Tips To Save Money In The Chemical Sourcing Business

March 24, 2016

The chemical industry is growing by leaps and bounds every year. More than 70,000 different products of commercial as well as domestic use are being manufactured using a wide variety of chemicals. Chemical sourcing companies are supplying different types of chemicals including basic chemicals, commodity chemicals, polymers, specialty chemicals, life sciences, and consumer products such as detergents, cosmetics, etc.

Operating in chemical industry as chemical suppliers is not easy. It is a large industry that is segmented geographically as well as by product application. A large number of companies – small, medium and big – are operating in this sector. Most of these companies are inter-linked or in some form of partnerships or joint ventures or sales agreements. Companies also have to be ever ready to face structural inflections driven by globalization, fluctuating prices and stricter industry regulations often varying from one country to another. So, running a chemical sourcing business in a cost –effective, sustainable and profitable way requires a well-planned strategy.

The following sections provide few tips that can help such businesses to run successfully and also save money:

Identification of low cost manufacturer / principal supplier of chemicals

Most leading businesses offer a wide range of chemicals sourced from reputed global manufacturers. While quality is an important factor, it is equally important to find low cost global chemical suppliers or manufacturers to have significant savings on procurement. For instance, China is among the top three producers of base chemicals. Importing base chemicals from China is cost effective for Indian companies sourcing base chemicals.

Getting into price agreements with the manufacturers on bulk purchases is always recommended.

Optimization of inventory

Proper inventory planning and management is a crucial aspect of the business. Through optimization of inventory, aged chemical inventory contributing to a higher inventory cost and impacting bottom-line can be reduced and products can be supplied to the customers more quickly.

Leading businesses in chemical industry employ smarter analytics in the areas of demand and supply planning, inventory management and logistics to better manage on-hand inventory, increase inventory visibility and save inventory costs. It is also important to continuously review and streamline order-to-delivery process and apply methodologies such as Lean Six Sigma.

In-house Manufacturing

One of the best ways to save money in chemical sourcing business is to manufacture few chemicals in-house for which a company has competitive advantage in terms of existing assets and manufacturing infrastructure, raw materials and cheap labor.

Identify and Leverage Toll Manufacturing Opportunities

Toll manufacturing is a special arrangement wherein a company provides its raw materials or semi-finished goods to a third-party service provider having specialized equipment or infrastructure. The third party service provider in turn provides a subset of manufacturing processes on behalf of the company using those raw materials or goods for a fee. Several companies in chemical industry identify and make use of toll manufacturing opportunity to save money which otherwise would have gone into setting up the infrastructure for full-fledged manufacturing of the final product.

A business can also save money by keeping a close tab on the market, industry trends, regulations, and making the most of the opportunities in the market.

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