The digital catalyst. Chemicals sector at a digitalization tipping point

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1 The digital catalyst Chemicals sector at a digitalization tipping point

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3 Chemicals: The digital catalyst Siemens Digital Manufacturing Introduction Two years ago, Dow Chemicals was struggling to make sense of the reams of data it was collecting from its 188 manufacturing sites worldwide. The information was stored across multiple siloed systems, which made identifying performance problems and maintenance requirements a laborious task. Recognizing that this approach was adding time, cost and risk to its processes, Dow introduced a data analytics platform that enables it to filter data from multiple sources, providing a near-real-time view of operations. The new system helps the firm to quickly identify changes in raw materials and then immediately act to protect the catalyst, which has proved pivotal in saving costs and increasing uptime. In the words of Lloyd Colegrove, Dow s Data Services Director, This will have significant impact in the long run on catalyst and filter activity and increase the lifetimes of certain aspects of the plant. The return on investment is expected to reach $1 million to $2 million per plant per year. 1 Our survey of over 40 manufacturers in the US chemicals sector suggests that, like Dow, many chemicals manufacturers recognize the potential of digital technologies to transform their businesses: Almost half (49%) of surveyed firms have implemented cloud storage. By eliminating the need for physical hardware and infrastructure, this can reduce maintenance work freeing the IT team to focus on value-driven innovations. More than half (51%) are using connected sensors in plant operations. These enable firms to drive efficiencies for example by monitoring energy consumption, reducing waste and eliminating downtime caused by unforeseen maintenance issues. Almost a third (30%) have adopted advanced data analytics tools. By speeding up the time it takes to analyze production data, these are changing the game in terms of monitoring equipment, identifying problems and reducing downtime. But while the survey shows that chemicals manufacturers are making some progress, they lag behind other sectors in adopting innovative digital solutions that drive demonstrable time and cost savings. Our survey shows they are less likely to make investments in the more advanced digital technology that can help them achieve operational excellence, focusing instead on applying the more rudimentary digital technologies that deliver incremental improvements around efficiency and safety. 1 better-analytics-produces-big-savings-fordow-chemical/ 1

4 Siemens Digital Manufacturing Chemicals: The digital catalyst The time is right for digitalization After several years of economic volatility, the US chemicals industry is experiencing a steady growth rate. In 2015, the market expanded by 3.6%, and similar rates of growth are projected through the end of This growth is bolstered by low-cost natural gas and increased domestic demand for chemicals. 3 Yet not all companies will benefit equally from this growth. The industry is being challenged by new competitors from the energy, utilities, mining, and life sciences sectors, which will require traditional chemicals companies to become more agile, while cutting time and cost from their operations. The ones most likely to emerge as leaders in the coming years will be those which adapt most rapidly to market shifts to reap the most value from this revitalized marketplace. A key component of these investments will be digitalization to enhance productivity and operational agility. For manufacturing, digital technologies have been proven to deliver a variety of financial and strategic benefits by providing real-time views of operational trends so that facilities leaders can optimize maintenance tasks, avoid downtime, and adapt in real time to customer demands. These trends are expected to spur investments that will support future expansion plans. 2 Outlook-US-Chemical-Industry-Renaissance-Just-Beginning-Industry-Growth-Will-Outpace-US- Econom.html industrie4.0-smart-manufacturing-for-the-future-en.pdf 2

5 Chemicals: The digital catalyst Siemens Digital Manufacturing The value proposition: better business Respondents to our survey cite improved uptime as the leading reason to digitalize their manufacturing operations, followed by reduced time to market, meeting industry regulations, and improved operating margins. All of this translates to better business results. The number one requirement [for digitalization] in the chemicals industry is return on capital, says Mike Williams, Independent Executive Consultant for Modern Automation Consulting Services. Regulatory compliance and prioritizing working capital are also key considerations that impact on digital technology decision-making. Being able to have greater visibility of raw materials and finished goods is emerging as a real value proposition for digitalization, he adds. Many global chemicals companies have already documented the benefits of implementing digital technologies. Calgary-based Nova Chemicals, for example, introduced analytics and cloud computing to gain a consolidated view of scheduled maintenance tasks after struggling to process more than 20,000 maintenance work orders per year. The digital upgrade resulted in a 47% reduction in time spent on reactive, emergency maintenance, and a significant reduction in downtime. 4 And at one of its pilot plants in Germany, BASF recently implemented sensors and radiofrequency identification (RFID) technology to automate the production of liquid soaps. Reasons to digitize chemicals sector Meet industry standards or regulations Improve planning and decision making Enable move to a service-based offering Pressure from suppliers and/or customers Enable penetration of new markets Improve safety enabling automated customization without any human involvement. 5 In our survey, meanwhile, 83% of executives report that digitalization has added new revenue streams from the provision of services, and 66% have experienced some increased cost efficiency since implementing digitalization. According to Mark Rosenzweig, Editor-in-Chief of Chemical Processing magazine, the use of analytics for predictive maintenance, troubleshooting and optimization of operating conditions is also gaining popularity. The uptake of data analytics is faster than a lot of other trends because the potential impact is so strong, he says. Improve up-time 37.2% Improve operating margins Reduce time-to-market Increase employee productivity To keep up with our competitors 14.0% 14.0% 32.6% 32.6% 32.6% 30.2% 27.9% 25.6% 25.6% 20.9% Once a user places an order for a customized soap, RFID tags attached to soap containers communicate the desired composition and packaging to the production-line equipment»the number one requirement [for digitalization] in the chemicals industry is return on capital.«mike Williams, Independent Executive Consultant for Modern Automation Consulting Services 3

