Feature article - Resiliency must join efficiency as a focus in speciality chemicals

Dr Marko Lange, SAP’s global head of chemicals, looks at the increasing importance of resiliency in speciality chemicals planning and operations – and how to achieve it

Running a speciality chemicals company (or aspects of one) has never been a vacation, but let us consider a travel metaphor nonetheless. Decades of relative predictability with respect to geopolitics, international trade rules, costs of fuel, materials and transportation, and supplier- and customer-base location and composition were like a trip to the tropics. 

All that stability meant that firms could focus on efficiency and pack light, perhaps adding an umbrella just in case. Today – and, realistically, tomorrow – this industry is operating in world of geopolitical unrest and uncertainty. 

A generally steady era of US hegemony has given way to unpredictable multi-polarity with what appear to be nascent, tariff-fortified trading blocs. Add to that the challenges around fuel and raw materials costs and availability – the war in Ukraine, China’s leverage in rare earths – and disparate environmental, social, and governance (ESG) requirements, and we have the equivalent of a mountain trek. For that, you pack lightly at your peril.

You must also pay heed to efficiency, because you can only carry so much. But you also need more gear than you might ideally use, because you cannot be sure of what is coming when you get up there. It could be pleasant; it could be a blizzard. In other words, resiliency must be the foremost consideration, because otherwise you may not be coming back down on your own.

The speciality chemicals business, long focused on efficiency, must now increasingly incorporate resiliency into its planning and operations. There are many dimensions to consider here, but let’s focus on two major ones: supply chain planning and optimisation and foreign trade activities.

Planning harder than ever

In supply chain planning, the perennial challenge of what to produce, how much of it, for whom and at what price is now complicated by new uncertainties surrounding where to produce it and with what inputs. For example, raw materials and/or fuel availability and insulation from tariffs may suggest adding capacity in China, the US or the Middle East. 

Conversely, shifts in customers’ production from China to South Asia and elsewhere may beg for new product mixes, facilities, or contract-manufacturing relationships in places a speciality chemicals maker has less or no presence. That affects its own supplier relationships.

In addition, potential raw material supply disruptions may impact strategic stockpiling of key inputs – and customers may ask for more product from you so they can build strategic stockpiles of their own.

Many new variables

On the foreign trade front, tariffs are the headline uncertainty. What products fall under a tariff or counter-tariff? Will a given tariff persist, at what level, and for how long? And, if there is a tariff, and a product is comprised of a mix of domestic and foreign inputs, are we doing preference calculations properly so we can minimise tariff exposure and thereby maximise profits? (Too often, the answer here is ‘No’.) 

All told, we are seeing a speciality chemicals operational landscape that is more complex, dynamic, and unpredictable than in recent memory. There is no shortage of tools available to help navigate this complexity, ranging from core enterprise resource planning systems to chemicals- specific software, all increasingly incorporating AI. For those tools to meet today’s business needs, companies must have their data orderly and accessible if they hope to pack their bags to properly for the climbs they now face.

Diverse, detailed data a must 

Consider the simple example of understanding the current and potential future profitability of a given product. The bill of materials delineates the raw materials and intermediates constituting the product to give you a structural view of product composition at the materials level. 

You must then combine that information with what those inputs cost, then add costs related to shipping and overhead. Once products are sold, sales-related data enters the frame to finish sketching the profitability picture. Executed across the product portfolio, a firm now has a snapshot of current profitability and a foundation from which to plan. 

How might potential resiliency-focused adaptations related to production inputs and locations impact profitability? Do we need to rethink our product portfolio in terms of where we sell and to whom? Are there products that won’t make economic sense to continue? What products might we swap into that vacated capacity? How will that affect procurement, the supply chain, storage and distribution? Then, what business impact could potential tariffs have for a given scenario? How might raising or lowering our prices affect sales volume and, ultimately, the bottom line?

The way forward 

Lots of questions there, and they require many disciplines using data from multiple ERP modules and other systems. Inventory and supply chain management and optimisation that takes myriad variables into account in the name of added resiliency may require tools with greater capabilities than the ones a speciality chemicals company now has. 

The same may hold true for the systems used to calculate tariffs. In both cases, keeping up in today’s environment takes substantial automation that older systems often do not provide. More broadly, planning for and managing through the challenges now facing speciality chemicals businesses demands access to diverse, reliable, fresh data from across the organisation. 

That takes a harmonised data model that lets experts in particular business functions as well as upper management work through complex scenarios without involving IT staff having to extract data and develop custom reports and dashboards. 

Harmonised data models are at the core of digital transformation. If you have been slow to begin that effort, the imperative of building resiliency should provide additional motivation as should the increasing utility of AI, which thrives on harmonised data models.

Benefit to AI & human intelligence 

Based on a planner’s prompts, these systems tap into business and operational data to generate what-if scenarios a planner can then assess and refine. 

Machine learning digs up information and discerns patterns as generative AI-based natural language prompts help staff adjust hypothetical product portfolios and production locations, find and vet sources of supply, assess logistics costs and constraints, evaluate supply chain risk, and so on. In short, the right data foundations let you plan for profitable resiliency with agility and at speed.

The speciality chemicals industry’s importance to the global economy remains undiminished even as the challenges it faces have proliferated. Work to improve efficiency rightly continues in a relentlessly competitive global market. But the uncertainty and risk companies now face demand greater emphasis on operational resiliency. 

Speedy access by both human and artificial intelligence to the harmonised data that accompanies digital transformation is indispensable to the multivariate, dynamic, interdisciplinary planning involved in establishing and maintaining that resiliency. Getting there takes time and effort but to climb higher with confidence, there is no other way.