Want the latest news and articles delivered right to your inbox?

Manage

February 25th, 2021 (Updated 03/24/2021) | 8 min. read

Duncan Hendy

Chemical Industry – Learn From 2020 and Prepare for 2021

Last year presented a lot of challenges for the chemical industry. Robert Smith, an industry expert at Pricefx, even wrote an article on ideas for what the chemical industry could do to prepare when it was clear that suddenly, business as usual would not be enough to sustain an organization. 

Well, it’s almost been a year or so since “lockdown”, “quarantine” and “face mask” became part of our daily vocabulary, so, it’s time we took a look back at 2020 and forward to 2021 and beyond. 

We spoke to Martin Paukert of Schuppar Consulting and Robert Smith to find out their thoughts on the obstacles that the chemical industry had to face in 2020 and what lies before them in 2021. 

 

In Your Opinion, How Has 2020 Changed the Chemical Industry?  

 

Martin Paukert, Schuppar Consulting 

The industry was heavily affected by the pandemic. In some areas, volumes went up due to higher consumer demand (winner industries). Volumes increased heavily and chemical suppliers had the chance to keep prices up. Even price increases were possible due to limited capacities. 

But in some areas, the demand for volume went down dramatically. Although, volume was on the market, customers did not purchase it because industries like automotive were down by up to 70%. When the economy recovered, the after-corona effect changed the market from a supplier to a buyer market. Purchasers tried to take advantage of it and request price decreases and put pressure on existing suppliers from the process and chemicals manufacturing industry. 

In addition, companies invested in sales and pricing digitalization. Corporate chemical companies implemented new CRM or pricing software throughout 2020. People were at home and saved time from travelling and so, the integration of new software systems was easier. 

 

Robert Smith, Pricefx 

The events of 2020 have driven the chemical and process industries to a much higher level of digital transformation than would have been expected a year ago.  This is an overdue outcome, as the industry had been struggling for years to move customers to online portals with less human effort involved in order management and fulfillment.   

Here are the specific factors contributing to the drive for digital transformation: 

Remote work forces requiring more reliance on digital tools to execute sales, marketing and supply chain work.  

There was ingoing and relentless focus on driving unneeded costs from operations, leading to increased usage of robotic process automation and other digital solutions to reduce human effort and eliminate the use of labor on repetitive, non-challenging administrative work activities. 

Plus, there was also ongoing turnover of talent, with younger employees challenging conventional business transactional models with expectations from their personal shopping experiences.  Why is it so hard to place an order or get pricing or shipment status on a B2B transaction when it seems much easier in my personal B2C experience?  This mindset is driving significant change in back-office operations, further fueled by cost reduction and productivity initiatives. 

 

What Are the Implications of That Change Going into 2021 and Beyond?  

 

Martin Paukert, Schuppar Consulting 

Companies will need to further invest in digitalization to support their pricing and sales teams. They will also need to invest in training their sales teams to switch from a face-to-face to a video selling approach. This will also affect the pricing execution. As in price discussions by video conferences, the purchasers have a better position. So, sales teams need professional tools. 

One important fact seen in the first weeks of 2021 is that raw materials costs are highly under pressure. Supply chains are disrupted and selected base chemicals are short. Price increases need to be implemented fast and with the right amount to not lose margins. 

 

Robert Smith, Pricefx 

Winning companies will continue to drive digital transformation at a pace that will go on accelerating, leaving behind those who choose not to transform. Areas within companies previously untouched by digital transformation will start to change as leaders and business champions ask, “why not?”. Customer price management, rebates, sales contracts, and reconciliation of distributor price supports are all prime territory for transformation. 

 

What Is a Hurdle That Businesses in this Industry Need to Overcome This Year? What Can They Do to Overcome These Hurdles, if at All?  

 

Martin Paukert, Schuppar Consulting 

I see three main areas of concern facing people in the chemical industry this year, and it all comes down to value. Those in the chemical industry will need to do the following to differentiate themselves in the market: 

  • Secure key accounts by value commitments 
  • Introduce customer retention schemes because your customers have more time to find alternative suppliers because you’re one click away from losing a customer. 
  • Establish new value for customers by introducing services or other benefits of working with their provider over another. Online training for customers is one example of adding value. 

Robert Smith, Pricefx 

I think there are a few hurdles the chemical industry must address. 

Firstly, they must accept the current state as the new normal – there is no turning back to previous ways of doing business. 

To address this, the chemical industry must move from being reactive to the impacts of the pandemic to making proactive investment choices to strengthen the business model in this new way of doing business.  Prioritize and accelerate digital transformation. Keep innovating, digitizing, and reconfiguring operations – don’t rest just because the pandemic may be easing later in the year.  Keep moving ahead and leverage this change for differential advantage versus competitors. 

They must also learn to trust machine learning and artificial intelligence. Avoid the temptation to dismiss them as a black box and unintelligible, but instead look to the insight and benefits that these tools can bring to each functional area of the business. Learn from the examples of other businesses who have leveraged them and apply insights accordingly. 

Leverage new ways of gaining customer insight and keep innovating to address unmet needs, particularly those that have emerged from the pandemic. Persist in learning how to do this without having to be face to face with the customer. 

Look for, understand and address changes that have resulted from the pandemic, for example: 

  • How market segments and value propositions may have changed because of the pandemic 
  • The need for increased nimbleness in the business model and in supply planning, calling for improved scenario planning 
  • Maximizing strengths and minimizing weaknesses identified in the wake of the pandemic 

Lastly, I think they should, enhance differentiation and address customer needs as the pandemic eases – customers will start being more open to sourcing changes as security of supply becomes a less primary issue. 

 

Do You See Any Glimpse of Positive News on the Horizon? How Can Businesses in the Process and Chemicals Manufacturing Industry Prepare to Take Advantage of This? 

 

Martin Paukert, Schuppar Consulting 

There are some opportunities for those in the CPI space. They have the opportunity to rethink their value proposition and developing an after-COVID-19 pricing strategy that will create great opportunities for their company to grow profitability. They can also find industries or selling segments that are not affected by the crisis (e.g., consumer, packaging). This provides opportunities to build in a strategy to take these resilient types of industries into consideration. 

 

Robert Smith, Pricefx 

I have two thoughts on this: 

There is light at the end of the tunnel that is growing…if your business has not turned around yet, it will soon.  Be ready.  Maintain close contact with customers to understand the timing of expected upturns.  Increased inventories will be needed to address the coming uplift in demand. Don’t miss the upturn by being unprepared! 

Expect a return to stability for business planning, positively impacting manufacturing and supply chain operations. The post-pandemic state will be different than the past, but a new normal on stability will emerge. Operational planning expectations will have to be reset, as even with stability, more nimbleness will be required to operate successfully in the market. 

__________________________________________________________________________________ 

 

Martin Paukert: Martin is a Partner at Schuppar Consulting and has over a decade of experience helping companies to build robust pricing strategies and organizations that are profitable and efficient. He is responsible at Schuppar Consulting for the area of chemical industry since 2010 and has trained more than 3000 salespeople worldwide in pricing execution. 

About Robert Smith: Robert Smith is a highly accomplished Business Process and Pricing Professional with a history of successful strategic innovative roles in a dynamic, performance-based organization. He developed and built a successful pricing capability and team at a $10B global chemical company. 

Manage