Industry 4.0 and the chemicals industry Catalyzing transformation through operations improvement and business growth Industry 4.0 and the chemicals industry

The Chemicals and Specialty Materials group within Deloitte Consulting LLP’s Supply Chain and Manufacturing Operations practice helps companies understand and apply Industry 4.0 technologies in pursuit of their business imperatives. Our insights into additive manufacturing, IoT, and advanced analytics enable us to help chemicals companies reassess their people, processes, and technologies, in light of advanced manufacturing practices that are evolving every day. Catalyzing transformation through operations improvement and business growth

About the authors

Stefan Van Thienen is a partner and leader of the Chemicals and Specialty Materials sector at Deloitte Belgium. His focus is on advising European chemical clients on growth, innovation, and performance improvement, and on the application of advanced technology in business operations.

Andrew Clinton is a senior manager in the Supply Chain and Manufacturing Operations practice at Deloitte Consulting NA. He is responsible for the development of analytics-based solutions for operations strategy, and he has led the development of industry-leading data analytics and visualiza- tion tools and capabilities.

Monika Mahto is an assistant manager with Deloitte Services India Pvt. Ltd., affiliated with Deloitte’s Center for Integrated Research. Over the last eight years, she has been involved in various strategic research assignments for clients in the consumer and industrial products industry.

Brenna Sniderman is a senior manager with Deloitte Services LP, affiliated with Deloitte’s Center for Integrated Research. Her research focuses on issues related to the application of advanced tech- nologies in manufacturing and the supply chain, and their impact on business growth.

Acknowledgements

The authors would like to thank Negina Rood and Robert Libbey (Deloitte Services LP) and Subramanian Neelakantan and Vaibhav Khobragade (Deloitte Services India Pvt. Ltd.) for their research contributions to this report.

iii Industry 4.0 and the chemicals industry

Contents

Introduction | 1

What can Industry 4.0 do for chemicals? | 3

The solutions layer architecture | 11

Conclusion | 14

Endnotes | 15

Contacts | 18

iv Catalyzing transformation through operations improvement and business growth

Introduction

N one way or another, the chemicals industry systems and advanced analytics models for Icontributes to almost every manufactured predictive asset management, process manage- product. The industry converts petroleum and ment and control, and virtual plant commis- natural gas into intermediate materials, which sioning.3 Beyond these traditional applications, are ultimately converted into products we the company completely automated the pro- use daily. With more than 20 million people duction of liquid soaps at its smart pilot plant employed and annual sales of $5 trillion, the in Kaiserslautern. Once a user places an order global chemicals industry serves as the back- for a customized soap, the radio-frequency bone of many end-market industries such as identification tags attached to the soap con- agriculture, automotive, construction, and tainers inform the equipment on the produc- pharmaceuticals.1 Changes in the chemicals tion line via wireless network connections industry are thus likely to have a ripple effect about the desired composition of the soap and on a number of other industries. packaging—thus enabling mass customization The rise of the fourth industrial revolution, without human involvement.4 or Industry 4.0 (see the sidebar “An overview of Industry 4.0”), is likely to drive such changes. Industry 4.0 Industry 4.0 brings together a number of brings together a number of digital and physical advanced technologies digital and physical advanced technologies to form a greater physical-to-digital- to form a greater physical-to-digital- to-physical connection—and it can potentially transform the chemicals to-physical connection—and it can industry by promoting strategic potentially transform the chemicals growth and streamlining operations. The time is ripe for such a trans- industry by promoting strategic growth and formation: Advanced technologies streamlining operations. relevant to the chemicals industry— such as the Internet of Things (IoT), advanced materials, additive manufacturing, This paper assesses key Industry 4.0 appli- advanced analytics, artificial intelligence, and cations across different stages of the chemicals robotics—together have reached a level of value chain. With the help of use cases, the cost and performance that enables widespread paper analyzes the opportunities that Industry applications.2 More importantly, these tech- 4.0 applications present, and discusses ways nologies are now advanced enough that they in which Industry 4.0 technologies could help can integrate with chemicals companies’ core chemicals companies achieve strategic impera- conversion and marketing processes to digi- tives, specifically in the areas of business opera- tally transform operations and enable “smart” tions and business growth. Because data play a supply chains and factories as well as new key role and act as a connecting link between business models. information technology (IT) and operations For example, BASF is using Industry 4.0 technology (OT), a solutions layer architec- applications in its deployment of connected ture for data management and use can help

1 Industry 4.0 and the chemicals industry

executives plan and deploy advanced technolo- gies and address challenges related to Industry 4.0 applications.

AN OVERVIEW OF INDUSTRY 4.0 As we explore the ways in which information is used to create value, it is important to understand this from the perspective of the manufacturing value chain, where organizations create value from information via the movement from physical to digital, and back to physical. Industry 4.0 combines the connected technologies inherent in the Internet of Things (IoT) with relevant IT and OT, including analytics, additive manufacturing, robotics, high-performance computing, artificial intelligence, cognitive technologies, advanced materials, and augmented reality, to drive the physical act of manufacturing.

Industry 4.0 incorporates and extends these connected technologies to complete the physical-digital-physical cycle (figure 1).5 The physical-to-digital and digital-to-physical leaps are unique to manufacturing processes; it is the leap from digital back to physical—from connected, digital technologies to the creation of a physical object or an improved process—that constitutes the essence of Industry 4.0.6

Broadly speaking, we identify two business imperatives for manufacturers: operating the business and growing the business. The focus on operations and growth can serve as a guide on which areas of the value chain merit greatest attention. Some areas can be readily addressed through Industry 4.0 applications. Deloitte terms these areas transformational plays: areas within the manufacturing value chain in which manufacturers can apply Industry 4.0 to achieve business imperatives.

