Success in industry 4.0 requires chemical companies to link products, value chains, and business modelsDownload the infographic
Pressure on the chemical industry is increasing. The outlook continues to be a challenging environment. Rapid technological change is enabling companies to produce according to fluctuations in customer demand, contributing to greater price volatility. Global base chemical capacity continues to increase, while demand growth versus gross domestic product (GDP) is forecasted to decelerate. This is dramatically altering traditional business economics. Value chains are fragmenting as technology disintermediates traditional supply chain networks. Markets have evolved from a state of organizational centricity, in which chemical companies largely define what to produce and market to customers, into a state of individual centricity, in which chemical companies are delivering tailored and customized products.
In 2017, the IBM Institute for Business Value (IBV) conducted a survey in collaboration with Oxford Economics. Of 600 chemicals and petroleum executives who participated, 300 were from the chemical industry. A majority of the executives surveyed tell us that a number of digital technologies are critical to their business strategies in this new economy.
The new environment confronting the global chemical industry is best understood within what we call the everyone-to-everyone (E2E) economy. The E2E economy has four distinct elements (see Figure 1):
- Orchestrated, based on business ecosystems, which are both collaborative and seamless
- Contextual, in that customer and partner experiences are calibrated and relevant to their specific actions and needs
- Symbiotic, in that everyone and everything, including customers and businesses, are mutually interdependent
- Cognitive, characterized by data-enabled, self-supported learning and predictive capabilities.
The E2E economy initially impacted end-customer-centered sectors such as retail, automotive and consumer electronics. Now the E2E economy is permeating business-to-business (B2B) industries, including chemicals. Digital technologies such as 3D printing, the Internet of Things (IoT) and adaptive robotics are altering how customers and chemical businesses interact. The chemical industry needs to digitally reinvent its enterprises to keep up with this technological change and the disruption it propagates.
Technological disruption and chemicals
Technological disruption in the chemical industry has increased significantly. (See sidebar, “Cyber-physical systems model the chemical enterprise.”) The fourth industrial revolution – sometimes referred to as Industry 4.0 – is characterized by increasing digitization, motivating chemical businesses to interconnect products, value chains and business models.
The proliferation of connected devices and IoT technologies is already driving significant change by connecting related industries. For example, the quickly developing IoT in agriculture helps communicate timely, accurate real-time weather forecast data related to dynamic agricul-tural processes like planting, harvesting and chemical applications.
In another example, OnFarm uses sensors and IoT connectivity to enable farmers to optimize water, energy and inputs. Dow Chemical has North American railcars with two radio-frequency identification (RFID) tags; cylinders are tracked with barcodes; and transportation assets are tracked with RFID, cellular GPS or satellite GPS.
This provides Dow with a level of real-time visibility for virtually all materials, with event management software orchestrating relevant alerts. New entrants in the chemical space are employing digital technologies to conceive and realize bold new concepts – disintermediating traditional players. Many have already succeeded in disrupting established processes, a trend that will accelerate.
For example, Zymergen, a U.S.-based technology company, uses automation, big data and software algorithms to manufacture high-value chemicals and new materials. And U.S.-based startup NanoMech uses nanomanufacturing technologies to produce new lubricants, specialty chemicals and coatings for customers in the automotive, retail, energy manufacturing, exploration and service, aerospace manufacturing, textiles and advanced military applications industries.
As a consequence of this confluence of new digital technologies, half of the chemicals and petroleum executives who participated in the 2016 IBV Global Ecosystem Survey of more than 2,000 global business leaders, conducted in collaboration with the Economist Intelligence Unit, say that traditional value chains are being fragmented and replaced.
Fifty-five percent of chemicals and petroleum executives report that the boundaries between their industry and others are blurring. And 42 percent say that competition from new and unexpected sources is beginning to impact their businesses.
This disruption poses a significant threat to the industry since many chemical organizations are preoccupied with more immediate, day-to-day business. And even with that emphasis, the effectiveness of chemical companies against important organizational objectives shows large gaps.
Meet the authorsViswanath Krishnan, Global Solutions Executive
David M. Womack, IBM Global Director of Strategy and Business Development for IBM Chemicals and Petroleum Industries
Spencer Lin, Global Research Leader, Chemicals, Petroleum, and Industrial Products, IBM Institute for Business Value
Anthony Marshall, Senior Research Director, IBM Institute for Business Value
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