INDUSTRY INSIGHTThought Leadership

Digitalization in the Chemical Industry: What Next?

By: Christeena Thomas, Program Manager, Chemicals & Materials Practice, Frost & Sullivan

Across various industrial sectors, digitalization has rapidly developed, utilizing a number of existing and emerging digital technologies, including artificial intelligence (AI), big data analytics (BDA), internet of things (IoT), machine learning (ML), natural language processing (NLP), robotics and automation. While the chemical industry was relatively slow in adopting these technologies, the rate of transformation in the industry has increased considerably over the past decade. The global spread of the COVID-19 pandemic has greatly contributed to the acceleration of digital transformation in the industry to enable companies to rapidly address remote and hybrid working practices, prolonged and sometimes broken supply chains, and changing end-user demands.

Current Status

The digitalization rate in the overall chemical industry is significantly higher among larger and global manufacturers, while a major share of medium and small regional or local companies are at the early adoption or no adoption stage due to the lack of adequate budget and the knowledge on where to begin. Most of the larger corporations have planned to invest about 5% of their annual revenues in further digitalization of their various operations over the next five years.

From a regional perspective, the rate of digitalization in the industry is likely to be the highest in Asia Pacific; companies are looking to implement digital technologies beyond primary operations in areas such as customer value enhancement and marketing. Most companies in Europe and North America are greatly focused on improvements in operations. While larger plants prioritize speed of operations, smaller plants that manufacture products such as specialty chemicals are investing in technologies that help enhance product quality.

Key Digital Themes for Future Growth of the Chemical Industry

Digitalization for Sustainability

The focus on sustainability in the chemical industry will intensify over the coming five to seven years, and digitalization has an important role to play. The major applications where it will be used include reducing resource use, pollution, energy consumption and wastage. It will also create demand for a circular economy enabled by digital technologies such as AI, BDA, and IoT. Systems for sustainable power and fuel consumption, dispatching systems for efficient logistics, and autonomous solutions that enable reduced energy consumption are some that are currently established or that are being implemented in the industry.

The number of “smart factories” is likely to increase significantly over the next few years. These will be designed with systems that monitor how electricity and other resources are consumed (during both manufacturing and downtimes) and optimize resource consumption throughout the value chain. Systems based on industrial IoT (IIoT) are likely to be greatly used in the coming years to gather information related to emissions—the evaluation of which can minimize emissions and ensure compliance with emission regulations mandated in the region of operation. Similarly, remote control of hazardous material manufacturing facilities will gain more attention among companies in the industry. Using IIoT will enable continuous collection and processing of data to predict and prevent accidents. Advanced and standardized sensor systems will be used to enable uninterrupted data collection and analysis. At present, such systems can optimize processes and facilitate energy savings of up to 20%. In addition, the continuous availability of data can further enable companies to implement autonomous control of operations that help significantly reduce the time spent by human resources in such plants. Smart factories are also heavily configured with machine-to-machine communication using cyber-physical systems (CPSs) that also utilize cloud computing for data mining and determining responses in autonomous systems.

Digital technologies are also being implemented and evaluated for enabling a circular economy in the industry. With governments and policymakers in Europe and the US driving the “Right to Repair” movement, small and medium companies in the sector are expected to invest in technologies that facilitate the repair of electronic products with minimum wastage.

On a different note, digitalization with lean manufacturing (LM) will enable companies to enhance operational excellence and create value by facilitating the re-utilization of materials and products throughout the supply chain, thereby contributing to the circular economy objective.

Digitalization of Innovation

In the past, the implementation of digital technologies and systems in the lab was fragmented, with a focus on specific processes and projects. Over the coming years, the major focus in the research and development (R&D) side of operations in the industry will be whole lab automation and the use of technologies that enhance the level of communication and collaboration between teams and organizations. Lab automation will have to be more integrated than the earlier standalone deployment for individual processes.

Automating most or all of the activities related to data handling, analysis and transfer will be greatly beneficial. The use of AI and ML can help analyze large sets of structured and unstructured data, while the use of NLP could help identify emerging materials and technologies that can be considered for further development. AI-powered knowledge management solutions can help companies enhance the efficiency of capturing and sharing knowledge between teams and departments. The deployment of quantum computers will help increase R&D speed and reduce costs. The use of co-creating platforms that could help chemical companies collaborate directly with customers and suppliers will further enable innovation by sharing and receiving knowledge and expertise between the two parties.

