Business and Digital Trends in the Chemical Industry
Intention of Blog Series
This blog series is intended to provide insights and new ideas on current business and digital transformation trends in the chemical industry. Business Transformation Services offers deep expertise and experience in managing complex global business transformations and the design of value-driven enterprise architectures and transformation road maps for chemical customers worldwide.
Business Transformation Services group offers dedicated SAP Advisory Services that help your chemical company elaborate on the steps required following a well-structured transformation design methodology. A business-driven approach helps ensure that you consider all business-related aspects for the future architecture design. This design and transformation road map is then the game plan for all transformation activities in the next five to seven years. It helps ensure that the transformation phases follow an ideal sequence while leveraging the highest value for the company for both in the short and long term.
In this blog, we explore chemical specifics of business models and processes based on new and disruptive digitalization trends, as well as new IT applications and innovations of SAP S/4HANA and the intelligent suite enabling these business processes. These processes and corresponding IT applications play a key role in the design of a modern and holistic enterprise architecture to enhance business value and provide a competitive edge.
Even though this blog cannot provide a complete and comprehensive view on all detailed aspects, we plan to showcase important industry-specific trends and challenges, business processes, and related technology innovations for the different lines of business. For more details about the next blog of this series please go down to the end of this blog.
Business Trends in Chemical Industry
Chemical companies are faced with significant business and technology disruptions that force both commodity and specialty manufacturers to proactively react and transform their business and IT. We at SAP, as well as other renowned strategy and transformation advisors, see the main business trends listed below in the chemical industry. The ability to address these trends and leverage a company’s specific strengths in a competitive environment helps determine who will be among the winners in the mid- and long-term future:
- R&D and portfolio – Resist margin pressure and increase ROI and growth by cost and portfolio optimization while reducing risks by external market impacts. Deliver not only chemical products but also innovative services offering business value and fostering closer partnerships with customers. Develop product and technology innovations to provide a competitive advantage and to prevent commoditization. Foster technology push and market pull by global R&D, supplier, and customer collaborations, as well as joint ventures with partners.
- Vertical integration – Integrate the supply chain vertically, leveraging new opportunities and transforming from traditional to new disruptive business models. For instance, embrace upstream integration by making, rather than buying, raw materials or downstream integration by producing semifinished or even finished goods, rather than raw materials. Reduce costs and benefit from synergies in integrated manufacturing plants or industrial parks. Find the right balance between the high efficiency of world-scale plants versus the flexibility of multi-purpose plants.
- Complex global supply chains – Secure the global supply chain and mitigate volatile and unsecure market conditions such as the COVID-19 pandemic or increasing prices for raw materials and energy. Commercial and logistical transparency allows optimization and global planning of demand, sales, and operations.
- Business networks – Compete in a complex ecosystem by leveraging global scales and optimization of supply chains orchestrated in business networks such as the Catena-X Automotive Network. Suppliers, contract and toll manufacturers, customers, and joint ventures create new opportunities to co-innovate, grow business, and improve supply chain efficiency.
- Agility – Balance globalization and centralization while staying agile in a dynamic and fast-changing environment of mergers, acquisitions, and divestitures.
- Compliance and sustainability – Ensure chemical safety and compliance and act sustainable considering environmental, social, and governance, or ESG, factors in an increasingly regulated world. Turn a circular economy, as well as energy innovations and trends such as renewable energies, smart energy storages and grids, and electric mobility, into a competitive advantage.
Digital Trends in Chemical Industry
Digital innovations not only support these market trends in the chemical industry but also enable and use them in a very disruptive way, providing new opportunities and capabilities never previously considered possible. These include increasing speed and efficiency, automating processes, and providing data transparency, which can be processed intelligently. Digitalization is no longer an IT term but a business trend and a top priority of business executives. Digital innovations include the following:
- Artificial intelligence and machine learning enable algorithms to learn from historical data and find patterns and correlations capable to derive the best possible decisions and predictions without being explicitly programmed.
Example: Prediction and monitoring allows optimization of supplier delivery dates, product quality, supply planning and inventory, sales performance, shipment dates, and financial forecasting.
- Advances in connectivity and edge computing cover the entire value chain, from development through production to distribution, coupled with artificial intelligence and machine learning. This includes the Internet of Things, as well as Industry 4.0, which can capture and analyze data from sensors and other technologies and allow advanced data processing for sophisticated business actions and decisions.
Example: Cold chain monitoring across manufacturing and supply chain processes help ensure optimal product delivery to customers.
- Advanced analytics capabilities enable companies to analyze large volumes of structured and unstructured data real-time, enabling advanced analyses, simulations, and predictions, finally resulting in better business decisions and recommended actions.
Example: Dynamic inventory optimization lowers costs by optimizing inventory across the entire supply chain, while maximizing working capital through the efficient management of inventory levels.
