Chemical procurement is becoming increasingly complex with multiple sources being available for each material, a wide variation in quality, and the inability of purchasing companies to conclusively determine the credentials of a new supplier before an order is actually placed. If companies can simplify their purchasing processes, there are tremendous gains to be made.
The benefits of an uncomplicated and easy to monitor supply chain include the following:
- Fewer suppliers to deal with – if a company can reduce the number of its vendors, it can free up management and administrative time. Personnel involved in the purchasing process will have more time to monitor a smaller group of suppliers.
- Understanding the business model of your suppliers – the companies from which you source your chemicals have different cost structures and pricing policies. Their profit margins on different materials probably vary widely too. In fact, some of your suppliers may be producing the materials that you buy from them while others may be distributors who work on a cost-plus pricing model. Working jointly with these suppliers will give you the opportunity to understand their strengths and weaknesses. You can then distribute your orders between various vendors in a manner that minimizes your costs and provides you with the best quality materials.
- Leveraging data for decision making – with fewer suppliers and better communication, the possibility of identifying inefficiencies in your processes will increase. The reports that the purchasing department produces will be clutter-free and simpler to understand.
You will have greater access to actionable information and will be in a position to monitor operations more closely so that you can take corrective measures quickly.
Supply chains can suffer disruptions
It is useful to remember that long and complex supply chains have their uses. They allow you to source materials from the cheapest source even if that is thousands of miles away. The chemicals that you require may follow a circuitous route to finally get to your manufacturing plant. But if you are getting the materials that you require at the price that fits your budget, it makes commercial sense to live with a certain degree of complexity.
Unfortunately longer supply chains with multiple vendors are more likely to face disruptions. The earthquake that struck Japan in March 2011 affected production at many factories in the region. Plants owned by Mitsubishi Chemicals, Shin-Etsu Chemical, Mitsui Chemical Group, and Sumitomo Chemical temporarily suspended operations. Similarly, Thailand suffered its worst floods in 50 years in October 2011. More than 14,000 businesses in the country were shut down.
While natural disasters can throw supply chains out of gear, they are not the only disruptors.
Customer requirements may dictate which chemicals you can use. Recently Wal-Mart has asked its suppliers to stop using certain chemicals in the products that are sold through its stores. This list includes formaldehyde, triclosan and six other substances that are thought to be harmful.
What can be done to minimize the effects of supply chain disruptions?
Purchasing departments need to ask themselves whether they are overly reliant on a single supplier. Even if you have a back-up in place, have you tested that vendor recently? If your primary supplier suffers a closure, will the alternative companies be able to fulfill your orders? Organizations should also try and ensure that all their suppliers are not from a single region. Natural calamities or political upheaval in faraway countries can play havoc with your supply chain.
Another important area to focus on is to try and develop alternate materials for the chemicals that you currently use. This is especially important for those materials that are on the lists of government organizations or advocacy groups and are likely to be phased out in the coming years.
Periodic reviews are necessary
Every organization that buys from multiple suppliers should have a system of monitoring their performance on various parameters. It is necessary to develop a method that will provide you with the data you need to track the progress of each supplier in meeting your requirements.
Simultaneously, you should be able to enlist new suppliers who align with your organization’s purchasing plans. If a company does this exercise on a regular basis, it will help in reducing the complexity of its supply chain and also provide it with alternate sources of supply in the event of any disruptions.
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