The Digitalization of the Chemical Industry Made Simple

20 March 2019

Much has already been said and written about the digitalization of the chemicals industry. Even previous blog articles on this website have discussed the power of artificial intelligence, cloud computing, advanced digital algorithms, and quantum computing.

But what exactly is digitalization? How does it work? And in what way will it transform?

What is the Digitalization of the Chemical Industry?

Computers are playing an increasingly large role in our lives. How we interact with family and friends, how we shop, how we work, and even how we find love. But how do you digitalize an industry?

According to Dr Frank Jenner, a global chemical industry consultant at EY, much of it has already happened. All chemical companies have begun digitalization. Using computers to support or run processes, streamlining productivity, and improving efficiency. In the same way that cars are constructed by robots on a production line or supermarket stock levels and ordering systems are regulated by digital processes, so too has most chemical production been computerised. Production, supply chains, and plant maintenance are invariably all controlled or assisted by micro-chip.

But now the final part of digitalization is taking place as computers begin to take control of business models. Using digital power not just for production and supply chain, but for overall company management; from business strategy to customer interaction, product design to market development. Business areas that were once led by human thinking will increasingly be governed by computers.

As Jenner made clear in a recent interview with the strategic management and investment journal Financier Worldwide, “Digitalization is taking place in two-thirds of process re-engineering activities these days. But a digital transformation will take place across the entire company, and that is something different – bringing in new or adapted business models for modified or completely new revenue streams.”

How does Digitalization Work?

This is a view supported by chemical industry consultants at McKinsey, who state that there are three main ways in which digitalization will affect the chemical industry. The first, as outlined earlier, is in production, “… using digital-enabled approaches to improve companies’ business processes.”

The second is the use of digital capabilities to impact, “demand patterns in end markets.” This means the impact that technological advances will have on other industries and how that will influence the chemical industry and its products.

For example, the use of drones in precision farming will have a major impact on the agrichemical industry. As will the spread of online chemical sales, both wholesale and retail, or the way that self-driving cars will lessen the number of traffic accidents, and so reduce demand for car paint.

Even more directly for the chemical industry is the way computers are changing the plastics industry. As the McKinsey report notes, “One further digital-enabled area … is 3-D printing, also referred to as additive manufacturing. The market for polymers and chemicals used in additive manufacturing is growing at 30 percent a year and is set to rise from $0.7 billion in 2015 to $2.5 billion in 2020.” Furthermore, “It is possible the market will evolve toward tailored polymers and chemicals for different additive manufacturing systems, which could open up innovation and commercial opportunities for companies making photopolymers, high-performance thermoplastics, and other chemicals used in these processes.”

But crucially, the third way that digitalzation will impact the chemical industry is in overall chemical business management. Something that McKinsey notes, will be a near-future industry, “… where digital developments lead to changes in business models through which chemical companies capture and create value for customers.”

Far from being a sudden shock, the implementation of digital in the business models and strategic planning of chemical firms will be a natural progression, and one that has already begun.

As Jenner observes, “In the last four years, chemical companies started to develop their digital strategies by looking across their value chains and functions and coming up with a lot of smart ideas, including interesting pilot projects. This was a gradual path. However, the problems became evident when they started to integrate all of these pilots into their current IT landscapes and process infrastructure.”

This is where the third level of digitalization steps in. Or as Jenner puts it, “Overcoming these traps requires new thinking in next-generation business and IT infrastructure.”

In fact, Jenner believes that the chemical industry is long overdue major restructuring.

Why do We Need Digitialization?

The classic top-down management of yesteryear is struggling to keep pace with the rapid changes in modern business. Additionally, the amount of data available for processing, and the growing size of companies seeking economies of scale, means that management of chemical businesses will require more and more digital support.

As Jenner states, “Overall, business process architecture and digitally enabled backbone infrastructure are lacking right now. This slows down the innovation process. We need to provide the foundation first to get all these transition projects connected, interlinked, administrated, and managed. Only then we can explore real-time vertical and horizontal integration over entire value chains – internally, across all operating divisions and subdivisions, and externally, to suppliers and, more critically, into the customer back-ends.”

But chemical industry professionals should not be down-hearted by the size of the task ahead. With growing markets, and growing demands being made for safety, security, and ecological considerations, digitalization can provide a safer, more secure, and environmentally sound chemical industry.

This is a point highlighted by Jenner, when he said that, “Digitalisation creates opportunities to increase transparency across the chemical supply chain. Blockchain and the Internet of Things will enhance how materials are identified and the audit trail of how they are used, such as in certificates of origin and green credits of final products made from environmentally friendly raw material in upstream processes.”

How will Digitalization Happen?

Ultimately, shifting business model design away from the boardroom towards a computer influenced strategy will need to come from the company chiefs. The changes in structure to how the company works will be enormous, and so the impetus must come from those at the top.

While the scale of this task may be daunting, the rewards are clear. Companies who embrace digitalization, such as Amazon (sales) and Facebook (social interaction) will find success. Those who fail to adapt, such as Kodak (non-digital photos), face extinction.

Photo credit: Freeimages