FIVE LESSONS FROM THE COVID-19
PANDEMIC FOR INDUSTRIES LEANING
ON CHEMICAL SUPPLY CHAINS
The chemical industry contributes $5.7 trillion to the world’s gross domestic
product, according to the European Chemical Industry Council1
and supports
120 million jobs. The chemical industry is large, but its footprint is even bigger.
Industries including pharmaceuticals and biotechnology, cosmetics, food and
beverage, and nutraceuticals depend on chemicals. As a result, disruptions in
chemical supply chains can cause chaos across those industries. The COVID-19
pandemic has brought home many key lessons about managing these challenges.
First, though, let’s review how we got here. While many industries rely on
chemicals as their lifeblood for innovation and production, the supply chain
The impact of COVID-19 on the chemical supply chain exacerbated many challenges the
industry already faces. The good news is that the lessons learned have taught us that
efforts in supplier relationships, inventory management, and data-driven decisions can
mitigate the impact from future global events.

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FIVE LESSONS FROM THE COVID-19 PANDEMIC FOR INDUSTRIES LEANING ON CHEMICAL SUPPLY CHAINS
has been confined to just a few regions. Over the past 2 decades, Asia has
formed the locus of the world’s chemical industrial plants and warehouses,
says Ravi Sethi, vice president of consulting for GEP Worldwide.2
By 2030, Asian
entities will make up two-thirds of all chemical supply chains. China and India
combined manufacture 70–80% of the world’s off-patent active pharmaceutical
ingredients (APIs), according to the European Fine Chemicals Group.3
Understandably, when COVID-19 spread globally, the chemical industry felt a
disproportionate impact, Sethi says. The pandemic caused unpredictable delays
in production, which in turn led to logistical challenges such as congestion at
ports, he adds.
The pandemic has laid bare many challenges in the chemical supply chain: the
need for greater transparency, the flaws of just-in-time inventory management,
and the overreliance on certain regions for raw materials and manufacturing
capacity. The protocols the industry must abide by, like strict regulations and
oversight, exacerbate these challenges.
“Despite the roadblocks, there is reason for hope. Even before the crisis,
the [biopharmaceutical] industry had been undergoing significant, steady
advances,” Eric Langer, managing partner at BioPlan Associates, writes in a
white paper he coauthored.4
“The industry has learned to be flexible and to
adapt quickly to change.”
The experts interviewed for this feature all agreed that the chemical industry
had been turning toward more resilient supply chains even before the
pandemic. Concerns about far-flung production sites and the ability to leverage
digital technologies had been moving the needle, Sethi says. But COVID-19
baked in key lessons. Here are five about the supply chain that the chemical
industry has learned.

LESSON 1: THE SUPPLIER MANAGEMENT RELATIONSHIP NEEDS A
REBOOT
One of the most vital lessons of the pandemic is the importance of supplier
management, according to Myles Payne, chief financial officer at Spectrum
Chemical. “You don’t want to be waiting in line for product from your supplier
when demand exceeds their supply,” Payne says. Rethinking the connection is
going to be critical to the health of the supply chain.
That redefined relationship can manifest in more robust order forecasts, Payne
says, so suppliers know what’s coming months in advance. “We are finding better
ways to listen to our suppliers and understand their pain points. A lack of forecasts,
inconsistent ordering patterns, lack of confirmation of quotes—these are all
problems that we are actively addressing so we can speed delivery of raw materials
to our customers,” he says. Chemical companies large and small benefit from
establishing firm supplier agreements and nurturing relationships for the long run.
Midtier suppliers are also extremely helpful to have on your side, according
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FIVE LESSONS FROM THE COVID-19 PANDEMIC FOR INDUSTRIES LEANING ON CHEMICAL SUPPLY CHAINS

With top suppliers, he says, “you might be a pretty small fish in a
very big pond, so you’ll likely get lost.” That also applies to direct customers, in
which service, response times, and visibility may increase appreciably for those
representing a larger portion of a supplier’s business.
