In chemical manufacturing, potential failure can happen in many operational areas. This is because of the complex nature of chemical production and the large number of assets deployed in a chemical plant. To reduce the frequency of manufacturing inefficiencies, the chemical industry should invest in digital transformation. Beyond operational efficiency, digital transformation in the chemical industry helps companies meet other agendas, such as workplace safety, sustainability goals, and tackling labor shortages.
So, what digitalization technologies can chemical firms take advantage of as they embrace Industry 4.0? And what are the benefits, as well as the inhibitors, of digital transformation in the chemical industry?
What Digitalization Technologies Will the Chemical Industry Embrace?
The chemical industry will spend US$4.4 billion on digital transformation technologies in 2023. By 2031, ABI Research forecasts the industry will spend US$7.4 billion on the digitalization of its plants, led by the Asia-Pacific region (2/3 of global spending).
As for the types of digitalization solutions that chemical manufacturers choose, the list below provides some notable forecast data to be aware of:
- Data Analytics Software and Associated Services: This technology sees the most growth (Compound Annual Growth Rate (CAGR) of 9.5%) in the chemical industry, with spending of around US$1 billion by 2031, up from US$410 million in 2022. Primary use cases for analytics within the chemical industry include predictive maintenance and the construction of an industrial digital twin.
- Device and Application Platform Services: Spending on device and application platform services will grow to be the largest area of spending, overtaking industrial software applications for the chemical vertical by 2031, and is expected to be around US$2.3 billion (up from US$1.2 billion in 2022).
- Industrial Software Applications: Refers to management enterprise software, such as Manufacturing Execution Systems (MESs), Product Lifecycle Management (PLM), simulation software, and Enterprise Resource Planning (ERP) solutions. Industrial software will continue to attract high spending among chemical companies and be the second most valuable sector of the market by 2031, worth US$2.2 billion.
For more on the types of digitalization spending the chemical industry is turning to for manufacturing processes, refer to Table 1 below.
Table 1: Chemical Industry Digitalization Spending by Type
World Markets: 2022 to 2031
(Source: ABI Research)
| Technology Type |
Spending |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
2030 |
2031 |
CAGR 22-31 |
| Industrial Software |
(US$ Billions) |
1.32 |
1.42 |
1.55 |
1.66 |
1.76 |
1.85 |
1.93 |
2.01 |
2.12 |
2.18 |
5.15% |
|
Connections |
(US$ Billions) |
0.33 |
0.31 |
0.32 |
0.32 |
0.35 |
0.37 |
0.39 |
0.42 |
0.44 |
0.47 |
3.54% |
|
Data and analytic services |
(US$ Billions) |
0.42 |
0.47 |
0.53 |
0.60 |
0.66 |
0.72 |
0.78 |
0.84 |
0.95 |
1.04 |
9.53% |
|
Device and application platform services |
(US$ Billions) |
1.29 |
1.40 |
1.55 |
1.70 |
1.83 |
1.95 |
2.06 |
2.17 |
2.22 |
2.31 |
5.94% |
|
Network services |
(US$ Billions) |
0.05 |
0.06 |
0.06 |
0.06 |
0.07 |
0.07 |
0.08 |
0.07 |
0.08 |
0.08 |
5.12% |
|
Professional services |
(US$ Billions) |
0.52 |
0.56 |
0.61 |
0.67 |
0.71 |
0.75 |
0.79 |
0.82 |
0.87 |
0.91 |
5.79% |
|
Security services |
(US$ Billions) |
0.18 |
0.21 |
0.25 |
0.28 |
0.30 |
0.32 |
0.34 |
0.36 |
0.39 |
0.41 |
8.44% |
|
Total |
(US$ Billions) |
4.11 |
4.43 |
4.87 |
5.28 |
5.67 |
6.02 |
6.36 |
6.7 |
7.05 |
7.39 |
6.04% |
Benefits of Digital Transformation for Chemical Manufacturers
The drive for digital transformation in the chemical industry stems from the following 6 key advantages:
- Increases Operational Efficiency: Optimizing the performance of assets in chemical manufacturing processes through digital transformation technologies like digital twins/simulation software. This allows chemical companies to maximize product volume, while minimizing the frequency of lost batches. Adding to this, data analytics tools can improve asset reliability through predictive maintenance—identifying abnormalities in asset behavior and optimizing maintenance schedules. These timely solutions enable chemical industry players to reduce unplanned downtime, which can reduce manufacturing productivity by up to 20%.
- Solves Labor Shortages: Digitalization technologies like Augmented Reality (AR) enable senior employees to work more efficiently and allow for real-time training for new hires. AR can also benefit chemical companies because it reduces the reliance on flying senior engineers out to sites as they can provide instructions to workers remotely.
- Ensures Safe Operations: Chemical manufacturing environments can be dangerous, making it crucial for companies to find ways to reduce risk to employees. Investment in analytics, for example, can alert workers when a centrifugal pump is faulty—avoiding a potentially dangerous situation. Moreover, a digital twin can show management how staff moves around the chemical plant and detect areas where workflows overlap, which hinders worker safety. Chemical plant operators also must comply with safety regulations, such as the Chemical Facility Anti-Terrorism Standards (CFATs). This will lead to greater investment in cybersecurity investment as chemical companies deploy more Industrial Internet of Things (IIoT) devices in their plants.