For further information, see Industry 4.0 and manufacturing ecosystems: Exploring the world of connected enterprises.7

Figure 1. The physical-to-digital-to-physical leap of Industry 4.0

2. Analyze and visualize Machines talk to each other to share information, allowing for advanced analytics and visualizations of real-time data from multiple sources

2 1 DIGITAL PHYSICAL 1. Establish a digital record 3 Capture information from the physical world to create a digital record of the physical operation and supply network

3. Generate movement Apply algorithms and automation to translate decisions and actions from the digital world into movements in the physical world

Sources: Center for Integrated Research Graphic: Deloitte University Press | DUPress.com

2 Catalyzing transformation through operations improvement and business growth

What can Industry 4.0 do for chemicals?

F the two imperatives of business opera- Table 1 illustrates the Industry 4.0 transfor- Otions and growth, organizations focused mational plays (see the sidebar “An overview on the former can use Industry 4.0 technolo- of Industry 4.0”) for the chemicals industry. gies primarily to improve productivity and These strategic objectives can be pursued at reduce risk, while those focused on growth can different stages of the chemicals value chain, apply Industry 4.0 to build incremental rev- and in combination with each other. enue or generate wholly new income streams.

Table 1. Industry 4.0 transformational plays for the chemicals industry Product impact Key objectives Transformational plays

• Smart manufacturing Improve productivity • Supply chain planning

BUSINESS OPERATIONS Reduce risk

• Research and development Add incremental revenue • Smart products and services

Generate new revenue BUSINESS GROWTH

Source: Deloitte analysis. Graphic: Deloitte University Press | DUPress.com

The initial momentum of Industry 4.0 productivity and reducing risk. The produc- in the chemicals industry is primarily at the tivity of chemicals plants can be improved level of business operations, mainly due to the by various smart manufacturing techniques: abundance of historical sensor data collected predictive asset management, process control, by chemicals companies over the years.8 The and production simulations, among others. long-term potential for business growth appli- Reducing risk, though, involves managing sup- cations promises to be equally, if not more, ply chains and in-house operations to respond transformational, but those applications take to changing customer needs and to improve time to develop. safety and quality (table 2).

Improving business operations: Smart manufacturing: Marrying IT and OT to improve productivity Productivity and risk Also known as “smart factory,” smart manu- As table 1 shows, improving business facturing combines IT, such as the IoT, artifi- operations manifests in two ways: improving cial intelligence, and advanced analytics, with

3 Industry 4.0 and the chemicals industry

Table 2. Key objectives and transformational plays related to business operations Key objectives Transformational plays and description

Predictive asset management: Maximize asset utilization and minimize unplanned downtime

Process management and control: Minimize production variability and improve quality

Smart Energy management: Reduce energy costs and assess alternative energy manufacturing sources

Improve productivity Safety management: Monitor assets, processes, people, and products on a continuous and real-time basis Reduce risk

Production simulation: Improve operator training, manufacturing planning, and timely plant commissioning

Safety management: Monitor assets, processes, people, and products on a continuous and real-time basis Supply chain planning Demand forecasting: Adjust production schedules in line with changing customer needs

Source: Deloitte analysis. Graphic: Deloitte University Press | DUPress.com

to predict and diagnose possible breakdowns. The productivity of chemicals In doing so, smart equipment can send mes- plants can be improved by sages to plant operators about any required maintenance, potential breakdowns, and parts various smart manufacturing ordering and delivery schedules. This can techniques: predictive asset enable manufacturers to evolve from sched- uled or reactive repairs to predictive main- management, process control, tenance. Also, data from similar equipment and production simulations, installed in different sites can be collected, compared, and used for predictive mainte- among others. nance, performance optimization, and design of new facilities. OT, such as additive manufacturing, advanced The simultaneous relay of machine per- materials, and robotics.9 This process can ben- formance information to both the chemicals efit chemicals companies in several ways: company and the equipment manufacturer can also improve aftermarket performance: Predictive asset management Equipment that performs according to perfor- The chemicals industry is characterized mance contract earns agreed-upon payment, by high asset intensity. As such, advanced IT/ while the payment for equipment with failures OT technologies can help companies optimize or breakdowns early in the promised life cycle their maintenance spends and improve asset is lower. Such arrangements are especially criti- efficiency through predictive or digital main- cal for the chemicals industry, where equip- tenance. Using the continuous feed of data ment is sophisticated and expensive. collected from sensors on critical equipment In one example, a global chemicals com- such as turbines, compressors, and extruders, pany repeatedly faced unplanned downtime advanced analytics tools can identify patterns due to an extruder that failed more than 90

4 Catalyzing transformation through operations improvement and business growth

times in one year—leading to losses in produc- to identify patterns and deviations in chemi- tion, scrap, and overtime labor. Using real-time cal processes before they occur, thus reducing monitoring, the company gathered structured production risks. data from the extruder sensors as well as unstructured data from maintenance records, Energy management training records, and other sources, and devel- Energy costs contribute significantly to a oped failure prediction models. By evaluating chemicals plant’s production costs. A typi- cause-and-effect relationships, the prediction cal plant involves multiple activities and their model generated alerts and recommendations interactions, and it is difficult for operators on the extruder performance. Business results to select optimal operating conditions. One included an 80 percent reduction in unplanned leading manufacturer, Borealis, uses data min- downtime and operational expenditure savings ing and modeling to develop dynamic target of about $300,000 per asset. As part of a trans- values for the energy consumption of a plant— formation of its operating model, the company accounting for factors such as the current is considering deploying similar asset manage- conditions of the plant, outside temperatures, ment systems for other critical assets across fouling of the systems, aging of the catalysts, plant locations.10 etc.13