“One of our sweet spots is meeting the needs of smaller and midsize customers
that are often overlooked by larger suppliers,” Payne says. “We remain nimble in
this area, and we have the scale and relationships to serve larger organizations too.”
To strengthen the supplier network through multiple tiers, Spectrum Chemical
is turning to official sources of information. It has subscribed to Cortellis, a
database of over 70,000 suppliers of APIs.
It isn’t just the supplier relationship that needs a rethink. “The pandemic taught us
that if you don’t have established backup carriers with good pricing, logistics could
be an issue,” says Kurt Rodebaugh, vice president of global operations at Spectrum
Chemical.
Paige Morse, industry marketing director for chemicals at Aspen Technology,
believes collaboration up and down the supply chain will be key in the future.
“Value chains need to talk, and you want to be efficient at every step,” she says.
“You need an environment where companies can share data and come up with
better solutions.” Data platforms, which make it easy for companies to share
information and collaborate on large projects, are going to be vital to agility in
the supply chain.
The pandemic forced the chemical industry to rethink the “just in time” approach to
inventory supply. Here, a Spectrum Chemical associate in the New Brunswick, NJ facility
prepares a package for shipment.
Image credit: Spectrum Chemical
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FIVE LESSONS FROM THE COVID-19 PANDEMIC FOR INDUSTRIES LEANING ON CHEMICAL SUPPLY CHAINS
LESSON 2: IT’S TIME TO RETIRE JUST-IN-TIME INVENTORY
For years, chemical companies chanted the just-in-time mantra, says Sethi at
GEP. The inventory management approach mandated that companies have just
enough material on hand to function, to avoid tying up capital in idle stock. The
pandemic dramatically exposed the problem with such a strategy. Both demand
and supply were affected, Accenture reports: “For the chemical industry, such
challenges are compounded by the fact that its customer industries, such as
automotive and electronics, are deeply affected by plant shutdowns and the
disruption of sales channels.”5
“There was no redundancy because redundancy costs money. But what happens
if your production is shut down for a month and you lose a year’s profits?” Sethi
says. “Companies have recognized that they have to sacrifice some efficiency to
build in redundancy,” he adds.
The moral of the story: have some cushion in inventory.
This is also true for biopharma. Given that it may take years to qualify a source
in that subsector, inventory redundancy is a good idea. Governments are
recognizing that stockpiling essential supplies for drug manufacturing is a
national security issue.
Redundancy also provides a cushion against risk, according to Rodebaugh.
“The industry needs to build in redundancy in multiple areas: you have to train
additional staff, establish relationships with more suppliers, more logistics
companies,” he says.
Reenvisioned inventory management is also about redesigning the warehouse,
Rodebaugh says. Spectrum Chemical is looking to rework its warehouses for
optimal layout that will make picking and packing orders more efficient.

LESSON 3: WE NEED NEW WAYS OF ASSESSING AND MANAGING RISK
The goal of building an inventory cushion is to reduce supply chain risk.
The pandemic made the industry see the need for resilience, Sethi says. Morse
agrees. “Chemical companies have learned that they have to integrate the
concept of volatility into their models,” she says. “They’re asking, ‘How do we
build agile businesses that can respond effectively to this volatility?’” It’s not as
if supply chain risk mitigation is new, but the pandemic drove the point home.
“The pandemic was a classic example of multiple weak signals of risk,” says
Sethi, who adds that the difficulty is knitting these multiple weak signals
together to develop a coherent picture one can act on. Technology is emerging
that can help with such challenging risk assessments.
Chemical companies are turning to artificial intelligence and machine learning
to help them make smart decisions in a volatile, risky world. Machine-learning
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FIVE LESSONS FROM THE COVID-19 PANDEMIC FOR INDUSTRIES LEANING ON CHEMICAL SUPPLY CHAINS
models like those developed by Dataminr can trawl the internet to pick up
multiple weak signals, act on real-time data, and alert firms about potential
disruptions. For example, Sethi says, the models can incorporate event data—for
instance, a fire in Malaysia. The country is a large supplier of palm oil, he says,
and the algorithm could advise about alternate sources to avoid delays.
