Strategic Priorities for Chemical Industry – Part 1
Chemical Industry fortunes are determined by factors which are beyond its control. Factors like Chips shortages, Shipping Container Shortages, new product regulations in a region affects its operations and profitability. As an example – current Chip Shortages can lead to like lower automobile production which will in turn affect the Industry with lower sales of lubricants, coatings, polymers etc. This is the irony of this Industry – howsoever efficient and productive it may be in itself; its success and profitability are not always guaranteed.
These challenges are further compounded by locational disadvantageous position where this industry finds itself. It has upstream gate managed by industries which supply raw materials (like Oil & Gas, Mining) to it and another downstream gate controlled by almost all other industries (like Consumer Products, Automotive) which process products as produced by it. As a result, it faces cost and profitability challenges since upstream gate industries regularly pass on raw materials price fluctuations but downstream gate consuming industries block attempts to pass on resulting product price increases.
In today’s challenging times. the industry’s ability to produce and supply products globally has been impacted by fluctuations and increases in global commodity prices (in last 3- 6 months). Natural gas price increases have forced major fertilizer producer Yara to cut fertilizer production, which have led to global fertilizer shortages (specifically in developing countries) and food price increases. This reinforces Chemical industry importance as its products and services are vital for overall societal wellbeing and in COVID-19 times, it has continued to operate to provide critical products for downstream industries like for LifeSciences and Agriculture.
In globalized interconnected world, industries and companies are digitally transforming by using intelligent technologies to connect their shopfloor, customers, and suppliers to develop new business models / offerings. A Cracked Gas compressor in a Gas Cracker plant can be managed remotely by an OEM through operations data sharing between Operator and OEM (Equipment or Maintenance as a Service). Chemical Companies are collaborating with other industries (and its companies) to offer new business offerings by including processes which lie beyond its boundaries (at downstream industry intersection with it or in downstream industry). Agrochemical companies can collaborate with multiple industries which provide services, equipment’s, seeds etc. to farmers and work on data to analyze like weather patterns to provide recommendations to farmers for desired crop yield.
Therefore, with the blurring of industries boundaries, requirements and dynamics for all industries are constantly evolving. Established Industries are transforming to be redefined as customers demand sustainable products and solutions. Therefore, Automobiles Industry today is redefined as Mobility Solutions Industry. These changes in industries which consume its products have profound impact on Chemical Industry operations. It can force companies to redefine their product portfolio and organizational structures
This hence leads to many questions like – What the future bodes for the Chemical Industry? How can it transform itself in today’s dynamic business environment? How will it continue to add value and remain relevant?
I look forward to your comments. In my next blog, I will attempt to provide answers for above stated questions.