Industrie 4.0 in chemistryPlenty of opportunities, but none of them come for free

Issue 5 | April 2017

Point of ViewLife Sciences, Healthand Chemicals

Many companies in the chemical industry are no stranger to this question: how can we turn a slow and cumbersome supertanker into a quick and agile motorboat? In the past, the search for a practical solution has proven fruitless. Tankers remained tankers, even if certain modernization measures have helped their crews maneuver them more easily. What could be seen on the surface became more flexible, but the underlying structures largely remained unchanged.

But now relief is in sight. Admittedly, the switch to more flexible overall corporate models won’t receive a warm welcome every-where. After all, it’s practically being forced upon people — by the market and by technological development. A chemicals clientele whose customers have ever greater demands for individualization, innovation speed and delivery capacity naturally pass these requirements along to their suppliers.

Both must be able to react to this, with more flexible product, as well as with new processes in sales and order processing. Complete solutions are increasingly being required in place of individual products — entire packages of tailor-made products, consultation and service in the broadest sense, and a totally new form of customer-supplier relationship. After all, what was it like before? In the chemical industry in particular, the customers used to base their decisions on their supplier’s product range and productbased organization structure.

While searching for a solution, the customer would then contact the department of the chemical company the customer thought was in charge. There, the customer was generally well served, from consultation to collective product development. Or the customer received information on other contact points, which he could then actively get in touch with. But customers will not and cannot afford to take the effort of practically having to help organize their suppliers. The customer wants to focus his management capacities on their own challenges and isn’t looking for more products, but complete system solutions.

Now there’s a way out for both sides. The key is digitalization. And it manifests itself in many different forms: Industry 4.0, the Internet of Things, big data, social, mobile, analytic and cloud technologies (SMAC) and cognitive computing are but a few examples. These will lead to far-reaching changes among chemical companies (and not only in this industry).

One key aspect is of interest for chemical companies: the idea of a far-reaching network, if possible between all parties involved — producers, suppliers, customers and service provider —in a single value chain. Suitable sensors and recording devices make it possible to capture large volumes of data and information right at the place of their inception (potentially via the process control system, if linked in) in order to communicate with the previous link in the supply chain in real time. All of the impulses now come straight from the customer. What the customer needs is production processes or logistics procedures that trigger the provision of ser-vices directly.

” One key aspect is of interest for chemical companies: the idea of a far-reaching network, if possible between all parties involved — producers, suppliers, customers and service provider — in a single value chain.“ Dr.-Ing. Frank Jenner, EY Global Chemicals Leader

2 | Point of View Life Sciences, Health and Chemicals

The technological possibilities can already be seen in large retail chains. Their networking goes backwards from the cash register to the regional warehouse and central purchasing, and sometimes all the way to the manufacturers. Simply put, this means: the end customer’s purchase already triggers production and resupply of the purchased goods. But this is pure automation mechanics. At most, it only has to do with customer orientation in the relationship between the trading company and its suppliers.

But in the chemical industry, customer-supplier relations are taking a 180° turn. The future sales process will no longer be from in-house production to the customer, but the other way around: from the customer and their requirements to the chemicals supplier. This means that today’s business models will comprehensively transform away from the familiar product-centric approaches toward complete focus on the customer. Distinct, customer- specific system solutions take the place of individual products. This development presents challenges and opportunities in equal measure. The challenges partly lie on the technical side of things: new or additional IT structures require huge investments in hardware and software, instruction and advanced training. The other side is a far-reaching restructuring of the corporate organization. Boundaries between divisions must be overcome, new, comprehensive structures and competences must be created and new forms of internal teamwork must be found. This requires a big change in mindset — which might be the biggest obstacle.

But the challenges are offset by equally great opportunities. After all, more intensive support and direct technical connection definitely make for much closer ties with customers. And the “foot-in-the-door” effect is not to be underestimated. If you know your clientele‘s needs and requirements in detail, you can always make them new offers, be it in the form of even more comprehensive solutions or in the form of accompanying (and payable) services that relieve the burden on the customer further. This is even possible to do in advance — with the analytical tools that the digitized (big data) world provides companies with.

The chemicals manufacturer can even assume the role of general contractor who coordinates the services of other parties involved in a customer project and manages the execution process. This way, the customer doesn’t receive products, and gets a package solution from a single source. The customer pays for having the complexity their work reduced. This gives rise to new constella-tions in the division of labor between manufacturers and consu-mers to the benefit of both. A classic win-win situation.

Point of View Life Sciences, Health and Chemicals | 3

This requires far-reaching organizational changes within the chemical companies. They may be used to managing complex processes. But they need new, customer-oriented units, primarily in their internal relationships, such as industry or customer teams, in order to market this capability as a service to others. Expert teams like these then consolidate all of the skills necessary to handle the orders of the target group in question. R&D, process development, production, application development and business administration are just a few examples of this.

This is just one facet of the transformation that has to happen. It essentially involves radically reshaping value chains and redesigning companies’ internal and external relations from the ground up. The chemical manufacturer’s goal is to manage and synchronize all operating resources in coordination with the customer. This means parting ways with many things we’re used to, especially the strict separation of the product divisions.

The keyword here is integration — in two main directions: horizontal integration should tie in customers and suppliers within supply chains more closely with one another than before. Vertical integration, on the other hand, is aimed at making the boundaries between product segments in individual companies more porous, so as to allow more flexible and comprehensive reaction to the customer’s requirements. This involves all planning and execution levels, from sales and medium-term planning to detailed production planning, order processing and the operations command level.

Before now, unimagined possibilities are looming on the horizon in the field of integration, both forwards and backwards. Just a few years ago, for instance, who would have thought that a big paint manufacture could step into the role of operating paint shops directly for an automobile manufacturer? This is a very impressive example of the opportunities that chemical industry 4.0 has to generate new and additional business.

It just has to be clear that this business expansion doesn’t come without a cost. Some new terrain can only be conquered step-by-step with persistent hard work. Trial and error can be stressful and certainly costs money. But without investments in technology and personnel, nothing much will change. And some managers in the facts will have to face the facts, grin and bear it. The fact is, the big transformation won’t happen overnight. It’s not a revolution — it’s an evolution. The sheer speed of technological process will ensure this — and it’s coming along with leaps and bounds right now.

But with digitalization, things are never as tough as they might seem. Standards are required in order to connect all components of the future network to one another dependably — from reactor to filling machine, in-house logistics to the external parties involved such as customers, suppliers, transporters and other service providers. Reaching agreements across many different sectors of industry is always a tricky business, but digitalization will be a big help in expediting this process.

A complex technical infrastructure will have to be established; software and hardware interfaces and complicated protocols will all have to be defined. And then everyone involved will have to learn how to work with the new structures and fine tune them. “We’re not that quick on the trigger” — the expression has been around for ages. But it never meant anyone had to sleep on the battlefield.

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Contact

Gerd W. StürzEY GSA Market Segment Leader Life SciencesHealth & ChemicalsPhone +49 221 2779 25622gerd.w.stuerz@de.ey.com

Dr.-Ing. Frank JennerEY Global Chemicals Leader Phone +49 621 4208 18000frank.jenner@de.ey.com