Competing in a chemical space: go beyond the molecule

February 2020 News

Emerging structural market forces (internal and external) are reshaping the chemicals industry, and seemingly for the worse. This is due to evolving market indicators. New Chinese entrants into the market are yielding overcapacity in some product lines and increasing competition in others. A 2017 Mckinsey & Company report on the chemical industry contends on for slowing global demand by arguing, amongst others, that a middleclass car that a Chinese buyer trades up to does not necessarily contain more polymers than an entry level model. Secondly, trends in diet and nutrition are radically shifting the agrochemicals space and bringing about new complexities. Against the indispensable moral obligation for chemicals companies to embrace the circular economy concept, it is likely that chemicals companies will be subjected to state regulations and pressure from customers to do more recycling (plastics etc.) with the cumulative effect of global demand reduction.

These set of challenges would be incomplete without mentioning the recent resurgence of nationalism, embraced by the current US administration and Brexit discourse, which threaten to rewire and somewhat re-localise the internationalised chemical industry. Chemicals industry internationalisation brought growth over the years fuelled by intercontinental demand pull (e.g. demand pull in Asia), and the reverse (re-localisation) may prove dire.

Should these market shifts persist the chemical industry may have to brace itself for a bleak future. Against this backdrop the proposition is for companies to look to digital technologies and innovation for rescue, and most importantly, to go beyond the molecule. This means going beyond the current trend of operational efficiency to outcome based business models and customer interaction improvement amid changing customer behaviours and rising expectations. To this end, could chemicals companies rewire their business model and give their B2B customers the online relevant B2C tools such as product search, configurations, recommendations and status notifications? This leads to exploration of digitalised value chain collaboration alternatives.

Digitalised value chain collaboration

An emerging alternative is to disrupt one’s own value chain processes and leverage on B2B platforms, similar to the Alibaba or Amazon business. A case in point is a German-based BASF, largest chemical producer in the world. After realising how customer behaviour was evolving, BASF opened an e-store on Alibaba in 2015 and secured access to a large number of small and medium-sized Chinese enterprises that already use the Alibaba platform. This move enabled BASF to begin servicing a new consumer segment – customers with relatively small scale and diverse needs.

Alibaba operates the largest online B2B platform for small businesses, handling sales between importers and exporters from more than 150 countries. At the centre of these already sophisticated e-commerce platforms are ‘no-touch’ merchandising processes, where sales orders and warehouses are automated to a point where some purchases require no human intervention. In addition, these platforms offer customer analytics, trend-sensing technology, dynamic pricing analytics, and can foresee developments downstream in customer – and even in customers’ customer – industries. Acting on these insights, suppliers can respond quickly with customised offerings, while at the same time leveraging on embedded lower cost to serve profiles. This type of value chain ecosystem collaboration, particularly in the supply chain, becomes important in managing increasingly adaptive complex chains, along with current volatility pain points in demand and supply. The benefits include, but are not limited to, access to new customers, smooth transactions and low costs to serve, powered by economies of scale phenomena.

Being bold and making early moves towards adoption of these digital value chain collaborations will aid in fending-off newly emerging market challenges and yield value in the long term.

Oratile Sematle

Executive director, SAIMC

Oratile Sematle

Oratile heads a digital studio at Sasol Chemicals and leads multi-skilled agile teams tasked to deliver Minimum Viable Products (MVPs) such as predictive/dynamic pricing models, demand planning and optimisation and AI/ML engines using SCRUM and KANBAN frameworks. He holds a BSc degree in electrical engineering as well an MBA from the University of Cape Town. As a former president of the Society of Automation, Instrumentation, Measurement and Control (SAIMC), he helps to drive the vision shared by council to address issues specific to the automation industry, and is partly accountable for the development of the automation engineering profession in South Africa. Oratile is a conference speaker and has spoken at engineering events such as Industry 4.0 and African Automation Fair. His ambition is to form cross-industry coalitions to tackle the social and educational problems experienced by disadvantaged communities.

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