The world is facing multiple political and economic challenges, and an uncertain market is giving birth to more resilient business models. The chemical industry, as a pillar industry related to the national economy and people's livelihood, plays an important role in industry leadership in value creation, innovative R&D, green operation, and global cooperation. Managers of domestic chemical companies are reviewing and reshaping the ** chain, through digital transformation, operating model optimization and other measures to create a more resilient, more agile, more reliable and more focused on green and sustainable ** chain to cope with the new era of uncertainty.
In this context, from November 16 to 17, 2023, the 2023 Global Chemical Industry Chain (China) Summit was held in Shanghai, with the theme of "Focus on Sustainability, Reshape the Chain, and Catalyze a Low-Carbon Future". The summit brought together leading chemical enterprise managers, universities, related research institutions and solution providers at home and abroad, and representatives gathered together to jointly develop the future transformation direction of China's chemical enterprises.
Ernst & Young (China) Corporate Advisory*** is the main sponsor of the summitMr. Chen Weiqian, partner of digital ** chain and intelligent manufacturing consulting servicesHe was invited to participate in the summit and delivered a keynote speech on "How to Rebuild the First Chain in an Uncertain World", discussing the direction and methods of enterprise transformation that are observed and summarized in the process of helping customers carry out the transformation of the first chain.
In the share,Mr. Chan Wai HimIdentify four noteworthy future trends:
First, enterprises are rethinking and reconstructing the first chain to cope with the challenges of sluggish terminal demand for upstream raw materials and pressure on industry profitability. In practice, some enterprises have established integrated production bases to give full play to upstream and downstream synergies and achieve overall cost optimization. Or accelerate investment in local production and R&D capabilities in some end markets, establish a "local for local" model, optimize costs, and improve response speed.
Second, enterprises will gradually integrate the circular economy into their corporate strategy, culture and ecosystem, and create a "green chemical industry" through measures such as energy structure optimization, product innovation and circular economy construction. This initiative meets the demand of downstream application industries for carbon control and carbon reduction of raw materials by reducing carbon emissions in the industry. Some companies are already using integrated data models and new digital applications to measure the carbon footprint of their products, laying the foundation for sustainability.
Third, enterprises are more customer-centric, actively using digital tools and technologies to capture changes in customer needs, increase contact with customers, and optimize customer buying experience to provide differentiated services. For example, the establishment of a B2B platform enables customers to easily trade, obtain products and information in real time, place orders independently, and track information throughout the life cycle of orders. At the same time, companies can gain a deeper understanding of consumer demand and market trends through precipitated transaction data, and adjust their strategies and product portfolios at any time.
Fourth, the company continues to promote the optimization of its product portfolio, and strives to control costs and cash flow at the low level of the industry cycle, so as to accumulate strength for future development. We see that in the cycle of slowing performance, companies are starting to re-examine and optimize their product portfolios, and invest limited resources in more potential business directions.
The chemical industry has a long and complex industrial chain, covering thousands of chemicals from upstream raw materials such as oil, gas and coal to midstream and downstream, and there are huge differences between different sub-industries. After three global structural adjustments, today, the market structure of the chemical industry is more complex, and the number of industry participants is growing rapidly, so it is more necessary to emphasize the differentiated advantages of the first chain in order to maintain the core competitiveness in the market segment.
Mr. Chan Wai HimIt is pointed out that from the two dimensions of enterprise profitability and value multiple, chemical enterprises can be roughly divided into three categories: bulk product providers (high profitability, low value multiples), diversified product providers (low profitability, low value multiples), and solution providers (high profitability, value multiples). Bulk product providers focus on upstream bulk chemicals, while diversified product providers provide a variety of products in multiple links of the industrial chain. Solution providers often bundle products with services to provide customers with one-stop solutions.
