Perfect chemistry – overcoming procurement challenges

Sourcing raw materials is increasingly complicated due to price fluctuations. This volatility in raw material prices demands that procurement teams develop both sustainable practices in procurement and long-term solutions to manage supplier reliability.

This comes largely from the fact that customers are requesting niche products, which impacts what materials are needed as well as the profitability of inflexible production systems.
The products are also complex. While a company might only need to procure a relatively small number of different raw materials (10–20), accounting for over half its spending, there are a number of important decisions to make: where a material is bought from, the form it’s bought in, and its grade or quality. All of these decisions have a knock-on effect when it comes to the cost of processing.

There's added complexity due to global sourcing markets. Prices can be highly volatile, making timing critical for procurement teams. Import duties and exchange rates play an important role in the attractiveness of certain markets and need to be continuously monitored. On top of this, suppliers from newer markets, like the US and China, need to be thoroughly researched to ensure suitability.

Streamlining tail-end spend in chemical procurement involves consolidating suppliers where possible and leveraging digital tools for spend analysis and contract optimisation. Companies implementing sustainable practices in procurement can also extend their efforts to these categories by prioritising suppliers with strong environmental and ethical credentials.

Effective management of the long tail not only supports supply chain resilience in chemicals but also aligns with broader business goals, including cost reduction, operational consistency, and sustainability.

Somewhat contradictorily, the prices of many raw materials are largely determined by standardised indexes, reflecting broader market trends, benchmark values or industry-specific economic indicators like production costs and supply and demand dynamics.

Many companies will use these indexes as benchmarks when it comes to negotiating prices. But this can oversimplify the procurement process, which requires expertise to navigate a range of variables, relationships, and strategic considerations beyond straightforward index pricing. As a result, many companies won’t invest in the expertise and tools their procurement function really needs.

On top of the base raw materials chemical companies need to procure, there are potentially thousands of additive ingredients essential for fine-tune products. Many of these materials fall into tail-end spend in chemical procurement category - items purchased in small amounts or rarely used. Managing this category effectively can drive efficiency and cost savings while reducing supply chain fragmentation.

These smaller-volume products often need to be delivered in numerous combinations of packaging and labelling to meet customer specifications. This creates challenges in strategic procurement for chemical companies, such as inventory management, process standardisation, and compliance with quality controls. This complexity can lead to inefficiencies and higher operational cost, without a clear strategy.

Beyond raw materials, indirect procurement in the chemical sector encompasses essential operational needs, from laboratory supplies to the maintenance of production machinery. With multiple locations and diverse teams to support, ensuring a standardised approach to indirect spend is critical to avoiding maverick buying and improving resource allocation.

It's clear, all of the above has resulted in an increasingly high workload for procurement teams. Beyond resource allocation, procurement professionals need to have a deep understanding of the technical and supply-market intricacies in their niche categories as well as more efficient systems for their indirect spend. Strong analytical and strategic skills are a must – which can be tough to guarantee in a time of skills shortages.

Innovation in chemicals and introducing sustainable procurement practices can help chemical companies to drive sustainability, but there are a number of factors that make this easier said than done, in particular ensuring sustainability across complex global supply chains, from raw material extraction to end-product delivery. There’s also the inherent environmental impact of processes and products, which could require substantial changes – and investment – to improve.

A more sustainable approach to procurement relies on investing in research, navigating regulatory landscapes, educating end-customers about more sustainable choices, and engaging suppliers committed to environmentally friendly practices. To achieve the latter, businesses need to be able to efficiently assess and ensure suppliers’ sustainability credentials – even trickier when a diverse range of suppliers are being used.