INDUSTRY INSIGHTThought Leadership

In the eye of the storm

How the chemical industry value chain came together to address the challenges arising from the pandemic?

The chemical value chain is dynamic and complex at times, comprised of different industry players, including producers, suppliers, logistics service providers, shipping companies, and port operators located in various parts of the region and the world and catering to remote end markets. As such the chemical value chain depends massively on the supply chain to transport its products to customers across the globe.

Over the last 15 months the entire industry value chain experienced unprecedented supply chain challenges as a result of the coronavirus pandemic. To overcome the wave of disruptions that inundated the industry, stakeholders were compelled to work closely together, quickly mobilize their resources and become much more agile and responsive in order to ensure that essential chemical and plastic materials were delivered from the region to different parts of the globe safely and on time to help combat the pandemic.

Never before in history has the importance of the chemical industry and its well-functioning supply chain been more pronounced than when the COVID-19 pandemic erupted over a year ago. To gauge just how challenging supply chain professionals found the pandemic, and what were the lessons learned, we spoke to some of the leading industry players in the eye of the storm who provided first-hand insight into the devastation that COVID caused and how they responded to it.

A producers’ perspective

Saudi Arabia-based Advanced Petrochemical Company said the sudden surge in demand and supply in certain markets as well as a significant increase in ocean freight cost were some of the immediate and most significant challenges that the company faced. Adding more pressure on supply chain management were the lack of availability of adequate external logistics resources, including manpower, port operations, containers, and vessel space.

What helped the company make its supply chains more resilient was adhering to strict measures such as the COVID-19 protocol set by the government as well as its internal EHS&S procedures to prevent and minimize risks. Like many firms in the region, the company went the extra mile to focus on logistics planning for sustainable supply chains.

As a multinational chemical producer and the largest chemical company in the world operating in the region, the challenges facing Dow Chemicals were fairly similar – cross-border restrictions and regulations, workforce management, and disruptions across different logistic channels made it difficult for the company to ensure it was business as usual. The solution lied in responding with agility and speed and doing everything in the team’s power to prepare for the unknown. In response to the crisis, the company created a crisis management taskforce and applied contingency plans across the business.

Qatar’s response

In Qatar, it was critical to establish that the pandemic at its onset was not local to China (not to mention that China is one of the biggest suppliers to Qatar) and it was possible to hit the small Gulf Arab state at any time. To produce a unified strategy and response, industry leaders invoked crisis management team meetings led by Qatar Petroleum (QP). Q-Chem, partly owned by QP, focused on diversifying its supply chain by building alternative sources worldwide for raw materials, as well as for support services, and supply from original equipment manufacturers. The company started to build internal capabilities to address technological issues and prepare for a remote work environment for non-critical jobs. It also reviewed its inventories of critical materials and worked closely with suppliers to increase inventories for a short-term period. Another lever that Q-Chem deployed was to establish alliances between companies that support joint sourcing, sharing of lesson learned, sharing resources, critical equipment and inventories. The health and safety of employees and contractors and that of their families were the company’s top priority, as it enforced working from home, reduced working hours and a split team strategy.

Front line challenges

Logistics and shipping operators were on the frontline of delivering and transporting chemicals from the GCC and mitigating the implications on any delays or disruptions. Logistics operator Almajdouie & De Rijke told GPCA that the availability of adequately trained manpower to replace those affected from the pandemic was one of the key challenges that the company faced. To manage and mitigate related risks the company stayed connected and aligned with clients to monitor and develop a sound mitigation plan. It also acquired the necessary facilities to isolate suspected cases and avoid the further spreading of cases. At a time when manpower availability was in short supply, Almajdouie & De Rijke focused on multi-skilling among its staff.

Beyond workforce challenges, logistics companies faced many more additional setbacks. Both land and sea logistics operations were disrupted significantly, as COVID-19 requirements had to be met in a timely manner, all while companies were experiencing limitations in the movement of goods.

ALDREES Petroleum & Transport Services Company, a Saudi joint stock company, said it had to look for an alternative revenue source to replace pan-GCC road transportation revenue due to road closures. It was important to immediately adopt fiscal frugality measures to survive, show complete transparency with its clients and achieve a mutual understanding, which enabled both parties to objectively come up with solutions that eventually benefitted all.

Etihad Rail said their strategy to source as many of the materials used to construct the UAE’s National Rail Network from within the Emirates helped to safeguard their operations from any significant challenges during the COVID-19 pandemic. From the outset, the company adopted a mitigation plan for the business, its partners and contractors across the globe. Etihad Rail invested heavily in protective equipment. It segregated staff and adopted shielding and rotation policies which were implemented across its sites and offices. Ultimately, it worked to ensure that all employees were educated on precautionary measures they needed to follow.

For tank storage company Vopak the COVID-19 pandemic made it challenging to realize its business performance plans, which had appeared realistic at the beginning of 2020. The tank storage industry was affected by significant headwinds in the chemicals sector and in foreign exchange movements, in addition to a number of project delays due to the pandemic.

However, with agility and teamwork in place, Vopak said it found ways to manage the situation effectively.  Its strategy to lead the way in digital allowed it to move overnight to remote working from home. Its digital transformation allowed for all of its systems to run smoothly, enabling it to maintain contact with colleagues, customers, and other stakeholders.

“It is no small achievement, but it highlights the resilience of the business continuity plans we have in place to ensure safe and uninterrupted services in these challenging times,” the company said.

Role of digitalization in combating supply chain challenges

The COVID-19 pandemic accelerated the digital transformation agenda not just across chemical supply chains but core business functions in general. Jürgen Schulz, VP Consulting, Siemens Digital Logistics, and speaker at the 12th GPCA Supply Chain Conference, shared what he believes the winning formula is to build resilience against future shocks.

He said building up digital technologies to help identify obstacles, delays, natural hazards, and political risks will be the need of the hour. Companies would also benefit from equipping their planning teams with digital twins of global supply chains that would allow for proactive, fast, and agile operations and insulate them from future disruptions.

“The main benefits today are in winning time to find the best options to minimize risk, cost, and burden on chemical supply chains. Understanding the impact caused by internal or external regulations on your supply chain efficiency will also be important,” he concluded.

According to Mehtab Gilani, Associate Partner – Chemical and Petroleum, IBM, close to 45% of chemical enterprises actively engaged in digitalization and architectural transformation activities during the pandemic. Companies focused on better adoption of AI and machine learning within their core operations and utilized technologies such as Blockchain within their value chain ecosystem.

Although technology adoption at chemical companies improved over the last months, more progress will be needed to prevent future supply chain disruptions, and incorporate the stringent requirements of sustainability, Gilani said.

“Technology will continue to give companies a competitive edge and play an extremely important role in building a resilient, responsive, and agile supply chain,” added Arun Samuga, CTO, Elemica.

“Connected, smart and highly efficient digital supply networks will help dissolve functional siloes and improve communication and visibility from raw material to customer delivery,” he continued.

The risks of future supply chains are not substantially different than they are today. Challenges such as sourcing scarcity, storms, pandemics will remain as we move into the future.

What is changing, and what companies can prepare for, is the ever-evolving technology landscape.

“Supply chain 4.0 and 5.0 technologies will continue to deliver never-before-seen levels of supply chain visibility and empower supply chain professionals to improve customer satisfaction, reduce risks, and improve strategic decision making,” he concluded.