Inflationary pressures, fluctuating raw material availability, shifting geopolitical dynamics, and climate change challenges have pushed chemical companies into uncharted territory. These disruptions are forcing them to reevaluate their strategies, with the stakes being high—not just operational but existential. To achieve resilience, the chemical industry is diversifying suppliers, increasing local production, tracking sustainability, forming regional partnerships, balancing commercial-off-the-shelf (COTS) versus custom tech tooling, leveraging emerging technologies such as generative AI (GenAI) and digital twins, and adopting as-a-service models.
Diversification of suppliers and prioritizing local production to de-risk supply
In light of trade tensions and global disruptions, chemical giants such as Dow and ExxonMobil have embraced these strategies. For example, Dow’s ‘Operation Next’ focuses on minimizing dependence on high-risk regions by investing in U.S.-based capabilities to limit dependencies on imports from such regions. This is complemented by ExxonMobil’s use of digital twins to virtually model and simulate supply chain responses, improving real-time decision-making. Furthermore, LG Chem and SABIC in Asia are leveraging local and cross-border partnerships to reduce dependency on any region for raw materials, given the shipping lane bottlenecks exacerbated by the COVID-19 pandemic.
The pivot to sustainability for environmental and financial gains
Behemoths such as BASF, Dow, and Mitsubishi Chemicals are leading the way in how to get the ‘save the environment’ versus ‘business is for profit’ equation right.
- Carbon-reduction initiatives: In Europe, BASF is actively aligning with the European Union’s Green Deal, investing in renewable energy sources to lower carbon emissions across its logistics chain. Its carbon footprint reduction in Europe, around two million metric tons annually, is an industry benchmark. Through the ChemCycling project, BASF converts plastic waste into feedstock, integrating a circular economy model within its supply chain.
- Climate-resilient infrastructure: Dow is fortifying its facilities in hurricane-prone regions in North America by investing in more resilient infrastructure. Additionally, Eastman Chemical Company has invested in water-efficient processes at its plant in Kingsport, Tennessee, to counteract potential drought risks, recognizing that water scarcity impacts chemical production. This water-saving initiative has led to a 25% reduction in water use per production unit.
- Climate-adapted sourcing: Facing typhoons and unpredictable monsoon seasons, Mitsubishi Chemical in Japan has developed climate adaptation strategies, including sourcing from diversified Asian suppliers. The company reports a significant reduction in lost production days in recent years thanks to its “multi-sourcing” strategy, which allows for quick supplier changes during climate disruptions.
Forging regional partnerships and rethinking logistics networks in pursuit of stability
In response to raw material shortages, companies are forming strategic alliances. For example, BASF partnered with Linde in Europe to secure stable supplies of key chemical inputs. By doing so, they circumvented supply bottlenecks that plagued competitors and ensured more reliable production rates.
Besides, global trade routes have become bottlenecks rather than enablers. Shipping lane disruptions, including those at the Suez Canal and the Panama Canal, have compounded delays. Leading firms are responding by rethinking logistics networks.
- Dow has invested in dedicated port facilities and advanced warehousing, supported by AI-driven load optimization techniques, reducing logistics costs by 18%.
- SABIC decentralized its regional base from Singapore to Vietnam and Indonesia, cutting logistics costs by 12% and improving delivery time by three days.
- LG Chem has invested in intelligent factories, using IoT to track inventory and assets across production sites in Korea and China. By 2023, LG Chem reported a 15% improvement in supply chain responsiveness, with fewer delays despite ongoing shipping lane issues.
Balancing COTS and custom tooling to reap the best of both worlds
One of the most intriguing dynamics in chemical supply chains is the interplay between COTS solutions and bespoke systems. While companies such as Shell and ExxonMobil rely on SAP S/4HANA for core supply chain visibility, analytics platforms are often bespoke and designed to cater to highly specific needs. For instance, Dow’s predictive analytics platform and BASF’s sustainability compliance systems require specialized configurations that off-the-shelf solutions often cannot provide.
Leveraging tech advancements for greater control and automation
Three technologies, namely, digital twins, predictive analytics, and GenAI, are being extensively leveraged to solve some long-standing industry challenges.
- Digital twins to reduce uncertainty: Chemical manufacturers such as ExxonMobil and BASF are leading in digital twin technology, allowing them to virtually model their supply chain networks to predict issues before they arise. Recently, ExxonMobil’s deployment of digital twins at its Baytown facility in Texas led to a 30% reduction in unexpected outages.
- Predictive analytics in asset-heavy operations: Shell has invested in predictive maintenance for its chemical plants, focusing on early failure detection for key machinery. This helped the company minimize disruptions in supply schedules at its European facilities, reducing maintenance costs by 10%.
- GenAI in R&D, process optimization, scenario planning, and intelligent compliance and documentation
- Enhanced product innovation and R&D: GenAI is significantly accelerating R&D by simulating chemical reactions, optimizing molecular structures, and identifying new compounds faster than traditional methods. This capability enables companies to innovate and bring products to market more quickly while reducing lab costs and resource usage. BASF is leveraging AI-driven molecular design to explore new compounds for applications such as automotive coatings and crop protection. By digitally simulating and testing molecular interactions, BASF can predict compound properties without running extensive lab trials.
- Process optimization and predictive maintenance: GenAI is being used to optimize production processes by analyzing real-time data from IoT sensors to forecast maintenance needs and adjust operational parameters, boosting efficiency and minimizing downtime. Dow has partnered with Microsoft to deploy a predictive maintenance system that uses AI to anticipate equipment failures. The program has helped reduce unexpected downtime by 15% in select facilities.
- Supply chain resilience and scenario planning: GenAI is taking on a larger role in increasing supply chain resilience by modeling disruption scenarios and proposing optimized responses across the value chain. This includes alternative sourcing, logistics rerouting, and demand adjustments. SABIC has started using AI-driven scenario planning tools to forecast and respond to supply chain disruptions, helping the company mitigate risks more effectively by preparing multiple contingency plans.
- Intelligent compliance and documentation: Compliance in the chemical industry is complex and resource-intensive. GenAI is automating documentation and compliance processes, reducing errors and improving audit readiness. DuPont uses GenAI to generate compliance documentation, streamlining this labor-intensive process and minimizing risks associated with regulatory non-compliance.
As-a-service models to enhance flexibility and reduce overheads
While core manufacturing remains largely in-house, non-core activities such as facility management, logistics, and predictive maintenance are increasingly outsourced, and that is also true in more subscription-based arrangements. Here are a few examples:
- Logistics-as-a-service: Evonik Industries has collaborated with DHL to conduct European warehousing and distribution operations.
- Maintenance-as-a-service: Shell Chemicals has partnered with IBM to implement a predictive maintenance system to reduce equipment failures.
- R&D-as-a-service: Companies such as Dupont are engaging with academic institutions to access specialized expertise without significant capital investment.
The Bottom Line: By combining strategic business decisions such as rethinking logistics networks, amping up local production, and investing in technologies such as digital twins, GenAI will help chemical companies alleviate most of their supply chain challenges.
The next 12 months will be decisive. While companies such as BASF, Dow, and ExxonMobil have laid a blueprint for resilience and innovation, many others are yet to follow suit. But the path forward is clear—a series of bold business decisions aiming toward greater resiliency, such as forging local alliances, supplier diversification, and suitable technology investments, would ensure that chemical companies weather the storm.
