BLOCKCHAIN IN CHEMICAL INDUSTRY

By Susovan Karan, SCM Consultant at ASK Chemicals

Susovan karanInnovation in technology is opening up new opportunities for development and growth in almost all industries today. The key challenge is to identify the right tool to achieve respective business goals. One such advancement known as Blockchain may provide the chemical industry that sophisticated tool for great innovation gains.

What is Blockchain?

As defined in Investopedia, a blockchain is a digitized, decentralized, public ledger used to record transactions or keep track of distributed data. The Harvard Business Review describes blockchain as a type of database of information, not limited to transactions, but also focuses on information that brings business value. Since the data or ledger is secured, not owned by any individual, each individual in the chain has the privilege to keep track of data and follow the transactions. It brings transparency in the process, limits the risk of inaccurate documentation, minimizes the scope of redundancy and duplication and keeps individual candid on their transactions.

Blockchain in The Chemical Industry

For many years the chemical industry has been fighting low margins, increased competition, commoditization of product and price pressure across the globe. Cost cutting is viewed as the most acceptable tool by chemical executives for driving profitability. A recent Chemicals Trend Report by PWC is showing the first sign of a tipping point. Driven by innovative technology advancements, many chemical companies have begun to rethink on their growth strategies, trying to move away from a cost-cutting model and move towards an agile, competent and aggressive business model. By using Blockchain, a chemical company may improve their ability to innovate and produce interesting solutions for their customers.

1. Promoting Commodity Trading

A particularly interesting use case of blockchain in commodity trading is ZrCoin Network, this may have a significant impact on how chemical companies are sourcing scarce materials and generating capital through investments. A group of Russian scientists have developed a new manufacturing process for Zirconium Dioxide using the waste material as feedstock instead of the traditional mining process. Instead of funding the construction of the new ZrO2 plant, the group founded a ZrO2 trading market on a blockchain platform called ZrCoin. Here investors trade ZrCoins, a derivative representing a physical amount of ZrO2. After reaching a critical investment threshold, a buyback program will start where the initial investors will be repaid at a premium for the assets that they currently hold, with compensation being either monetary or in an equivalent of ZrO2. The ZrCoin team can retain full ownership of their business. The blockchain platform offers the speed, transparency, and security that is inherent in its design, but most importantly, it will enable the creation of a market without the need for a thirdparty organization to regulate and facilitate trade. This has the potential to dramatically cut down on trading fees since all trades will be B2B.

2. Chemical e-Commerce

Digital commerce pioneers like Amazon and Alibaba have transformed the consumer purchasing behavior from brick mortar to the web while continuously disrupting several markets, emerging as a clear threat to business commerce. A major petrochemical player has realized the potential upside for automating self-service ordering for smaller non-contract customers and are looking for innovation around e-commerce. Majors like BASF and Covestro have signed Alibaba e-commerce platform recently. The industry has struggled to move beyond conventional sales channels involving paper, telephone, e-mail and even fax. A blockchain based system would allow the e-commerce sites to significantly cut down on inventory, as transactions are simultaneously processed and verified. This eliminates the need to hold a lot of excess inventory. E-commerce companies could function more as a facilitator than an intermediate. This also eliminates another potential issue of fraud and counterfeit products.

3. Indemnity against natural calamity

Natural disasters like tsunamis, hurricane, and flood have a significant impact on the business continuity due to the disruption of logistics and supply chains, aside from causing infrastructure and inventory damages. Using blockchain platform, chemical companies could conceive a permissioned blockchain that allows critical information and data related to plant operations and supply chains to be recorded in almost real time. These will include data related to the volume of raw, semifinished and finished products. Additional data might include financial details such as invoices, purchase orders, credit details, customer deliveries, work permit information and employee records. This blockchain based data source can act as single source of truth for re-conciliation and recovery post-disaster context. Insurance parties and audit agencies can be granted access to the permissioned blockchain for validations, claims and settlements. The tamper-proof data from various plants and logistics saved on a blockchain just before an accident are more authentic than ever before.

4. Vindicating Asset History

Blockchain can be used to prove ownership when procuring or disposing of an asset. It can also help to track the history of an asset and related maintenance activities. Blockchain can also be used to track chemical container movements and ensure asset safety. Blockchain would provide a single source of truth for core information about each asset. This way, no matter what happened to an asset as it moved through the supply chain, all stakeholders and systems would know its status.

5. Improved Product Integrity and Accuracy

Multiple chemical segments (e.g., pesticides) are constantly threatened by counterfeiting. Blockchain‘s single ledger verifies the integrity of a product as the record can be traced back to the product manufacturer and even the manufacturer of its ancestor agents. Due to the increasing complexity in chemical supply chains, tracking products and shipments becomes more and more important. Companies invest in contemporary logistics solutions to deal with transportation, location services, regulations, hazards, packing requirements, security, customer engagement and more. Even with extensive planning, companies could not avoid losing millions of dollars due to mismanaged transportation, fraud and managing multiple systems throughout the supply chain. Logistics companies are beginning to turn to blockchain for a solution. Maersk has completed its first round of testing on blockchains cargo management capabilities. Perhaps “smart contract” would be the biggest dollar saver, where details such as regulations, hazard control, and any other requirements can be programmed directly into the system. This significantly cuts down on order processing and if carried out correctly, should ensure better government compliance. This is particularly relevant to the transportation of Hazchem products and pharmaceuticals where there is strict regulation to be followed throughout the logistics process.

6. Chemical Blockchain Ecosystem

As chemical companies are spun off in a stream of M&As, many still carry the brand recognition, R&D expertise, and business relationships from their parent company, yet no longer have the bandwidth to carry the burden of manufacturing, supply chain operations, and other associated processes. These new organizations will compete as part of an ecosystem rather than a single business with broad coverage. So how does blockchain fit in? Blockchain technology provides a nimble commerce platform in which these next-generation chemical companies can compete. The new ecosystems fit nicely into the consortium blockchain model, providing a platform for safe, efficient, traceable, resource trading. These trades will also be done without the need for a third party and will be pure B2B transactions, thereby reducing costs and potentially changing the game for many players in the industry.

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