Process management and control In earlier days, control rooms of petrochemicals companies used to Digitization is only the first step, however. have analog controllers along the Industry 4.0 technologies such as real- walls; operators walked around the room, manually checking readings to time analytics and automated control ascertain plant operations and con- actions bring together the digital and ditions. In modern control rooms, data are collected through connected physical realms—supporting prediction, systems and presented to operators alerts, and prescriptive responses. digitally, obviating the need for manual reviews and saving operators’ time and effort.11 Digitization is only the first step, however. Industry 4.0 technologies The chemicals industry has a high degree of such as real-time analytics and automated automation, and most plants monitor stan- control actions bring together the digital and dard variables such as temperature, flows, tank physical realms—supporting prediction, alerts, levels, and pressures to derive optimal plant and prescriptive responses. This, in turn, working conditions. However, Industry 4.0 enables greater control over batch consistency technologies such as soft or virtual software and quality. sensors can augment these data points with Process variability results from a variety additional information and enable control of factors, starting from the quality of the raw of nonstandard process variables to improve materials to variations in internal processes energy efficiency. Soft sensors are neural- such as raw material dosing, temperature con- network–based inferential estimators that trol, residence times, system fouling, and aging can process a number of variables collected catalysts.12 Similar to predictive asset manage- through standard instrumentation, estimate ment, process management involves collecting new process and equipment parameters (not structured and unstructured data via sensors otherwise collected), and improve operator from various sources such as the lab, alarms, effectiveness and plant efficiency. Soft sen- and process equipment. Analytics models help sors can be helpful in cases where physical

5 Industry 4.0 and the chemicals industry

instrumentation is expensive or difficult their peers, and individual and collective per- to install.14 formances can be monitored by instructors.18 Operators can also access the real plant data Safety management created through the use of digital twins.19 Given the sensitive nature of their products, In addition to operator training and prog- it is particularly critical that chemicals com- nostics, 3D virtualization also helps operators panies ensure the safety of their employees, prepare before the plant operations begin. supply chain partners, and customers through- BASF is using a simulated environment to out the product life cycle, from production reduce the time required for plant commis- to storage, transport, and end use.15 While sioning at its site in Germany.20 The company traditional safety methods involve monitoring can validate automation configurations, while and testing samples, connected technologies data inconsistencies and errors in the automa- can help companies in continuously monitor- tion can be identified and corrected. In another ing products, by-products, as well as any waste example, Sinopec Engineering, a Chinese generated. For example, “smart” (piezoelec- chemicals company, used SmartPlant 3D, an tric composite) paints can sense mechanical advanced plant design software, to plan the vibrations or other changes such as corrosion plant structure, machinery, and piping mod- or cracks in a chemical tank and inform the els for a 300,000-ton polyethylene project in operators, reducing production risks.16 Maoming and improve workflow.21 In another example, a specialty chemicals manufacturer uses unmanned aerial systems Supply chain planning: Predicting (drones) to inspect hard-to-reach or dangerous changes to reduce operational risk plant locations and equipment such as elevated Industry 4.0 helps chemicals companies pipelines, power lines, tanks, and flare stacks. plan their supply chains in two ways: First, Traditionally, the company used ropes, ladders, sensors and connected systems can help to and bucket trucks for monitoring and inspect- improve visibility into the supply chain, reduc- ing elevated structures. Inspection of flare ing risks. Second, advanced analytics tools can stacks is especially tricky because flare tem- help chemicals companies predict demand pat- peratures could exceed 2,000 degrees Celsius, terns and accordingly align their supply chain requiring the plant to be temporarily shut and manufacturing operations.22 down for a manual inspection.17 In contrast, drones equipped with cameras can capture Supply chain visibility high-resolution images, while a variety of sen- Chemicals companies largely operate on sors can capture much more information than a business-to-business model, selling prod- the human eye, thus improving the efficiency ucts that are used by their customers to create of maintenance engineers and safety of the another set of products. In some instances, plant and surrounding areas. customers may require that the products be delivered within a specific range of tempera- Production simulation ture or pressure so that they are suitable for Chemicals companies are increasingly subsequent production processes. To monitor using 3D visualization and virtual reality for chemicals during transit—a delicate time for training operators and maintenance staff. monitoring and controlling conditions—many Siemens’ Immersive Training Simulator, for companies in the upstream and downstream example, provides operators virtual experi- value chain use connected tools such as Ovinto ence of various on-site situations. Trainees can satellite monitoring devices on railcars. The “walk” across a simulated plant, “work” with device is fitted with a GPS to track the location the equipment and instruments, and “handle” of the railcar, while several sensors measure safety situations. They also can collaborate with the physical properties of the chemicals as well

6 Catalyzing transformation through operations improvement and business growth

as the condition of the railcar via data such as Demand forecasting is relatively easier for shock impacts. The data are collected through companies in the downstream chemicals value Low Earth Orbit satellites that ensure continu- chain, given their proximity to end customers. ous connectivity. The system generates alerts AkzoNobel, for instance, uses point-of-sale when the railcar is near the customer location data from retail outlets to reduce operational or is involved in an impact or collision, or risks associated with out-of-demand paints when the physical properties of the chemi- and holding costs associated with slow-moving cals being transported exceed the set ranges, inventories.25 Demand forecasting can be thus triggering automated action or manual extended beyond the point of sale to earlier intervention.23 The stages of the value visibility provided by chain. Apart from the direct, continuous working with their interaction between Industry 4.0 helps chemicals construction compa- the railcar and chemi- nies, chemicals com- cals company can companies plan their supply panies can use sensing enable better supply chains in two ways: first, software to monitor chain planning while construction-relevant helping to ensure by improving visibility into discussions on social safe transport of the supply chain; second, by media and draw infer- dangerous chemicals. ences about customer The above example predicting demand patterns. sentiments related illustrates the oppor- to new construction tunity for chemicals as well as inclination companies to build and operate in digital toward home buying and renovation.26 The ecosystems that enable several players—the collected data can be classified according to a transport operator, sensor provider, satellite number of criteria such as sites, geographies, network operator, technology provider for data and demographics to understand different buy- storage on the cloud, and analytics provider for ing behaviors. In order to validate the demand data analysis and visualizations—to work in signals, the information collected from social tandem toward a common business objective. media can be compared with information from other sources such as residential listings, Demand forecasting search behaviors, and actual past data from Chemicals companies can achieve capacity the census and third parties.27 Such forecasting optimization through demand forecasting and efforts can help chemicals companies identify responsive scheduling. In one example, BASF demand indicators, and expand or contract is deploying a predictive analytics approach by their production capacities accordingly. combining the company’s historical data with economic data, enabling it to forecast demand. Growing the business: The forecasting model considers external fac- Incremental and new revenue tors such as seasonal effects, macroeconomic data for customer industries at national and The transformational plays Industry 4.0 regional levels, regulatory changes, and inter- offers related to business growth lie on two nal factors such as BASF’s strategies—expan- ends of the value chain. On one end, compa- sion, mergers and acquisitions, divestures, nies can develop new offerings or improve and other transactions. Using the forecasting existing ones through research and devel- model, BASF can plan and adapt its plant runs opment (R&D) of advanced materials and as demand changes.24 specialty products. On the other end, digital technologies enable chemicals companies

