12 Strategies to Diversify Your Supply Chain for Chemicals

Traditional chemicals procurement practices have focused on consolidating the supply base to fewer supply sources for more competitive pricing and to achieve economies of scale. This trend is reflected in the volume of chemicals different countries have been importing and exporting.

For example, the U.S. has become one of the largest importers of chemicals, with volumes growing by 23% from 2015 through 2019. In this period, China consistently maintained its position as the second-largest exporter of chemicals to the U.S after Ireland. This has made many American chemicals companies increasingly dependent on foreign sources of supply, most of which are concentrated in one region.

Source: United States International Trade Commission

Time for a New Sourcing Strategy

During 2020, supply chains for chemicals were put to test. The global chaos due to COVID-19 exposed vulnerabilities in supply networks.

The bitter experience brought along a new lesson: price competitiveness cannot be the sole driver for evaluating supply options; companies need to diversify the way they buy and consume chemicals.

But how do companies develop a robust strategy to diversify their supply chains and what type of factors should they consider for supply chain management in the chemicals industry?

Here are 12 recommendations from GEP that companies can consider implementing:

1. Utilize suppliers that have multiple manufacturing and shipping locations for a product.

2. Rely on the supplier’s ability to deliver products using different transportation modes.

3. Consider suppliers that can repackage and deliver different configurations (say bulk, bags, totes, etc.).

4. Leverage suppliers with extensive distribution networks, including suppliers that can source raw materials from domestic as well as foreign sources.

5. Evaluate lead times, especially the ability of a supplier to deliver within less than 24 hours.

6. Do a risk assessment to understand the impact of supply disruptions on daily operations. Consider prequalifying additional sources of supply based on the outcome.

7. Assess geographical dependencies, both the country of origin of the manufacturer and the distributor.

8. Reevaluate storage, handling, and shelf life of products, both in-house capabilities and vendor-managed inventory.

9. Update supply and demand forecasts and transfer inventory across multiple plant locations wherever possible.

10. Drive better supply-demand visibility and manage operational risk through digital transformation of the supply chain.

11. Redesign receiving locations to accommodate products on an intramodal basis.

12. Strengthen supplier relationships to minimize disruptions of critical products.

Supply Chain Management in Chemical Industry – Going Beyond Traditional Models

As companies in the chemicals industry think through how to diversify their supply chains, they must build wider and more robust supply networks — by looking beyond traditional procurement models and becoming more resilient. They must be prepared to tackle short-term and long-term disruptions.