Transforming Supply Chains

Article by Paul Hodges

Industry will be forced to adapt, says Paul Hodges

WE ARE set to enter a “new normal” world as economies slowly reopen again with the arrival of Covid-19 vaccines. This will create great opportunities for chemical and process engineers. Their skills will be in high demand as business models go through fundamental change in a range of major industries, including energy, chemicals and pharma.

The reason for this transformation is that the pandemic has broken the inertia surrounding our work- and home-based routines. Travel, leisure, construction, real estate and other industries will likely never be the same again, as our priorities have shifted. And in our own industries, it is clear that our global supply chains have proved fragile and unfit for purpose, and so will have to be reshored:

  • Critical elements of our supply chains such as containers have suddenly become like gold dust, with prices jumping more than four-fold to US$8,000 on key routes from China to Europe and the US.
  • Texas’ failure to properly winterise its electricity grid has left petrochemical companies around the world struggling to access the imports they need.
  • The grounding of the EverGreen container ship in the Suez Canal has created further disruption in many critical supply chains.
  • Important customer industries such as autos have been forced to cut back production because of a shortage of the semiconductors, plastics and other key materials on which they depend.

This move to reshoring opens up the first major opportunity for us, as it makes no sense to reshore on the basis of outdated technology. Instead, companies have the opportunity to reduce costs and improve safety, quality and reliability by adopting digital, continuous and bio-enabled technology. As the UK’s health minister, Lord Bethell, noted in February with regard to the pharma industry (which has also struggled with major supply chain problems), the pandemic “presents us with the perfect opportunity to build back greener. There is a lot that the medicines manufacturing industry should be doing, such as adopting technologies and approaches that lower the carbon footprint of the manufacturing supply chains.”

We can see similar developments taking place in the energy industry. Rising concerns over CO2 levels mean that it no longer makes sense to spend billions of dollars prospecting for oil and gas, and then more billions on building world-scale refineries and petrochemical complexes. Instead, the collapse of prices for renewables means that we are moving towards an era of energy abundance, where the concept of cost-advantaged feedstock is no longer a critical success factor for business. And for the chemical industry, it is already clear that the next decade is set to see rapid progress towards a circular economy as part of the green revolution now underway.

Winds of change

Change is often uncomfortable, but the good news is that these changes are very good news for chemical engineers as the “build back better” programmes start to get underway. The energy, chemical and pharma industries will inevitably be in the frontline of these developments. And innovation will be at a premium in this area, as Lord Bethell described, because it makes no sense to reshore with the inefficient and expensive technologies of the past when advanced manufacturing technologies are now available to keep costs low and minimise environmental impact.

One important milestone on the transformation comes later this year, with the COP26 climate change conference taking place in Glasgow, UK in November. Already we can see that the major regional economies of Europe, the UK and the US have lined up in support of reaching net zero targets. And many billions are already being committed to the green recovery deals being launched – €750bn (US$902.5bn) by the EU alone - with a lot more likely to follow.

The major regional economies of Europe, the UK and the US have lined up in support of reaching net zero targets. And many billions are already being committed to the green recovery deals being launched

In energy, it is clear that we are starting to see the end of the oil age, as forecasted by the former Saudi Oil Minister, Sheikh Yamani. Renewables are now becoming highly cost-competitive with fossil fuels, and the next few years will see many more oil companies following the example of Shell and other majors in closing refineries, whilst boosting their wider energy-related portfolio.

Chemical companies will see a similar transformation as recycling moves centre stage for single purpose applications. Existing waste sites will be repurposed into resource centres, where plastics and other materials will be recycled via mechanical and chemical processes, and then manufactured into products for the local market using 3D printing and other relevant technologies.

Pharma companies are facing the challenge of reshoring their manufacturing base...this will create a need to establish for locally-operated micro factories to achieve production at a reasonable cost

Article by Paul Hodges

Chairman of New Normal Consulting ( and a Global Expert with the World Economic Forum

Previously he was an Executive Director of a US$1bn ICI chemicals business.

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