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The Top 4 Ways to Limit Chemical Supply Chain Risks
Continue ReadingSupply chain risk is a major issue for all chemical product manufacturers, buyers, sellers, and traders, and in these increasingly uncertain times, the risks of something going wrong are high. Today’s chemical raw material prices are more unstable than ever, making the possibility of reduced profits (or increased losses) from poor chemical supply management a real problem.
Whilst logic would dictate that the global economy would give chemical traders greater options to maintain good supplies, the fact is that long distance logistics can cause as many hiccups.
So how can chemical supply chain risks be reduced? Here are some top tips from chemical industry experts.
1. Multiple Suppliers vs. Single Supplier
According to The Hackett Group’s ‘Study of Key Issues’ as published by Chemical Info, the top concern for supply chain executives (mentioned as a major or critical concern by 92% of respondents) was improving supply chain flexibility. But is it always best to have many suppliers?
As Joshua Nelson, Director of Strategy & Operations Supply Chain Practice at The Hackett Group says in the report, “The emergence of supply chain risk mitigation as a key issue has caused many procurement managers to reassess their reliance on single sourcing strategies. Before embarking on a change in sourcing strategy, it is important that procurement managers evaluate the supplier relationships for each category of good and assess supply chain risk holistically, across all risk categories.
For example, while multiple vendor sourcing may reduce dependency on a single vendor and reduce capacity risks it may increase other supply chain risks, such as quality, contractual, or management risks. An objective evaluation will assess total risk and will guide procurement managers to the appropriate sourcing decisions.”
2. Segment Your Supply Chain.
According to Sunil Chopra and ManMohan S. Sodhi of MIT Sloan Management Review, while it may be more expensive for your business’s day-to-day running, segmenting your supply chain can lower your exposure to risk in the long term.
In their 2014 report entitled, ‘Reducing the Risk of Supply Chain Disruptions’, they make the analogy of early oil tankers that were designed with two metal containers connected by a single pipe. As the tanker sailed, the oil would slosh from one tank to the other, making the ship very unstable and increasing the risk of capsizing. Today’s tankers have more compartments and so are more expensive to build, and heavier, so they are more expensive to fuel, but are cheaper in the long-term due to their reduced risk.
As their report states, “In a similar vein, executives need to ensure that the impact of supply chain disruptions can be contained within a portion of the supply chain. Having a single supply chain for the entire company is analogous to having an oil tanker with a single cargo hold: It may be cost effective in the short run, but one small problem can cause major damage.”
3. Be Ready to Use One-Off Suppliers.
Businesses such as Alibaba or ChemCats provide online markets or business databases that are able to provide short notice or one-time offers to trade a specific product for a specific date and price. Whilst there may be risks involved by using an unknown chemical supplier, a trading platform such as Spotchemi (who sponsored this article) offers a service where your potential business partner is vetted by trusted financial ratings companies, such as Bisnode, COFACE and TCM Group. Their online market also allows businesses to place an ‘offer to buy’ on its digital chemical marketplace, greatly increasing your chances of filling your chemical supply chain gap.
Spotchemi can also use its large database of chemical manufacturers and suppliers to locate specific products on your behalf, or in helping you to make new potential supply chain business partners. Making contact ahead of the crisis can be a key part of reducing risk.
4. Focus Your Risk Management on Your Bigger Suppliers.
Chances are that your chemical business, like most others, has a core of business partners and agreements that make up your supply chain. These top suppliers provide most of the materials that you need to do business. Consequently, you should focus your risk lowering attention on these business partners. Whilst logic may state that your smaller, less frequent suppliers are more likely to let you down, you may well be able to manage if their supply chain with you breaks down. How you cope if one of your larger chemical suppliers went bankrupt?
As Michael Volkov, CEO of the Volkov Group explains in his blog article ‘Applying Practical Strategies to Supply Chain Risk’, “One key factor in focusing on supply chain risk is to rank each vendor or supplier by the annual amount of money spent on each vendor or supplier. In this situation, most companies spend roughly 80 percent of their budget on their top 20 vendors and suppliers. Focusing risk management on those primary vendors and suppliers is an effective strategy for focusing risk profiles and priorities.
At some point, companies may find it costs more to collect information about companies in their supply chain than to mitigate the risks by representations and warranties from companies certifying as to standards they employ when contracting with vendors and suppliers.“
Is this list of top 4 ways to lower chemical supply chain risk valid? What further ways are there to reduce risk?
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Are Carbon Fibre Cars the Next Big Market for Chemical Suppliers?
Continue ReadingWith uncertain oil prices and ever-tougher limits on fossil fuel emissions modern car designers are aware of the need to make machines that need less fuel. The natural conclusion is to make cars that are lighter, and chemical manufacturers are taking note.
It is well-known that cars are heavy and increasingly expensive to run. A standard steel chassis can weigh as much as 350kg, but by using alternative materials and a chemical composite design that weight falls to as low as 120kg.
Composite cars are already on the market, with the BMW i3 being released a few years ago, and now automobile experts like Alexander Aucken, global automotive manager at Cytec, is predicting the trend to continue, stating, “I would expect this to be adopted more widely over the next 5-10 years.”
