Developing Resiliency and Targeting Growth Opportunities in the New Normal

Today’s business landscape offers opportunities for differentiation and growth for organizations that can build on the lessons they have learned over the past several years.

By Daniel Murad, CEO, The ChemQuest Group, Inc.

Developing Resiliency and Targeting Growth Opportunities in the New Normal

Today’s business landscape offers opportunities for differentiation and growth for organizations that can build on the lessons they have learned over the past several years.

The CASE industry has done a phenomenal job adjusting to the complexities of the past several years, which included challenges related to numerous force majeures, alternative supply considerations, reformulations, working capital adjustments, and overall business continuity. It now seems that the worst may be over; in the first quarter of 2023, we have seen considerable easing in the supply chain across the industry.

In addition, commodity pricing has started to show declines, and capacity utilization has improved. A recovery is happening, though we are seeing results take shape more quickly in some areas vs. others.

While these trends certainly represent good news for the CASE sector, it is important to come to the realization that the economic and industry conditions that existed prior to the COVID-19 pandemic (i.e., the “old normal”) are gone. In addition to numerous concerns, this “new normal” landscape offers opportunities for differentiation and growth for organizations that can build on the lessons they have learned.

Addressing Resilience Factors

Small- and medium-sized enterprises (SMEs) have been particularly hard hit during this tumultuous time. To build resiliency into their short- and long-term strategic planning, SMEs should consider four key factors: supply chain visibility, agility, supplier base diversification, and contingency planning.

Supply Chain Visibility
The crisis of 2020 made clear that the old ways of purchasing are no longer going to produce optimal results. Purchasing cannot remain simply a clerical function that serves only to provide needed materials at the best cost to the production process.

Recent supply chain confusion and disruptions have illuminated — often quite harshly — the importance of visibility. Increased data sharing across the entire supply network (i.e., raw material producers, distributors, coating and adhesive manufacturers, and end users) is absolutely essential.

Agility
Companies must enhance the speed at which their supply network can respond to shifts in the external environment, such as quickly scaling production to easily meet demand or reconfiguring plants and logistics networks, even across different geographies. Opening new demand channels is another strategy to consider, such as shifting from a brick-and-mortar model to e-commerce.

Having a properly functioning chemical logistics system must be a top priority all along a company’s supply chain, including its customers. The entire system should be able to react to the smallest changes, delays, or fluctuations in the supply chain, as these issues often lead to production downtime and delivery problems to end-use customers.

Supplier Base Diversification
Just-in-time lean manufacturing processes only work when materials are readily available. However, the global shutdown associated with the pandemic strained supply lines, drove up shipping costs, and extended timelines. To help avoid these problems in the future, companies must evaluate their production footprint and transportation partners to diversify their supplier base.

Companies are increasingly turning away from global-spanning supply chains, which involve producing material in one region and then shipping all over the world from that location, as well as low-cost manufacturing hubs in Asia (e.g., China). The goal is to balance supply across geographies and ensure companies have sufficient capacity for the geographic regions where their plants are located.

This shift toward reshoring for economic stability represents a fundamental change from a business model that had proved popular for the past 30 years. In truth, it could prove a lasting legacy of the COVID-19 pandemic.

Contingency Planning
Tied to diversification is contingency planning, which stresses the ability (coupled with the appropriate tools) to anticipate and respond to disruptions. Along those lines, no organization can really react to changes in the supply chain without creating a risk assessment of its own logistics. This is of primary importance, as it allows for intelligent planning and maximum control.

Perhaps the single most important learning experience from our pandemic life involves the need to develop robust business continuity planning. A business continuity plan (BCP) is a system of prevention and recovery from potential threats. The plan ensures that personnel and assets are protected and able to function quickly in the event of a disaster.

The development of an effective BCP involves defining any and all risks that can affect the company’s operations, making it an important part of the organization’s risk management strategy. Risks may include natural disasters (e.g., fire, flood, or weather-related events) and cyberattacks.

Once the risks are identified, the BCP should also include steps to:

• Determine how those risks will affect operations
• Implement safeguards and procedures to mitigate the risks
• Test procedures to ensure they work
• Review the process to make sure it is up to date

BCPs are an important part of any business. Threats and disruptions mean a loss of revenue and higher costs, which lead to a drop in profitability.

Focusing on Opportunities for Growth

CASE companies that have successfully navigated the difficult conditions of the past several years should be poised to address numerous growth opportunities. For example, we are seeing signs of a renewed focus on new product development and innovation.

During the last three years, companies struggling with their material supply spent a considerable amount of time on reformulations just so they could survive. One might argue that successful reformulations are a form of innovation. Though not related to new product introduction, the lessons learned are extremely valuable with respect to building resiliency.

This recent focus on development varies a great deal and is somewhat dependent on the size of the organization. SMEs have continued to differentiate through segmentation and sub-segmentation, developing solutions within those segments where they play very well. Many larger, multinational organizations have sought to develop new technologies to tap into a broader range of markets and applications.

For example, in the coatings industry, we are seeing a movement to develop properties that address characteristics beyond traditional protection and decoration. A lot of work is being done to develop functional coating technologies, such as antiviral products to address society’s newfound focus on surface cleanliness.

We are also seeing a lot of activity in low-energy systems, which is of particular importance given the Russia-Ukraine conflict and the impact it has had on Europe and beyond. Low-energy systems can help organizations address their high energy costs and improve operational efficiencies (whether in cost savings, labor reduction, reduced utilities and time, reduced waste, reduced layers, higher transfer efficiencies, or improved product performance).

In terms of end-use sectors with bright prospects for CASE growth, we see great potential in infrastructure projects and the increasing adoption of electric vehicles (EVs). Recent legislation in both the United States and Canada is providing needed funds for infrastructure projects. Across the board, our infrastructure is a couple of decades past its original design limits. According to the International Concrete Repair Institute (ICRI), well over 650 bridges in the United States and Canada alone are past their life expectancy and in need of repair or remediation.

EVs are projected to see strong widespread growth, driven by increasing consumer demand and numerous government incentives and initiatives (e.g., California’s goal to replace vehicles with internal combustion engines with EVs by 2035). EVs can provide growth prospects in a number of areas, from battery and vehicle assembly to much-needed battery charging infrastructure.

Widespread EV adoption certainly continues to face various challenges. However, the development of the solutions to those problems may very well lie with the CASE industry, providing opportunities for adhesives and coatings producers, as well as the suppliers of materials to those companies.