The skills gap is growing, as the latest figures for manufacturing jobs show that there is plenty of work but not enough trained workers. With the chemicals industry growing faster than other manufacturing sectors the lack of a skilled workforce will hit chemical production harder than others.
There has been a lot of talk about how changes in production will hurt employment levels. But while many fear that Industry 4.0, with its increased use of robotics, advanced computing, AI, and the Internet of Things will cause major job losses, history tells us otherwise. For throughout the previous revolutions (19th century England, Henry Ford production line, & Japanese automation), whenever industrialisation has advanced more jobs have been created than lost, despite the scaremongering Luddites.
Instead, the problem lies in a lack of trained workers in the job market. An issue highlighted in the latest Skills Gap in Manufacturing report, published by Deloitte, which states that, “the skills gap may leave an estimated 2.4 million positions unfilled between 2018 and 2028, with a potential economic impact of $2.5 trillion. Further, the study shows that the positions relating to digital talent, skilled production, and operational managers may be three times as difficult to fill in the next three years.”
There are three main challenges facing chemical industry employers.
Lack of Interest in Manufacturing
An earlier 2015 report (also by industry consultants at Deloitte in cooperation with the Manufacturing Institute) found that interest in a career in manufacturing among school leavers was lower than ever before.
In the study, respondents aged 19 to 33 gave their opinions on work in the manufacturing sector where many stated they thought employment there would be dirty, inflexible, and dangerous. As a result, millennials prefer the idea of working in industries, such as technology, healthcare, and finance.
Ranking by respondents of preferred industry if they were starting their careers today
Lack of Manufacturing Skills
With fewer young people interested in a career in manufacturing, the skills needed to work in this sector are becoming less and less sought after. As a result, there is a trend away from STEM (science, technology, engineering, mathematics) subjects that is making it increasingly difficult for employers in the chemical industry to find suitably qualified employees.
Skills in which US manufacturing employees are most lacking
Furthermore, the chemical market’s rapid increase in demand for specialty chemicals means that raw material production is likely to get more technical, as production plants become ever larger and more complex.
Skilled Baby Boomers Retiring
Further adding to the skills gap challenge in the chemical industry is the rate of retiring chemical workers, each removing his skills and experience from the talent pool. For as the popularity of work in the manufacturing sector has waned over the past few decades, the chemical industry has been left with an aging population.
As a recent report by Digitalist Magazine, notes, “The average age of the chemical employee currently sits around 45.3 years old – older than all other industries except agriculture, transportation and utilities, and public administration. The industry is currently grappling with knowledge loss as sizeable portions of this population begin to retire in the coming few years.”
Comparison of chemical industry and all industry of age distribution as a % of employees
While there is little evidence of this skilled workforce being replaced at a sufficient rate by younger generations. For example, while DataUSA (an American research body co-funded by Deloitte) notes that there is slight growth in the number of chemistry graduates (up 0.45% in 2016 to 21,821), a large number of these students are from overseas. As a report by the National Foundation for American Policy states, “International students make up the large majority of full-time students in many graduate science- and engineering-related programs, and their numbers have been rising much faster than the number of domestic students.”
Most notably, 57% of full-time chemistry courses in the USA were filled by international students.
America is not alone in its skills gap, as the fall in demand for chemistry as a study topic is a growing trend throughout the West. For example, in the UK, the Royal Society of Chemistry reports that, “In 2017, 26,945 students applied to university to study chemistry, … down 8.5 per cent on 2016 and down 13.4 per cent on 2015.” At the same time, the number of applicants accepted on chemistry courses also fell, “… down 4.9 per cent on 2016 and down 9 per cent on 2015.”
As a result, many universities are closing their chemistry departments completely. Laboratory equipment and chemical supplies are expensive and can be seen as an expendable overhead for a dwindling number of students. Conversely, humanities can be taught online, while maintaining a mathematics department only requires a piece of chalk.
But a falling interest in chemistry is not a global phenomenon.
According to a report on Chemical Education in China by the Chinese Department of Higher Education in cooperation with Beijing’s Curriculum and Teaching Materials Research Institute, the education system has been increasing its focus on chemistry since the 1980s.
While similar to many western education systems, in that Chinese school children have the option to stop studying chemistry around age 13, there is still plenty of interest in the subject.
As the report states, “There are at present about one hundred thousand ordinary secondary schools in China with 60 million students and near two hundred thousand chemistry teachers. Among the 1054 universities and colleges more than 300 have set up chemistry [as a] speciality.”
Adding that, of the 2 million students in adult higher education, “… one eighth of them learn chemistry courses. [Plus] Chinese Radio and TV University and Satellite TV Education offer chemistry lessons every week.”
