Energy crisis, oil and gas shortages, climate change, and lack of skilled workers: the chemical manufacturing industry is suffering enormously from current developments — also because the production of chemical products has the highest energy demand of all industries, according to Destatis. [1] However, the current challenges go even further, as Ronald Moll tells us in conversation.
The managing director of a consultancy for supply chain management knows the chemical industry and its special logistics requirements first-hand: not only has he worked in the chemical industry for twelve years, among others at Bayer and at Dr. Oetker, but he has also held leading positions in logistics in industry and trade for 25 years. In the AirPlus Corporate Payment Insider podcast, Ronald Moll shares very valuable insights into the world of the chemical manufacturing industry with us and calls for the digitalization of payments to optimize processes.
Hello Mr Moll, you know the chemical industry very well from many years of experience: What are the major challenges this industry is facing at the moment?
Moll: First and foremost — as was the case last year — there’s the issue of low material availability to ensure production reliability. This, together with the high energy prices, which force some smaller suppliers to shorter production cycles, leads to extremely tight supply chains. Ensuring this requires a high degree of logistical optimization.
In addition, there’s the high complexity that comes with the chemical industry's extensive production portfolio: It’s about several supply chain management stages that must be considered, and of which end-to-end transparency must be ensured. Because only with transparency do I know where the material is, when I will receive it, and in what condition it will arrive at the factory.
Verbund sites: chemical parks require particularly good coordination
Moll: Chemical parks also bring very special challenges: because of the different objectives of the site partners, the need for central control is particularly high. The management of loading and unloading with a platform-based IT solution is imperative to ensure collaborative working, not only regionally but of course also globally. Finally, in the context of transparency, it’s necessary to consider all transports as well as material availability across the entire process chain.
Today’s situation is complicated not only by the lack of transport capacities but also by special regulations that have to be observed in the chemical industry: These include regulations regarding dangerous goods and hazardous substances as well as CO2 regulations. The carbon footprint topic also affects the energy balance, and the regulations by the authorities and the EU are becoming more and more complex and demanding.
"Without having checked my customers and my suppliers, I am unable to proceed with any shipping of goods anymore"
Furthermore, aspects of customs and commercial law must be considered: The war in Ukraine in particular has shown us how limited shipping activities may take place. Without having checked my customers and my suppliers, I am unable to proceed with any shipping of goods anymore: On the basis of the 9-11 problem — the terror list check that was brought about — I also have to make sure that I both comply and deal with the current legislation. This isn’t a problem for large chemical companies because they have special staff units. Medium-sized companies, however, have to make use of professional support.
"Low water means that we have to switch transports to trucks"
The consequences of climate change are also already burdening the chemical industry: Last summer, for example, we saw that increasingly less water passed through the Rhine. Low water meant that we couldn’t use inland waterway vessels — as is common in the chemical industry — but we had to switch to trucks for transport.
This again led to the issue of loading capacities: it was already a challenge to even get the goods to production in time. The same situation arises in the case of high water: then the ships can no longer pass the bridges — and the goods have to be diverted accordingly or switched to rail. Both cases require considerable effort from the logistics department.
Yes, and then the industry has actually always suffered from two issues: Cost pressure and a lack of skilled workers. For example, there are still too few truck drivers, so in some cases, transports have to be canceled for this reason alone.
With this multitude of challenges: To what extent are digital solutions already providing relief in the chemical industry — especially concerning payments?
Moll: The chemical industry is a process industry — and of course every process step is digitalized and a large part of the processes are automated. However, the topic of payment processes is still analog in many cases: Bank transfers, SEPA transfers and, in some cases, cheques are still used. I think there’s still enormous potential for optimization in the chemical industry — as in other industries.
I can very well imagine the acceptance of a virtual credit card that automates the whole payment process. In this way, an order is transferred to a supplier together with a credit card number, which is then directly charged. The supplier receives the payment immediately — and can start production or transport right away.