- Blockchain is a recent technology innovation, and its concept of a distributed ledger is a real-time, immutable record of transactions and ownership, which allows companies to transfer and store value in a very secure and transparent way. Transactions can be validated and executed without a central middleman, reducing costs by leaner, more automized, and profitable processes along the supply chain.
Example: Users digitalize bills of lading as an integral part of the international ocean shipping process.
- Virtual reality uses digital technology to create fully immersive simulations, whereas augmented reality allows users interact with digital content that is overlaid onto the real world.
Example: Augmented CAD construction plans help workers with complex maintenance tasks.
- Conversational AI provides natural language processing and image recognition by advanced artificial intelligence capabilities, which can be used to automize call-center activities or speed up complex image analyses.
Example: Quick incident recording with close end-user collaboration and prompt reaction to a situation helps ensure further actions are taken.
- Data platforms to manage experiences combine operational data from companies’ supply chain (what is happening) with the experience data from customers, partners, and employees (why it is happening). This provides 360-degree views and actionable insights to deliver better experiences.
Example: Customer feedback on a product continuously improves product development in R&D.
Intelligent, sustainable enterprises are integrated enterprises from both business and technology perspective (see Figure 1). Chemical-specific end-to-end business processes and value chains on the one hand side, as well as data and technology on the other side run holistically and provide a significant business value to an enterprise. These improvements in business efficiency and transparency are achieved by using advanced technologies like machine learning, artificial intelligence, and Internet of Things. Intelligent chemical enterprises have full transparency about market needs and their product portfolio, so that they can develop new product and service innovations and collaborate with suppliers, customers, and partners efficiently. Spend management processes run optimized so that suppliers and costs can be controlled utilizing network effects. The chemical supply chain runs resilient and sustainable from design to planning, manufacturing, quality management, as well as efficient usage of assets, and sustainable consumption of raw materials, supplies, and energy. An integrated lead-to-cash process ensures efficient order fulfillment, generating leads and revenue opportunities while providing a trusted customer experience. All these aspects make an intelligent enterprise more resilient, agile, and adaptable to external market forces.
An intelligent enterprise consists of the following main components:
- Business process management – Analyze, model, simulate, and monitor processes for optimization to fast, agile, automized and streamlined business processes
- Business network – Unify points of interaction and integration across trading partners to help your business collaborate and cooperate more efficiently
- Industry cloud – Simplify the usage of vertical solutions from SAP and its partners that help apply industry best practices and extend current business processes
- Experience management – Gain insights into the sentiments and feelings of customers, employees, and other business stakeholders
- Extended planning and analysis – Establish a holistic and comprehensive planning including real-time analyses and advanced simulations and optimizations across the entire value chain
- Sustainability business solutions – Understand and manage company’s environmental, social, and governance impact
- Business technology platform – Build, manage, and deploy your own customer-specific applications leveraging all new technologies innovations on one holistic platform
Chemical companies which are capable to adopt these advanced technologies and leverage the full value potential for their business, will emerge strengthened from current and future market impacts and challenges, and can improve their competitive edge in a globalized and rapidly changing world. The right digital transformation approach allows such companies to increase their upward momentum and transform, innovate, and collaborate across the supply chain and better serve customers as an intelligent and sustainable enterprise. The Intelligent Enterprise for the Chemical Industry published by SAP provides further details.
What to Expect in the Upcoming Blogs
A series of eight articles is planned to be released over the course of the next 12 months. Each blog focuses on one selected line of business embedded into the applicable end-to-end process. We plan to focus on those areas where you, as the reader from a company in the chemical industry, can see the highest degree of changes and the greatest need for innovation.
The first blog starts with sourcing and procurement as part of the source-to-pay process. Future blogs are planned to cover the remaining processes. The following list summarizes all processes and follows the structure of our strategy for helping you become an intelligent enterprise, as shown in Figure 2:
- Sourcing and procurement, as part of source to pay
- Research and development, as part of idea to market
- Manufacturing and quality management, as part of plan to fulfill
- Supply chain, including planning, as part of plan to fulfill
- Asset management, as part of acquire to decommission
- Sales, service, and marketing, as part of lead to cash
- Finance and controlling, as part of finance
- Reporting and analytics, as a cross-capability supporting end-to-end processes
This blog was an introduction to our upcoming eight-part series, “Business and Digital Trends in the Chemical Industry.” In the next part, you can explore how sourcing and procurement is changing in the chemical industry supply chain. Feel free to comment this blog, I hope this was a valuable read.
Great blog! One of the unique challenges of blockchain in this kind of context is really nailing down the balance of achieving the benefits of what blockchains are meant to be and designing for the aspect of privacy. The immutable global state of blockchain can be a true double-edged sword.
What I discovered in my discovery of that technology was that referencing data into cryptographic, zero knowledge proofs really put the whole solution into proper balance. All the desired benefits of blockchain to verify data and move value between participants are present - but none of the sensitive data that would so often come up in an industry like pharmaceuticals would never end up directly on-chain.
Great blog Ornulf, thank you!