Supply Chain 4.0 – A game changer for the chemical industry
Arun Bruce, Partner and MD, Middle East Leader – Operations Practice, BCG, and speaker at the 11th GPCA Supply Chain Conference, says the supply chain as we know it may be obsolete 5-10 years from now. What are the trends to watch to stay relevant and ahead of the competition? All of this and more in his interview for GPCA Insight Express.
What are some of the key disruptions and challenges facing the chemical supply chain currently?
The chemical supply chain is surrounded by a host of disruptors, from globalization, rigorous competition, and declining margins to an increasingly complex portfolio of new products, formulations, and services. While political and environmental concerns add more pressure to our multifaceted chemical industry, the good news is that digitization and technology innovations promise unequaled levels of connectivity and speed to process huge amounts of data.
How would you describe the impact from Industry 4.0 on the chemical supply chain? What does the term ‘Supply Chain 4.0’ mean to you?
The impact of Industry 4.0 can be described as a highly disruptive force that is on a collision course with the chemicals supply chain. In fact, within the next 5 to 10 years, the supply chain as we know it may be obsolete, replaced by a smooth-running self-regulating utility. The term Supply Chain 4.0 invokes a vision of a transformative, end-to-end, fully digital chemicals value chain that operates well beyond any single organization. Big data and advanced analytics add value throughout the value chain—from planning and sourcing to manufacturing, distribution, and logistics. Processes are well-aligned, efficient, and flexible, allowing companies to adapt quickly to changes in demand (volatility), customer needs, and unanticipated events.
“The impact of Industry 4.0 can be described as a highly disruptive force that is on a collision course with the chemicals supply chain.”
“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.”
What should the chemical industry in the GCC be doing to address this impact and capitalize on the opportunities afforded by Industry 4.0?
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. This year, five disruptive technologies should be on every chemical company’s must-have list: 1.) advanced planning and AI to monitor and adjust overall plant performance 2.) supply chain control towers to monitor, manage, and control decisions and execution 3.) digital logistics to enable collaboration and visibility 4.) blockchain technology to store digital information in an accessible database, and 5.) digital order-to-cash to fulfill requests for goods and services. On a broader scale, it is important to have a mix of technology and organizational changes, especially when outlining capabilities, operating models, and ways of working. Once a picture of the future supply chain is established, the focus will turn to value-adding use cases and transforming the organization into a full-fledged digital operation.
What are some of the key business benefits of adopting Industry 4.0 in the chemical industry supply chain? And where will these benefits mainly come from in the early stages of adoption?
Industry 4.0 chemical companies represent two classes of business benefits: traditional and ground-breaking. Traditional benefits are derived from reducing costs and inventories and improving service levels. Ground-breaking benefits are derived from higher-level improvements such as improving supply chain agility. For example, an agile supply chain increases working capital, reduces inventories from 15 to 30 percent, and cuts costs of manufacturing, warehousing, and distribution anywhere from 10 to 20 percent. The revenue upside of digital supply chains is equally impressive: 4 to 6 percent increase in addressed demand, 5 to 30 percent improved customer service levels, and 2 to 4 percent increases in earnings and profits are possible with end-to-end integrated supply chains.
What are some of the key challenges/prerequisites that chemical companies should watch when it comes to successfully implementing Industry 4.0 within their supply chain operations? How important are talent and culture to digital supply chains?
When introducing Industry 4.0, people and culture will be extremely important to a successful implementation. An unwritten contract exists between an organization and its employees that is based on trust, confidence, and respect. All attachments to “how things are” must be put aside and replaced with “carrots” to cultivate creativity, new ideas, and innovative behaviors. The entire organization must be flexible, always ready for change and willing to draw on outside resources to explore new approaches that will generate even more changes. Also, vision, mission, and values are not just talked about, they are exemplified in behaviors. For example, if a company values customer service, then recruitment, performance appraisals, promotions, and bonuses will be based on employees’ customer-service performance. In the end, behaviors consistent with assertions will be the basis for trust that spreads through the Industry 4.0 culture.
Finally, compared to the rest of the world, how well does the GCC chemical industry “score” on the supply chain digitization scale? What more can be done in your view?
If evaluated today, the industry’s supply chain digitization performance would likely score at the lower end of the scale, at the laboratory or experimental levels. Distributors and agrochemical firms would rank a step or two ahead of manufacturers, mostly due to their proximity to customers. The good news is that the industry’s digital performance is on an upward trajectory. And, while most venture capital is still reserved for the wildly imaginative crowd—the Silicon Valley high-tech start-ups—more chemical companies are fearlessly entering the digital sphere and gaining advantage. Consider BASF Venture Capital’s recent $2 million investment in the Alchemist Accelerator fund; BASF allocated at least half of the funds to 3D printing, material informatics, nutrition, and technology game changers.
“When introducing Industry 4.0, people and culture will be extremely important to a successful implementation.”