For years, we have been told that digitization would deeply transform business models in the chemical industry. But is the world of Chemistry4.0 already materializing or is it still a mere vision? Or, as some still think but rarely say, is Chemistry4.0 more a hype, like the e-commerce hype of about 20 years ago, that will implode once the business cycle deteriorates and the willingness of companies to spend money for fancy innovations fades away?
Chemistry4.0 is indeed emerging, although more gradually than expected. Only now digital technologies that have been existing for years or decades are mature enough to create added value for chemical businesses. The idea for example, to steer product allocation in chemical value chains with the help of IT, is not new at all. Statistical programming languages like R or Python that can be used to model typical decisions in value chain management have been known for almost 30 years. But only today and with the help of users like Google or Facebook are their function libraries powerful enough to enable the modeling of entire value chains with all complexities in the product and customer portfolios. With management decision support based on statistical models of a value chain, margin improvements of up to 0,5 % are possible with minimum investment.
Blockchain and “Hypertrust” applications
In other cases, different technologies need to be combined to ready for day-to-day business. The blockchain technology (not brand-new either) can be used to link stakeholders in a personalized medicine network or chemical producer, regulatory authority and customer in a regulated chemical value chain. But in both cases, some information needs to be protected from access by all participants which is a requirement at odds with the blockchain principle. Such information to be protected from unwanted access is, e.g. sensitive patient data or patented molecule recipes. In this case, new “hypertrust” applications can shield that information against non-authorized blockchain participants.
Demand-Driven supply chain management
Another example is demand driven supply chain planning. That planning philosophy does not rely primarily on forecast data, but on actual demand signals from the market, thus achieving a better balance of capacity utilization, inventories and lead times. Today, it is mostly applied in pharmaceutical companies, with some pioneers in the chemical industry, but interest is growing with a new generation of planning tools (e.g. SAP IBP). The full potential of these technologies, however, can only be realized with artificial intelligence which helps e.g. in setting buffer inventory parameters.
While these examples might be instructive, do they indicate the arrival of new business models for the chemical industry? Certainly not. Digital enablers affect the operating model of a chemical company, i.e. the customer fulfillment activities, the supply chain set-up and the transparency of product and value flows. Only by combining many digital enablers, new operating models become feasible. A specialty chemicals company, for instance, that plans to offer new value adding services or wants to supply end customers directly would use a number of digital enablers that help to cope with the resulting complexity, e.g. web shops, artificial intelligence in forecasting, more flexible planning or rhythm wheel based production scheduling. Altogether, these enablers are cornerstones of an operating model that can support the value proposition of a new business model. It is thus not a single digital innovation that triggers a new business model, but the skillful combination of mature digital enablers supporting operating models needed to ensure the realization of new value propositions.
Is there a certain direction for the chemical industry in the digital age? If we consider the digital enablers that already exist and are – to some extent at least – already applied by chemical enterprises (the pharmaceutical industry, as often, is clearly ahead of its relative in terms of applied innovation), it becomes apparent that some chemical businesses will profit more from Chemistry4.0 than others. Many digital enablers help to cope with increasing complexity resulting from moving into specialty chemicals, into value adding services and closer to the (end) customer. Focusing on specialty chemicals as such is not a winning formula, as these businesses are caught between complexity and commoditization. Only with the appropriate operating models supported by skillfully combined digital enablers, can specialty chemicals companies reconcile complexity with lean cost structures.
Thus, the seemingly paradoxical “lean and flexible” operating model has become feasible with Chemistry4.0. Practical evidence for this is already visible, albeit sporadically. Chemical companies that recognize the link between digital enablers and operating models and who combine the right levers to support appropriate operating models, will take the lead over their competitors.
The digital future has indeed begun.
This article was first published in Chimica Oggi – Chemistry Today – vol. 37(4) July/August 2019