7 Industry 4.0 and the chemicals industry

to integrate with customers’ operations and new materials with desired properties for customize products, extend their products specific customers. with information and services in a way that allows them to charge premiums, and, at times, Additive manufacturing for testing develop new business models (table 3). or developing new products Additive manufacturing (also known as 3D printing) uses information from the digital realm to create a physical product, The transformational plays encapsulating the IT/OT transition, poten- Industry 4.0 offers related to tially helping chemicals companies save costs during the R&D process. It allows designers business growth lie on two to custom-build a reactor with specific geo- ends of the value chain. metrical configurations to control the chemi- cal process within, as well as with the specific reaction kinetics or residence time of the Research and development: chemical reaction.29 For example, research- Developing new products ers at the University of Glasgow developed to expand revenue 3D-printed polypropylene reactors that could R&D is perhaps the most critical stage serve as cost-effective alternatives to stainless in the value chain: It shapes not only how steel reactors. These plastic reactors—built the products will be manufactured but also at lab scale or bigger—perform just as well informs subsequent improvements.28 Because as traditional reactors at 150 degrees Celsius, R&D demands heavy investment, chemicals potentially reducing operating costs of chemi- companies are looking at big data and other cals labs and aiding additional experimenta- tools to predict the outcome of an investment. tion that might lead to the discovery of new In the field of material genomics, for example, chemical compounds.30 advanced analytics helps researchers use the Furthermore, additive manufacturing can available data to understand the chemical help chemicals companies develop and build properties of available materials, and consider advanced materials, creating new revenue possible combinations in order to develop opportunities. A leading manufacturer of spe- cialty chemicals recently developed stretchable

Table 3. Industry 4.0 key objectives and transformational plays related to business growth Key objectives Transformational plays and description

Additive manufacturing for testing or developing new products

Research and Advanced analytics for selecting materials development

4D printing for developing advanced materials Add incremental revenue

Bring in new revenue Developing smart products for chemicals applications

Smart products Offering data services to augment existing revenues and services

Building new revenue models by forward-integrating into customers’ operations

Source: Deloitte analysis. Graphic: Deloitte University Press | DUPress.com

8 Catalyzing transformation through operations improvement and business growth

pure-play (contract) manufactur- Advanced analytics can help chemicals ing role, thus disrupting their companies use digital information to traditional business models of just selling liquids and solids. The next create new “physical” materials. transformational play on smart products and services discusses how chemicals companies can and screen-printable electronic inks for use develop differentiated value-based in smart clothing. Manufacturers can use the propositions for their customers and grow printable ink to embed sensors such as electro- their revenue streams. cardiogram, temperature, and motion sensors along with a battery onto a small, coin-sized 4D printing for developing disk on conventional fabrics to collect data via advanced materials a smartphone app.31 Among many developments in advanced materials, one noteworthy example is that of Advanced analytics for programmable materials, also known as 4D selecting materials printing. Developed at the MIT’s Department Advanced analytics can help chemicals of Architecture lab, programmable materials companies use digital information to create can self-assemble and change shape and form new “physical” materials. Researchers at the with time—the fourth dimension. External University of Illinois, Urbana-Champaign, stimuli such as light, heat, and water trigger recently developed a molecule-synthesis expansion and contraction at different places machine that develops new drugs and agri- in the material.36 As commercial developments cultural chemicals; it works by breaking down materialize, the chemicals industry can use complex molecules into their basic building programmable materials to create new prod- blocks, which can then be recombined to ucts for customers in the aerospace, automo- create new compounds.32 Developments such tive, construction, and health care industries, as lower data-storage cost, high-performance benefitting from new revenue streams.37 computing (HPC), and advanced analytics help build databases that store information Smart products and services: on available materials and their properties, Making products intelligent and as well as present new material combinations creating new data services with desired properties—leading to advances Advanced technologies such as the IoT in material genomics.33 Chemicals compa- could allow chemicals companies to add nies could also shift from trial and error to intelligence to their existing products and modeled outcomes to digitize the material- deliver better customer service. In addition, selection process.34 chemicals companies could complement their The Deloitte report Driving growth: traditional pay-by-the-ton revenue model by Advanced materials systems discusses a reverse offering value-added data services. By forward- approach in which companies could start integrating into their customers’ operations, with the function they would like the materi- chemicals companies can deliver value propo- als to perform in a solution or system. Then, sitions and even build new business models.38 through “reverse engineering,” companies can determine what the chemical and physi- Smart products for cal properties of the constituent materials chemicals applications should be and develop materials accordingly.35 Beyond offering traditional products, As their customers start to use this approach, chemicals companies can provide technical chemicals companies may be pushed into a recommendations via an app or software to

