Resilinc CEO Bindiya Vakil offers an expert insight into how the chemicals industry can minimise risk while maximising efficiency.
Chemical manufacturers have weathered a tumultuous landscape in recent years: navigating the complexities of a global pandemic; adapting to regulatory shifts; responding to geopolitical tensions such as the conflict in Ukraine; facing transportation issues; and contending with shortages in raw materials, just to name a few.
The industry holds a key position in today’s economy, driving progress across a wide range of areas like healthcare, agriculture, energy, and technology, and its significance only highlights the critical need to maximise efficiency in chemical production, a feat contingent upon the resilience and effectiveness of supply chains.
So how does the industry minimise risk while maximising efficiency? Achieving this requires a multi-level approach, based on knowing and understanding the challenges ahead, committing to enhancing visibility, and striving for continuous improvement of all aspects of the supply chain and beyond.
The challenging chemical supply chain
With many moving parts and various stakeholders involved in the complex network of chemical manufacturing, the chemical supply chain faces a number of significant challenges.
Higher energy prices, transportation costs, and inflation have taken their toll on producers and their supply chains, with pricing and demand only expected to go up. Global commodities have been facing nonstop disruptions in recent years, with raw material shortages being one of the biggest challenges of all. Caustic soda, for instance, continues to experience shortages and is expected to become the next major pain point for the industry. As the demand is likely to exceed global capacity in the second half of this decade, the production of plastics, synthetic fibres, herbicides, and pharmaceuticals will be threatened.
Another substantial risk is labour disruption stemming from worker shortages, stoppages, and strikes. The nationwide strikes in France, Europe’s second-largest chemical producer, further demonstrate this, as they led to halts in production at multiple chemical companies, causing ripples in the supply chain due to the sudden drop in output. And what’s more, 2023 data from Resilinc’s supply chain monitoring platform EventWatchAI shows that labour disruptions were the third highest reported disruption that Resilinc tracks globally, with an 89% year-on-year increase.
Disruptions can also happen as a result of incidental factors, such as factory fires or work-related accidents. In fact, factory fires were the top supply chain disruption in 2023 according to Resilinc.
One example that illustrates the impact of such incidents is the fire at the Carus Chemical Company’s plant in LaSalle. It led to the temporary shutdown of the sole US producer of potassium permanganate and sodium permanganate used for water treatment, raising serious concerns about the availability of these chemicals, as the company was unable to fulfil orders for 90 days following the fire.
Another risk that companies need to pay special attention to is compliance with regulatory changes, including environmental, occupational health and safety, or product compliance.
Take per- and polyfluoroalkyl substances (PFAS) as an example. Used for decades due to their unique properties and wide range of applications in numerous industries, they also pose serious health and environmental hazards.
Various studies gathered by ChemSec unveiled that the global societal cost of health care associated with PFAS exposure and soil and water remediation amounts to 16 trillion euros a year. With increasing calls for action, global regulations against PFAS are being introduced, at the same time pushing up prices, which have already risen 70-80% in the last two years. This poses a major challenge for any company that has PFAS in its supply chain to ensure compliance with the latest legislation and find alternatives where possible.
Problems also arise when a manufacturer’s suppliers or partners are in financial trouble. The latest data from Resilinc reveals that insolvencies surged by 190% in 2023 compared to 2022, which is the largest increase of all event types Resilinc monitors. And, as the latest official figures for England and Wales highlight, the number of companies going bankrupt last year was on track to reach its highest level since the financial crisis in 2009.
Given the multitude of challenges in the chemical supply chain – whether in terms of shortages, compliance, or insolvency, at the internal or sub-supplier level – securing efficiency and minimising risk is a fundamental issue for chemical businesses.
Key to risk mitigation – mapping and monitoring
To minimise the risks they are exposed to, manufacturers need to take proactive steps to secure their supply chains. This includes knowing what’s in their products, who their suppliers are, and any potential threats to their supply chains. But how exactly can they do this?
The starting point of safeguarding chemical supply chains should be to gain a full understanding of the entire supply network through multi-tier mapping. Most importantly, organisations need to extend their mapping beyond high-volume, first-tier suppliers, considering that up to 85% of disruptions occur in the indirect sub-tier supply chain. Mapping provides the information and visibility needed to proactively react to shortages, find alternatives to non-compliant products, close gaps, and remedy other potential issues in cooperation with suppliers.
Next, it’s crucial to have real-time insight into any potential supply chain threats whether it’s a factory fire, compliance issue, or an extreme weather-related event. Once supply chains have been mapped, it’s necessary to invest in monitoring tools that provide continuous 24×7 monitoring of global risks. This is where artificial intelligence comes into play – with predictive analytics capabilities, AI monitoring systems can issue early warnings in real-time, enabling an immediate response to disruption.
Utilising the latest AI technology that provides unparalleled precision can ultimately lead to a level of automation where decisions are made in a split second, essential when time is of the essence.
Staying ahead of the next big disruption
Faced with the uncertainties of today’s market, chemical companies need to prioritise building safe, secure, and resilient supply chains. Without a strong and transparent supply network and best practices in place, they won’t be able to respond swiftly to global challenges and remain competitive. Anticipating and responding to disruption requires a comprehensive strategy that includes increased supply chain visibility through mapping and monitoring, robust supplier relationships, and the use of advanced AI solutions.
Bindiya Vakil, the CEO and founder of Resilinc, is an award-winning expert in supply chain risk management. Crowned Supply & Demand Chain Executive’s inaugural Woman of the Year in 2020, Bindiya’s career spans 20 years. She holds a master’s degree in supply chain management from MIT and an MBA in Finance. Bindiya is a market leader in risk intelligence and mitigation and credited with bringing supply chain risk management into the mainstream.