Chemicals supply chain: how to catch up the race!

“During the decade of the 2020s, investors in the chemical industry will seek to balance the ‘petrochemical trilemma’: economic benefits of investment in the chemical value-chain, a sustainable approach to the consumption of natural resources, and offering sound environmental stewardship that is responsive to societal demands for a healthy and clean environment…

The chemical industry must continue to proactively engage on all fronts - seeking cooperative, fact-based solutions to these challenges and working side-by-side with local communities and government.

Mark ERAMO, VP of Global Business Development for oil, midstream, downstream & chemical, IHS MARKIT

The chemical industry has enjoyed strong and consistent performance over the last decade. The market is now being affected by new challenges, from increased global competition and changing customer requirements to disruptive new technologies while increased demand for sustainability, safety, and efficiency is changing not only the way companies work, but the products they produce.

1. Accelerated Globalisation is one of the major factors driving change right now, as new market entrants from Asia (especially China) and the Middle East emerge, offering products at lower prices. These lower prices drive shrinking lifecycles and rapid product commoditisation. Supply centres are shifting as new sources for industry-critical products become available. At the same time, demand centres are in a state of flux due to rapidly growing middle classes in emerging countries.

World chemical sales (€3,475 billion) 2017

Source: Cefic Facts & Figures 2018

* Rest of Europe covers Switzerland, Norway, Turkey, Russia and Ukraine Unless specified, chemical industry excludes pharmaceuticals ** North American Free Trade Agreement Unless specified, EU refers to EU 28*** Asia excluding China, India, Japan and South Korea 2

Four factors changing the chemical industry

542 1,219

519

477

Rest of Europe

Latin America

Rest of the world

Rest of Asia***

South Korea

Japan

India

NAFTA**

EU China

112

109

48

101

122 154

CHEMICAL INDUSTRY IN EUROPE

DID YOU KNOW?

5% (1)

The chemical industry accounts for only approximately 5 percent of Europe’s energy consumption

2nd (2)

Europe is the second largest chemicalsproducer in the world

(1) Source : Accenture (2) (3) Source : Cefic Facts & Figures 2018

€ 542 billion (3)

EU chemical sales 2017 by products

2. The «Cicular Economy» is more than a trend: it’s a way of life for forward-thinking companies. Based on a transition to renewable energy sources, the circular economy functions according to three principles: designing out waste and pollution; keeping products and materials in continuous recycled use; regenerating and maintaining natural systems. As the environmental impacts of emissions and waste become more evident, sustainable measures must be taken if businesses are to survive.

3. Digitalisation and other technologies: companies must embrace digital or they will fail. It’s that simple. Digital offers unprecedented connectivity and speed to allow companies to access, process, and analyse huge amounts of data.

4. New, agile business models are needed if companies are to thrive in the foreseeable future, as they will need to be able to rapidly transform their product and service portfolios to respond to changing market conditions and customer needs. For example, new diet trends with safe chemical products are living an important growth or new sustainable packaging.

Growth in world chemical sales 2017-2030

3

20.1%

14.7%1.0%

10.7%

2.7%

13.8%

4.0%

49.9%

3.2%15.6%

3.2%

14.9%

3.1%37.2%

4.4%

EURest of EuropeNAFTA*Latin America

ChinaJapanRest of Asia**Rest of the world

1.4%

€3.47 trillion €6.6 trillion

2017 2030

*North American Free Trade Agreement **Asia excluding China and Japan

DID YOU KNOW?

Circular economy: definition (1)

Circular economy aims to redefine growth, focusing on positive society-wide benefits. It entails gradually decoupling economic activity from the consumption of finite resources and designing waste out of the system.

Underpinned by a transition to renewable energy sources, the circular model builds economic, natural, and social capital.

It is based on three principles:• Design out waste and pollution• Keep products and materials in use• Regenerate natural systems

70% (2)

of the European chemical industry molecules provided to customer industries and end-users can be recirculated

(1) Source : Ellen MacArthur Foundation (2) Source : Accenture

In this new and constantly evolving global landscape where regulations are more and more strict and customer more and more demanding in terms of sustainability, it’s crucial for chemical companies to find innovative new ways to retain their competitive edge.