9 Industry 4.0 and the chemicals industry

help customers determine the right choice and by pathologists. Additionally, alerts could be application of chemical products. In this way, sent to farmers in nearby areas—identified via the combination of chemicals and technology GPS—about the possible spread of that disease becomes a “smart solution,” or a larger product and suggestions for preventive measures.41 and service offering. Eastman Chemical, for Both the examples illustrate how real-time example, offers an online “solvent comparison farm information, combined with chemicals tool” and a web-based “resin calculator” for its companies’ historical databases built through coatings customers. The solvent comparison years of field trials, could help farmers move tool helps companies compare and choose res- from intuitive to analytical decision making ins and solvents based on their properties. The around what seed to plant, when to plant it, resin calculator generates resin solubility charts and what inputs to provide: water, fertilizers, for various resins sold by Eastman as well as chemical treatments, and others.42 other chemicals manufacturers, and helps customers understand the stoichiometry for New revenue models by forward- resin polymerization in coatings and adhesives integrating into customers’ operations applications. Once the user enters a selection Chemicals companies have the opportunity of raw materials and resin parameters, the to use their years of collaborative knowledge model uses a series of calculations to propose to integrate within their customers’ opera- a resin product that meets the desired param- tions. Traditional manufacturers, in addition eters. Both the tools provide formulators with to selling water-treatment chemicals, provided the technical intelligence to develop coatings water-treatment recommendations to their that meet various performance requirements customers based on site visits and their under- within cost constraints.39 standing of materials and assets. With Industry 4.0 connectivity, monitoring, and analytics, Data services to augment chemicals companies can have direct visibil- existing revenues ity into and interaction with their customers’ Information and connected systems can operations, and can provide real-time recom- help chemicals companies create data ser- mendations to optimize the operations and vices that complement their existing product improve the design of water-treatment facili- revenues. For instance, Monsanto offers a ties; this, in turn, helps them create a new busi- “Climate Basic” app that provides farmers with ness model for themselves. One case in point real-time information collected from satellites is Ecolab, which provides water treatment as a on temperature, weather, and soil conditions service. In addition to supplying water-treat- and forecasts for the next few days, along with ment chemicals, the company uses real-time recommendations on optimal water levels and monitoring of customers’ operations and assets fertilizers based on the information collected with advanced analytics to provide recommen- from the field.40 dations on water use, reuse, and recycling.43 Likewise, there are software tools that help Throughout each of the application areas farmers detect and diagnose plant diseases. discussed above, the collection, management, The farmer can click a picture of the diseased and use of data remain the most critical ele- plant and feed the image into an analytical ment of Industry 4.0; thus issues associated model. The model works by comparing the with data security, ownership, and interoper- leaf’s diseased part with images of diseased ability are pertinent for executives planning plants stored on a connected database. Once Industry 4.0 deployments. A solutions layer the model identifies a match, it provides rec- architecture, discussed in the next section, ommendations for treatment. For validation allows executives to link data implementation of computerized recommendations, the image to business-level decisions and build a digital could also be sent to a laboratory and reviewed DNA within their organizations.

10 Catalyzing transformation through operations improvement and business growth

The solutions layer architecture Enabling Industry 4.0 technologies and capabilities

that brings together capabilities in different N Industry 4.0, data play a key role in con- domains—required for a digital transforma- necting IT and OT. Data management, ana- I tion.44 The layers in this structure begin with lytics, and automation, combined with domain technology integration, data management, knowledge in manufacturing and supply and advanced analytics, which in the physi- chain along with leadership support, are criti- cal realm are manifested in the form of digital cal factors to enabling a company’s Industry interfaces that are used to drive digital capa- 4.0 journey. bilities and, finally, the strategic imperative of These factors, however, can present chal- the business. lenges; it is difficult for organizations to know The architecture draws on data from smart where to focus and what to prioritize, or even assets created via connected technologies used what capabilities should be put in place, to in product design, manufacturing and sup- achieve their specific objectives. A structured ply chain operations, and customer engage- series of capabilities, or a solutions layer archi- ment. Figure 2 describes the multiple layers of tecture, can help executives plan and imple- Industry 4.0–driven capabilities that chemicals ment Industry 4.0 technologies. The goal of organizations must have as they seek to use this architecture is to enable the company to information to drive productivity, reduce risk, build a digital DNA—the underlying sequence

Figure 2. Solutions layer architecture and its key dimensions for Industry 4.0

Business imperatives Strategizing where to play, which operations to improve, which propositions to deliver, and how to reconfigure the operating model for value delivery

Digital interface Communicating the insights at the point of use— agile and focused on the customer models

SMART Advanced analytics ASSETS Data mining, modeling, simulation, and optimization; service delivery models

Data management Data integration and validation, big data infrastructure, governance

Technology integration IoT platform integration, involving technology, data architecture, and scalability

