Challenges In The Chemical Industry: The Covid-19 Impact

By Author: Kiran Bhavaraju
Total Articles: 5
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AT A GLANCE

As the world braces itself for a potential global recession, decision-makers at significant chemical companies are looking for ways to realign their operational and manufacturing strategies to be able to sustain and grow.
Liquidity and capital resources impact the business, causing financial pain areas for the chemical industry.
The industry is also facing problems due to disrupted global supply chains, labor shortage, dwindling demands for one industry and growing demands for others, and many more such issues.
With the strategic overhaul, reinvention of smart factories, investment in automation, and other robust enterprise software, the chemical industry can turn the tide during this pandemic.
Like almost every other industry, the chemical industry encountered unplanned hassles in 2020 due to the Coronavirus global pandemic. Practically every department in chemical companies has experienced the ripple effects of a market slowdown. Things are still uncertain in terms of the supply chain’s stability, workforce capacity, changes in global trade regulations, etc.

Approximately ...
... 41% in the chemical industry are concerned about the effects of Covid-19 on the workforce and reduction on prod.
Approximately 23% are looking at disrupted supplies are a red flag.
– PER A SURVEY BY PRICEWATERHOUSECOOPERS

While an imminent global recession and massive disruption in the way businesses operate seem inevitable, the chemical industry can take advantage of certain factors like:

Increased demand for raw material required for hygiene products and sanitizers across the globe.
The drop in oil prices offering a chance to acquire oil-based raw material at a lower cost.
Dependence of many major and minor sectors on the raw material provided by the chemical industry.
There are also various strategic and operational changes that the decision-makers at chemical companies will need to help their companies sail through this crisis with minimal damage. The chemical industry also needs to prepare itself for the post-COVID era. However, before we get into plausible solutions, it is imperative to understand the chemical industry problems. Let us look at six major challenges that the chemical industry is dealing with due to the coronavirus crisis.

1.
Liquidity and Investor Issues
Due to governments’ various measures across the globe to contain an outbreak of coronavirus, there was a sudden and steep decline in financial outcome in the first quarter of 2020. The market slowdown led to investors abandoning, slower credit timescales by banks (leading to delay in funding), lack of sufficient security packages, covenant limits, etc. The financial impact has caused significant distress for the chemical industry, and top-level executives rethink their finance allocation policies to ride through these distressing times.

2.
Shortage of Workforce and Reduced Production Rate
Many regions are still not back to normal and need to follow social distancing norms to avoid the coronavirus spread. The additional rules in place limit the ability of chemical production facilities to work at full capacity. Even the workforce that does not operate on the shop floor has to either work from home or stay absent. Current issues in the chemical industry lead to reduced productivity and lesser output from the production plants.

3.
The Issue of Disrupted Supply Chains
With the pause of all travel types (especially international air travel), there have been significant supply chain challenges in the chemical industry across the globe. The chemical industry is heavily dependent on different stakeholders working in harmony for seamless functioning. Businesses have taken a massive hit, and there are issues related to delays in obtaining raw material, delays in shipments, blocked consignments, and more.

FIGURE 1:
Benefits of a Connected Ecosystem for Inventory Management

4.
Discrepancies in the Demand of Raw Material
Chemical companies supply different raw materials to various industries, and they make arrangements for these stocks based on their orders, estimates, and market scenario. However, the lockdowns imposed due to the coronavirus pandemic caused many industries like automobile and consumer goods to cease their production. In contrast, other industries like hygiene goods, pharmaceuticals, and medical equipment manufacturing sectors had to ramp up their production capacity. An imbalance in the market caused discrepancies in the demand for raw materials, and the chemical companies have to realign their inventories to suit the changing needs.

5.
Facilitating Social Distancing at Sites
Workers are coming back to facilities that require retooling to expedite work and play catch-up on customer orders that previously halted. Chemical companies have to make drastic changes to their plants to provide a safe atmosphere for their workforce. This atmosphere involves regular sanitization of the premises, facilitation of social distancing, temperature checks of the staff, etc.

6.
Changes in Strategy for the Post-pandemic Era
The strategists and top executives at chemical companies have a robust and demanding job at their hands to realign their game plan for the post-pandemic era. Replanning involves gauging the market’s pulse at a granular level, understanding the varying needs for different chemical compounds, and providing investors and business partners with the plan’s visibility. Higher visibility drives the requirement to onboard agile analytical tools in conjunction with their manufacturing execution and warehouse management systems.

While there are many challenges in the chemical industry, they can get many of these issues addressed with comprehensive, all-inclusive technology. Companies need to evaluate a business solution that provides end to end Supply Chain Management, Financial Management functions plus embedded analytics to realign their processes and gain in depth visibility of the operations.

2020 has seen a massive shift in chemical companies’ overall functioning, which has enabled the need for proper planning, extensive use of robust integrated tools, and timely actions. By retooling to make themselves more agile, Chemical companies can ride this storm out and progress forward. The rapid changes in technology needs are here to stay and be a part of the Chemical companies’ key OKRs. Enterprises that wish to differentiate themselves in the Chemical industry need to transform from traditional to new-age entities.

Key Takeaways
The chemical industry needs to be agile and flexible to gauge the changing needs and serve the best during these trying times.
It is essential for chemical companies to not just strategize for the current times of crisis but also the post-pandemic era to grow sustainably.
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XcelPros delivers transformation through technology. We are a business and technology solutions company with deep industry knowledge in Chemical, Pharma, Life Sciences (including Medical Devices, Bio-Medical & Biotech), Discrete Manufacturing, Insurance, Distribution and Food & Beverage.