natural resources that, that we need to manage. And we obviously need to sustain ourselves with. Chemical companies, first of all, have become aware of that. And they realize that that awareness and being able to drive that purpose driven approach is how you get new talent and how you manage ultimately your strategic goals. I think the other thing that people need to realize is being sustainable doesn’t necessarily conflict with being profitable. Uh, back the term used to be lean where using, getting more with less, um, driving efficiencies with the output and the assets that they have, what people don’t realize. And a lot of them realize is that that less fuel that you use less amount of raw materials also equates to being more profitable. So I think that is one of the things that many have to realize. I think the other is sustainability also equates to safety. It equates to the measurement of that safety, as well as CO2 emissions and what you don’t measure, you don’t change. And so having the capabilities, the analytics, to be able to drill down and determine root cause, well, what’s happening now is companies are seeing that resources can spend 70% of their time. And you’ll see this in the report, they’ll spend 70% of their time looking at how to make those improvements versus spending 70% of their time, just trying to collect the information, to be able to assess what’s going on, to be able to make changes so that they’re achieving their strategy. So these are, I think, some key principles that many need to realize, but they also know that perception is a reality and that they have to continue to work towards that.
Hmm. So what you’re saying is that you can actually be sustainable while also being profitable. The two, like one doesn’t take out the others. So how did you get to that conclusion?
I think when back when I was in industry, I had an opportunity to be the chief sustainability officer. And what happened was when we had build our sustainability reports. Um, what we found was it was very difficult for us to measure CO2 emissions in my calculations from the plants. We also found that when company, when our plants are more safe, that also drives efficiency and drives the result of those processes, drive that level of efficiency. And I would say the third piece is our customers and the markets are demanding it. So yes, regulations are increasing and yes, there’s regulations in Europe that’s driving for CO2 emission reductions, but when customers are asking for it, then that becomes a market driven change and not just a governmental or regulatory change. And that’s what truly drives that innovation. So I think those are the biggest components. And lastly, it all comes again. It talks about what are the biggest constraints in this world right now, and it’s strong talent and time. And when you’re able to use that information and you’re able to make quicker decisions, and you’re able to drive that purpose driven culture, you’re going to have both of those. That’s going to help you with making that progress that we all need to see.
Right. So it always comes down. Well, not always, but oftentimes comes down to the human part, right? You have the customer in one hand, which is demanding more purpose, led companies, more sustainable, uh, agendas. And then also the employees that get attracted to those companies that, you know, essentially that’s the kind of people that you want to attract. So, okay. Let’s look a little bit now at the power of data and integrated processes, how would you say that those are affecting the traditional relationships between the traditional direct sales forces and the transactional relationships with customers and strategic partners?
Great question what’s really happening now is that many of the chemical companies, their customers, they’re they’re demanding and wanting a B to C experience like they have in their personal life, but also being able to do that in their work lives. So one of the things we’re seeing, and actually when you look at the report, you’ll find that this is one of the key areas. And when you do some market analysis, you’ll find that this area is one of the fastest growing areas when it comes to investment moving the next five years. However, what is the biggest challenge we have is that many want that experience, but the scarcity of folks who want to give that information and the data security of all of this is a real impediment. That’s number one. Number two is a lot of the companies that have a lot of baggage, one of data challenges, and being able to bring that data into one place so that they can be able to optimize these, these processes is where they’re now looking to really drive new digital transformations. , And, let’s also realize that with people working from home more, what companies are really wanting to do is they’re wanting to focus on spending more time with being more strategic with their customers and allowing customers to do transactional related buying accessing and using commerce and online portals to be able to do that. I would say that’s what I answered, I think was really driven around more on the customer experience, which is ultimately going to translate into the suppliers because obviously the suppliers customers are them. So hopefully that’s.
Hmm. Yeah. And do you, again, do you have any examples of where a customer was able to do that?
I would say a great example is when you really can get strategic with a customer and BSF Covestro and Audi, what they did was they got closer and they moved into a much more innovative approach when they stopped delivering product and started billing by outcome. And that is quality painted automobile. And so what they were able to do is by being more proactive and being closer with the customer and managing the sampling process and managing that co-innovation with the end consumer achieving the end customer, what they were able to do was reduce R and D costs. They’re able, so to, there’s also a profitability aspect as well. They were able to shorten the cycle time to be able to get, get to the product, get the product to the customer and get it in the way that they needed it. And ultimately they were able to move towards charging the customer based upon outcome of delivered product, AKA service, or AKA more of an outcome driven, approach versus simply having a transactional approach where they’re just delivering product. It also makes the chemical companies stickier to their customers and less of a commodity, which drives increased margins as well. So it is a win-win requires work, and it requires that digital transformation for that to happen.
So this was so much fun speaking to you about the chemicals industry what’s going on. It’s obvious that the industry, and I think all other industries are at this pivot point in time where they really need to refocus and build a digital strategy that is interconnected as we’ve also seen in the report. So what, what do you think this is such a broad question, but what do you think the future holds for chemical companies and what would you like people to take all of our listeners to take away from that in this conversation?
I always like to go back and refer to the report, provides you with a perspective of the 3000 executives across multiple industries. And again, most of these industries are ones that chemical companies at the end of the day, chemical companies are meeting to move for being able to be more, being less like a Titanic, where they’re making slow shifts and being able to deal with those challenges and moving more towards being a speed boat, where they’re able to pack and move around these challenges in a much quicker way. I think you take. And how do you do that? You have to be able to do more with less in the number when you look at this and the report, people and talent and time are your biggest constraint. And you have to be able to have access to that information so that you can be able to make that next step. And I would say that the third piece is that volatility and change is the normal. Companies are realizing that smaller companies are able to make that adjustment much quicker because they have less of the challenges when it comes to legacy. But bigger companies are also realized that they have to do in order to be competitive in your drive differentiation with their customers.
And on those words, I want to thank you so much for coming on the podcast. It was so interesting. And when you’re listening to this interview and you want to read the report, we’re going to make sure that we’d link to it. And, Alex, thank you for coming on the show.
Thank you for having me.