6 Siemens Digital Manufacturing Chemicals: The digital catalyst Digital shortcomings However, many chemicals companies are failing to take full advantage of these tools or to make the most of the technology they have implemented. Like their peers in other sectors, chemicals manufacturers often struggle to use the data they have collected in any meaningful way. I believe our industry has many systems out there collecting data redundantly or possibly just collecting and storing data that are not recognized as useful, says Brian Clemons, Process Automation Manager at The Dow Chemical Company. When actually it could be brought into a system and made into useful information. According to our survey, only 30% of companies with analytics capabilities are actually using analytics to support most or all key decisions, while 23% say they do not use analytics much at all. What s more, while 80% of respondents say they have a cybersecurity strategy in place, a recent PwC industry report shows that more than half of chemicals CEOs are concerned about cyber threats. This suggests that they are not as confident in their digital investments as they could be. And respondents are aware of their shortcomings in harnessing technology innovations: while almost three in four view themselves as ahead of their peers in financial performance, only 58% believe they are ahead when it comes to digital technologies. Reasons for this lack of progress and confidence in the digital arena include limited access to capital and poor stakeholder alignment around a digitization strategy. They are also relatively conservative when it comes to embracing new technologies, says Rosenzweig. For a company to spend billions on a new plant that will last for 40 years or more, they tend to go with proven technology, he says. They have to have a very high comfort level that a new technology is going to deliver improvement and not pose any additional hazards or risks.»according to our survey, only 30% of companies with analytics capabilities are actually using analytics to support most or all key decisions.«4

7 Chemicals: The digital catalyst Siemens Digital Manufacturing How the chemicals sector ranks itself against peers on digitalization performance Substantially behind 16.3% Somewhat behind On par with peers Somewhat ahead Substantially ahead 9.3% 55.8% 18.6% There is also a legacy problem, as Clemons points out: If you have a plant that is, say, 40 years old sitting in the field, it s not cost effective to go change all your sensors and turn them all smart. However, our survey shows that despite this, many of these technologies have now moved into the mainstream, where they have been proven to safely deliver the clear time and cost savings these companies need in order to stay competitive.»many of these technologies have now moved into the mainstream, where they have been proven to safely deliver the clear time and cost savings these companies need in order to stay competitive.«5

8 Siemens Digital Manufacturing Chemicals: The digital catalyst Industry leaders pave the way Our survey identifies a stark gap between leaders and laggards. Overall, chemicals industry executives are more likely than those in other industries to view themselves as behind their peers in the adoption of digital technology. However, one in five of these executives consider themselves to be substantially ahead of their peers a greater proportion than any other industry. And while almost 20% of chemicals companies collect little or no data from their production processes, 19% collect most or all of their data; in every other industry, less than 5% of companies make that claim. These numbers suggest that there is huge room for improvement in the chemicals industry early adopters like Dow, BASF and Nova are leading the charge. This should be a wake-up call for chemicals industry stakeholders who have been slow to embrace digital technology or to acknowledge the benefits it can bring them. Companies that are already evolving their operations using digital technology may currently have an advantage, but they can also offer a roadmap for change and provide proof that these investments can pay off while still meeting safety and regulatory requirements. How much data does the chemicals sector collect from production processes in each plant? 18.6% 9.3% 14.0% 2.3% None Up to 19% 20 39% 40 59% 60 79% % 27.9% 27.9% 6

9 Chemicals: The digital catalyst Siemens Digital Manufacturing The next step: create the groundswell To take the next step, chemicals company leaders need to find a digital champion who can generate stakeholder support for a digital strategy, then craft a roadmap for implementation including pilot projects that will deliver measurable results. Such early wins can help to make the case for investing in advanced technologies and secure buy-in from key decision-makers to support these investments. Working with vendors to identify best practices and measure the results of pilot projects can further underscore the business value of these tools and support their company-wide implementation. The chemicals industry is at a tipping point. Companies that adapt and embrace opportunities to improve their operations today will make themselves more competitive and resilient for years to come.»the chemicals industry is at a tipping point. Companies that adapt and embrace opportunities to improve their operations today will make themselves more competitive and resilient for years to come.«these findings are based on a survey of 41 senior executives from US chemical manufacturers. The survey was conducted by Longitude Research on behalf of Siemens in May and June The respondents were primarily CFOs, COOs and CTOs and Directors (over 40% C-suite), and the majority of firms surveyed report annual revenues of more than $1 billion. 7

10 The digital future of the chemical sector People and skills Data intensity Increase employee productivity Data collection, strategy and decision-making Security Chemicals Overall progress Connectivity Cross-business data security strategy and technology Networked sensor use in production and output Integration Adaptability Supply chain and departmental data analysis and integration Customization capability and use of advanced tools in design, modelling and production This proprietary study from Siemens, conducted in the summer of 2016, measures progress of 5 key US manufacturing sectors according to their degree of digital intensity, as mapped out above. Key digitalization struggles 58% Fewer than six in ten view themselves as ahead of their peers in digitalization Less than a third are using data to support most or all decisions 30% 42% Just under half say existing skill levels are inhibiting digitalization Try out our digitalization benchmark to see how your manufacturing business stacks up against your peers. Visit to learn more. Scoring methodology: any score below 25/100 on our index was awarded zero stars, and any score above 75 was awarded 5 stars. Starting at 25, half a star was awarded for every complete increment of 5 points, e.g. a score of on the index would yield a result of 2.5 stars. 8

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12 Longitude Research 25 Sackville Street London, W1S 3AX Tel +44 (0) Siemens Industry, Inc Triangle Parkway Norcross, GA For more information, please contact our Customer Support Center. Phone: PDPA-B AUS