Identifying the chemical suppliers that can deliver the greatest value to your organization is a challenging task. Long-term agreements for bulk purchases can get you the best rates. But commitments of this type often tie you down and prevent you from taking advantage of changing market conditions.
On the other hand, if you divide your total requirement between multiple suppliers, you retain a certain degree of flexibility, but risk losing out on bulk discounts.
How can a company that has a large budget for purchasing chemicals gain maximum advantage for itself?
Identify the supplier that meets your specific requirements
A particular supplier may have a sound reputation established over many years and be a trusted name in the marketplace. The organization may also offer reasonable prices and attractive commercial terms. But buyers may need to look for other attributes too.
For example, does the supplier have expertise in the raw material that your company buys from it? Will you be able to get access to this expertise if required?
In many instances, suppliers have skills and a degree of competence that is not available to buyers. It is possible for organizations to tap into this expertise by working jointly with them to address the difficulties that they face.
A purchasing department needs to consider a range of factors and different scenarios before entering into an arrangement for its chemical requirements. Adopting a narrow approach that focuses only on price or quality can be counterproductive.
A dynamic market environment
When looking for alternative sources for their chemical requirements, purchasing departments need to bear in mind that the supply and demand equation is in a constant state of flux.
Till recently, China was a large consumer of imported chemicals. But a recent report in the Wall Street Journal describes how the country’s chemical requirements are increasingly being sourced internally.
Take the example of GMM Non-Stick Coatings, a Chinese manufacturer that supplies materials for cookie sheets, frying pans, and grills. Till recently, most of the resins, pigments, and pastes for making the coatings were imported from Dow Chemical Co. and Eckart Effect Pigments of Germany. But now the bulk of this material is sourced from local suppliers.
When chemical suppliers lose longstanding customers, other buyers can gain an advantage and can negotiate better terms for themselves. But this requires purchasing departments to keep their ear to the ground and remain aware of developments within their area of activity.
Track the emergence of new suppliers
Saudi Arabia’s Aramco has plans to enter the chemical supply market. Its Arlanxeo plant in Geleen in the Netherlands is already converting oil into synthetic rubber.
In Al Jubail, Saudi Arabia, the $20 billion Sadara petrochemical complex is coming up. This joint venture between Aramco and Dow Chemical Co. will use ethane to manufacture butadiene.
What are the implications of the emergence of new suppliers for your organization’s purchasing plans? How will you handle a disruption in your supply chain? Equally importantly, are you in a position to take advantage of new opportunities when they arise?
Spot favorable conditions as they emerge
Changing market forces can throw existing supply chains into disorder and create difficulties for chemical buyers. But shifts in global demand and the emergence of new sources of supply can throw up significant opportunities as well.
Chemical buyers should try to reduce costs as well as establish multiple sources for their requirements. To achieve this end it is necessary to keep a close watch on the changes that are taking place in the market.
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