Dow bets on process optimization, automation, AI to offset economic volatility

Chemical giant Dow is betting that process optimization and automation can streamline operations enough to offset economic and supply chain volatility with savings ramping into 2027.

Dow is navigating multiple cross currents including oil prices, supply chain disruptions and the tariff landscape. However, Dow has a global footprint and local supply chains in every region it operates. So far, Dow has performed well, but Dow CFO Jeffrey Tate said, "continued volatility and uncertainty in the early part of the third quarter have created some headwinds that we're working to offset."

"The geopolitical and macro backdrops remain volatile and demand signals are mixed," said Tate, speaking at Morgan Stanley's 14th Annual Laguna Conference.

To offset the volatility in the supply chain, Dow is focusing on what it can control. Its efficiency and gains from process optimization is one big area of focus, added Tate.

Dow has a transformation plan called Transform to Outperform and expects to save about $700 million this year. Dow is targeting $2 billion in savings overall. Part of that transformation is job cuts, which are about 70% complete and should add more than $200 million to EBITDA in the second half.

The other key part of Transform to Outperform, which launched in January, is knocking out process improvements systematically. Tate said:

"We're also leveraging advanced technology, which has identified more than 50 opportunities to streamline and strengthen our end-to-end processes, leading to improved decision quality, discipline and profitability. Additionally, we have completed our site transformation playbook at 6 of our largest sites, with 3 additional sites starting this quarter. In total, this is expected to deliver approximately $50 million in the second half of this year."

Tate added that the process optimization revolves around improving production yield, maintenance productivity, energy inefficiency and third-party spending.

"Our strategic sourcing and contract renegotiation initiatives are also delivering structural cost savings of more than $70 million in the second half of this year. This includes implementation of targeted RFPs across consumables, labor, corporate services and raw material purchasing contract renegotiations. And in our logistics and network optimization initiatives, we're reducing costs while also improving network efficiency and strengthening utilization of our logistics fleet, all of which we expect will deliver more than $30 million in benefit by the end of 2026," said Tate.

According to Tate, two thirds of the value from Transform to Outperform will come from productivity. "We're focused on eliminating work, automating work as we move forward and ensuring that as we make the reductions in the workforce that I mentioned, that it's not a smaller number of colleagues that are doing the same amount of work and doing it the same way, but really effectively looking at how can we modify and enhance the way we do that work in a more efficient manner," he said.

Dow doesn't disclose its tech vendors, but Tate said the technologies mostly revolve around process optimization, standardization and automation, but some workflows will be helped by AI.

Based on Dow job postings, the company is betting on Microsoft's Power Platform and Azure as well as ServiceNow and SAP.