Sources: Deloitte Services, LP. Graphic: Deloitte University Press | DUPress.com

11 Industry 4.0 and the chemicals industry

and grow revenue. Also, as Industry 4.0 facili- about chemicals processes, asset performance, tates increased connectivity between chemicals energy use, and supply chain operations— manufacturers and upstream and downstream even if not in a perfect and clean state—can partners along with their products, services, be used to draw meaningful insights that can equipment, and information databases, manag- guide informed decision making. Talent is ing cyber risk is a critical component. an important issue here: Industry 4.0–driven advanced analytics requires not just soft- Technology integration ware programmers but also analysts who can marry chemicals domain knowledge with The most fundamental layer of the Industry software capabilities. 4.0–driven approach for chemicals, technology integration encapsulates all of the technology elements that facilitate the physical-to-digital Digital interface transition. The layer connects specific hard- This layer describes how the insights gener- ware components, supporting systems, and ated by analytics are conveyed to the busi- applications, facilitating the integration of ness user, with a focus on customizations for different parts of chemical equipment, dif- the applications and end users. Insights are ferent equipment in a plant, and different conveyed in a meaningful and useful way to chemicals plants across locations to share best the user at the point of use (for example, on the practices on the use of data management and factory floor or during a face-to-face inter- advanced analytics. action with the customer) so that users can either determine next steps or understand the Data management impetus behind actions that have automatically been taken by intelligent systems and machin- Data management includes all the activi- ery. The digital layer is critical in facilitating ties associated with the collection, aggregation, this delivery. storage, and processing of data. Chemicals companies are wrestling with the fact that their data are stored in different systems: Financial, Business imperatives sales, and marketing data are stored in one At this layer, company leaders can use the system; operations, production, and manu- data to determine actions they may want to facturing in a different system; and R&D and take based on their current strategic position engineering in another.45 In order to truly real- and where they want to go. What is important ize the value of Industry 4.0, these data must to note here is that, via Industry 4.0 technolo- be combined for a holistic view of the organi- gies such as advanced analytics, HPC, and cog- zation. The “data lake,” a component of the data nitive computing, chemicals companies have management layer, combines all the data from far wider and deeper insight than ever before, multiple sources, both internal and external, enabling more informed strategy decisions. on cloud-based warehouses and deploys real- At the same time, however, strategic decisions time analytics to provide meaningful insights must include a willingness to make invest- to chemicals manufacturers.46 The amount of ments in Industry 4.0 technologies in the first data generated may necessitate tools such as place, and this can present a significant hurdle. HPC and other Industry 4.0 technologies. Financial implications associated with the cost of purchasing smart equipment, retrofit- Advanced analytics ting old equipment with sensors, and meeting connectivity and energy requirements must be Once all the data are aggregated, advanced addressed. In addition to the financial factors, analytics makes sense of the information behavioral factors associated with leadership’s to drive action in the physical realm. Data hesitation to deploy new technologies present

12 Catalyzing transformation through operations improvement and business growth

an altogether-different set of challenges to making it even more relevant for chemicals Industry 4.0 implementations.47 companies to bring together competencies from different departments—such as R&D, Climbing the pyramid: sourcing, manufacturing, and commer- Where to start cial operations—in pursuit of a common imperative related to business operations Chemical companies need to build capabili- or growth. ties on each of the layers to achieve some com- bination of business operations and growth. • Build and be a part of a pervasive eco- As chemicals organizations seek to build an system. Companies need to build diverse Industry 4.0 solutions architecture, the follow- capabilities in big data infrastructure, 48 ing actions might help them: management, integration, validation, and analytics to be able to deploy Industry • Start with what you know or do best. 4.0 applications. This requires chemicals A good starting point could be the areas companies to partner with technology where chemicals companies have a strong vendors, analytics providers, and universi- foundation: Use organizational agility ties, among others, to manage operations to absorb changes in mature chemicals at each layer. Chemicals companies have processes, traditional products, and sup- access to customers’ data related to their ply chain operations where there is good assets, manufacturing activities, and buy- visibility, then move onto relatively newer, ing attitudes; however, often, those data more complex applications. This approach are underutilized. Chemicals companies should work well because chemicals compa- can collaborate with partners and utilize nies are likely to have historical data related those data brownfields to draw insights to mature products and processes that they on developing smart chemicals products can leverage to uncover new insights and and service-based value propositions, and identify new sources of operations improve- devising new revenue models. ments or revenue growth. • Manage your cyber risk. With greater • Enable a cross-functional Industry interaction with ecosystem partners, 4.0 team. The competencies required chemicals manufacturers should focus on a in the architecture sit in different busi- risk management policy and technologies. ness functions, and hence it is important These can help them manage the risks asso- that chemicals executives create a cross- ciated with retrofitting and loosely coupled functional team to focus on Industry 4.0 assets as well as those associated with opportunities. It is worthwhile to reiter- scalable automated systems that eliminate ate that Industry 4.0 applications extend human involvement.49 across different stages of the value chain,

13 Industry 4.0 and the chemicals industry

Conclusion

NDUSTRY 4.0 will likely impact the way instead should provide ways for chemical Ichemicals companies operate and grow their executives to think through the opportunities businesses, as they shift away from the pay-by- that Industry 4.0 offers: evaluate their current the-ton revenue model to provide value-added strategic position; deploy advanced technolo- products and services to their customers. How gies in select applications to develop a proof fast and well companies perform will depend of concept; and reconfigure operating models on the decisions they take today and the initia- and, potentially, business models based on tives they commit to for the coming years. the outcomes. A clear understanding of their strategic As companies face various challenges in imperatives can enable chemicals companies their journey to Industry 4.0, it is critical that to plan their Industry 4.0 journey and help they prepare their technology and data land- them identify how to integrate their digital and scape to support the evolving changes in their physical assets across different stages of the products, services, and, at times, new business value chain. The use cases discussed earlier in models to create a competitive advantage for the paper illustrate how chemicals companies themselves in the long run. The solutions layer can use Industry 4.0 technologies to enhance architecture provides a simple way to approach business operations via asset optimization, the competencies required to deploy Industry process and energy management, and safety 4.0 technologies. Beyond technology, how- processes, while also thinking about ways to ever, the agility of people and organizations in grow their business through advanced material adapting to change determines how effectively discoveries, smart chemical products, and new they adopt Industry 4.0. service-driven value propositions. As changes in chemicals affect related Note that the applications presented in industries, time is of the essence: Industry 4.0 this paper are not meant to be exhaustive but is no longer a topic of the future.