Digitalisation is driving a tsunami of innovation in equipment reliability, process optimisation, and quality control.

Advanced analytics enabling the gathering and analysis of relevant data throughout an organisation can be used to improve how companies are run and help them to make better-informed and speedier decisions across the full range of their business processes.

This new accuracy will enable a company to quickly identify issues and, if necessary, make modifications in real-time before serious problems arise. Other technologies, from connectivity, mobility, cloud and in-memory computing, to the IoT machine learning and blockchain are also drivers of change and success.

Sustainability is just as important as technology.

Every company must address climate change, reduce their carbon footprints, and plan for a greener future. This is particularly important for chemical companies, as they are among the leading producers of waste products – especially plastics.

One way to approach this problem is to become part of the circular economy. The goal is to end the linear “take-make-dispose” model by working on the two ends – raw materials and increased recyclability of end products – and continue moving forward until a circular model of constant reuse and waste reduction is created.

Industry disruptions can also build success

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“Green issues and sustainability have become mainstream today. They are no longer considered niche and are now incorporated into the very fabric of a business.

An increasing number of consumers are basing their purchasing decisions on perceived notions of a product and the producer’s green credentials.

Consumers don’t really differentiate between ‘sustainability’ and ‘corporate responsibility’. They just want to buy from good companies – companies that are doing right by people and the planet.

Suzanne SHELTON, CEO And President,SHELTON GROUP

Circular economy: a global imperative. While Europe is the epicentre of the circular movement, China and the European Union (EU) agreed to cooperate on circular economy.

China and the European Union (EU) agreed to cooperate on circular economy initiatives in July 2018. Commissioner Vella said: “Both the EU and China are facing similar environmental challenges. Threats to biodiversity, pressures on scarce natural resources, waters and oceans as well as the threat of pollution require strong governance. Together we can better respond to these challenges and we can take the lead globally.”

In the USA, the American Chemistry Council’s Plastics Division committed to recycle or recover all plastic packaging used in the United States by 2040 and to further enhance plastic pellet stewardship by 2022. We are embracing the drive toward a circular economy for plastics because it helps demonstrate our overarching commitment to sustainable materials management. In setting these goals our industry is publicly affirming our vision of the future we want for safe, sanitary plastic packaging and our intention to get there quickly.” said Steve Russell, the ACC’s vice president of plastics.

Finally, how companies will succeed in the future will depend largely on their agility. Due to factors such as consolidation and commoditisation, some companies will need to rethink their entire structures; those with specialty business models will need to modify them accordingly. It is time for companies to look beyond traditional value chains and begin competing as entire ecosystems. That means becoming more customer-centric, with the goal of delivering satisfying outcomes – not just products.

5

5 key areas of improvement for chemical supply chainsThe challenges facing the chemical industry impact its supply chain. Competitive edge will go to those companies which optimise visibility, review segmentation, and integrate digital supply chain technologies and implement high sustainability standards to accelerate the development of sustainable solutions that meet the needs of society in the coming century.

1. Supply chain collaboration: When a company’s entire network of customers, suppliers, and other partners uses digital tools and predictive analytics to communicate and exchange information, mistakes are avoided, lead times are shortened, and innovative solutions for dealing with disruptions due to product shortages, extreme weather conditions, or geopolitical turmoil can be found.

2. Dynamic inventory control: With automated tools enabling continuous inventory analysis and adjustment, companies can avoid supply chain and project delays, reduce human error, and maintain regulatory compliance with governing agencies. Key benefits include more efficient use of resources, happier customers thanks to better service, and enhanced decision-making capabilities.

3. Segmentation strategies: Excellence in the chemical supply chain today also requires the creation of innovative product segmentation differentiation, processes and policies to manage larger and more diverse product portfolios while also emphasising the most critical products to avoid allocating excessive resources to others.

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“In the future, key drivers in the Chemical Logistics Market will be high levels of competency with hazardous goods, effective IT systems and global network performance (quality, security, cost and CSR).

The winners will be those who manage the increasing complexity through better process, specialisation, effective collaboration and advanced technology deployment.

Frank ERHARDT,Managing Director,GEFCO GERMANY

“Industry 4.0 offers a stunning array of opportunities—from compiling real time data via wired and wireless sensors to IoT technologies that allow companies to optimize their processes in real time.