On the basis of this classification,Mr. Chan Wai HimIt points out the feasible path and direction of the transformation of chemical enterprises: first, the pursuit of cost leadership, such as bulk product providers, focusing on assets, costs, and efficiency, and key measures include improving product standardization to reduce the complexity of the first chain; The second is to pursue service leadership, such as solution providers, focusing on providing customers with differentiated products, services or solutions, and key measures include establishing cross-functional and cross-business teams, breaking down barriers to cooperation, and balancing the complexity of various businesses.
On the basis of determining the transformation path, designing a transformation approach that is in line with the business of the enterprise will be an efficient engine for the high-quality development of the enterprise. Based on the practical experience of previous projects,Mr. Chan Wai HimIt summarizes EY's goal-oriented transformation approach**: at the strategic level, it is first necessary to do a good job of customer segmentation, explore customers' differentiated needs and expectations, and match customized inventory and production strategies. It is important to note that diversified conglomerates need to break through the business wall and analyze from the perspective of the entire value chain, rather than being limited to a single business perspective. At the operational level, enterprises need to establish a rapid decision-making mechanism based on data analysis, a flexible and innovative change organization, and a set of cross-departmental collaborative processes to support strategic measures. At the support level, it is necessary to deploy digital tools for comprehensiveness and business agility to support business-level visualization, analysis, and decision-making, and help enterprise managers track key performance in terms of delivery cycle and working capital level and continuously optimize.
After the keynote,Mr. Chan Wai HimChaired a roundtable session on "How to Build a Reliable and Competitive Network in the Face of Global Uncertainty", and had in-depth discussions with the management of chemical industry associations and leading chemical companies on a number of key topics. Specific topics cover how the upstream and downstream of the industrial chain can work together in the face of an uncertain environment; how multinationals reconcile regional and global relations; **The role of the chain in the enterprise and the synergy with other functions; and how to use digital tools and technologies to optimize the ** chain, etc. The fruitful discussion triggered in-depth thinking and active questions from the guests.
Looking ahead, the macro environment is still turbulent, industrial policies are evolving, emerging technologies are developing rapidly, and end consumption is complex and changeable, business managers in the chemical industry need to keenly capture and deeply understand the trends of the industry, continue to invest in and optimize the first chain, and comprehensively improve the application of digital technology to enhance operational capabilities, improve service quality and sustainability, and form new competitiveness.
EY's Digital & Intelligent Manufacturing Advisory Services team provides end-to-end consulting services for the chemical industry's most advanced chain, helping chemical customers navigate against the wind in the best environment and better embrace future changes. The related industry services we provide mainly include:
*Chain transformation strategy: the design of the organizational structure and operation model of the first chain driven by vision and goals, adapting to the strategic development goals of the enterprise, and decoding the first chain strategy, key performance indicators and transformation paths.
*Chain digital implementation: including the implementation of advanced planning and scheduling system APS, transportation management system TMS, warehouse management system WMS and other leading software at home and abroad.
Production & Marketing Collaboration (S&OP) and Integrated Business Plan (IBP): Assist enterprises to drive efficient coordination of production, supply and marketing with planning as the leader, reduce operating costs and improve customer service levels.
Procurement strategy and business management optimization: procurement organization, category strategy formulation, expenditure analysis and business life cycle management.
Logistics network design: based on the customer's future development strategy, the optimal logistics network design that balances the total delivery cost of the first chain and the level of customer service.
Omni-channel delivery strategy and order management design: Omni-channel delivery strategy and delivery network design based on channel and customer segmentation, including order management process and order management system OMS implementation.
Smart factory and lean production management: Based on the design and implementation of the United Nations Lighthouse smart factory, factory site efficiency improvement and lean production management.
Identification and deployment of chain cost reduction and efficiency improvement measures: The cost reduction opportunities of the whole chain include the global identification of procurement, production, planning, logistics, etc., and the action plan driven by the cost reduction goal.
Product Portfolio Management and R&D Process Optimization: Identification and implementation of product portfolio optimization opportunities based on profit and product life cycle management, including R&D innovation management and process optimization.
This article is prepared for general information purposes only and is not intended to be relied upon as accounting, tax, legal or other professional advice. Please ask your advisor for specific advice.