Chemical Industry. The Digital Plant: Reaping the Rewards of Disruption

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1 Chemical Industry The Digital Plant: Reaping the Rewards of Disruption

2 Evolving and converging technologies sensors, wireless, remote monitoring, advanced analytics, and data management, among others are enabling revolutionary approaches to chemical plant operations. These can bring significant improvements to costs, productivity, quality, safety, and reliability. Unfortunately, many chemical companies fail to take advantage of these technologies and in so doing they miss tens of billions of dollars in potential new profits industry-wide. 2

3 Many chemical company executives recognize the value of these technologies. In practice, however, they are uncertain about how to proceed or have been stalled by concerns about the risks and pitfalls of change. As a result, Accenture research shows, chemical companies are moving ahead slowly if at all and taking a lateadopter approach to existing and emerging digital plant technologies. 1 In a challenging industry that is both cyclical and highly competitive, a strategy of slow adoption is likely to fall short. Digital technology brings more than incremental improvements to operations. It has the potential to transform plants, enable operational excellence and disrupt the competitive landscape in the industry. Before long, chemical companies will need to make the digital plant an integral part of operations. Based on our experience in other similar industries, those that move quickly to embrace the digital plant and the disruption it brings are likely to have a powerful advantage. Delaying now will only result in the need to catch-up rapidly, as digital plant capabilities become critical to remain competitive. 3

4 Understanding the Value of the Digital Plant Over the past two decades, chemical companies have made significant investments in information technology. Most of these investments have focused on commercial, enterprise, and market-facing systems that helped them serve customers and strengthen business functions. However, to a great extent, chemical companies simply did not make advanced digital technology in the plant a priority. Now, it is increasingly clear that digital plant technology warrants greater attention. Today s technologies go far beyond the traditional control systems. Possibilities range from improving the basics such as enhancing safety procedures or automating manual and paper-based processes to implementing advanced capabilities, such as mobile systems that allow field operators to make better and timelier decisions, or analytics to support predictive maintenance and more-robust process management. Such improvements can have a significant impact on operations, and Accenture research has found that higher-performing chemical companies tend to embrace a broader scope of digital technologies, compared to lower performers. 2 Chemical companies can benefit not only from deploying these types of new technologies, but also from integrating new and existing technologies. While in the past chemical companies used their information technology investments in enterprise-level systems, today companies can leverage those investments to integrate enterprise systems with the digital plant. This revolutionary move can help companies improve execution of business and operational processes, and enable more automation and speed in routine communication and decision making across and within plants. Accenture estimates that such integration could reduce the overall cost of goods sold from 12 to 7 percent which would represent some $250 billion in savings industry-wide. The timing for chemical companies to begin integrating their plants could not be more perfect. In fact, recent Accenture/ICIS research shows that industry executives now have an increasing understanding of the potential value of the digital plant, identifying their top business priorities as reducing plant operating costs, and improving quality and income growth (see Figure 1). Surveyed executives also identified their goals for in-plant operations as reducing energy consumption, increasing throughput and reducing product variability/increasing product quality. Digital plant technology can help achieve these goals. In particular, technology can be an enabler of operational excellence a critical consideration for the surveyed executives. Nearly 9 out of 10 said that it will be important or extremely important to be an industry leader in operational performance in the coming years, with leader being defined as giving high priority to using a mix of new and unproven technologies to achieve step-change performance Figure 1: Top five priorities for the next five years/overall top priority. Improving procurement efficiency and costs 53% 12% Reducing plant operations/costs 52% 18% Developing sound revenue and income 46% growth business plans 22% Improving product quality 43% 8% Improving customer interaction processes 42% 9% Improving plant reliability 34% 6% Reducing supply & distribution expenses 32% 3% Reducing selling, general & administrative 25% (SGA) expenses 4% Reducing impact of volatility/unplanned 24% market events 5% Building new capital assets on-time/ 22% within budget 5% Improving shipment reliability 15% 1% Cutting overall headcount 9% 2% Plant security 9% 1% Closing capacity 3% 0% Top 5 priorities Top priority Source: Accenture-ICIS research. March

5 improvements. On average, executives said that achieving operational excellence could add nearly 8 percent to the bottom line (which corresponds to an overall increase in operating profits of $50 billion across the chemical industry globally). Industry executives may be increasingly aware of the value of the digital plant, but few companies are translating those insights into action. Even though the majority of surveyed executives said that including enabling technologies in new and existing plants is important, the same number said they are only taking a limited, incremental approach to new technologies. When Accenture/ICIS researchers asked industry executives which technologies they were most interested in, the focus was clearly on low-cost, relatively straightforward systems, such as camera/ video monitoring and broader wireless communications networks. The executives gave lower priority to more advanced technology, such as wearable computing/ quality monitoring devices and equipment vibration sensing systems (see Figure 2). These limited efforts contrast sharply with the other industries use of digital technology in operations, where projects often aim for transformation and significant, long-term benefits. Food processors, for example, are adopting digital technologies to enable ultra-lean new plants and processing lines. Utilities and pipeline operators are using these technologies to increase reliability and safety while reducing overall oversight and maintenance costs. And mining companies are using autonomous vehicles, underground wireless systems and realtime fleet/personnel tracking to improve safety and reduce costs. These kinds of large-scale digital initiatives are largely unknown in the chemical industry. Only a few chemical companies have taken the first steps to lead in this area. Among those that are interested, most are just beginning to think about developing digital plant strategies, and the rest appear to be waiting. Figure 2: Interest highest on low-cost, straightforward systems. Camera/video monitoring 43% 42% Leak detection equipment 36% 25% Wireless technologies for visualisation, 30% eliminating blind zones 20% Wireless technology for communications, 28% eliminating dead zones 17% Cloud computing 22% 15% RFID use 22% 11% Wearable computing 19% 11% Vibrational sensing on equipment 19% 15% Wearable air quality monitors and 17% communications gear 9% Augmented reality 10% 6% Other 13% 4% None 24% Most important Implementing Source: Accenture-ICIS research. March

