Supply 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.
- 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.”
- 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.”
- 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.
- 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?
If you liked this article, please share it via one of the buttons below or join our LinkedIn Group here to keep informed about similar articles.