After covid-19, how flexible is your chemical supply chain now?
Almost every product we touch or use has traces of chemicals. Chemicals are the basis for the production of basic products, such as pharmaceuticals, detergents, disinfectants and protective equipment. At the economic level, the contribution of the chemical industry to development and growth has been dominant for many years.
In 2018, the GCC chemical industry achieved revenue of US $84.1 billion, with a capacity of 174.8 million tons, contributing 2.8% to regional GDP. The International Council of Chemical Societies (ICCA) also revealed that the chemical industry, its wage induction and supply chain contributed 5 trillion US dollars to global GDP and created more than 120 million jobs.
Novel coronavirus pneumonia and the recent outbreak of the new crown pneumonia have caused the global supply chain to break down. The latter has led to a 30% drop in demand for chemicals in the automotive, transport and consumer goods industries, which are the hardest hit end markets. The novel coronavirus pneumonia not only exacerbates the disruption of the global supply chain, but also exposes the vulnerability of the supply chain to the suppliers of the first and two tier suppliers. At present, the global supply chain system is divided into three layers (the first layer, the second layer and the third layer). This linear supply chain model shows little or no collaboration between layers. In addition, the movement of goods from one point in the chain to another is not visible at any given time. The covid-19 pandemic has exposed the weaknesses of many enterprises, and it is now for supply chain participants and professionals to reflect. Will continued disruption of the supply chain be the beginning of a new dawn of resilience? Let’s talk about some of the current challenges.
- Dependence and concentration of limited supplier network
Supply chain is about integration and dependence among different levels / participants. As a result, any significant defects in the process flow can lead to disruption. This is what happened after covid-19. Although news and reports cannot clearly explain how coronavirus started, the consensus now points to Wuhan, China. The global supply chain industry is heavily dependent on China. For many years, China, South Korea and Italy have been manufacturing centers for more than 12000 factories and warehouses of the world’s leading 1000 companies and their suppliers, according to a study by resilinc. At the height of the virus, most factories in China were blocked to curb the spread of the virus. The origin of nearly 1800 production parts is Hubei, one of the first provinces in China to be quarantined, resilinc reported. As GPCA disclosed in a recent report, “China is one of the main destinations for GCC’s polyethylene exports, and the slowdown in demand will mean that polyethylene imports from GCC will be reduced by 6% compared with 2019 and 10% less than that predicted before the outbreak of the virus in 2020.” “The impact of the pandemic on the industry has become apparent. Globally, the output of chemical supply chain market has declined sharply, resulting in the shortage of most raw materials and finished products. The output of the petrochemical industry decreased by 3.3% and 1.3% in March and April 2020, respectively. Similarly, the cw75 index for chemical week fell 23% month on month in April.
In fact, this outbreak is a terrible time for chemical companies. The Dow Jones Industrial Average and FTSE 100, one of China’s largest multinational chemical companies, fell by more than 1000 points to 3% at the peak of virus infection. Subsequently, according to a recent report, the company’s earnings fell by 18% (US $1.3 billion) in the first quarter of 2020. At the worst of the epidemic, the epidemic seriously restricted the construction progress of BASF’s new “intelligent Verbund” in Zhanjiang, China. This clearly shows the serious impact of the crisis on most companies. Although the “smart Verbund” project has resumed construction, it is positive.
- The end-to-end supply chain lacks visibility
Global scenario planning based on data, decision making and technology is another key component in assessing supply chain options and preparing for the future. Unfortunately, most industries, such as chemicals and supply chain, are lagging behind in terms of Technology / digitization. A recent GPCA industry insight points out that “the chemical industry has been slow to use digital technology effectively. Only 17% of global chemical companies meet the “digital champion” defined by BCG, compared with 23% in all industries.
