Digital transformation in the chemicals industry
March 2019 | TALKINGPOINT | SECTOR ANALYSIS
Financier Worldwide Magazine
March 2019 Issue
FW speaks with Frank Jenner at Ernst & Young GmbH WPG about digital transformation in the chemicals industry.
FW: How would you describe the way digital transformation is reshaping operations across the chemicals industry? What opportunities do new technologies offer companies in this space?
Jenner: I think we need to discuss the term ‘digital transformation’ first. In terms of digitalising operations to gain further efficiency and productivity, these efforts have been largely focused on production, plant maintenance, supply chain and the like within the chemical industry. Digitalisation 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 – as in, bringing in new or adapted business models for modified or completely new revenue streams via platforms and ecosystems.
FW: What are the benefits to chemicals players which actively pursue a digital transformation process? Conversely, what are the biggest risks along the way?
Jenner: All the efficiency gains are still dominant and in the foreground. New technology can enhance production and maintenance productivity – for instance, with drones flying inspection rounds at sites or augmented-reality-based HoloLens usage for maintenance and repair. Nevertheless, this does not transform the entire company. One risk to be mindful of is when a company’s ‘traditional’ products and sales are not fully appreciated within the transformation.
FW: Given the complex nature of the digital world, what practical strategies can companies deploy to help them initiate and plan for digital transformation across their operations?
Jenner: A digital transformation is a holistic approach to changing and modifying the current business model. Digital technology drives a new way of setting up the business and combines it with new platforms and ecosystems to play a different game. Currently, we see a lot of transition approaches that can be elaborated on and tested in smaller environments. I believe this is the right approach, to gain experience and find out what works best for everyone. For example, we are in the process of performing an agrochemical business model test in Africa with one company.
FW: Could you provide any examples of digital projects that have significantly transformed chemicals industry operations? What lessons can companies learn from how digital strategies were rolled out to effect change?
Jenner: 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 that can showcase the potential future. 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. Overcoming these traps requires new thinking in next-generation business and IT infrastructure. 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 the entire value chains – internally, across all operating divisions and subdivisions, and externally, to suppliers and, more critically, into the customer back-ends. But digitalising and applying new technological features – such as 3D printing, virtual and augmented reality, robotic process automation, machine learning, and soon applied artificial intelligence – are great efforts. Companies can gain efficiency benefits, modernising the operational workforce in production and logistics – through autonomous driving on sites and in warehouses, for example – and in the back-end functions, through predictive data analytics and data science.
FW: Are there any legal or regulatory considerations that chemical companies should consider as they undertake digital transformation? Is there an opportunity to enhance compliance, for example?
Jenner: Digitalisation creates opportunities to increase transparency across the chemical supply chain – for instance, in by-products, processed intermediate products and bulk materials. 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. From a compliance perspective, companies must make sure that all relevant health, safety and environment (HSE) regulations – in particular the Regulation for Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) and handling of hazardous materials – are thoroughly fulfilled under new business models. However, digital clearly offers opportunities for closer and more efficient control measures.
FW: What final advice would you offer to chemicals companies on successfully implementing a digital transformation process?
Jenner: In order for chemicals companies to implement a successful digital transformation process, it must be driven from the C-suite, with the chief executive leading the way. It is imperative to avoid delegating this task to other individuals, such as the chief digital officer or IT department.
FW: How do you envisage digital transformation impacting the chemicals industry in the years ahead? Are there any particular trends and developments you expect to see in this space?
Jenner: Change is on the horizon. Chemicals value chains must change fundamentally in both a horizontal and vertical direction in order to be successfully integrated in the business and ecosystem platform. Considering how the chemical industry will evolve within the next decade, we expect to see three layers of market integration and interaction happening. The foundation layer provides basic chemical products into the market via platforms, where the platforms control demand and supply on a global scale. These platforms are part of different ecosystem business layers which connect various business partners together for solving consumer and business-to-business requirements in a completely new way of business partner interaction and integration.
Dr -Ing. Frank Jenner serves as EY Global Chemical Industry Leader, with over 20 years of experience in providing strategies in the chemicals, life sciences, consumer products and high-tech sectors. As the former leader of Strategy & Operations in the Germany, Switzerland and Austria region, Mr Jenner focused on supply chain process modelling and design, value chain management, organisational change management, business improvement initiatives, and transformational excellence. He can be contacted on +49 621 4208 18000 or by email: firstname.lastname@example.org.
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