Arun BRUCE, Partner and MD, Middle East Leader Operations Practice,BCG

“ 4. Profit, Sales & Operations Planning: PS&OP can help chemical companies meet their evolving strategic goals thanks to functions such as financial impact analyses and an optimisation engine to define optimal outcomes. It also provides companies with “what-if” scenarios to calculate eventual demand range forecasts and supply capability adjustments and risks. With PS&OP tools, chemical companies can forecast raw material prices to optimise regional asset utilisation and optimise profitability.

5. Quality control & high sustainable standards: The stakes have never been higher for the chemical industry when it comes to quality control. Strict compliance with requirements from governments and regulatory bodies dedicated to ensuring environmental protection and human health during chemical handling, including use and transport, is critical at every stage of the supply chain. Failure to comply will not go unnoticed thanks to today’s ubiquitous social media and strict consumer protection programs. Negative headlines can seriously damage a company’s image – which can have a devastating effect on the bottom line.

Source: BCG

7

In 2017 and 2018, we faced increased government regulations and issues with driver shortage and retention. Thanks to our close relationship with our customers, we adapted quickly by generating smart logistics solutions that provided customers with maximum flexibility.

Frank ERHARDT,Managing Director,GEFCO GERMANY

“In order to fully focus on our core competencies, we count on the long year experience and the Know-How of our logistics partner. We expect that our provider fulfills high service standards as well as the compliance to safety regulations, quality and environment measures, which GEFCO meets fully.

Claudius LIPS, European Procurement Manager Logistics,INEOS STYROLUTION

5 disruptive technologies

Advanced planning and AI to monitor and adjust overall plant performance

Supply chain control towers to monitor, manage, and control decisions and execution

Blockchain technology to store digital information in an accessible database

Digital logistics to enable collaboration and visibility

CHEMICAL SUPPLY CHAIN: new challenges, new solutions

5 CHALLENGES TO MEET 5 MAJOR SOLUTIONS

GEFCO’S SOLUTIONS GEFCO KEY FIGURES

> Integrated logistics solutions that are Dangerous Goods compliant

(Warehousing, Road, Rail, Air, Ocean, Customs & Fiscal Representation)

> Intra-Europe rail solutions (conventional & combined)

> Intermodal solutions that are green and cost efficient

> Industrial Project Cargo

> Control Towers that provide full visibility & security by a monitoring

at each milestone of processing

100% visibility: visibility on the flows 24/7/365, on CO2 level and billing incurred

Supply chain collaboration: meeting lead times, proactively managing supply chain and accelerating response time

Security: regularly auditing order processing, the management flows and facilities to be compliant with changing regulation and guaranteeing security of goods, people & environment

Choosing partners on a long-term basis who reach compliancy standards

Maintain high standards: accelerating the development of innovative and sustainable solutions

Ecovadis Gold level

SQAS assessments for 5 GEFCO sites in Europe

Wuppertal (Germany), Berlin - Grossbeeren (Germany), Mainz

(Germany), Dijon – Longvic (France), Braine l’Alleud (BENELUX)

30 Days to deliver dangerous goods from Europe to Asia via

multimodal routes with 5 times less CO2 per t/km than by road

European Road control towers to manage flows over Europe

Supply chain collaboration: becoming a global partner with local footprint

The “circular economy”: transitioning to renewable energy sources

Digitalisation: transforming value chains, ensuring higher productivity, faster innovation, and creating new channels to market.

Shortage of compliance capacity: especially in Europe

New, agile business models: answering new customer requirements and responding to changes in regulation

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Contact us www.gefco.net

GEFCO, Partners, unlimited.

At GEFCO, we are convinced that long-term cooperation is the key to shared growth with our partners. Thanks to our strong expertise and heritage in the automotive sector, we design innovative and flexible solutions to meet the most complex challenges of the supply chain.

GEFCO is the world leader in complex supply-chain solutions and the European leader in automotive logistics. Building on 70 years of expertise and a 15,000-strong workforce, GEFCO designs smart, flexible solutions to meet the most complex supply chain challenges in all industry sectors. Present in 47 countries, with a strong global network of partners, GEFCO serves 300 destinations worldwide. In 2018, the Group generated revenues of €4.6 billion.