In North America, chemical companies in the polymer sector face a changing world—and to take advantage of that change, they will likely need to move fast to rethink their approaches to innovation.
A key development is the ongoing reindustrialization in the region. Over the past four years, manufacturers’ investments in North America have risen by US$188 billion, versus a slight decline in the previous four years.1 For many chemical companies, this presents a potentially appealing domestic market—but they are likely to find that their customers’ expectations are rising rapidly. In particular, those customers will be more demanding in terms of supplier innovation and performance, across products, services and delivery.
The food industry, for example, is looking for innovations in packaging. Chemical companies can help by exploring new ways to improve “close-ability,” as in pouches; to improve aesthetics; to increase shelf-life; and to support sustainability.
Or, look at the rubber industry. With robust automotive output and higher tire margins due to lower raw-material costs, the tire industry is increasing capacity, with more than US$3 billion in North American investments announced over the past year.2 Here, polymer producers and suppliers might focus on innovations that support fuel efficiency, wear resistance, driving performance and noise reduction.
In this environment, chemical companies need to step up their innovation if they are to serve the domestic market. In addition, they should act fast, because a first-mover advantage is key to reaping the highest margins.
To drive innovation, chemical companies should consider:
Collaborating with equipment makers, processors and other parties to develop new products, and then testing them thoroughly on commercial lines, allowing processors to easily adopt those innovations.
Fusing digital technologies into products. For example, using artificial intelligence-enabled equipment for plastics compounding to get the right properties, or including chemical or machine-readable tags in finished products to enable easy identification for recycling.
Looking for opportunities to sell “outcomes” versus products and services. For example, companies could offer a guaranteed shelf-life instead of plastic products. In general, selling outcomes can lead to higher margins.
Offering global contracts. For example, as food companies expand into emerging markets, plastics processors are co-locating with them. Processors typically want global contracts and fewer suppliers so they can get volume discounts. For North American polymer producers, those global contracts could also be helpful in riding the upcoming wave of polyethylene exports.
“Cutting out the middle man” by offering direct sales to customers using online channels.
Adopting new supply-chain management techniques from other industries. Electronics suppliers, for example, have learned to manage long, easily disrupted supply chains. And food manufacturers often excel at just-in-time delivery, which helps reduce spoilage.
Helping final assembly manufacturers shed sub-assembly/first-step processing of components, freeing them to focus on innovation in their final products. For example, a company might offer pre-assembled plastic-rubber syringe plungers for the medical market.
Change is happening rapidly in North America, and it is creating opportunities for chemical companies. Staying ahead of the innovation curve should be a top priority.
1 Accenture Research analysis of Oxford Economics data.
2 Davis, Bruce. “Tire makers invest $10 billion in expansions, improvements,” Rubber & Plastics News, September 13, 2016, https://www.rubbernews.com/article/20160913/NEWS/309059996/0/20140307 (accessed October 1, 2016).