- Helps Meet Sustainability Standards: The chemical industry finds itself under increasing scrutiny to demonstrate its commitment to sustainability. To reduce their reliance on fossil fuels and reduce their energy footprint, chemical manufacturers can leverage digital twins for simulation, analytics, and data visualization tools. These digital transformation technologies identify plant efficiencies and optimal energy usage, which tells the company how to use less energy and generate a smaller carbon footprint.
- Promotes Business Resilience: When an uncontrollable disaster occurs, it’s vital that chemical manufacturers are able to keep their business operating. No better evidence of this fact is the productivity losses experienced during the COVID-19 pandemic. Through digital transformation, chemical plants can remain resilient in the face of adversity because these solutions provide a diverse set of options to ensure operations keep flowing. Some examples of these digitalization solutions include remotely accessing company networks, data, and operations, chemical process automation, and high levels of connectivity to ensure chemical production is not disrupted.
- Creates Competitive Advantages: Imagine one chemical manufacturer that simulates production processes at the design phase. This allows the company to identify the most efficient production processes before the chemical product even goes into production. Now, imagine another chemical company that doesn’t use any simulation before the production process. The first company would undoubtedly have a sizable advantage over the second company because it would be able to market its chemical products faster and more efficiently.
While the benefits of digital transformation in the chemical industry are clear, there are some market inhibitors to be aware of, too.
What’s Holding the Chemical Industry Back from Going All-in on Digitalization?
This section pinpoints 6 of the most pressing challenges to digitalization gaining traction in the chemical industry.
- Unsold on the Value of Digitalization: Compared to other vertical manufacturers, the chemical industry is slower to digitally transform manufacturing processes. Thus far, the sluggish digitalization investment has been driven by the asset-heavy, high capital investment standard of the industry. As seen in the previous decade, chemical companies haven’t shown a high level of confidence in the potential gains of digital transformation, which has been a big investment inhibitor. Lastly, even the chemical manufacturers that have recognized the benefits of digitalization, faced a real struggle to scale up beyond the pilot phase.
- The OT/IT Divide: Many Information Technology (IT) and Operational Technology (OT) teams in the manufacturing space are far too separate from one another. If IT executives fail to see why OT workers are needed for digital transformation, the outcome won’t be optimal. Furthermore, OT departments are often dealing with the process of digital transformation, but the budget is controlled by the IT team. Making matters worse, the data silos between IT and departments make data sharing across the organization difficult. One recommendation to address this challenge is for chemical companies to hire a Chief Technology Officer (CTO) who serves an equal purpose for IT and OT teams. Moreover, this individual, or an oversight team, will be key to a more integrated collaboration between the two departments.
- Lack of Digital Talent: According to a UKG Workforce Activity Report, 54% of U.S. manufacturers have stated that they are struggling to find talent matching the skill sets they seek. Chemical manufacturers, if they want to attract young digitally seasoned workers, must embrace digital transformation and provide benefits beyond a high salary (e.g., flexibility and continued learning). Implementing smart devices, embedded intelligence production/services, and data analytics is a complex process and requires digitally savvy workers who know how to use the information generated by these assets for good.
- Cybersecurity Vulnerabilities: Data, especially pertaining to production processes, are seen as extremely private and sensitive. The theft of a recipe would be disastrous. There is also the fact that many chemical facilities are obliged to follow CFATs to safeguard hazardous chemical information and production that malicious actors could exploit.
- Existing Legacy Systems and Sunken Costs: The transition to Industry 4.0 in the chemical industry will necessitate a radical shift in an organization’s architecture. The digital transformation process will involve the modification and, in some cases, a complete replacement of existing infrastructure. Moreover, there are issues with maintaining the interoperability of systems and equipment during the transition phase. Having already sunk significant investments into current plant infrastructure, many chemical manufacturers don’t expect to replace equipment until the end of its lifecycle. For this reason, the chemical industry, generally speaking, is taking a slow and gradual approach to digital transformation.
- Spotty Investment: Budgets for digital transformation projects in the chemical manufacturing industry are typically minuscule or, in some cases, non-existent. Many companies that have been comfortable using manual operations for years are not sold on the idea of digitalizing their chemical production processes. And this comes at a not-so-ideal time when an uncertain global economy pushes Research and Development (R&D) further down the priority list.
Take the Next Step
While Level 5 lights out production are still some ways out, digital transformation provides numerous advantages to chemical manufacturers. But there are some key challenges that are blocking the path to Industry 4.0. If you’d like to learn how chemical manufacturers and tech solution firms should address these hurdles, download ABI Research’s Digital Transformation in the Chemical Industry research report.
The report, part of the company’s Industrial & Manufacturing Markets Research Service, also provides deep insight into the best use cases, recent projects, market data, and the supplier ecosystem related to digitalization in the chemical industry.
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