Wendy Tate, a professor of supply chain management at the University of
Tennessee, Knoxville, says the chemical industry is learning to expand the use of
data analytics and digitalization for better transparency and risk management.
“Supply side mapping of networks, suppliers, locations, flows of materials to
determine when the next disruption occurs, and how risk can be mitigated is
high on the corporate agenda,” Tate says.
The capacity for risk needs to be assessed against the particular challenges
of the industry’s subsectors. Biopharma, for example, depends on many
ingredients for production. Early stages of a drug might be completed by a
contract manufacturing organization (CMO). Another wrinkle, according to
Rodebaugh: this subsector must also meet the stringent demands of good
manufacturing practices (GMP). These protocols ensure pharmaceuticals are
pure and work only as advertised.
The industry is also learning that understanding geopolitics and the global
supply chain’s interconnectedness matter when you are looking to account for
risk. The US tariffs on China were an alert about the importance of geopolitics,6
and the pandemic underscored the globalization of the supply chain, Sethi says.
COVID-19 regulations that evolved in response to fluctuating local conditions
Like many companies, Spectrum Chemical was required to adjust how workers operate
throughout the warehouse to accommodate new social distancing guidelines during the
pandemic. Here, Spectrum Chemical warehouse associates review these changes at the
Gardena, CA facility.
Image credit: Spectrum Chemical
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FIVE LESSONS FROM THE COVID-19 PANDEMIC FOR INDUSTRIES LEANING ON CHEMICAL SUPPLY CHAINS
adversely affected production and manufacturing. The resulting problems
rippled down the supply chain.
For instance, during the pandemic, the government of India placed restrictions
on the export of 26 pharmaceuticals,7
and the nation was affected by bans
on imported vaccine raw materials.8
Such calculations will also have to form
the framework for risk assessment, according to Sethi, and issues such as
shifting geopolitics and policies of different administrations keep supply chain
managers up at night. “These are hitting the chemical industry and are smack in
the boardroom agenda,” he says.
LESSON 4: THE INDUSTRY NEEDS TO FIGURE OUT WHO WILL
MANUFACTURE GOODS—AND WHERE
Companies have learned that they need to play to their strengths and trust in
CMOs as destinations for outsourced projects, Bio Plan’s Langer writes in a white
paper.4
“Use of CMOs and other outsourcing will continue to accelerate,” he
says.
The pandemic showed that an overreliance on raw goods from far-flung regions
of the world can seriously disrupt the supply chain.9
The upshot is that the
industry is aware of the increased need for regional or local manufacturing and
distribution. “This is now seen as essential to deal with any future pandemics,”
Langer writes.4
For example, the paper states, suppliers expect to build more
equipment capacity in the US for the US market and in China for the Chinese
One of the lessons learned during the pandemic was to have more cushion in
inventory. Here, a Spectrum Chemical associate checks stock to fill an order at the Gardena,
CA facility.
Image credit: Spectrum Chemical
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FIVE LESSONS FROM THE COVID-19 PANDEMIC FOR INDUSTRIES LEANING ON CHEMICAL SUPPLY CHAINS
market. Manufacturing might be “more internationally disseminated to
increase flexibility and manufacturing redundancy,” it adds.
Local production and distribution also save on transportation and logistics
costs—an added bonus of this shift. Spectrum Chemical’s Rodebaugh points
out that his organization leverages three worldwide locations, including two
bicoastal facilities in the US as well as one in Shanghai. The US facilities are
Food and Drug Administration-registered. All the locations have ISO 9001:2015
certification and include ISO class 8 clean rooms for packing, as well as
laboratory testing facilities staffed with professional chemists.
The focus on sustainability is also behind the localization trend. Sustainability
and the green premium are fast becoming points of conversation in the supply
chain, Aspen Technology’s Morse says. Though chemical companies traditionally
might have built out supply chains primarily based on cost, footprint and
sustainability are now considerations. “Source things from far away, minimal
inventory was the practice,” Morse says. “Now companies are rethinking this.