Digital Transformation of the Supply Chain

The global chemical industry has been greatly impacted by the disruption in its supply chain over the past two years. Most companies continue to grapple with the inadequate supply of key raw materials in various parts of the world; further streamlining and optimizing the supply chain has never been more important for the industry. While evaluating investments in digital technologies to address these needs, companies are increasingly looking at solutions that help increase end-to-end visibility, especially across modes of transport. This will be mostly achieved through the use of cloud-based solutions and licensing transportation management software.

Experts in the chemical industry anticipate that digitalization will have a major contribution in planning and forecasting the supply chain as, at present, the accuracy of supply chain forecasting is below 50% in the industry. The advanced generation of “predictive analytics tools” that help process less-structured data (such as macroeconomic, sector-based, marketing, and social network information) will be greatly adopted by companies to increase the accuracy of predictions. Another goal of digitalization in this sector is to minimize manual intervention in transactions and increase the level of transparency regarding the status of an order in the pipeline. In addition, digital development of related industries, such as automation of the logistics sector and autonomous driving of transport vehicles, will have a positive impact on supply chain streamlining efforts.

Another facet of the supply chain that is anticipated to witness notable developments is smart packaging. For instance, BASF recently implemented a project to develop smart intermediate bulk containers (IBCs) in collaboration with Hesse Lignal and Packwise. These IBCs were designed to provide information about the product while it moves through the supply chain. In general, the key aspects considered when designing digitally enabled packaging include tracking fill levels, location, shock, movement and temperature; enabling automatic reordering; production planning on demand; pay per consumption; and bottleneck avoidance.

While the demand for supply chain streamlining is at an all-time high, digital transformation of the same currently faces challenges. These include lack of adequate pressure from management in terms of enhancing profitability, business models that are complex and nearly a century old, and set practices in large chemical and material companies that prioritize product development and capacity expansion over supply chain optimization when evaluating digital technologies. Partnering with third-party service providers will be the most availed digitalization model in the chemicals industry for supply chain streamlining and overall digitalization of a company over the coming years (especially in the small and medium enterprise (SME) sector).

Impact of 5G on Digitalization of the Industry

5G is anticipated to enable the implementation of augmented reality, automation of material handling and remote operation of plants (edge computing) in the industry. Leading chemical companies have already started investments to tap the advantages offered by the 5G network. For instance, Covestro is currently conducting 5G tests in its manufacturing site at the Port of Antwerp.

Mobile applications are being developed that can utilize 5G to enable operations that can work on multiple technologies such as IIoT, autonomous logistics and advanced manufacturing control systems that use the same virtual network as the enterprise resource planning (ERP) system. However, the widespread implementation of 5G-enabled technologies in the industry will take a few years as it will take time to develop the adequate infrastructure and the necessary hardware within the industry. Additionally, many of these could happen only if preceded by the development of 5G-compatible equipment that can operate without failure under industrial conditions. Yet the rate of adoption of such equipment will be challenged by the reluctance of companies to make additional capital investments as these will create obsolescence of existing equipment.


Digitalization has become a necessity for the chemicals industry, although a huge gap exists between the degree of digitalization in large and global companies and SME companies. While larger corporations are expected to heavily invest in a more holistic digitalization of various working domains, including R&D, supply chain and manufacturing operations, the smaller companies are likely to take more time to evaluate the most important areas of their operations that need digitalization and find the optimum service partners to get the technologies and systems implemented. In fact, strategic partnerships with external service providers are important for the efficient analysis and deployment of digital technologies in the industry. In addition, the nature and expectations of stakeholders such as suppliers, distributors and customers are evolving to adopt newer technologies. Therefore, it is imperative that manufacturers transform their production strategies accordingly. Above all, companies should also continuously invest in enhancing the digital literacy of their employees across the board, which is imperative for the seamless execution of the existing and upcoming digital strategies of each company.

Nevertheless, the overall chemical industry has come a long way from being a laggard in terms of digital transformation and will continue to strengthen its position in this regard over the coming years. While mega trends such as global supply chain disruption, the drive for sustainability and the anticipated 5G revolution are going to be the key drivers for this growth, the overall industry’s awareness and realization that digital transformation will be one of the primary strategies that drive future growth will have a significant bearing on this progression.