Successes and Barriers of Digitalization in the Chemical Industry — an Analysis Report
Almost a decade has passed Chemistry 4.0 began the era of digital transformation in the chemical industry. What were the changes brought by the fourth stage of development? The international EY organization published the long-term study „DigiChem SurvEY 2019", which examined the effects of digital transformation on the chemical industry in an industrialized economy, using Germany as an example. In this blog post we will evaluate the results of the study. We will show the successes and problems of the chemical industry in terms of digitalization.
The Initial Situation: Late Prioritization of Digitalization
In their long-term study, EY, in cooperation with the market research institute INNO-FACT AG, annually interviewed 101 managers in various functional areas of the chemical industry using an online questionnaire. Information on the specific chemical sector and size of the companies were classified.
A previous survey performed by Ernst & Young showed that the chemical industry recognized the potential of digitalization at a relatively late stage. In 2015, the issue became more important and companies started working on practical digital solutions. Since then, digitalization has been given high priority: many chemical companies are tirelessly driving their progress in digitalization. Large companies are launching company-wide programs and adapting their corporate structures to new technical possibilities. After larger companies started working on digitalization projects, small and medium-sized companies followed. They implemented digital solutions according to their company size.
Faster Processing Times, Improved Market Access and Cost Reductions
To the question of how companies would assess their current state of their digitalization projects, the managers rated 61 percent on a scale from 0 („We have not started any digitalization projects or activities”) to 100 („The digital transformation of the entire company is already running smoothly”). The discrepancy between large and small companies was conspicuous: while companies with more than 100 million turnover per year answered the question with more than 62 percent, smallest companies in the study only achieved a value of 52.50. This indicates that larger chemical companies are pioneers and smaller companies are following them. Companies that launched digitalization programs benefited from faster lead times (47 percent), improved access to the market and customers (44 percent) and cost reductions (44 percent). Only ten percent of managers stated that they could not realize any benefits during the entire study period.
All in all, the study showed that costs can be reduced due increasing digitalization, especially companies with higher turnover benefit up to 17 percent in cost reduction. Smaller and medium-sized companies that lag behind with their digitalization projects reported cost reductions of eight to ten percent. With an increasing level of digitization, nearly half of the managers expect further cost savings of more than ten percent.
Fundamental Digitalization Topics Still Offer Great Potential
Many of the surveyed chemical managers agree that there is still great potential for implementing digitization projects in their companies. The managers saw the greatest growth potential in the areas of data processing and integration (49 percent), automation (34 percent) as well as improvement and integration of data management (32 percent). Digital ecosystems, 3D printing/additive manufacturing and blockchain applications are less important for chemical companies.
The interviewees stated that the most important requirements to achieve this potentialwere that management pushes the implementation, that solutions are stable as well as secure, and that digitalization is carried out across all company departments.
Outlook: the Biggest Changes are yet to Come
Besides the importance of digitalization, approximately half of the respondents also saw challenges in implementation. 53 percent complained that qualified personnel were not available to implement all transformation projects. 39 percent also mentioned the inadequate technical infrastructure and express security concerns (e.g. cyber attacks or data leaks).
Nevertheless, these barriers do not reduce the respondents’ willingness for digitalization. The managers assumed that digitalization would lead to improvements in processes and efficiency in the value chain, administration and central functions, and customer interface. While other industries have already made significant progress in these areas, the chemical industry is facing major changes caused by digitalization.
The following statements can be made concluding core statements of the study:
- The chemical industry prioritized digitalization projects at a relatively late stage. Differences in digitalization between the chemical industry and other industries are decreasing due to the efforts of chemical companies.
- The biggest changes are yet to come in the chemical industry. In order to bring about these changes, chemical companies have to face current challenges such as less qualified personnel or inadequate technical structures.
- As a result of digitalization, chemical companies benefit from improvements in data analysis, data management, automation, processing times, market access and cost reductions.
Originally published at https://www.chembid.com.