Given the exceptional growth of Chinese chemical production and its predicted expansion, it seems that the West could learn a lot from China’s efforts to avoid a skills gap. Despite the trend for western chemical companies to set up production in the Far East, China is increasingly taking its domestic chemical requirements into its own hands. While chemical industry research, both academic and commercial, is increasingly being led by Chinese chemists.
In fact, while chemical industry chiefs are right to worry about a skills gap in the chemical industry, it is perhaps only a regional problem.
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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.
The chemical industry is known as a world leader in product research and design. Innovation is a core feature of a science-based industry that has made fortunes out of the development of cutting-edge materials. Gore-Tex, Nylon, and Kevlar are clear examples of chemical product innovation that has transformed our world.
At present, the chemical industry invests heavily in researching new products. This year, the US chemical industry alone is predicted to spend more than $70 billion on research; almost 10% of the value of total US chemical industry output.
US chemical industry R&D expenditure (and prediction) in billion US Dollars
However, some chemical industry heads are beginning to question the value behind such massive investment.
As chemical industry consultants at Bain and Company report, “The nature of innovation has changed, and there are fewer breakthrough chemicals and compounds.” Adding that, “… research ﬁnds that while two-thirds of executives say innovation is a top priority, less than 25% believe their companies are successful innovators.”
In fact, Bain’s analysis of chemical industry professionals’ thinking was that, “… many senior executives see R&D as something of a black box and don’t understand why returns from innovation are not higher.”
Instead, chemical industry leaders are turning to business model innovation, finding a better return for their investment in reorganising their companies than in searching for miracle chemical products.
As early as 2008, the Boston Consulting Group found that, “business model innovators have been found to be more profitable by an average of 6% compared to pure product or process innovators.”
Meanwhile, business models are becoming outdated at an ever-increasing rate. “In the past 50 years, the average business model lifespan has fallen from about 15 years to less than five.”
This is evident in the number of chemical industry M&A’s witnessed during the past decade. It is also indicative of the value seen in major business model overhaul in the chemical industry, with the $130 billion merger of DowDuPont soon being followed by a restructuring program that divides the business into three parts. This, according to the investment journal MotleyFool, is “… projected to save $3.3 billion in cost synergies.”
This places a chemical company’s business model as a core location for investment. But is major company re-structuring just for large chemical corporations?
Chemical Industry Business Model Innovation
Maybe not, as a recently published report in the online Journal of Business Chemistry, believes that there is also value in smaller chemical companies re-evaluating their business models.
The study’s authors, Martin Geissdoerfer (a doctoral researcher at Cambridge University) and Ron Weerdmeester (a management consultant at PNO), focused on developing business model theories that put flexibility and location at the company’s core. Both of which are easily applied to smaller chemical companies, finding value in adaptability and increased productivity through shorter supply chains.
The analysis was based on proposals by the European Commission Horizon 2020 project, which outlines the advantages of, “Business models for flexible and de-localized approaches for intensified processing.”
As a result, the study developed, “… four business model archetypes (BMA) that facilitate this re-localization: decentralization and modularization; mass customization; servitization and product service systems (PSS); circular business model, by name Re-use, Recycle and Sustainability (RR&S).”
The outcome was a framework for the dynamic evaluation of business models, rather than a static approach that limited business model innovators to set time-frames. This framework has been called INSPIRE, and it contains two core aims for chemical companies and other processing businesses;
- “Paving the way for dynamic monitoring of key supply chain parameters and factors (e.g. labour costs, production costs, raw material availability, market attractiveness, financial stability of suppliers, etc.) and analysing the long-term impact of the novel business model proposed;
- Considering the possibility of switching from one business model to an alternative in the medium term.”
The report also outlines how in rapidly changing and volatile markets, flexibility is a key factor to strengthen a chemical processing business.
Adaptability is key
Specifically, they state that, “In order to react to fluctuations in terms of demand or feedstock/energy prices, companies should be able to adapt production accordingly while being cost efficient at the same time (capacity flexibility). Likewise, companies should be able to switch to another product (product flexibility). In this context the innovation flexibility denotes the ability to carry out R&D and pilot settings at production sites. Another aspect relates to the location. Either the place of the production or the production plant itself should be easily moveable (location flexibility). Furthermore, companies should be able to handle different kinds of feedstock (feedstock flexibility).”
If a chemical company is to remain competitive, it can no longer hold firm on any single business approach. Modern chemical businesses must be far more agile and adaptive to ever-changing situations, and therefore their business models must also be flexible and adaptive.
Innovation will always be central to chemical industry growth, yet it is incredible that such large sums of money are being invested in chemical product R&D while investment in business model development is so often overlooked. In fact, when it comes to innovation, is the chemical industry simply doing it wrong?