Raw materials management consultancy in the chemical industry
The world’s leading provider of specialist chemicals teamed up with INVERTO to identify unexploited potential in non-key commodities, developing it in a joint project.
In industrial companies, raw materials management is ranked as a high priority and is typically already set up professionally. In many cases, buyers focus strongly on the key raw materials, while B and C-list raw materials with low purchasing volumes per individual product tend to stay ‘under the radar’. But there is an untapped potential for high savings here and professional management is still worthwhile.
Depending on the raw material, savings of up to 30% can be achieved, especially if existing monopolies can be broken and global sourcing is stepped up. This can be shown by our following reference project on co-sourcing in raw materials management in the chemical industry.
A leading global producer of specialist chemicals already had a professional set-up and secured good terms for procuring key raw materials. Any raw materials not defined as key raw materials, however, were at the bottom of the list, and could not be actively managed for capacity reasons.
As part of a project to optimise procurement, the company improved the individual areas of the department. One of the project goals was to find out whether there was untapped potential in raw materials not defined as key raw materials. INVERTO was therefore brought on board as a specialist consultancy in raw materials management to examine ten predefined raw materials from this category, to optimise the conditions and to expand the raw materials management in this area.
The challenge was to analyse the different procurement markets and suppliers for each raw material across all locations worldwide and find the ideal approach to resource management. Some of the raw materials processed were obtained from large chemical manufacturers or their dealers. Other specialist raw materials, however, had to be procured from markets characterised by a monopoly or oligopoly. By creating transparency, it quickly became apparent that there was a considerable untapped potential for savings.
Some raw materials were required from multiple locations, for example. In other cases, different sites obtained the same raw material from the same supplier, but at different prices. By pooling the quantities and renegotiating with suppliers, these terms were able to be standardised across the company, so all sites could benefit from the best possible price.
For some raw materials, which were in part sourced locally, there was also the opportunity to consider alternative procurement markets. So, as part of a consultancy project, the INVERTO sourcing office in China was called upon to find and evaluate suppliers on location. While Chinese suppliers offered excellent pricing conditions compared to European ones, the challenge here lay in overcoming logistical and legal aspects.
The move towards sourcing from China would result in the supply chain and lead times becoming longer. A delivery time from Germany of 2 days would become 2 months from China. This would require modifications to be made to the supply chain processes, with orders needing to be planned much further in advance and timings changed.
Another challenge in the project was that all chemicals imported into the EU needed to be traceable through REACH certification, which either the manufacturer or the importer had to provide. This is something Chinese suppliers are not always able to guarantee. Due to the high cost of the certification, direct sourcing from China turned out not to be economically feasible. So to obtain the raw materials from China in a more cost-effective manner, INVERTO looked into alternative distribution channels. A strategy was then defined for each raw material and processes within the company were adapted accordingly. These innovative approaches were then tested and implemented.
Result of the raw materials management consultancy
Through a comprehensive analysis and optimisation of raw materials, the original goals were significantly exceeded. And at its peak, a savings potential of up to 30% was achieved.