INSIGHT: AI to unlock new cost savings in chemicals

NEW YORK (ICIS)–In an era of heightened competition and global overcapacity for chemical companies, cost competitiveness and efficiency become even more important. And artificial intelligence (AI) may be the key to unlocking cost savings beyond the usual measures.

On 25 June, Covestro announced a global transformation plan to achieve annual savings of €400 million in material and personnel costs by the end of 2028. The company specifically cited the use of AI to “continue increasing efficiency and productivity in the future”.

Covestro’s cost savings program will include “making production, administrative units and other areas as efficient as possible and continuously expanding the innovation pipeline”. Sounds right up AI’s alley.

AI could be particularly useful for the chemical industry, especially as labor productivity (sales per full-time equivalent employee) has failed to increase more than 1%/year on average over the past 15 years, and lags behind other asset-intensive manufacturing industries such as automotive, mining, oil and gas, utilities, steel, cement and paper, according to a study by Accenture showcased at the American Chemistry Council (ACC) Annual Meeting earlier in June.

The chemical industry is arguably more complex than other sectors, making productivity gains more of a challenge. However, this also means it has more to gain.

“Generative (gen) AI has the potential to revolutionize work and workflows across the entire value chain. Our research indicates that gen AI will affect about 31% of working hours in the chemical industry through automation or augmentation,” said Accenture in the study.

“This large potential is likely why 97% of leaders in the chemical industry believe that gen AI will positively affect their company’s market share in the next three years,” it added.

Chemical companies can restructure work to allow gen AI to take on routine tasks, freeing up workers to focus on more creative and meaningful tasks.

Production employees, who make up almost half of the workforce, spend 90% of their time on transactional matters and tasks involving simple judgment and only 10% of their time on complex judgmental tasks, according to Accenture.

“We as an industry are very slow to adopt new technologies that will help us be more productive and better. We have to find a way to balance that,” said Robert King, executive vice president of the Crop Protection Business Unit at Corteva Agriscience, at the Accenture breakfast briefing at the ACC Annual Meeting.

GEN AI FOR KNOWLEDGE CAPTURE
Labor productivity will become an even bigger challenge for chemical companies, given demographic and skills challenges. Around 30% of employees in the industry are 50 years of age or older, and student enrollment in engineering and business is declining, further shrinking the talent pool, the study found.

And with an aging workforce, it is critical to capture knowledge and preserve valuable insights from these workers prior to retirement, to be able to transfer them to new and existing employees.

“Companies can draw on gen AI for help, using large language models (LLMs) to interview retiring employees and to document their expertise in handling specific situations and challenges,” the study said.

On the product innovation side, chemical companies such as Dow are already using AI to improve product formulation and accelerate time to market.

While AI will not solve everything and may even create new challenges, it will be a key piece to solving the labor productivity puzzle. Companies that figure it out and leverage this technology will gain a competitive edge.

Insight article by Joseph Chang