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News > April 2020

How chemical companies are now minimizing their supply chain risks and consequently taking advantage of market opportunities

Dr. Volker Schlüter, Managing Partner ChemAdvice GmbH


Currently, many companies in the chemical and life science industries are faced with special challenges due to the corona crisis. In addition to concerns about the health of their employees, the supply of the company with raw materials and intermediate products must be ensured. Furthermore, product sales projections on the demand side must also be reassessed. Therefore, it is now necessary to develop flexible action plans and to adapt to new business scenarios in an agile manner.




Global networks are becoming an acute challenge for the chemical supply chain

In recent decades, numerous elements of the chemical value chain have been shifted from Europe to Asia. As a result, numerous key precursors such as active pharmaceutical ingredients or certain chemical building blocks are no longer or hardly manufactured in Europe.
The increasing dependence of European chemical and life science companies in particular on Asian suppliers of chemical precursors, has now intensified again in the course of the current corona crisis and reveals the severe risks of global networking and division of labor.
Global supply chains have partially stalled and are threatened to be completely or partially interrupted. In addition, demand in key customer industries of the chemical industry, such as for example the automotive industry, collapses. These challenges have to be addressed.

Globale Vernetzung in der chemischen Industrie

On the other hand, there are also new opportunities for chemical companies. In addition to numerous products that are in greater demand due to the pandemic, this period of change offers the opportunity to become more agile and efficient in order to gain competitive advantages in the time after the crisis.


There is a need for action for chemical and life science companies

Now the critical success factor for companies is the development of a clear concept for a quick and target-oriented action during and after the acute pandemic crisis.

First of all, the focus is on protecting the employees from infections and securing the company's liquidity. Afterwards, the decisive field of action is the development of an agile and efficient supply chain and securing its supply chain risks.
As a basis for developing an agile and efficient supply chain and covering supply risks, transparency has to be generated regarding the changed situation in procurement and on the demand side.

In this current situation of uncertainty, acute procurement risks have to be taken into account, for example

  • Failure of deliveries due to corona-related plant shutdowns or bankruptcies
  • Interruption of deliveries due to national export restrictions
  • Bottlenecks in distribution or
  • Shortages on the procurement market due to increased competition

Based on a systematic risk analysis, all feasible options for securing the supply chain for key precursors needs to be checked and an action plan has to be developed for an efficient and powerful supply chain.

Supply_Chain

There are numerous levers to minimize risk, which have to be systematically checked in individual cases and should be incorporated into a supply chain concept. Options for action could be for example:

  • Broadening of the supplier base from a regional and capacity point of view ("ability to deliver")
  • Review of all framework contracts regarding delivery flexibility
  • Qualification of alternative precursors e.g. with modified specifications or extended (possibly reduced) backward integration
  • Focused adjustment of stocks for key pre-products and end products to increase supply chain flexibility
  • Increasing flexibility of production capabilities with technical or organizational adjustments
  • Deepening market intelligence and closer coordination with customers to clarify short and medium-term demands
  • Discussion of different market demand scenarios
  • Adaptation of sales and production planning to uncertain demand scenarios

Even in the current, uncertain market situation, chances should be clearly recognized and consequently realized. Thus companies should use the time of upheaval to optimize internal processes, increase the efficiency of their own supply chain and drive digitalization forward more consistently. In addition, it is important to identify and develop new market opportunities.

Those companies that flexibly adapt to the current challenges and prepare for the time after the corona pandemic will emerge stronger from the crisis and consequently gain competitive advantages.

If this article finds your interest, please feel free to contact us. We look forward to a personal discussion with you.




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