Chemical Industry Logistics Digitization in a Changing Economy
To gain stability in the changing economy, chemical industry businesses will need to undergo a digital transformation.
The chemical industry in the U.S. is poised for significant growth in 2019, according to the American Chemistry Council (ACC).1 “High demand for chemicals used in manufacturing will dovetail with a rise in production capacity as new chemical facilities open to take advantage of the shale gas boom,” says Kevin Swift, chief economist of the ACC. U.S. chemical output will increase 3.6% in 2019, thanks to the rise in consumer spending.
However, in looking at the global chemical market, the numbers are not as positive, primarily due to the threat of slow global economic growth. With currency fluctuations, trade tariffs, geopolitical challenges, and energy volatility, the global economy is in a state of flux. Couple these issues with a focus on sustainability, and the global chemical market will likely experience less growth and lower demand.
To gain stability in the changing economy, chemical industry businesses—from adhesives and sealants to paint and coatings—will need to undergo a digital transformation. Many businesses are already on a digital transformation journey; if a company hasn’t started to transform, they will need to do so immediately, or get left behind.
Focusing on implementing digitization within logistics and transportation operations is a good place to start the digital transformation because most chemical companies still use paper and spreadsheets to manage processes. Digitizing paper-based processes results in greater efficiencies within operations and faster responsiveness to customer needs.
Digitization in transportation begins with a digital supply network that acts as a technology foundation for inter-business processes and supply chain relationships. A solid, robust platform connects suppliers, buyers, shippers, and third-party logistics providers, allowing them to collaborate and conduct business with each other.
With a digital supply network, data is captured from supply chain trading partners across each transaction, communication, and collaboration. Manual processes (e.g., submitting a purchase order) are automated, with paper or email translated to appropriate formats where the document can be shared with others electronically.
All data is rationalized and is correlated across business processes. Once linked, the data is converted to valuable information, bringing extended capabilities for visibility. Finally, with rationalized data, active collaboration, and constant visibility, companies can identify patterns that can be used to feed machine learning algorithms that deliver higher-order, problem-solving insights.
The digital supply network brings visibility into carrier availability, helping logistics operators plan and optimize truck and carrier capacity. Logistics posts the need for a load, and the carriers attached to the network can respond with their available assets, pricing per lane, and driver availability. The visibility into trucker and carrier availability also helps to fill empty miles (i.e., when trucks return back to the base without a load). Carriers can respond that they have the right assets to pick up a return load on their way back home, which keeps trucks filled and eliminates empty miles.
Track & Trace
The current international trade atmosphere challenges chemical businesses. Regulations are complex and constantly changing, making the environment even more complicated. These regulations require many companies to track and trace products from raw materials to the end customer. To meet rigorous compliance regulations and operate at peak efficiency, businesses need real-time traceability of products across the extended supply chain.
The backbone for visibility is a digital supply network that can be used as a dynamic record of the truth to ensure goods are moving efficiently. With the ability to track and trace each shipment of goods, whether in transit or at the dock, businesses can tell where products are at all times. If an issue arises that causes a delay in shipment, customer service representatives can alert customers regarding the status of the shipment and potential delay.
For cross-border deliveries, the digital supply network assists with planning and scheduling of loads. Because of the lack of truck drivers willing to accept long-haul assignments, the lack of available assets, and an increase in compliance paperwork that needs to be completed, the average time for a cross-border delivery between Mexico and the U.S. has risen from 50 min to 7 hrs. That is a lot of time wasted sitting in line while the authorities check paperwork. With better planning and real-time scheduling via the digital supply network, cross-border deliveries can take less time.
Using vendor-managed inventory (VMI) and other scheduling and planning tools, the digital supply network can support proper inventory levels, eliminating the need to stockpile parts, components, and raw materials. Due to the recent tariffs in the adhesives market based on continued competitive pressures for automotive products, especially tires and rubber, the industry can expect lower demand of its products. A business with large inventory levels built on previous demand will have too much working capital tied up in products that the company may or may not be able to sell. This can significantly hurt the bottom line.
VMI lets suppliers manage re-supply by monitoring customer stock levels; then they can forward demand that optimizes working capital with service levels. This gives suppliers better visibility into forward demand, allowing them to produce, ship, and store more efficiently. As a result, customers have a smooth supply of product delivered at the right time and do not have to worry about stock-outs.
Compliance & Documentation
Whether they rely on raw materials, components, or finished goods, businesses operating globally are subject to the specific regulatory policies enforced in every country involved in the end-to-end supply chain. For chemical businesses, products must always carry documentation as the materials move through the supply chain. These papers include import/export paperwork and certificates of analysis, along with material safety data sheets. To avoid significant fines, businesses must learn to be diligent in the compliance process.
With a digital supply network, businesses get a single repository of information that can be accessed and shared by all trading partners. This drives value throughout the organization, as everyone can use the latest, most accurate information. The right revision of documentation is ensured to avoid any issues with import, export, and safety.
A digital supply network fosters recordkeeping; failures in recordkeeping are the most common and prevalent compliance violations in global trade. Without proper records and documentation, companies can be found non-compliant with trade regulations, leading to great financial risk.
A digital transformation requires endorsement from the C-suite down to help permeate the changes that must occur across the enterprise. Most importantly, adhesives and sealants businesses need to understand that a digital transformation is a journey, not something that just occurs overnight.
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- “World Chemical Outlook 2019: Around the globe,” Chemical & Engineering News, January 14, 2019, https://cen.acs.org/business/World-Chemical-Outlook-2019-Around-the-globe/97/i2.