Over the last decade, the chemical industry in the GCC has grown significantly in terms of volume off the back of strong regional expansion drive, riding a wave of high demand growth from Asia, the region’s largest chemicals export market.
The Arabian Gulf producers have benefited from advantaged feedstock, which, combined with high barriers to entry and productivity improvements over the last 10 years, has allowed companies to maintain healthy margins for a sustained period of time.
However, the economics of the industry are changing rapidly due to limited availability of advantaged feedstock to support further production growth in the region, and slower chemical demand in Asia.
China’s push for self-sufficiency and slowing GDP growth rate, in addition to increased regulatory pressure on plastic use and accelerating plastics recycling, are also posing a challenge for chemicals demand growth.
Building digital capabilities
To remain competitive in these challenging market conditions, petrochemical players will need to increase their focus on improving performance and building their digital capabilities. Digitally-enabled functional excellence can create significant value in the petrochemical industry. With impact creation from traditional excellence programmes flattening out, digitally-enabled excellence programmes can unlock further impact across the full range of companies’ business processes.
By leveraging advanced analytics and artificial intelligence, advanced robotics, process automation and Internet of Things (IoT), companies can achieve greater manufacturing excellence. In one example, throughput was improved by 6-7% and yield by 2-3% by applying advanced analytics in a European steam cracker.
Another opportunity for petrochemical players lies in marketing and sales. Leveraging advanced analytics enables petrochemical companies to better understand customer demand and to enhance pricing capabilities. Digitally enabled procurement and supply chain can also improve the competitive advantage of chemical players.
Digital maturity of the GCC petrochemical industry
To understand the current state of digitisation in the GCC petrochemical industry, the Gulf Petrochemicals and Chemicals Association (GPCA) and McKinsey have jointly conducted McKinsey’s Digital Quotient Survey across the GPCA member companies, offering a glimpse into the digital maturity of chemical producers across strategy, culture, organisation and capabilities that correlate to their financial performance. The findings were published in a report entitled ‘The Digital Opportunity for the GCC Chemical Industry’ and formed the backbone of a workshop organised by GPCA on 20 March 2019 in Muscat, Oman.
As the survey indicates, petrochemical companies score highly on a global scale compared to other sectors, thanks to the industry’s relatively high level of digitisation, particularly in operations and lower disruption risk, reducing the need for drastic action. According to the survey, the GCC chemical producers rate themselves as more ‘digitally mature’, compared to overall respondents from the GCC and participants in the survey globally, who give themselves a lower score (Exhibit 1).
Most GCC producers have a higher score than the overall Middle East average and place their companies into the ‘digital follower’ segment, with just 23% of respondents evaluating themselves as a digital leader. The majority of surveyed companies (80%) said they have deployed targeted solutions in the manufacturing function, which are not developed in-house. Key focus areas for petrochemical players are advanced analytics capabilities for both marketing and sales (pricing), and manufacturing.
Areas for improvement and the path forward
As the Arabian Gulf chemical industry continues to face challenges in the face of feedstock constraints, growing competition abroad, stringent regulations, and changing customer requirements, capturing the digital opportunity will be absolutely key to transform and create additional value along the ‘core’ chemical value chain from manufacturing and supply chain, to commercial activities and support systems.
Having a well-formulated digital roadmap is an absolute must, and so is integrating the digital goals and objectives with corporate, or functional strategies. Recruiting and capability building around digital talent is another key enabler to successfully deliver a digital transformation. This requires establishing a strategy and putting effective recruitment processes in place to attract and retain digital talent. And finally, digital-related roles and responsibilities would also need to be formulated with sufficient transparency, accountability, and clarity for the employees.
To enact a real digital-led transformation across chemical organisations, all these steps must be driven by top management with full CEO endorsement. Based on their individual starting position, companies must understand and quantify the value creation potential of digitisation and create a digital roadmap, or strategy to guide implementation. Secondly, they must implement high-impact use cases and build capabilities in parallel, focusing on capabilities required to deliver the digital roadmap. Finally, they must build capabilities internally at scale.
Dr Abdulwahab Al-Sadoun is the secretary general of the Gulf Petrochemicals and Chemicals Association (GPCA). Set up in March 2006, GPCA is a dedicated non-profit association, serving its members with industry data and information sources.
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