INDUSTRY INSIGHT

Industry 4.0 – Disruptive opportunity for GCC chemical producers

The real value of the digital industry will come not from technology itself but from what this technology enables, writes Saji Sam, Partner, Energy Practice, Oliver Wyman

As the next generation of production technology is starting to unfold, Big Data analytics, virtual environments, simulation software, broad connectivity, collaborative robots, machine-to-machine communication and new manufacturing techniques such as 3D printing are creating new opportunities for the chemical industry. This wave of innovation is a part of what is known as ‘Industry 4.0’, a fourth industrial revolution enabled by digital and physical technologies.

Oliver Wyman estimates that by 2030 digital will increase annual margin potential in the global industry by more than USD 1.8 trillion. But the real value of the digital industry will come not from technology itself but from what this technology enables.

By providing real-time information about customer demand, production capacity, operational performance and product quality, among other things, it will allow “clock speed” algorithm-based decision making that will dramatically improve process efficiency in everything from pricing through production planning and supply-chain management to R&D.

Industry 4.0 has also become one of major trends transforming the chemical industry worldwide. However, the sector has fallen behind telecommunications, banking or retail in implementing innovative digital solutions over the last years.

But now, chemical companies are starting to catch up transforming the whole value chain with the use of IT and OT technologies. For example, BASF launched BASF 4.0 project in 2015 seeing the development of Industry 4.0 as a main innovation lever to become more competitive and sustainable. The company uses Big Data to make its R&D more effective, augmented reality to support manufacturing, and autonomous vehicles to supply production plants faster and at a lower cost.

Chemical companies in the Arabian Gulf are also beginning to embrace digital, realizing that Industry 4.0 is a must to stay competitive in the global market. SABIC recently joined forces with Airborne International in the development of fully automated and digitized composites production processes which is supposed to enhance yields and reduce system costs.

However, the whole spectrum of digital technologies creates much larger potential for GCC producers. In the following sections we highlight which digital opportunities might bring the highest value to Arabian Gulf chemical companies enhancing performance and ensuring competitive position in the global market.

Key digital opportunities for chemical companies

Oliver Wyman has estimated the potential of digital in different industries in three major areas: idea-to-product, operations and services and sales-to-delivery. In process industries, such as chemicals, operations and services are estimated to have the highest, over 50%, impact on margin potential by 2030.

As operations and services create the highest relative potential, GCC chemical companies should tap into this area in the first place when considering digital transformation of their companies. Operations and services can be divided into two major value levers: ‘smart maintenance’ and ‘equipment performance’, and ‘plant network optimization’.

For years, chemical companies have been applying sensors and communication technologies to increase equipment performance and reliability. However, state-of-the-art IT software and falling cost of Operational Technologies (OT) can bring equipment maintenance to a different dimension.

Digital predictive maintenance is based on full connectivity of dozens of sensors throughout the plant which send live reports on critical parameters such as temperature and pressure to plant operators. Big Data processing software using predefined KPIs assists the operator in drawing meaningful conclusions on potential breakdowns, required maintenance or spare parts ordering schedule.

“Industry 4.0 will dramatically improve process efficiency in everything from pricing through production planning and supply-chain management to R&D.”
“Chemical companies in the Arabian Gulf are also beginning to embrace digital, realizing that Industry 4.0 is a must to stay competitive in the global market.”

Technology can not only improve the maintenance of the equipment, but also advance the way the machine is used. Sensors can monitor production process of chemicals in real time and send recommendations to operators on how to adjust it to optimize the mix. All these can improve system reliability, production efficiency and optimize overall cost.

For example, Dow Chemical incorporated bi-directional communication technology between critical valves and other instruments to the distributed control and asset management system in its Deer Park facility in Texas.

The system compares real-time valve signature scans with benchmarks, eliminating unnecessary repairs, identifying abnormal conditions, predicting failures and reducing unplanned stoppage. The digitally enhanced predictive maintenance system reduced downtime of 66% over three year period and resulted in substantial financial savings for the company.

Plant network optimization

GCC chemical producers often operate several plants located not only in the home market but also in distant countries. Digital technologies can help optimize their network and achieve cross-plant improvement of production schedules, capacity management and equipment reliability.

Full integration of local systems combined with Big Data analytics can ensure that best practice will be leveraged across all facilities. Complete transparency on equipment availability, plant utilization and logistics costs throughout the plant network enable more automated and data driven cross-plant production schedule optimization and yield planning. Effective real-time cross-plant data exchange support operators in comparing similar equipment performance across different plants and predicting potential failures.

Dow Chemical is a perfect example of how Big Data can improve plant network optimization. With 180+ manufacturing sites in multiple countries, the company has been collecting a lot of data which have been, however, stored in different local systems. The company found itself struggling to make sense of all information it was gathering.

Big Data software transferring the data from local systems to one centralized database became a solution. It provides global analytics filer that allows real-time data comparison throughout the whole company enabling more effective production planning.

It also facilitates equipment maintenance by enabling to compare date on similar equipment across different plants. The result is more efficient production planning and a unified view on maintenance throughout the whole corporation.

Idea-to-product and sales-to-delivery

Although digital solutions in operations and services create the highest potential for the chemical industry, other business areas such as idea-to-product and sales-to-delivery can be also digitalized and significantly contribute to future margins or return on investment.

In idea-to-product, digital solutions can allow new plants to be simulated before the critical commissioning phase, ensuring reliable implementation. Big Data and 3D printing can help predict the outcome of R&D activities and reduce the risk.

In sales-to-delivery, superior demand forecasting and intelligent pricing is enabled by integration of customer, sales and external data real-time. Internet of things and integrated data flows enable automated warehousing and forecasting of bottlenecks in next generation inventory management.

These opportunities can serve as a good starting point to capture value from Industry 4.0. However, the focus of digital transformation in each company, even within the same industry can vary widely. Therefore, every executive responsible for digitalization should ask himself three questions that would serve as a baseline for digital transformation and help him better understand the digital needs of the company.

How “digital ready” is my company?

Here, it is necessary to analyze different building blocks of the company to obtain a full picture on where the company stands with digital maturity – corporate strategy, organization, people, culture, products, processes, production equipment and IT infrastructure. All these elements should be compared to other chemical producers leading in digital transformation through best practice benchmarking.

Where does the highest value lie?

Usually digital transformation is implemented in phases starting with elements creating the highest potential for the company. Thorough analysis of processes and financials should reveal which specific areas the company should tap into first.

And finally, which external factors are relevant?

Analyzing what competitors are doing, what customers expect and what technologies are out there in the market should be the last big question that ought to be answered to make sure that the digital strategy aligns well with the macro environment.

“Business areas such as idea-to-product and sales-to-delivery can significantly contribute to future margins or return on investment.”