6 What s Holding Them Back? Chemical companies have been reluctant to embrace digital plant technologies for a variety of reasons. Many are simply unsure where to start or how to proceed. Creating an effective digital plant requires comprehensive planning and a clear manufacturing IT vision. However, the tools needed to create this vision are often lacking: plant technology in the industry has traditionally been managed by local site operations using relatively immature IT lifecycle processes, rather than the disciplines of central IT. As a result, companies often find it difficult to approach new plant technology from a strategic, enterprise perspective. Many chemical companies also worry about the risks of implementing and operating new technology. Often companies see they will need to put in enabling technologies and infrastructure which do not provide an immediate payoff before embarking on a full-scale digital plant initiative. And many in the industry hold the view that the more technology in the plant, the more chances for things to go wrong, which only leads to increased potential for downtime in production. The fear of change goes hand-in-hand with that aversion to risk. Digital plant technology will clearly require a shift away from business as usual. That means that it is likely to disrupt traditional organizational and functional roles an unsettling prospect for many. On the other side of the equation, many chemical companies do not see the urgency to move forward. Certainly, plants run into operational problems with some frequency, but overall, plant run rates for the industry have been gradually increasing. Plants may not be operating as well as they could, but they run well enough. At the same time, the shale-gas driven boom in North America has made the efficient use of energy and feedstocks less critical. And globally, much of the industry is undergoing reorganization, with a strong focus on selling off businesses rather than investing in them for the long run. Overall, there is not a burning platform for change. In the chemicals environment, common wisdom says that incremental improvements will suffice that is, if it ain t broke, don t fix it. The Accenture/ ICIS research found that many companies are planning investments in plant improvements but only about onefourth are pursuing an industry leading approach. More than half said they are just making incremental improvements and about one-fifth plan to just keep up with the status quo using field-tested technologies. The thinking shows that being a late adopter of new digital technologies will do no harm, but will allow the company to avoid risk. 6

7 The Imperative for Action That approach may work well enough for a while. In an evolving industry, changing realities are likely to make the digital plant a necessity before long. Accenture research suggests that today s shale-gas boom in North America is likely to be followed by a Big Crunch a downward cycle where expansion will give way to overcapacity issues. The North America cost advantage will be eroded and growth rates will decline. 3 That Big Crunch environment will be much less forgiving of inefficiency, making digitally-enabled flexibility and cost effectiveness in operations critical. Meanwhile, investors who understand the power of advanced digital technology and who see its successful application in other industries are likely to have higher performance expectations and be ready for changes when management cannot deliver. As more and more companies operate digital plants, digital plant operations will essentially become the norm and the competitive pressure to understand and exploit the technology to enable operational excellence and agility will be relentless. Digital plant technology has the potential to disrupt the industry in far-reaching ways. In other industries, for example, companies with deep digital-plant capabilities have used them to support aggressive acquisition strategies, giving them the ability to drive down costs and increase productivity. This strategy also allows them to buy low- or even averageperforming companies at a relatively high price, but make the transaction profitable by transforming the acquired operations quickly. Drawing a lesson from such strategies, it is easy to see how early movers in the chemical industry could be in position to take over and eliminate slower moving competitors. To be on the winning end of these developments, chemical companies need to begin preparing today. That will require clear, comprehensive digital-plant strategies and road maps for turning those plans into action. It will mean looking for opportunities to make digital technologies a core component of new plant builds and existing facility improvements. Perhaps most importantly, it will require a mindset that sees past the risk to the reward, and a willingness to embrace and exploit the disruption that will be at the heart of the digital plant s value. 7

8 References 1 Market outlook: Rich pickings in easy reach, by John Baker, ICIS Chemical Business, May 8, com/articles/2015/05/08/ /marketoutlook-rich-pickings-in-easy-reach.html 2 Digitalization: A new competitive strategy for chemical companies, October 1, archive/2014/10/01/digitalization-a-newcompetitive-strategy-for-chemical.aspx 3 Exploiting Big Bang Disruption in the Chemicals Industry, August 6, insight-exploiting-big-bang-disruptionchemicals-industry.aspx About the authors Peter Frandina is a managing director and is the Accenture Plant and Commercial Services lead for the chemical industry. His experience includes manufacturing and supply chain strategy, inventory and materials management, maintenance effectiveness, LSS, MES, and operational process improvement. He is based in Houston. peter.a.frandina@accenture.com Follow the Accenture Chemicals on LinkedIn About Accenture Accenture is a global management consulting, technology services and outsourcing company, with more than 323,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, Its home page is This document is produced by consultants at Accenture as general guidance. It is not intended to provide specific advice on your circumstances. If you require advice or further details on any matters referred to, please contact your Accenture representative. Paul Bjacek, a senior principal in Accenture Research, leads the global chemicals and natural resources research program. He has more than 25 years of experience in chemicals strategy development and research, from base chemicals to specialty chemicals and polymers. Paul also frequently speaks and writes about issues affecting the global materials industry. He is based in Houston. paul.bjacek@accenture.com Richard Clos is a senior manager with 25 years of manufacturing experience in heavy industries. During that time, Rich has worked primarily with forest products, chemical and metals companies. He has deep experience in operational excellence, MES/MOM, automation, M&A, and analytics. He is based in Seattle. richard.clos@accenture.com Copyright 2015 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture