Why Agile Sourcing is Imperative for Chemical Companies
- Weather events and the pandemic have caused disruptions in the supply chain, forcing chemical companies to re-evaluate their sourcing operations.
- These disruptions have led to supply shortages, resulting inflation, and broader changes to the supply and demand landscape.
- By introducing agility into their sourcing operations, chemical companies can develop their resilience to weather the upheaval of supply chain fluctuations.
All over the news, one can see the impact that disruptions such as the pandemic and weather events have had on the global supply chain.
The chemical industry, with many facilities and plants concentrated along the Gulf Coast, was heavily affected by the storms that ripped through there in the summer of 2021, causing operations to go offline for weeks.
This winter, there are lines of cargo ships waiting to deposit their goods at port. These delays have impacted how effectively and efficiently companies can get their goods to market, and for the chemical industry, it has led to supply shortages and inflation.
The disruptions in the supply chain caused by the pandemic and by weather events have forced chemical companies to re-assess their sourcing operations.
For example, fluctuations in supply and demand across the economic landscape have created the need to evaluate multiple supply options to develop products. The chemical industry also has some industry-specific sourcing challenges, in that the average source to contract cycle time is especially long and driven by complex bidding processes, qualifications, and integration of new sources.
In response to the challenges arising from these supply chain disruptions, chemical companies need to identify ways to become more resilient to changes in supply chain conditions.
While there may be a longer-term transformational change chemical companies need to engage in, GEP recommends a set of focus areas based on sourcing fundamentals to help companies make their operations more agile and relevant to today’s challenges. These focus areas will help companies develop short-term plans that are practical and actionable, while concurrently working toward long-term transformational goals for chemical supply chain.
Purchase order execution
Executing purchase orders can be expensive and overly complex, so it may be beneficial to focus on ways to improve cycle times and the effectiveness of sourcing steps from gathering requirements gathering, creating requisitions, and executing on purchase orders.
Ensuring sources of supply
It is vital to ensure continuous sources of supply through the identification and fast-track qualification of additional vendors as well as by implementing strategic partnerships with alternate 3PL/4PL carriers.
Leveraging global trade flows and supplier diversification
Accurate and reliable market intelligence may help companies deploy a flexible, global network of storage and distribution locations and identify alternate trade routes.
Value chain and demand management
As chemicals are typically made up of other chemicals, having a clear understanding of the market forces for individual ingredients as well as exploring synergies across chemical feedstocks and by-products through effective demand management may help determine the most cost-effective way to manage the value chain.
Contract terms and conditions
Companies may be able to improve the overall value proposition with vendors through levers beyond pure market price; for example, volume rebates and discounted cash-flow mechanisms.
By realigning staff to meet current and long-term needs and market conditions, companies may be able to more effectively manage their people resources. Using staff augmentation for tactical sourcing operations while focusing category management teams on developing strategies development and managing strategic vendor relationships may allow for cost-effective plan execution.
Focusing on these sourcing fundamentals can help companies improve their resilience to changing market conditions.
To learn more about agile sourcing for chemicals, please be on the lookout for a detailed GEP bulletin.