EPCA considers Industry 4.0 ideas

THE KEY TO SUCCESS

CONFERENCE REPORT • THIS YEAR’S EPCA ANNUAL MEETING INVESTIGATED HOW INDUSTRY 4.0 CAN HELP IT MEET ITS TARGETS FOR SUSTAINABILITY, DIVERSITY AND GROWTH

RICHARD P FEYNMAN, CELEBRATED Nobel laureate, is widely reported to have once said: “If you think you understand quantum physics, you haven’t understood quantum physics”.

Much the same might be said about the impact of digitalisation on supply chains – or, to give it its abbreviated handle, ‘Industry 4.0’. Over the past year many industry gatherings have talked the topic through; it has been clear that there are many who think they understand its implications but in fact miss the point.

It was much the same at this year’s Annual Meeting of the European Petrochemical Association (EPCA), which took place in Berlin in October. EPCA strives not just to keep up but to lead the industry, so it was no surprise that the theme at this year’s 51st gathering was the potential for Industry 4.0 concepts to transform the way that the sector does business.

Tom Crotty, appearing for the last time as EPCA president, opened the first business session with an upbeat message: the meeting had broken attendance records again, with almost 2,850 registered participants. That much was evident both within and outside the main event locations, with the cluster of custard-coloured taxis waiting at the InterContinental Hotel growing larger each year, even as the grey cloud of smokers gets smaller.

While many attendees are attracted by the regular annual opportunity to do business with their customer and suppliers, they may also have been drawn to Berlin this year by the uncertainty that Industry 4.0 is injecting. As Crotty said, digitalisation means that some jobs will go – but whose? – and new roles will emerge. We do not yet know what those roles will be, but EPCA had lined up an array of well informed speakers to give some pointers.

THREATS AND OPPORTUNITIES The opening session focused on Industry 4.0 and its potential impact but also harked back to other issues discussed in recent years at the EPCA meeting, under the theme: ‘Building sustainable and inclusive economic growth in

the digital age: the value creation proposition of the chemical industry’. First to take the challenge of explaining the future to the early morning audience was veteran journalist Martin Wolf, chief economics commentator at the Financial Times. His presentation highlighted the fact that there are plenty of other challenges facing established industries, aside from the obvious threats raised by digitalisation.

For a start, we are in the middle of the end of western dominance in the global economy, he said. Between 1980 and 2017,the developed world’s share of global GDP shrank from 65 per cent to 40 per cent – with all of this moving to Asia, and mostly to China. This has been accompanied by increasing globalisation and integration of international financial and trade flows, although that process stalled with the 2008 financial crisis.

Growing demands for sustainability are also having a profound impact, Wolf continued. There has been a massive increase in carbon dioxide emissions over recent decades; since 1970 that has almost all come from emerging markets.

There is also a challenge from the pace of innovation. Wolf pointed to productivity improvements, which have slowed measurably since 2004; some developed countries are even going backwards in terms of productivity, Wolf said. The fall in the price of semi-conductors stalled around 2010 and, he said, future benefits will come from software not hardware.

Wolf then looked back over previous industrial revolutions; this current fourth revolution is characterised by growing integration of cyber- and physical systems. However, it is of a piece with the previous three revolutions, which were all products of the integration of competitive capitalism with science and technology. The difference now is that seven of the ten most valuable companies in the world, in terms of market capitalisation, are IT firms.

What does this all mean for the petrochemical industry? Wolf said that digitisation of industrial processes will transform its operations, just as it is doing in all other economic sectors. As a result, new skills will become more valuable and new products and services will be needed. The petrochemical sector has opportunities in the supply of raw materials for electric vehicles, drones, wearable devices and other equipment we have not yet dreamed of.

The urgent need for decarbonisation of the economy also creates new opportunities – and challenges – for the more sustainable use and management of natural resources, energy saving and a move to a circular economy; the petrochemical industry, as with other sectors, will have to build new corporate ecosystems and become more collaborative.

