INSIGHT: Chemical producers and their customers seek smarter network connectivity, look to blockchain

LONDON (ICIS)–Chemical producers and their partners in the supply chain continue to try to better understand the implications of the collision between the digital, physical and virtual worlds.

This lies at the core of what is commonly called in Europe the 4th industrial revolution (industry 4.0) and widely elsewhere simply digitalisation.

“It changes everything,” explained the originator of industry 4.0, Henrik von Scheele at a supply chain innovation conference last week, qualifying that remark with the statement that the 4th industrial revolution comes in waves.

Where are we now? Probably in early stages of the second wave. Digitalisation, robotics, cloud computing and 3D printing are widely accepted across industry.

Companies are grappling now with the opportunities and threats posed by artificial intelligence (AI), autonomous production and operating systems, 5G telecoms and blockchain, to name but a few, critical and related trends.

Smart automation and blockchain technology might provide the next level of supply chain cost reduction and help drive future efficiencies for manufacturing industries like chemicals.

Understanding how different approaches might enable these efficiencies, and making them happen, however, takes time, understanding and effort.

The enabling technologies for a digital supply chain exist and there is definitely interest in starting these digital transformation type projects, said Rich Katz, president of the digital supply chain network, Elemica, hosts of the digital transformation conference. But he pointed out that a failure to scale up projects is due to a lack of standardised data to put, for instance, into a blockchain.

Chemical producers are part of a larger supply chain ‘eco system’ within which they deal with many types of companies. Essentially, these speak a different language.

Companies are finding that data management might be possible across portions of the supply chain, but is extremely difficult across its entire length.

This is where network to network interoperability becomes so important.

There are 100s of networks with their own strategies and offering noted Ralf Kahre, senior manager, global business process networks, at BASF.

The company doesn’t want to connect to lots of different networks and introduce a complexity that possibly negates the advantage of greater digitalisation.

“We can only be successful if we put our strengths together as networks to deliver value to our customers,” he said.

Networks have to work together and not just push data, Kahre stressed. He also suggested that supply chain partners need some sort of mediator to develop standards.

The technology may be working but not necessarily the mind-sets of potential partners.

“It is not a technological issue, rather commercial and organisational,” Kahre said.

Interoperability costs money and is not free, so these discussions between network providers and with customers and potential customers are critical to the development of more seamless digitalisation across supply chains.

BASF says it sees the digitalisation of business interactions as an essential step towards Industry 4.0. It is using a cloud based ‘Vendor Interaction Portal’ (VIP) to digitally handle the purchase-to-pay process for its suppliers and technical solutions for the VIP from Elemica for raw materials and SAP Ariba for technical goods and services.

“Beyond the immediate efficiency boost for all involved parties, we are also working to convince other large companies in the chemistry sector of the benefits of this solution,” it says on its website. “The resulting industry standard is especially beneficial for suppliers who are then able to communicate to a lot of their customers via one digital channel,”

Long-time business partners BASF and Evonik started a supply chain ‘blockchain’ pilot project over a year and a half ago. In October last year, crosssinx, a financial business network, and blockchain start-up company Centrifuge said they were transferring invoice documents to the BASF/Evonik project. Elemica owns the node for the BASF/Evonik blockchain project.

In the decentralised network all participating companies will be able to view all the documents collected via the blockchain.

“Our customers often complain about intransparent processes within their supply chain,” CEO of crossinx, Marcus Laube, said.

“Often there is uncertainty about the status of an order or about which bill has already been paid. Unnecessary dunning fees are the result.”

Teaming up with Centrifuge, the blockchain creates more transparency.

It calls the pilot project part of a global ‘network of network’ initiative. “The project started with BASF and Evonik. In the future, however, the decentralised network should be available to all customers,” it said. Laube is co-chair of the European E-invoicing Service Providers Association, (EESPA).

Centrifuge’s Martin Quensel suggested that a long term collaboration with its partners should see typical electronic data interchange (EDI) replaced by transfer across a blockchain.

The potential for the technology is significant although there are hurdles to overcome particularly in the way in which the collaborative network is able to deliver value to participants in terms of efficiency gains and possibly top line growth. A blockchain, a very specific, distributed ledger technology, can be slow, expensive and inefficient with limited scalability and privacy, simply because it is truly decentralised.

For the participants in the BASF/Evonik blockchain pilot project “the devil is in the details”, Kahre said. Networks have to talk together and not just push data. Collaboration is the key.

This blockchain pilot project is being widened out to include other participants in this specific supply chain. The aim is to show some significant business success by the end of the year.

By Nigel Davis