Raw Materials Are The Basis Of Profits Of Chemical Companies

By Author: ada red
Total Articles: 85
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Although chemical companies realize the importance of strong purchasing ability, few enterprises transform their functions into the source of strategic advantages. That's what they did.

Obtaining raw materials with appropriate price, specification, quantity and quality is the basis of profit for chemical companies. The purchase expenditure is equivalent to 20% - 60% of the sales revenue of special chemical manufacturers and 50% - 80% of the revenue of bulk commodity manufacturers. For chemical companies, it is not only the scale of procurement expenditure that matters. With oil prices down more than 50% from two years ago, the return of volatile raw material prices means making the right purchase decisions is more important than ever.

Since 2000, the increasing globalization of raw material markets has given chemical companies a wider choice in the price and level of many commodities, although this has an important impact on delivery time and transportation costs. As new resources such as production based on low-cost US shale gas enter the market, natural gas supply continues ...
... to grow.

On the demand side, many companies are facing increasingly complex situations as their customers demand niche products to suit specific end uses or to meet different local regulations - which affects what they need to buy. In addition, players must find ways to run their asset heavy and inflexible production systems.

Procurement improvement plans can make a substantial contribution to better financial performance. Reducing overall spending by 6-10% (based on our observation of the industry, if spending accounts for 50% of sales, which is a reasonable target), would increase EBIT by 3-5 percentage points.

Given the high value on the table, it is not surprising that the chemical industry has developed stronger purchasing power in recent years. But there is still room for further improvement. For example, in our global sourcing excellence benchmark, the overall average score of the chemical industry is 2.6, ranking in the top half of the industries studied.