How Fair Is the Expectation That Digital Transformation Will Revolutionize the Chemical Industry?
June 11th, 2021 | 7 min. read
By Robert Smith
Can Digital Transformation Revolutionize the Chemical Industry Where It Counts?
Success or failure within the chemical industry lives or dies on any given business’s ability to adapt and revolutionize.
If your business is merely riding the waves, trying to stay above water, it’ll soon be falling by the wayside. Only by driving ahead and revolutionizing your business will you see true success.
One way in which many businesses believe they can achieve this revolution is through digital transformation.
The integration of digital technology through all areas of business is increasingly prevalent throughout the chemical industry. With that, it’s becoming more important by the day.
But is banking on digital transformation to revolutionize your industry a fair expectation?
The Problem with Static Markets
We used to have price books or matrices we would execute on. In static markets, that worked and it worked incredibly well. Now, with dynamic markets moving and changing all of the time, the old ways just aren’t going to cut it anymore. Whether change in the chemical industry comes through cold weather in Texas causing upstream suppliers to have issues or global pandemics throwing everything up in the air – change comes and it comes hard.
When your business is reacting as though you’re in a static environment, you don’t have anywhere near the capabilities required to price effectively.
Digital transformation creates both the digital and cultural shifts required to begin looking at things dynamically. And when you’re thinking dynamically, you can respond with speed. Within the chemical industry, which is evolving rapidly, businesses must ensure the speed of their processes is similarly quick.
However, this is a challenging issue for the chemical industry. Historically, the industry has been slow to change. This is understandable in manufacturing, considering the health and safety issues that justifiably bring caution to change. However, in the area of business processes, customers are demanding a more B2C type experience and one that brings higher value and efficiency to the table. Without digital transformation or advanced pricing tools, this is not achievable. With many businesses still stuck in this mindset and others leading the charge toward digital transformation, finding or fighting for your place in the chemical industry could be a defining moment.
When fast and reactive pricing is required, Pricefx Price allows you to organize your price lists to enable simple and fast price recalculation across customer segments, product groups or regions. Unlike price books of old and Excel spreadsheets, this tool can provide the most up to date and accurate pricing for the customer. A tool your salespeople are going to be worshipping you for providing them with. Not to mention how happy your customers will be when your salespeople are able to cater to all of their needs and justify it too. All while still increasing profit.
Addressing Different Pricing Challenges
As chemical companies approach digital transformation for pricing, there are several strategies that are positively impacted by the application of advanced pricing systems like Pricefx:
- Formula or index based pricing
Many sellers and buyers desire some form of predicitability in pricing with the use of cost or index-based formulas to govern their prices. These are easy to conceptualize but often complex to execute when using Excel or home-grown models. Advanced pricing systems help automate the import of cost or index information, apply it automatically to the agreed upon price formula, and generate correct price information for accurate invoices. This reduces manual administrative effort and costly errors.
- Market pricing
Some sellers and buyers believe their interests are best served by regularly negotiating pricing as market conditions change. In such cases there is a need to provide guidance to sales personnel on correct target prices for products, hopefully also reflective of value in specific markets. One can imagine the difficulty of doing this across a broad portfolio of products and markets by the use of spreadsheets. Only the application of advanced pricing tools like PricefxProfit have the price optimization capability to enable the generation of accurate price targets and guidelines and to keep them updated at whatever frequency is required by market conditions.
- Spot pricing
Many companies will reserve a segment of production for participation in the spot market. This can have advantages for sellers and buyers who wish to “play the market” when conditions favor the seller or when a utilization lever is needed to manage excess capacity. Again, a need exists for quickly updating target prices and guidelines for sales to enable maximum profit generation from these sales. PricefxProfit’s optimization allows this to be done quickly and easily in order to keep your sales team ahead of less agile competitors.
Without Digital Transformation, Will You Lose Your Competitive Edge?
Yes, from a sales enablement perspective. Speed wins business, and lagging behind on digital transformation will put your business at a competitive disadvantage in the sales process. Competition is moving in this area, and it’s critical to stay ahead in the game and not be a laggard.
This is true whether you consider your business to be more commodity or more specialty in nature. Margins can be razor thin at times in commodity markets, particularly when low-cost imports challenge for share. Advanced pricing tools enable ongoing and rapid updating of margins for potential transactions to ensure agreed upon pricing combats margin compression.
In more specialized products, it’s critical to understand differential value versus the competition and to quantify it. These quantififed differentials are the foundation for pricing that captures value for the seller and isn’t easily given away by misunderstanding competitive dynamics. Maintaining value propositions in spreadsheets doesn’t get the value drivers applied to current pricing situations.
PricefxProfit enables the visualization of these value elements and automatically applies them to product prices to ensure prices are set to capture the differential value.
Is Digital Transformation Going to Revolutionize the Chemical Industry?
Revolutionize is a strong word. However, digital transformation consistently proves itself as a vital element of success in industries and markets across the globe. As you may imagine, it isn’t a one-time solution or a quick fix. Digital transformation is a journey your business undertakes and continues to travel on for most likely the duration of its lifetime.
Perhaps the most compelling argument FOR digital transformation is that it’s an inevitability for all businesses. As those old ways of doing things fade into the past, competition will be largely decided upon by the speed of processes and the efficiency of those processes. Will you be at the front of the pack leading change, or lagging behind and struggling to survive?
When is the Right Time to Take on Digital Transformation?
Knowing that digital transformation is the next step your business must undertake in your journey to success within the chemical industry, why wait?
Just as we mentioned above, digital transformation is a long and unashamedly challenging process that requires no small amount of investment and time.
Delaying the process until your competition is already leading the way or your business is sinking into the red is a sure-fire way to cause lasting damage.
So if we ask the question “when is the right time to take on digital transformation?”, the answer is always now. Or tomorrow at least, we’ll let you sleep on it.