In the last few decades, global trade grew enormously with huge amounts of component goods produced across different locations, transported from around the globe and finally assembled together at one location. Such global value chains made it possible for MNCs to manufacture goods through the ‘just-in-time’ model which relied largely on the timely delivery of component goods for production to take place. But with the onset of COVID-19 and the resulting geopolitical disruptions and financial downturns, chemical companies are faced with an unprecedented situation with no proven strategy to turn to.
The headwinds have been manifold. The industry has witnessed demand shocks across key sectors such as automotive, oil & gas and aerospace sectors. With customers delaying purchases or falling behind on payments, reduced cash flow became a concern. Border closures and travel bans have also caused disruptions in normal business operations resulting in stranded inventory due to affected supply chains.
On the home front too, frequent lockdown restrictions and halting of manufacturing resulted in retrenching across sectors. Companies had to rethink on-site work, enable remote working if possible and even revisit their existing customer service processes. To tide through this period, chemical firms will have to keep in mind the following trends –
Deglobalization and supply chain localisation – Reducing dependency on global supply chains and localizing operations closer to their primary markets. With China going into isolation from December last year, decoupling from a single market in a supply chain model became the need of the hour. For some time now, chemical firms had already been seeking alternative locations instead of China for manufacturing to lower costs. Supply chain strategy and manufacturing footprint decisions will become increasingly important factors for businesses looking to succeed for the next few years. Driving down costs through precise inventory management, effective product pricing, tax efficiency and optimizing operations are critical enable risk mitigation and ensure business continuity.
Flexible workforce – Changes in business processes are affecting how employees work, are managed, and how customers are serviced. Most firms had halted operations in March and have since resumed work in the last few weeks as states began to gradually resume economic activity. However, the fear of the catching the virus still lingers for on-site workers. Firms will have to take extra precautions such as ensuring company transport, safe working conditions, complete sanitization and implementing social distancing norms within planned work shifts.
Acceleration of digitization – While previously the chemicals industry had been slow to embrace digitalization, COVID-19 has accelerated the shift especially with the success of remote working and remote operation of plant control systems. Companies are now experimenting with new ways to raise efficiency and we can expect to see a rise in the digitization agenda, including wider adoption of artificial intelligence, robotic process automation, machine learning and other technologies across the value chain. There has also been a spurt in the migration to cloud from on-site ERP systems as Cloud offers speed and flexibility for companies to manoeuvre in a volatile environment. The cost reduction by implementing cloud platforms is also safely pegged in the range of 10-20%.
Robustly designed and well equipped with finely-sliced customer data, online selling platforms and customer interfaces may result in a more attuned service, help reduce SKUs, offer the right products to the right consumers, and allow tapping into previously overlooked markets. Getting the right mix could well be a differentiator for firms that get it right.
Doubling down on Sustainability – Disruption due to the pandemic has allowed businesses a window to rethink their post-COVID-19 strategies. To drive the sustainability agenda, firms can consider transitioning from conventional energy supplies to renewable sources, reduce debt by accessing sustainable financing and double their R&D efforts to focus on developing products to reduce their carbon footprint and plastic waste generation.
If we analyse the potential of digitisation & technology enablement further, it is clear that chemical companies have a path laid out in front of them to unlock novel products, enhance sustainable practices and innovations. Digitization could positively impact:
- Growth and innovation: With developments in digital technology, such as lower data-storage costs, advanced analytics and high-performance computing, chemical firms can easily scale up innovation under minimal time required to create and commercialize new offerings. With digitization, firms can predict and anticipate disruptions in key industries such as agriculture, automotive and construction. At times, these disruptions themselves are being caused by integration of digital and exponential technologies across value chains, prompting most chemical enterprises to revaluate their future growth strategies.
Recently, Deepak Fertilizers and Petrochemicals tied up with Samunnati, an agricultural value chain enabler, to offer agri-inputs, crop advisory as well as customised finance options to Farmer Producer Organisations across five states for the next three years. This will allow more business for the firm and also benefit individual famers with access to timely inputs and capacity building/advisory services.
- Cost optimization: Optimizing plant performance by leveraging digital technologies such as Internet-of-Things (IoT) is not new for chemical firms. Manufacturers can closely monitor performance, predict equipment failure and automate key chemical engineering processes. Process manufacturing technologies have also enabled the reuse of by-products of one chemical process into another, increasing overall energy-efficiency. With emerging technologies like blockchain and predictive analytics, firms can even integrate their existing IoT infrastructure to enable real time track-and-trace capabilities. This can lead to more optimized production yields matching the fluctuating demand.
For example, the Tata Group has recently merged all consumer products businesses of Tata Chemicals with Tata Global Beverages under a new firm renamed Tata Consumer Products Ltd. (TCPL). This entity now owns brands like TATA Salt, TATA Tea, Tetley, Eight O’ clock and Himalayan Water. Leveraging digital technology TCPL aims to make its entire distribution system more active and to double its direct reach in 12 months.
- Focus on sustainability: With more end-consumers pushing for sustainability, the chemical industry has been embracing a circular economy model. To comply with regulatory restrictions on microplastics and single-use plastics, the industry has been working on developing new products, investing in recycling technologies, as well as incorporating and recyclable and renewable products in their portfolio. Digital tools can enable firms to scientifically identify innovative solutions or products which will have a lower carbon footprint throughout their life cycle.
A chemicals business that is successfully enabled digitally will enjoy the benefits of optimized inventory, reduced logistics and operating costs, higher customer fill rates and new market opportunities. Not only will it be sustainable and profitable, but it will also be resilient to demand volatility and global disruptions with insight-driven decision making and processes.
AVA Chemicals is the leading manufacturer of Chelating / Sequestering agents, chelated Micronutrients and Fine Chemicals. We have been formulating and providing premium-grade chemicals for national and international clients in over 40 countries. With a solid value chain in place, AVA Chemicals is a trusted provider for leading chemicals companies globally.
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