14 Catalyzing transformation through operations improvement and business growth

Endnotes

1. International Labor Organization, “ILO the strategic initiative Industry 4.0,” April meeting: Decent work in the chemical 2013, http://www.acatech.de/fileadmin/ industry,” November 25, 2013, http://www. user_upload/Baumstruktur_nach_Website/ ilo.org/global/about-the-ilo/newsroom/ Acatech/root/de/Material_fuer_Sonderseiten/ news/WCMS_230469/lang--en/index.htm; Industrie_4.0/Final_report__Industrie_4.0_ac- Paul Mulvaney, “Chemistry has a bright cessible.pdf, accessed May 24, 2016. future for us and our economy,” Phys.org, 7. Brenna Sniderman, Monika Mahto, and Mark February 19, 2016, http://phys.org/news/2016- J. Cotteleer, Industry 4.0 and manufacturing 02-chemistry-bright-future-economy.html. ecosystems: Exploring the world of connected 2. For detailed analyses on each of these enterprises, Deloitte University Press, Febru- technology domains, visit Deloitte University ary 22, 2016, http://dupress.com/articles/ Press’s Internet of Things collection at http:// industry-4-0-manufacturing-ecosystems- dupress.com/collection/internet-of-things/; exploring-world-connected-enterprises/. additive manufacturing collection at http:// 8. Based on our discussions with internal dupress.com/collection/3d-opportunity/; and chemicals industry practitioners. analytics collection at http://dupress.com/ collection/analytics-strategic-advantage/. 9. The “smart manufacturing” transfor- mational play maps to the “smart fac- 3. BASF, “BASF cooperates with partners to tory” transformational play, as described in introduce online control of complex batch Sniderman, Mahto, and Cotteleer, Industry processes,” March 25, 2015, https://www.basf. 4.0 and manufacturing ecosystems. com/en/company/news-and-media/news- releases/2015/03/p-15-172.html; Siemens, 10. Based on client work in our Supply Chain Industry journal: Topics, trends, and technolo- and Manufacturing Operations practice. gies for decision makers in manufacturing, Janu- 11. Based on our discussions with internal ary 2014, https://www.industry.siemens.com/ chemicals industry practitioners. topics/global/en/magazines/industry-journal/ 12. Based on our discussions with internal Documents/industry-journal-1-2014-en.pdf. chemicals industry practitioners. “Residence 4. Germany Trade & Invest, Industrie 4.0: time” refers to the time a material stays in Smart manufacturing for the future, July a chemical reactor, while “system fouling” 2014, http://www.gtai.de/GTAI/Content/ refers to the accumulation of unwanted EN/Invest/_SharedDocs/Downloads/ material with a detrimental effect on the GTAI/Brochures/Industries/industrie4.0- function provided by the system. smart-manufacturing-for-the-future-en. 13. Based on client work. pdf; Christopher Alessi, “Germany develops ‘smart factories’ to keep an edge,” Market 14. Hiromasa Kaneko and Kimito Funatsu, Watch, October 27, 2014, http://www. “Database monitoring index for adaptive marketwatch.com/story/germany-develops- soft sensors and the application to industrial smart-factories-to-keep-an-edge-2014-10-27. process,” AIChE Journal 60, no. 1 (2014): pp. 160–69, DOI:10.1002/aic.14260. 5. For detailed analyses on each of these technology domains, visit Deloitte University 15. Based on our discussions with Press’s Internet of Things collection at http:// chemicals executives and internal dupress.com/collection/internet-of-things/; chemicals industry practitioners. additive manufacturing collection at http:// 16. Y. Al-Saffar, O. Aldraihem, and A. Baz, “Smart dupress.com/collection/3d-opportunity/; and paint sensor for monitoring structural vibra- analytics collection at http://dupress.com/ tions,” Smart Materials and Structures 21, no. 4 collection/analytics-strategic-advantage/. (2012), DOI:10.1088/0964-1726/21/4/045004. 6. Germany Trade & Invest, Industrie 4.0; 17. Sarah Everts and Matt Davenport, “Drones National Academy of Science and Engineering, detect threats such as chemical weapons, “Securing the future of German manufacturing volcanic eruptions,” Chemical & Engineering industry: Recommendations for implementing News 94, no. 9 (2016): pp. 36–37; Federal

15 Industry 4.0 and the chemicals industry

Aviation Administration, “The Dow Chemical 28. The “research and development” transfor- Company—exemption no. 11259,” April 3, mational play maps to the “engineering” 2015, https://www.faa.gov/uas/legislative_pro- transformational play, as described in grams/section_333/333_authorizations/media/ Sniderman, Mahto, and Cotteleer, Industry The_Dow_Chemical_Company_11259.pdf. 4.0 and manufacturing ecosystems. 18. Siemens, “Simulation and virtual reality: 29. To learn more about additive manufactur- Training in the virtual world,” October 1, ing, see Deloitte University Press’s 3D 2014, http://www.siemens.com/innovation/ Opportunity collection at http://dupress. en/home/pictures-of-the-future/digitalization- com/collection/3d-opportunity/. and-software/simulation-and-virtual-reality- 30. Royal Society of Chemistry, “3D printed immersive-training-in-virtual-worlds.html. reactionware hots up,” August 6, 2014, http:// 19. “Digital twins” are digital companions of www.rsc.org/chemistryworld/2014/08/3d- physical assets built using data collected from printed-reaction-vessels-hot-temperature. sensors placed on equipment; digital twins 31. Mary Catherine O’Connor, “Powered with can be used to model virtual plant operations. printable electronics and sensors, smart For further information, see Mark J. Cotteleer, apparel is reaching for stretch goals,” IoT Stuart Trouton, and Ed Dobner, 3D opportunity Journal, November 25, 2014, http://www. and the digital thread: Additive manufacturing iotjournal.com/articles/view?12454. ties it all together, Deloitte University Press, March 3, 2016, http://dupress.com/articles/3d- 32. Robert F. Service, “The synthesis machine,” printing-digital-thread-in-manufacturing/. Science 347, no. 6227 (2015), pp. 1190–93, DOI:10.1126/science.347.6227.1190. 20. Siemens, Industry journal: Topics, trends, and technologies for deci- 33. Ibid. sion makers in manufacturing. 34. Council on Competitiveness, Case study: 21. Intergraph, “Case study: Sinopec Engineer- Procter & Gamble’s story of suds, soaps, ing Inc.,” 2012, https://www.intergraph. simulations, and supercomputers, July 28, com/assets/pdf/Sinopec_Case_Study.pdf. 2009, http://science.energy.gov/~/media/ ascr/pdf/benefits/Hpc_pg_072809_a.pdf. 22. The “supply chain planning” transfor- mational play maps to the “planning” 35. For more information on the use of advanced transformational play, as described in technologies for the development of improved Sniderman, Mahto, and Cotteleer, Industry or new materials, see Duane Dickson, Tom 4.0 and manufacturing ecosystems. Aldred, and Jeff Carbeck, Driving growth: Advanced Materials Systems, Deloitte Uni- 23. “Monitoring tank wagons via satellite,” versity Press, March 28, 2013, http://dupress. Railway Gazette, October 28, 2015, http:// com/articles/advanced-materials-systems/. www.railwaygazette.com/news/freight/ single-view/view/monitoring-tank-wagons- 36. Dan Headrick, “4D printing transforms via-satellite.html; Ovinto, Monitoring of product design,” Research Technology hazardous goods in unpowered transport Management 58, no. 2 (2015): pp. 7–8. units, www.ovinto.com/assets/ovintosatatex- 37. Based on our discussions with brochure.pdf, accessed March 8, 2016. chemicals executives and internal 24. Robert Blackburn et al., “A predictive analyt- chemicals industry practitioners. ics approach for demand forecasting in the 38. The “smart products and services” transfor- process industry,” International Transactions mational play maps to the “smart products” in Operational Research 22, no. 3 (2015): transformational play, as described in pp. 407–28, DOI:10.1111/itor.12122. Sniderman, Mahto, and Cotteleer, Industry 25. Terra Technology, “AkzoNobel selects 4.0 and manufacturing ecosystems. Terra Technology’s multi-enterprise 39. Eastman Chemical, “Online tools,” http:// demand sensing to further reduce inven- www.eastman.com/Products/Pages/Chemi- tory,” November 12, 2013, https://www. cal_Wizards.aspx, accessed April 5, 2016. terratechnology.com/akzonobel-selects-terra- 40. Monsanto, “Finding the perfect planting technology-s-multi-enterprise-demand- window: The evolution of weather forecast,” sensing-to-further-reduce-inventory/. http://www.monsanto.com/improvingag- 26. Based on pilot work for a client proposal. riculture/pages/the-evolution-of-weather- 27. Ibid. forecast.aspx, accessed April 28, 2016.