This could have a very positive effect on the chemicals industry. As Will Beacham makes clear in his report for ICIS, stating that, “Demand for automotive chemicals could grow significantly over the next 5-10 years if the adoption of carbon fibre for automotive manufacture becomes more widespread.”
One of the new materials being used in cars is carbon fibre. Cytec uses its own construction that is formulated from a polyacrylonitrile (PAN) precursor that is transformed into carbon fibre by spinning, stretching and heating. The fibres are then mixed with epoxy resins, vinyl esters or other thermoset composites to make pre-impregnated rolls of material that can be cut into the shape desired.
And Cytec is not alone in making a success of this process. Business consultants at CarbConsult predict that “carbon fibre use in the automotive sector could grow from 9,000 tonnes/year in 2011 to between 30,000 and 230,000 tonnes/year by 2022.”
However, there are some drawbacks, as the manufacturing process takes a full 3 to 4 hours using traditional autoclave (pressure and heat in an oven) methods.
As Aucken explains, this technique is not compatible with car manufacturers’ demands. “This [traditional process] is very effective for low-volume parts but if you are making 20,000-50,000 vehicles a year you may need that process to change to have a significant impact on reducing the cost and cycle time to make a part. With a four hour cycle time you would need hundreds of tools for high volumes. Therefore composite materials have been developed which can reduce cycle times to three minutes or less.”
But for this level of manufacture to be maintained, chemical feedstock supplies need to be firmly in place as demand for the required epoxies and thermoset composites rises over the next decade.
As Aucken says, “This supply chain needs to be secured to ensure that risks are managed carefully. Work is going on to ensure this is put in place with plant, equipment and cost models to ensure that there is a guaranteed supply of these materials. We have a lot of relationships with the chemicals and materials supply chain to ensure we will have the volumes we will need for high volume, lightweight manufacture.”
Beyond the next decade, the automotive industry holds many opportunities for the chemicals industry, but it is 3D printing that looks likely to have the biggest impact on how everything is made, including cars.
Cytec is already preparing itself for this market shift, as Aucken states, “We have a 3D printer and are mixing thermoplastic resins with carbon fibre for use in 3D.” Because if this does take off then parts could be printed in a local mechanic’s workshop, rather than having to order them from a factory overseas. This could revolutionise not only car manufacturing, but the chemical industry that supplies it.
With revolution comes opportunity, and with this in mind, some chemical manufacturers and traders are beginning to position themselves in the carbon fibre supply chain for epoxy resins and vinyl esters. How this will affect chemical prices for these products remains to be seen, and who will take best advantage of the situation is also unknown.
As Aucken says, “It’s a hugely exciting opportunity.”
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Should Industrial Chemical Suppliers Outsource Services?
Continue ReadingMost chemical industry business people know their business. Many even know their chemistry. But one of the key challenges facing chemical business management is how to combine business know-how with chemical know-how. The business side of the company wants to cut costs by simplifying sales tasks and outsourcing call centre teams. The chemical side of the company knows that chemical sales are technical and call centre teams need to know chemical products well.
Can a Business Trading in Chemical Products ever Outsource?
The chemical industry is one of the most modern and cutting edge on the planet. But as it becomes increasingly advanced, so do the technical specifications of chemical products. New products that enter the market are ever more specialised, sometimes even individualised for a specific project.
Such detail can be a struggle for chemical engineers. For the rest of mankind the specifications are unintelligible. So it is possible to ask non-technical salespeople to sell such high-spec products? Can a call centre without a chemistry background understand the subtle but crucial differences between products? Can a chemical business even outsource research?
Can Technical Support Ever be Handed Over to an Outsourcing Company?
Well the Royal Chemical Society said that chemical research technical support was easy, and that we should all be doing it. However, that was back in December 1996, at the height of the outsourcing business climate. Hasn’t the chemical market changed since then?
Well, if your business is pharmaceutical chemicals, then much research outsourcing can be done by firms such as ParChem. Furthermore, if you want to shop around, then take a look at the list of attendees for the PharmaChemOutsourcing conference that was held at the Parsippany Hilton in New Jersey in Sept 2015.
If you want to increase your sales, then you can also employ chemical industry sales specialists. Firms like Spotchemi (vested interest alert; I am writing as a paid consultant for Spotchemi), have formed sales teams with chemical industry know-how, so that they are better able to find a buyer for your chemical products. Plus, as they are able to speak English, Russian, Chinese, German, Spanish and Czech, they are well placed to find new markets for you.
If your business is industrial chemicals, then your logistics can also be outsourced, through firms such as InboundLogistics who state that they are happy to safely ship your chemical products far and wide; for a fee.
For now, there are few choices for chemical companies that would like support with sales, logistics or research. However, as the industry grows, these specialist services are likely to be more widely used. Not only do they give greater control over expenditure, but they also share their experience and contacts, leaving you free to get on with running the business.
What experience have you had with outsourcing services in the chemical industry? Was it positive?
Would you outsource part of your chemicals business? Or is the industry simply too technical?