Digital Transformation of the Chemical Industry

By Peter Reynolds

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Summary
In today’s highly regulated and competitive environment, chemical companies must look beyond traditional industrial conventions and business norms and focus on achieving the desired outcomes via digital dt1.JPGtransformation. For many companies, this need is reinforced as competitors, partners, suppliers, and customers begin employing digitized business processes of their own. By exploiting the convergence between operational and information technologies, these companies are connecting their enterprises internally, and externally throughout their supply chain. This both requires and supports new business models and processes.

Intelligent connected products and assets, along with network communications, software, and advanced analytics allow companies to redefine their approach to business processes, including enterprise asset management (EAM), product lifecycle management (PLM), and supply chain management (SCM). The resulting digital enterprises can design, manufacture, deliver, and support products faster, more efficiently, and at lower cost.

Thanks to digital transformation, chemical industry participants are realizing the following advantages:

  • PLM and chemical formulation processes are moving toward closed-loop product and chemical formulations to support continuous product improvement

  • EAM processes are expanding to encompass predictive and prescriptive maintenance, thus reducing unplanned downtime, cost, and risk

  • SCM processes can now support omni-channel supply chain concepts to improve both the highly integrated chemical supply chain and customer experience

 

Challenges Faced by Chemical Manufacturers
Recent economic and technology trends have had major impacts on the global chemical industry. This applies to both the specialty chemicals and bulk chemicals sectors. The industry has also seen an increase in merger and acquisition activity in recent years, and this trend is likely to continue.

The persistently low oil and gas prices, particularly in North America, have had a major impact on the industry, since both are key feedstocks for both specialty and bulk chemical production and provide much of the energy (either directly or indirectly) for these energy-intensive sectors.

While, until recently, North America had seen few greenfield or expansion projects for specialty chemicals and virtually none for bulk chemicals; the competitive advantage provided by shale oil and gas created a wave of activity in both greenfield and capacity expansion projects.

In general, there’s been a trend for global bulk and specialty chemicals manufacturers to shift production from well-established production centers in Europe, Japan, and (to a somewhat lesser degree) North America; to cost-advantaged China and India and feedstock-advantaged Saudi Arabia, which has been making a major push to increase the value of its exports and diversify its economy. We’re seeing significant investments in state-of-the-art, world-scale chemical production facilities in all these countries.

Increased global competition drives the need for greater efficiencies and cost reductions across the industry. While the scale and complexity of bulk chemical manufacturing appears to be increasing; specialty chemical manufacturers, particularly in Europe, are exploring increased modularization of production assets. This includes development of new modular “micro” production plants that can be easily located close to either feedstocks or end customers to reduce logistics costs.

In addition to growing pressures to reduce both project-related and operations-related costs and expenditures, chemical manufacturers face increased governmental regulation. This includes mandates to increase safety and reduce potentially harmful emissions. In general, the entire chemical industry is seeing a move toward increased automation to reduce costs and compensate for the growing skills shortage. Increased digitization across the value chain is another clear trend.

Transformation of Product Formulation and Lifecycle Processes
Continuing success in the chemical industry will depend on the ability to quickly create and produce new products to meet consumer trends and changing customer requirements, and to ensure existing products continue to meet changing regulations. Although product lifecycle management (PLM) approaches originated in the discrete industries, chemical companies are increasingly taking advantage of the benefits that effective PLM offers for product development, manufacturing, sales and support.

As products become more specialized, product development requires greater collaboration with customers, ingredient suppliers, packaging suppliers, and regulators. Companies that effectively employ PLM to collaborate and manage data, will develop new products faster, introduce them at lower cost, and bring them to market in less time. In addition to enhancing external collaboration, PLM for process manufacturing closes the design-to-production loop and enables users to fine tune product formulation based on yield measurements and fluctuating cost elements. The continued adoption of digitization among customers and suppliers extends this information loop and supports utilization of field experience to drive product innovation.

The expanding markets in emerging economies, combined with nearly continuous regulatory changes in established markets, make it imperative for chemical companies to be able to quickly and confidently document formula and label compliance with industry, national, and regional regulations. data required to do so varies greatly depending on the regulatory group and can come in a variety of data formats, structured and unstructured. Despite this complexity, the document management capabilities of chemicals-specific PLM solutions can help ensure that products meet regulations from concept to retirement, even as regulations change. Furthermore, incorporating batch lot tracking and other operational tools that tie into a product database, enable rapid decision support in the event of emergencies or recalls.