16 Catalyzing transformation through operations improvement and business growth

41. Suporn Pongnumkul, Pimwadee Chaovalit, and assess their digital maturity levels and Navaporn Surasvadiet, “Applications of smart- navigate the leadership, organizational, and phone-based sensors in agriculture: A sys- talent aspects of their digital transformation tematic review of research,” Journal of Sensors journey. View the complete report at http:// 2015 (2015): p. 4, DOI:10.1155/2015/195308, www2.deloitte.com/uk/en/pages/technology/ accessed April 12, 2016. articles/building-your-digital-dna.html. 42. Manfred Kern, Digital agriculture, ISPSW, 45. Based on our discussions with 2015, p. 3, http://www.isn.ethz.ch/Digital- chemicals executives and internal Library/Publications/Detail/?id=189104; chemicals industry practitioners. Tim McDonnell, “Farming in the face of 46. For detailed analysis on data architectures, climate change? Monsanto has an app for refer to Rajeev Ronanki et al., Industrial- that,” Grist, November 20, 2014, http:// ized analytics: Data is the new oil. Where grist.org/climate-energy/farming-with- are the refineries? Deloitte University Press, monsanto-seeds-theres-an-app-for-that/. February 24, 2016, http://dupress.com/ 43. Ecolab, “Water management technolo- articles/data-assets-and-analytics/. gies,” http://www.ecolab.com/innovation/ 47. For detailed analysis, refer to James Guszcza core-technologies/water-management- and Mark J. Cotteleer “Editorial: Behav- technologies/, accessed May 12, 2016. ioral insights—putting Humans in the loop,” 44. The Deloitte LLP research report Building your Deloitte Review 18, Deloitte University digital DNA: Lessons from digital leaders (2014) Press, January 25, 2016, http://dupress.com/ presents insights from a series of interviews articles/behavioral-insights-leader-column/. and discussion groups with digital executives 48. Based on our discussions with internal across industries and Deloitte consultants chemicals industry practitioners. from the Deloitte Digital and Human Capital practices. The report, together with 49. For a detailed discussion and insights on an interactive Digital Leadership Hub (http:// this topic, see Deloitte Cyber Risk services www.deloitte.co.uk/digitalleadershub/index. at http://www2.deloitte.com/us/en/pages/ htm#/), provides a toolkit to help organizations risk/solutions/cyber-risk-services.html.

17 Industry 4.0 and the chemicals industry

Contacts

Duane Dickson Stefan Van Thienen Global and US Chemicals sector leader Belgium Chemicals and Specialty Principal Materials sector leader Deloitte Consulting LLP Partner +1 203 905 2633 Deloitte Belgium [email protected] +3 227 495 731 [email protected] Andrew Clinton Specialist leader, Strategy and Operations Mark J. Cotteleer Senior manager Director, Center for Integrated Research Deloitte Consulting LLP Managing director +1 347 406 1272 Deloitte Services LP [email protected] +1 414 977 2359 [email protected]

18 Catalyzing transformation through operations improvement and business growth

19 Follow @DU_Press Sign up for Deloitte University Press updates at DUPress.com.

About Deloitte University Press Deloitte University Press publishes original articles, reports and periodicals that provide insights for businesses, the public sector and NGOs. Our goal is to draw upon research and experience from throughout our professional services organization, and that of coauthors in academia and business, to advance the conversation on a broad spectrum of topics of interest to executives and government leaders. Deloitte University Press is an imprint of Deloitte Development LLC.

About this publication This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or its and their affiliates are, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your finances or your business. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. None of Deloitte Touche Tohmatsu Limited, its member firms, or its and their respective affiliates shall be responsible for any loss whatsoever sustained by any person who relies on this publication.

Cover art by Eva Vasquez

About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright © 2016 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited