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Growing with modular and scalable production facilities

26 Sep 2014

There are major opportunities for decentralized and flexible production in the chemical industry. But if production units are to be smaller and more flexible, the question is how to benefit from economies of scale. TNO is looking into the possibilities of modular and scalable production capacity and identifying business opportunities.

The era of major new chemical plants being built in Europe is over. The industry is increasingly looking to decentralized, flexible production capacity. One reason for this is that growth opportunities in Western industry lie mainly in high-grade rather than bulk chemicals. It is uneconomic to set up large-scale production units for innovative products with a short lifespan, especially when markets are volatile. Smaller plants can respond to demand rapidly. Logistics costs can also be reduced by moving production to a place where raw materials or customers are nearby. And the financial risks in particular of smaller production units are smaller. On top of this, increasingly strict safety requirements make large-scale centralized production and transport more difficult, and large increases in capacity are no longer economic. New technology, on the one hand, makes smaller-scale and decentralized flexible production possible.

Economies of scale

Producing at smaller units and remote places yields fewer economies of scale, making products more expensive and less competitive. Innovative technologies often come with a higher price tag, and some of them are not yet fully developed, bringing additional costs and risks in their wake. TNO is looking into ways of combining the benefits of decentralized production with economies of scale. 'We've developed a model that enables us to calculate for chemical companies what business and profit models are best suited to a decentralized or modular mode of production,' says Ileana Hernandez Mireles, project leader and consultant on this subject. The crux of the model lies in finding a way to scale up modular production. Hernandez explains: 'It's all about new, less labour-intensive production techniques, new markets and new products, often biobased. The existing cost-based models do not focus enough on those aspects.'

New business models

A good example of the benefits of flexible, decentralized production can be seen in Akzo Nobel's chlorine business. Transporting chlorine by rail in our congested country has become a problem, given the increasingly strict safety regulations in the Netherlands. Akzo Nobel has therefore moved production to the customers, with smaller plants for specific customers. This is in effect a business challenge as well as a technological one: it changes the company's whole business model. As Hernandez points out, 'It's difficult for chemical firms to calculate when they can expand a decentralized production unit or whether they need to opt for a modular, flexible unit. This is a new mode of production that demands a different way of thinking about growth. Our model calculates what cash flow and output are needed for it to be economic to build a new modular production unit or add one on. That makes for responsible production with less financial risk.'

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