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June 27, 2018
Blockchain in the Chemical Industry: Insurance against natural disasters?
By: Bhudeep Hathi, Anil Tamirisa and Mark Pintar

Naturally caused events like hurricanes and tsunamis are a significant risk to the continuity of business operations worldwide for chemical companies. The frequency at which these events have been occurring appears to be on the rise.

In addition to their impact on businesses, natural disasters have also been causing immense challenges to local communities. In certain cases, these damages have legal consequences, especially when companies have operations that are potentially damaging to the environment or can affect the safety of communities in those areas.

Take hurricanes, for example. These storms have severely impacted various industries due to the disruption of logistics and supply chains, aside from causing infrastructure and inventory damage. Hurricane Harvey, which struck the middle-Texas coast in September 2017, was deemed to be the second most costly hurricane in the United States after Hurricane Katrina, causing US$125 billion1 in damage and disrupting roughly one-third2 of chemical production in the United States.

This affected several major chemical companies and resulted in a production output shortage of approximately 70 million pounds of ethylene per day during that period.3 Further, an explosion at a chemical plant released more than 60,000 pounds4 of contaminants into the open air, causing not only immense environmental damages, but also raising further questions around emergencies and natural disaster preparedness.

Clearly Hurricane Harvey was an extreme instance; however, it might not be the last storm to wreak havoc. Preparation is key and advanced digital technologies like blockchain can help. In fact, according to Accenture’s 2018 Technology Vision survey, 77 percent of chemical industry respondents indicate that blockchain will be integrated into company systems in one to three years, and 71 percent report that blockchain will be critical to their organization over the next three years.5

Chemical companies generally have well-prepared emergency response plans, risk mitigation strategies and secondary protocols, but their efficacy is growing in doubt given the increasing complexity in which the modern industrial ecosystem operates.

For example, modern chemical plants have fully integrated operations with SCADA systems, surveillance, IoT-operated devices and other machines—all of which are connected to corporate enterprise resource planning platforms and applications. In a force majeure6 scenario, not just a single facility but an entire region along with its associated supply chain network could be disturbed, leading to a calamitous impact on business operations.

Durability of preventive actions for data at risk
In such scenarios, traditional risk mitigation strategies may not be pragmatic or preventive enough, as existing systems were built for a past era when businesses needed real-time data backups for only their most-critical functions. What’s more, manual paper-based verifications and technical validation with backed-up data can be difficult and unreliable when needed for reconciliation, recovery or further financial corroboration.

Today, data is integral to business operations—think of it as the "oil" of the technology world. Data must be real-time all the time, as it derives from across chemical plants and shop floors, flows through enterprises and moving machines, and extends beyond the traditional supply chain.

Now it is a business imperative for chemical companies to ensure the integrity of their data inputs and outputs—particularly with 88 percent of industry executives revealing that their organizations are using data at an unprecedented scale for critical and automated decision making.7 It is equally important to have a system of control mechanisms that can provide greater assurance to all participating stakeholders.

Blockchain technology provides a compelling and efficient solution.

Deliverance through blockchain
Blockchain is a distributed ledger that is recorded in real time, and all the transactions are auditable and tamper-evident. The relevance and efficacy of blockchain in digitizing business capabilities in areas such as supply chain, know-your-customer, data management, compliance tracking and certification processes is well established.

As shown in Figure 1, Accenture’s recent Industry X.0 research reveals that the systematic combination of digital technologies can help companies unlock significant business value—which, for chemical companies, translates into additional market capitalization gains of almost US$4.5 billion on average.8 Furthermore, our study finds blockchain to be the second most important technology to drive these industry gains, second only to artificial intelligence (AI).

Leveraging blockchain-based solutions is an innovative way to manage both information and process deficiencies. To mitigate disruptions in an operational supply chain, for instance, a chemical company could devise a permissioned blockchain that allows critical information and data related to plant operations and supply chains to be recorded in almost real time. This would make the information available to all required stakeholders within the ecosystem of a chemical company.

Examples of key data points that could be updated on, or indexed and linked to, a blockchain include the volume of raw, intermediate and finished products, as well as production plans. Additional data might include financial details such as invoices, purchase orders, credit details, logistics data, work permit information and employee records. This blockchain-based data would act as a “golden reference source” for reconciliation and recovery in a post-disaster scenario.

Chemical companies could also provide insurance parties and audit agencies with access to a permissioned blockchain for claims and grievance redressals. And since the records are tamper-evident, operational data like process variables and machine operating conditions saved on a blockchain just before an accident could be wholly relied upon for investigations into errors and root causes.

Lastly, to improve risk mitigation strategies, chemical companies could use “smart contracts” stored on the blockchain. (See an example of how Accenture applied smart contracts in the insurance industry.) Fundamentally, these contracts are self-executing and self-enforcing; they can be programmed to handle different exigencies, thereby reducing transaction and/or third-party costs while still ensuring trust, integrity and security.

Supply chain of the future—block by block
Unquestionably, blockchain is the most secure way available today to preserve important data that is trust-worthy, tamper-evident and has no single point of failure as the applications built on this technology are fundamentally distributed in nature. From a utilitarian standpoint, a rational, clear analysis of the availability and increasing usability of blockchain also suggests mainstream businesses are eager to adopt the technology.

For the chemical industry, blockchain’s salient features make it suitable and relevant for disaster recovery and business continuity planning in emergency scenarios from natural disasters affecting a large region. As such, the time is now pertinent to consider how your chemical company can use blockchain to help enhance and insure the integrity of your supply chain.

Thank you to Accenture’s Utkarsh Maru for his research contributions that made this blog possible.



Sources
1 “Costliest U.S. tropical cyclones tables updated,” National Hurricane Center, January 26, 2018. Accessed on May 1, 2018 and viewable at: https://www.nhc.noaa.gov/news/UpdatedCostliest.pdf
2 Kaskey, Jack. “Harvey Disrupts More Than One Third of U.S. Chemical Production,” Bloomberg, August 28, 2017. Accessed on May 1, 2018 and viewable at: https://www.bloomberg.com/news/articles/2017-08-28/harvey-disrupts-more-than-one-third-of-u-s-chemical-production.
3 Ibid.
4 Wray, Dianna. “Arkema Released Thousands of Pounds of Chemicals in Air and Water, New Lawsuit Says,” Houston Press, October 5, 2017. Accessed May 1, 2018 and viewable at: http://www.houstonpress.com/news/arkema-residents-say-they-were-hit-by-chemical-releases-in-both-air-and-water-during-hurricane-harvey-9847626.
5 Chemical industry responses from Accenture's Technology Vision survey, 2018. To see the Accenture 2018 Technology Vision report, visit https://www.accenture.com/us-en/insight-technology-trends-2018.
6 A force majeure is an event that cannot be reasonably anticipated or controlled.
7 Chemical industry responses from Accenture's Technology Vision survey, 2018. To see the Accenture 2018 Technology Vision report, visit https://www.accenture.com/us-en/insight-technology-trends-2018.
8 Chemical industry responses from Accenture’s Industry X.0 survey, 2017. For more on Industry X.0, see Accenture’s report, “Combine and Conquer, Unlocking the Power of Digital,” at https://www.accenture.com/us-en/insight-industry-digital-reinvention.

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