Client faced challenges during the winter months for a Liquid Chemical Additive.
Additional investment and equipment was needed to store the chemical in a temperature controlled storage space.
Client needed an alternative chemical that could accomplish the same function but will not freeze, reduce the price and the need for additional equipment.
Structured sourcing methodology increases competitive advantage
The context
Chemical component was susceptible to freezing during winter.
The client needed to allocate additional resources and equipment to store the chemical in a controlled environment.
Requirement for additional resources reduced the profitability of the product.
The challenge
The client requested for assisstance to find an alternative chemical that circumvents the freezing challenges, achieve price reduction and reduce the need for additional equipment for storage.
A detailed analysis of the supply chain exposed two major obstacles:
Supply Chain Assessment:
3rd party equipment required to decant and store chemical due to its liquid state on purchase.
Because operational location lacked water supply, cost of transporting liquid products increased.
Product Assessment:
The function of target chemical was to provide elasticity to the final blend
Required technical data was summarized to establish boundaries for product sourcing
The solution
Based on the analysis, it was found that a Global Strategic Sourcing exercise was needed in order to reduce the additional cost incurred from handling and storage.
The solution was split into 3 phases:
Phase 1: Sourcing new chemical supplier.
Conducted a strategic sourcing exercise following a tried and tested 7 Step Sourcing Methodology.
Conducted RFIs to understand the supply base globally. 25 were contacted for the RFI exercise
Phase 2: New chemical evaluation process.
Based on shortlisted suppliers, a Two Phase Chemical Evaluation process was established to test chemical compatibility with overall blend
Shortlisted 1 supplier with viable product.
Phase 3: Negotiation and contract award.
Conducted negotiations and signed a 3 + 3 year partnership with selected supplier
Eliminated the need for temperature controlled storage and need for additional larger storage tank
Result
The results from the Global Strategic Sourcing exercise were:
Reduced total cost by 26%.
Eliminated need for specialized storage facilities.
Reduced material handling cost from additional decanting.
The new product was added to the portfolio and underwent Global Commercialization as additional chemical benefits was seen to be applicable to operations globally.
Additional recommendations for optimization:
Distribution location was proposed to be set up in North America to reduce lead time.
Based on initial calculations, cost for setting up distribution center was justified given high 26% total savings.