The global chemical industry is dominated by a few large companies and thousands of smaller firms. The range of products that they produce runs into the tens of thousands. Many products can be manufactured in various grades.
All this makes for a mind-boggling range of options for a company looking to buy chemicals. The situation is made more complicated by the fact that chemical suppliers are now increasingly found in the Middle East and in Asia. Earlier, manufacturing was concentrated in the US and Europe. As the number of companies supplying chemicals from locations other than the US and Europe increases, buyers are presented with new opportunities. They can source materials from these recently established firms at highly competitive prices.
It is true that many of these suppliers may have inadequate quality standards. In some instances, the commercial agreements entered into with them could be difficult to enforce. But despite these impediments, it is possible for companies purchasing chemicals from China and the Middle East to make large savings.
Identifying opportunities as they arise
A company that makes regular chemical purchases should have access to market information in real-time if it is to take advantage of new opportunities as they arise.
A report in the Economist points out that there could be a glut in chemical production in China. The country has 25,000 chemical firms, many of which produce commodity chemicals. According to the report, plants manufacturing many commonly produced chemicals, from purified terephthalic acid (PTA) to acrylic acid, are running at levels well below capacity. In the last five years, the country’s PTA capacity has increased by 200%. The rise in PTA output in China has resulted in a sharp reduction in the profits of Japanese manufacturers of this polyester feedstock.
How can a small or medium-sized chemical company get access to data of this sort within a short time frame? Obviously, it cannot deploy its own manpower for this purpose. Not only will the costs be prohibitive, but it would be impossible to put an adequate number of people on the job.
Unfortunately, there is no simple solution to this issue. Each firm would have to devise its own strategy to procure chemicals in a manner that serves it best. Purchasing departments within chemical companies need to develop and monitor a database of suppliers that can meet their specific requirements.
Challenges of purchasing specialty chemicals
Buyers of specialty chemicals have an even greater need for market intelligence. The utility of a specialty chemical is based on its function or performance and not on its composition. A minor variation in a specialty chemical can produce a significant impact on the product that is being manufactured.
Procuring commodity chemicals is very different from purchasing specialty chemicals. In most instances, the commodity chemicals purchased from one supplier can be substituted by a shipment bought from an alternative source. But this practice cannot be followed for specialty chemicals.
How can a small organization ensure that its purchase of specialty chemicals from a new overseas supplier will meet its requirements? Inspecting the facilities of prospective suppliers is an expensive task. One way out could be to place orders in small quantities to test the quality of the product that is required. But this practice may be uneconomical too.
Buyers need to evolve their own information gathering systems
The only option left to small companies is to set up their own market intelligence networks. Chemical companies would do well to keep in touch with key suppliers and maintain a close working relationship with industry peers as well.
By doing this, they would stay abreast with changes in their industry and be in a position to capitalize on new developments as they arise.
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