Four imperatives for success during turbulent times
By Dr. Bernd Elser, Managing Director, Global Chemicals Lead, Accenture
Chemical companies are no strangers to disruption, but change in the business environment has reached new and unprecedented levels in recent months. Energy and electricity prices have spiked, while inflation in many countries has risen to levels not seen in four decades. Years of low interest rates have given way to steep monthly hikes. And demand has moved from pandemic recovery-triggered peaks into declines, creating concerns about a recession.
Chemical companies now operate in a world where the magnitude of change is massive, and the speed of that change is unprecedented. And more than ever, they need to find ways to keep up and adapt.
When faced with lower demand and growing pressure on profitability, the established response in the industry is to reduce costs and cut back on investment. But the current environment requires a different approach. Companies need to build new capabilities and reinvent the way they manage and work—dramatically and quickly. Typical management routines such as monthly pricing, monthly demand planning and monthly inventory planning are no longer sufficient when energy or raw material prices are changing 20% to 30% within a week.
However, this does not mean that all activities in a company are affected in the same way by these shifts in the business environment. Some routines are less exposed to rapid change and less critical to the business. Others are both fully exposed and highly critical—and companies need to give high priority to these activities.
The ability to master today’s rapidly and constantly changing environment requires a focus on four key areas: a shift in mindset to accept uncertainty; an acceleration of management routines; the use of real-time data to create transparency; and investments in technology to support automated workflows and analytics.
A new mindset: Accept uncertainty
In general, chemical companies have long worked in a relatively stable environment where change occurred relatively slowly, allowing them to rely on multiyear trends and experience to steer and manage the business. But the pace of change today means that extrapolations of the past cannot provide sound guidance for the future. Thus, chemical companies need to:
- Accept uncertainty. Do not use the stability of the pre-Covid era or previous trends as a reference framework for planning and decision-making. Instead, run “what if” scenarios, understand how industries and customers are impacted and look proactively for new opportunities in the new normal of a volatile business environment.
- Question established beliefs and paradigms. Analytics based on sound, real-time data should be used to understand shifts in the business environment, which can happen quickly. Indeed, many established beliefs about visibility of demand, customer buying patterns, freight and shipping rates, and the availability of containers have recently proved to be wrong.
Management routines: Accelerate the cycles
Many chemical industry activities, such as planning for supply and operations, setting inventory levels or procuring raw materials, are typically conducted at monthly or quarterly intervals—a clear mismatch with a world where significant change can occur weekly or daily. Companies need to:
- Shorten management cycles. Move from monthly cycles to weekly or even daily cycles, especially for tasks impacted by rapid change, such as demand planning, price setting and aligning production and inventory with actual orders. For example, production schedules and inventory levels are often set at the end of one month for the following month. With sudden shifts in customer demand, raw material prices and energy input costs becoming the norm, monthly plans can be obsolete within a week.
- Manage processes on an end-to-end basis. This could mean integrating product pricing with the real-time costs of raw materials or energy, or developing greater transparency into the duration and details of product and raw material contracts.
Data: Create transparency
The acceleration of management cycles will be effective only if management decisions are based on solid, relevant data, which can be used to provide insights into opportunities to reach customers, make better use of raw materials, drive innovation and so on. But too often, companies rely on data from the previous month or months to support decisions—that is, data that is “old” in the context of rapid change. Addressing this problem will require investments in new capabilities and new ways of working. Companies should:
- Accelerate the time to insights. Moving to real-time or near real-time data for decision-making is key. Companies working with last month’s or last quarter’s data—for activities such as product costing, the building of bills of materials, or budgeting raw material, energy and electricity costs—are likely to leave money on the table due to missed opportunities and erroneous decisions. Thus, they could find themselves at a disadvantage to competitors working with up-to-date
- Tap into more external data to increase visibility. Companies stand to benefit from knowing what is happening through a broader, multilateral perspective on customers, the value chain and supply chain dynamics. Simply put, understanding actual demand and identifying the most adequate inventory levels are essential.
Figure 1: Change across multiple dimensions demands new ways of working
Technology: Invest in digital transformation
Practices such as extracting data manually and running analyses in spreadsheets are still common in many chemical companies, and that is a barrier to keeping up with change. Adapting legacy systems to enable greater automation and new capabilities is typically a slow and expensive process. Instead, investments in new technology are needed. Companies should:
- Accelerate digitalization programs. This applies particularly for targeted software-as-a-service (Saas) solutions for areas such as demand and inventory planning or transport management. It is also relevant for migrations to a new digital core and the use of the cloud to bring data together, contextualize it and automate the creation of insights.
- Move beyond manual workarounds and spreadsheets. This means implementing automated future-ready platforms that enable end-to-end management of the business and improve decision-making. It also involves deploying more focused robotic process automation and intelligent data hubs to accelerate the time to insights.
The amount of change taking place in business across multiple dimensions, along with the magnitude and speed of that change, can easily result in a gloomy outlook at chemical companies—especially if they turn to the old patterns of hunkering down and curtailing investments. Success now requires a paradigm shift. Making that shift will take focused investments in new capabilities and training to enable agile management cycles, real-time insights, workflow automation and, ultimately, the ability to find new opportunities and excel in an era of turbulence.