‘How can we get our raw materials somewhere closer? Can I encourage my key
supplier to build a plant closer to me?’ The industry is exploring alternatives.”
LESSON 5: THE PATH TO RESILIENCE WINDS THROUGH DIGITIZATION
Companies are learning that data-driven decisions—through digital
transformation—will be necessary to build a supply chain sufficiently resilient to
withstand another shock like COVID-19. “The last 25 years alone have yielded so
much data,” Sethi says. “The key is to mine the right information from this data.”
Spectrum Chemical’s Payne agrees. “One of the big lessons we have learned
is that digitalization delivers scalability,” he says. Companies recognize they
need a digital ecosystem to process orders quickly. “Do you have the supply
chain relationships in place? Do you have the capacity to do the quality testing?
Manual processes are probably the biggest barrier to scalability. You need to be
sustainable when you take on large volumes,” Payne says.
The biggest attraction of digital transformation is that it paves the way for
more advanced technologies. Expect AI and machine-learning models to deliver
efficiencies up and down the supply chain, from risk assessment to scenario
analysis. Morse points out the value of digital tools, including AI, that enable
companies to run scenario analyses. Such tools help companies measure twice
and cut once. “They can put together alternative scenarios and then look at how
that impacts [supply chains] and financials,” Morse says. Carbon production and
energy consumption can also be included in such evaluations.
Pratik Bhatia, a scientific logistics analyst for the chemicals and pharmaceuticals
vertical at Logistics Plus, is also excited about blockchain, a digital ledger of
transactions. The promise of a supply chain secured by blockchain is that every
contract is auditable, traceable in seconds, and, most important, unchangeable,
which leads to transparency and accuracy. Given that 250,000 children die each year
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FIVE LESSONS FROM THE COVID-19 PANDEMIC FOR INDUSTRIES LEANING ON CHEMICAL SUPPLY CHAINS
after being treated for malaria or pneumonia with fake medicines, Bhatia says, the
impact of supply chain transparency through this technology can be radical.10
The University of Tennessee’s Tate is impressed by product and process
innovations made during the pandemic to help mitigate supply chain risk and
disruption. Many companies and industries put small teams in place to take
ownership of problems and gave the teams resources and support, she says. For
example, when personal protective equipment became scarce or unobtainable,
many companies pivoted to make their own. Other outsourced products
“suddenly had to be insourced,” Tate says. Diversity and inclusiveness of teams
and suppliers helped enable innovation and agility, she adds.
That said, innovation alone cannot save the bottom line in the future.
CONCLUSION
The biggest takeaway? Don’t forget the lessons learned. “It’s cliché to say it,
but you cannot let a pandemic go to waste,” Sethi says. Whether it’s demandsensing systems or digital supply networks or risk assessment machine-learning
models, the key takeaway is that the industry has realized the need to move
toward data. The question it all boils down to, Sethi says: “How do we get to
the digital enterprise?”
Payne thinks we may already be there. “More than 90% of the world’s data has
been created in the last 2 years,” he notes. “That’s a good indicator that we
can make more fact-based decisions to further innovate and improve supply
chains. After all, the very definition of chemistry is the science of how properties
interact and change. Practically speaking, that also applies to those of us who
are leading the chemical supply chain itself.”
REFERENCES
1. European Chemical Industry Council “Chemical Industry Contributes $5.7
Trillion to Global GDP and Supports 120 Million Jobs, New Report Shows,”
March 11, 2019, https://cefic.org/media-corner/newsroom/chemicalindustry-contributes-5-7-trillion-to-global-gdp-and-supports-120-millionjobs-new-report-shows/
2. Alireza Heidari, “2020 Market Analysis of Environmental Chemistry and
Engineering Conference August 19-20, 2020,” J. Civil Environ. Eng, 9, no. 4,
2019, https://www.hilarispublisher.com/open-access/2020-market-anal