Transformation of Maintenance and Operations Processes
A modern enterprise asset management (EAM) system provides the visibility, planning, and execution capabilities needed to improve industrial asset uptime, increase asset longevity and safety, control costs, and support the executive need for high return on assets (ROA).

Reliability studies show that 82 percent of all assets have a random failure pattern. Thus, only 18 percent of assets benefit from preventive maintenance based on calendar time or usage. To avoid failures on the 82 percent of assets, new, IIoT-enabled proactive solutions replace conventional reactive or preventive maintenance with far more effective predictive and prescriptive maintenance approaches. With more accurate and efficient automated data collection, IIoT dramatically expands the number and variety of parameters that can be monitored cost effectively with engineered algorithms or machine learning to identify problems well before they become failures.

This higher maintenance maturity level supports broader business benefits that go beyond reducing maintenance costs. These include improved on-time shipments, revenue, customer satisfaction, quality/yield, and safety. Users have reported that moving from preventive maintenance to predictive or prescriptive approaches provides 50 percent savings in maintenance labor and MRO materials. Moreover, with predictive and prescriptive maintenance, near-zero unplanned downtime for critical equipment can be achieved.

Transformation of Chemical Supply Chain
With the traditional chemical supply chain logistics model in which only one component at a time can be optimized, companies are forced to view their respective supply chains as a cost center instead of a strategic, competitive work process.

However, increasingly, a company’s global supply and trading network represents a living (ideally connected) ecosystem of supply chain partners and e-commerce. In this emerging business model, the focus is on interactive collaboration among carriers, shippers, forwarders, suppliers, and even customers. When supported by a common SCM platform, this approach can drive a powerful network effect with the benefits of universal connectivity among participants. Instead of micro-level optimization, which only allows for cost-savings within your own supply chain, the doors are open to macro- level optimization—finding those optimization opportunities that lie between several systems. But this requires those systems to be connected via a common platform.

Infor’s Solution
As ARC Advisory Group learned in a recent briefing with company executives, Infor’s $675 million acquisition of GT Nexus, a leading cloud-based global commerce platform, represents one sign of the company’s commitment to helping chemical manufacturers transform their supply chains. That’s because GT Nexus provides global order management and coordinates commerce across partners, enabling manufacturing companies to collaborate with suppliers to manage and optimize shipments to customers, and distribution centers to meet demand.

ARC agrees with Infor’s CEO, Charles Phillips, that, “the future of manufacturing belongs to networked companies.” For the chemical industry this is a network of buyers, raw material suppliers, logistics providers and service partners. At a recent Inforum customer event, Mr. Phillips and Kurt Cavano, General Manager of GT Nexus Commerce Cloud, discussed how the combination of Infor cloud-based ERP solutions with GT Nexus Commerce Cloud has created a powerful global business network and supply chain application platform for chemical manufacturers, their suppliers, and customers.

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As we learned, Infor is moving all of its products and solutions to the cloud and combining these with GT Nexus to provide a powerful network to move chemicals, track goods and provide inventory visibility. Infor is building both a platform and applications to manage the supply chain and connect general ledger within the ERP-to-inventory systems of the expanded chemical supply chain. Connecting the physical and financial aspects of the chemicals business will fundamentally change behavior and work process.

Infor’s strategy is to create industry-specific solutions with mechanisms for user customization via Amazon Web Services (public) cloud deployments. The company believes designing applications for user experience is paramount and has created an agency called “Hook and Loop” to improve this experience and help pave the way to adoption across industry.

Infor also recognizes the significance of Big Data and data science to transform PLM, APM and SCM processes. Since these are not simple to weave into user experience and work process, Infor has created a dedicated data science lab for machine learning and advanced analytics on the campus of the Massachusetts Institute of Technology (MIT).

With its “five-pillar” strategy for digital transformation encompassing industry-specific solutions, design, science, internet, and the network, it appears that Infor is well positioned to help global chemical industry participants in their journey to digital transformation and the associate competitive advantages.

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Keywords: Chemicals, Digital Transformation, Regulations, PLM, SCM, EAM, ERP, SaaS, Infor, ARC Advisory Group.

 

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