Obtaining high-quality raw materials in the right quantity, price, specification, quality, and quantity is critical to the profitability of chemical firms. Purchases account for 20 to 60% of specialty-chemical players’ sales revenue and 50 – 80% of commodity product producers. Chemical companies don’t need to be concerned about the cost of purchasing. Making the right purchasing choices is crucial now, with oil prices falling by more than half of what they were two years back.
Since 2000 there has been an increase in global demand for raw materials. This allows chemical companies to have more choices regarding price and grade. It also means they can take longer lead times and incur higher transportation costs. This supply is changing, and new resources like low-priced US gas shale gas are coming to market.
Many companies have to deal with increasing complexity from customers who request specific products or local regulations.
Good But Far From Great
Given the value that the chemical industry brings to the table, it is not surprising that recent years have seen stronger purchasing abilities. There are many areas that need improvement.
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Second, you have a long tail that is lower volume. To fine-tune their products for customer needs, chemical professionals, especially in specialties, may use thousands, if not hundreds, of additives. Some additives may only be used in small quantities or not at all, but they can play a critical role in the final product’s performance. In the same way, companies may be required to supply products in hundreds if not thousands of packaging and labelling combinations.
The Road to Excellence
Whatever their size or sector, the most successful chemical firms use a different strategy. They break down purchasing categories into strategic and valuable segments. They use a comprehensive approach that is far more than the traditional levers.
This can be a huge advantage for chemical companies. Our data shows that there are savings of between 1 and 5 per cent in base commodities and 10 to 20 per cent in fine or specialty chemicals. Indirect categories have even higher savings potential, such as facilities management and IT and telecommunications.
A Complete Approach
Best–in–class companies have a comprehensive approach to purchasing optimization for critical and strategic materials. It includes three elements.
Commercial Levers
The majority of chemical companies buy important materials directly through contract and supplier management. Some elements are added by best-in-class companies. They are diligent about renegotiating supply arrangements when major changes occur, such as recent declines in oil-price. Furthermore, they ensure that contract terms limit price-volatility risk.
Most importantly, they complement their traditional commercial capabilities with an extensive and up-to-date fact base, strong analytical skills and financial knowledge. This gives them a deep understanding and appreciation of the true costs of suppliers as well as how changes in markets will affect their purchases. This has led to their negotiation teams being less dependent on strong-arm tactics and more focused on identifying the true opportunities for the supply of materials at lower overall expenses.
Are you looking to find a raw material supplier? Contact Australian chemical suppliers to find out more about how we can help. We also provide raw materials for applications in Aluminium, steel, agrichemical, grease and lubricants, food and beverages, paints and coatings, water treatment, and many more industries.