"With a virtual credit card, I show my company’s creditworthiness to the supplier. The supplier can immediately ensure that the goods and their transport are paid for and can plan transport and equipment availability much better"
In addition, as a credit card holder, I have transparent payments because there’s a direct reference to my order, so it’s no longer needed to add information manually. And with a virtual credit card, I also show my company’s creditworthiness to the supplier. The supplier immediately knows that the goods and their transport have been paid for and can therefore plan transport and equipment availability much better. We have received very positive feedback from the logistics market on this and have generated a lot of interest. It's clear that using a virtual credit card ensures liquidity as well as transport and process optimization.
Is Purchasing already using digital solutions to become more efficient?
Moll: This click-to-buy principle has been around for a long time. Purchasing is already partly digitalized with a series of automated, digitalized transport controls and procurement channels, as we can see on sourcing platforms in the B2B sector.
In my opinion, the use of digital solutions is also imperative in order to avoid short-term availability only or non-availability of materials. And as already mentioned, when using a credit card, there’s trust on the part of the supplier and there’s no need to wait awkwardly for payment processes.
In the end, the use of a virtual credit card also ensures transparency in the entire payment process. I can apply specific settings to a virtual credit card and have the possibility to map my costs and cost center invoices accordingly. This in turn means simplification and process optimization for the accounting department.
Besides process optimization for accounting, are there other advantages that a virtual credit card brings?
Moll: Yes, absolutely. The digitalization of payment channels would also bring tremendous advantages in the operational area, namely in the area of "release", the so-called release of containers. Imagine you have already paid for your goods and your container is placed in the port. But it stays there a little longer than the planned demurrage-free period. Then you have to pay additional costs — so-called demurrage costs or demurrage and detention.
"With a faster process for additional demurrage cost payments, you can directly dispose of your goods"
The accounting department must now make a special payment so that the container is released by the shipping company. If you have already secured the entire transport with a credit card and use an additional virtual credit card for the significant additional demurrage costs, you can directly dispose of your goods. The transporter gets his equipment back in time and the entire follow-up process is optimized accordingly.
Let's talk about the Supply Chain Act, which came into force on 1 January. What is it all about — especially with the focus on sustainability?
Moll: The Supply Chain Due Diligence Act has the task of obliging companies to respect human rights within the supply chain and also to comply with environmental and labor standards. Of course, the standards vary from region to region, but what’s important in the Supply Chain Act is that these are checked and documented by the companies.
Let’s not forget that the sustainability of the supply chain is solely to protect the company’s reputation: no company wants to be seen in the press as a company that exploits people or puts them at risk through production. The problem of complying with due diligence obligations under the Supply Chain Act naturally increases with the size of the company and the complexity of production and manufacturing planning. Especially in the chemical industry, there are many supplier companies, which in turn have other supplier companies behind them, which in principle also have to be checked by the German chemical company.
This naturally leads to an enormous administrative burden. Companies have to think about how to integrate this supply chain law into their own processes. In this respect, it makes a lot of sense to incorporate this Due Diligence Act into a company's compliance organization.
"When paying with virtual credit cards, you can identify hidden, ancillary as well as niche suppliers"
After all, compliance is nothing more than proving sustainability. This can also be achieved, for example, with the use of a virtual credit card, because all payments can be checked and in this way, hidden, ancillary as well as niche suppliers can be identified.
These checks must also be documented — not just since 2023, but already since 2022 for large companies. This is associated with increased travel volume because the factories have to be inspected and you have to look at the situation on-site. Pictures alone aren’t sufficient for an appropriate assessment.
However, there is no inspection obligation. Being shown around at a plant doesn’t mean you can assume to have seen the real production site. However, the experienced buyer or the experienced compliance manager will know if that’s the case.
We thank Ronald Moll very much for the interview!
By the way — we also offer you further exciting insights, trends, and updates from the world of corporate payment in our podcast, which you can subscribe to free of charge.
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[1] Importance of energy-intensive industries in Germany - Federal Statistical Office (destatis.de)
