Chemicals Case Study

Practice - Strategic Sourcing
Sector - Chemicals
Category - Chemicals
Geography - Global (team worked in 15 countries)
Baseline - US$ 380m
Savings - US$ 53m (14%)

Our client was a diversified specialty chemicals manufacturer and reseller, experiencing increased competition from especially low cost country manufacturers. It has major operations in all key world regions (Europe, North America, South America, South Africa and Asia Pacific).

The chemicals industry has become increasingly challenging in recent years. Recent softening in some raw material prices pales compared to longer-term increases; also, wage and energy costs - together accounting for 30-50% of manufacturers' cost bases, have been heading inexorably upwards in almost all regions, with limited respite only in US energy prices.

Recognising the many challenges faced by the client, the Triton Strategic Sourcing team followed a strategy which included inter alia:

leveraging increased competition within the supplier base, with a particular focus on low cost country (especially Chinese) suppliers; this included allowing existing suppliers to bid for more business, as well as qualifying new suppliers
optimising logistics, including optimising Incoterm of purchase; consolidating and managing shipping; shortening supply chains
analysing options for different material specifications, both higher and lower than existing, performing rigorous technical and TCO calculations to select best value
seeking long-term pricing formulae, linking prices paid to raw materials, energy and labour costs

In doing so, we:

created four tender events to reflect diversity of products (and some allied services) purchased
built a joint client-consultant team, including a China sourcing expert
built automated tools for sending tender documents and customised quote grids, in 3 languages (English, Simplified Chinese, Traditional Chinese) to >1,000 vendors, as well as tools for analysing vendor bids
organised, prepared for and led 800 negotiations across Europe, US, South America, South Africa, India, China and 7 other Asian countries

The results were that we obtained total project cash savings of US$ 53m (14%) including 10-76% unit price reductions on bulk and specialty chemical raw materials. We set clear raw material pricing linkages with regular reviews, to ensure raw material cost reductions are passed on – “rise/fall” clauses vs previous “rise/rise”.

Additionally, we shortened and de-risked the supply chain for key materials, passing risk for e.g. isotank fleet and shipping to vendors; we also improved provenance of supply, in several instances dealing directly with factories vs previous (sometimes multiple) intermediaries.

We further improved vendor manageability and repeatability with the handover of an extensive toolkit.