The chemical industry faces challenges beyond other manufacturers: our work is hazardous by its nature, so safety is our priority. There are innumerate regulations for us to abide by and stay up to date with.
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And we have exacting standards for our supply chain.
It’s still possible to save money within these restrictions. We’ll look at some methods below, split between raw materials and indirect goods.
The lynchpin of our processes and delivery to our customers. One impurity can ruin a whole batch.
Understandably, we won’t switch suppliers on a whim. But that doesn’t mean you can’t get better value.
It can be hard to find and approve secondary sources for raw materials, but it’s worth the effort. It’s near impossible to get accurate pricing without approving a supplier for use. Price indices can’t give you an accurate picture of what it costs to supply to your site specifically, though they can be a useful guide. Similarly, suppliers are generally protective of their commercial information and other times they will price low to get initial business interest.
One of the benefits of approving a secondary source is that the chemical industry is here for the long term, and even if your new supplier isn’t the cheapest now, there’s no telling what will happen in the coming years. When the competitive landscape changes, you'll be ready.
If you also find a source from a different manufacturer (not just distributor), you're helping reduce your risk profile and making your supply chain more resilient to disruptions.
There are always costs beyond the price tag.
One of the biggest things that can save you money is to review how you’re packaging and transporting raw materials. It may sound like the decision of the supplier, but often buying organisations specify things that puts up the price.
For example, are you transporting water or air? Materials should be ordered at the highest viable concentration for your process (and within legal restrictions). Transporting something that’s more diluted means you’re likely paying for water (or similar) to be moved around the country. An example is caustic being ordered at lower concentrations than 47%.
Another factor to look at in your organisation is how quickly materials are being offloading and whether there is any demurrage charged. Offloading bulk materials is time-consuming, but there could be ways to speed it up. By speaking with your supplier you may find that other customers are able to offload faster, or give them a wider window for delivery.
For non-bulk materials there’s a huge range of packaging options. Some of these are chosen for safety reasons and sometimes they’re chosen because ‘we always receive it like that.’ Having non-standard packaging can increase your prices and alter your lead times.
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Where possible, speak to your distributors about how most customers take the material and try to receive the goods in the simplest way possible.
Indirect costs include anything that doesn’t go into your products, so they’re usually PPE, IT and engineering equipment.
Most industries can easily change their indirect costs, but in the chemical industry we have to consider safety and quality above price.
Even without switching products, sometimes there are opportunities to consolidate spend. This means grouping lots of similar items together to get a price list including all of them. Although you don’t have to commit to an exact quantity of goods to order, the supplier will reward your custom with lower prices because they are becoming the preferred supplier for all items.
It’s possible to consolidate spend and maintain the same specifications for products, so your end users will be happy. For example, you could move all your valve suppliers to one distributor, potentially lowering their prices without changing the valve specification.
Another great way to reduce costs is to look beyond just the price tag. Every time an organisation orders something, it takes time and money. The touch points with the supplier such as asking for a quote, reviewing a specification, placing an order, receiving the goods and paying an invoice are all part of the transaction cost.
These hidden costs can be reduced and free up employees’ time for more productive tasks.
Transaction costs can be reduced by:
Engineering and MRO suppliers are innovative and are setting themselves apart from the competition by offering ‘free’ services such as condition monitoring.
Against common logic, many suppliers want their customers to spend LESS money with them, because it means their products are lasting longer!
Speaking with key suppliers and listening to their suggestions and capabilities can come up with brilliant ideas for saving money.
It may be harder to save money in the chemical industry, but it’s certainly possible. Think innovatively and work closely with your key suppliers.
With a little bit of extra thought, your supply chain will power your business goals.
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