New and often disruptive customers and suppliers will emerge, something that established operators will need to be alert to. They will also have to pay attention to cyber-security as well as operational security, and to issues such as intellectual property protection, data protection and privacy.

All in all, technological change is currently rapid and uneven; this has already created profound changes in the industrial economy but it does also create opportunities for those willing to adapt.

INDUSTRY OPINIONS Jim Fitterling, president/CEO at The Dow Chemical Company, agreed with Wolf that digitisation is just one of several major changes currently underway, alongside globalisation and the drive for sustainability. Nevertheless, there are implications in Industry 4.0 concepts that will certainly have an impact.

For instance, Fitterling said, R&D cycles will become shorter. This is partly because petrochemical companies will, through the interrogation of ‘big data’, be able to get a better understanding of their client industries’ needs; they will also be able to get better feedback on their products’ performance in the real world. This change also offers the promise of a shift to a more circular economy and a reduction of waste, he said, fitting with Dow’s commitment to the ‘triple bottom line’ of people, planet, profits.

Still, survival in the new digitalised economy will favour the most adaptable companies – and that means adaptable personnel. This is not something that can be imposed on the organisation in a top-down fashion, it has to be developed organically, “like weaving a ribbon all the way through the organisation,” as Fitterling put it.

Fitterling finished with the observation that disruptive new entrants employing digitised technologies have already had a massive impact in fields as diverse as the music industry, the taxi sector and hotels. “Why should our industry be any different?” he asked. “Every juncture in our supply chain offers an opportunity for someone like Alibaba or Amazon to come in and disrupt our business,” he warned. »

FROM THE FRONT DOOR OF THE INTERCONTINENTAL

HOTEL TO THE CONFERENCE SESSIONS, EPCA’S 51ST

ANNUAL MEETING WAS ALL ABOUT THE THREATS AND

Also on the panel for the first session was Dr Hariolf Kottmann, CEO of Clariant and president of the European Chemical Industry Council (Cefic). Citing some statistics showing the remarkable pace of change in the past few years, particularly with regard to the volume of data now available and the much lower cost for analysing that data, advanced analytics is enhancing operational excellence in the chemical industry and allowing it to respond rapidly to changes in end use sectors, he said.

It is difficult to predict when and how deeply these changes will appear, Kottmann said. However, it is inevitable that capital expenditure will increase in response to shorter lead times. There will also be intense competition for the specialist skills needed to make it all happen. These changes will not happen overnight but when they do they will be fundamental. Businesses will have to keep an eye on what it means for their long-term investment plans, Kottmann concluded.

TALK IT OVER During the subsequent panel discussion, Martin Wolf observed that it is incredibly difficult to understand a period of transformation while it is actually happening. However, in general, the initial impact of transformation is almost always over-estimated, while the long-term impact is under-estimated.

Returning to his point about productivity, he qualified it by noting that, due to the fall in the share of national and global GDP accounted for by the manufacturing sector, productivity gains in industry do not have much impact on the overall economy. It is, he said, hard to see how Industry 4.0 will generate productivity gains in service industries such as tourism and healthcare.

Jim Fitterling added that the biggest change he expects to see is how his company responds to its customers. It is not clear how that change will manifest itself but, he said, “We will do things differently.” Digitisation of the supply chain is key here: it offers a big opportunity to connect better with end users and to provide them with more visibility over their supply chains. If this can lead to, say, a 10 per cent reduction in inventory in the supply chain it will have a direct financial benefit.

Dow is currently looking at re-engineering the organisation from end to end, Fitterling added. There is a need for IT investment in terms of sensors and robotics. This should all focus on delivering a seamless production process for each stream, rather than relying on hand-offs between different departments.

“IT has levelled the playing field between large and small companies,” Kottmann observed. This in itself changes the commercial landscape and means that having a leading-edge IT capability is a competitive advantage. All players need to look at where they are investing and differentiate between those IT systems that are nice to have and those that are indispensable.

ON TO LOGISTICS Later in the Annual Meeting, there was another early start for those with a particular »

JOHAN DEVOS INTRODUCED A SESSION LOOKING AT