Strategic Sourcing for Successful Business Contingency Planning
How the best fine chemical custom manufacturers leverage strategic sourcing to shore up business contingency and improve their cost position.
Fine chemical custom manufacturers play a vital role for their customers in the crop science, life science, and specialty segments, basically anywhere complex, multi-step synthesis is required. At all points along the product life cycle, custom manufacturing is a consistently attractive option, as evidenced by these examples:
Proof-of-concept, scale-up, and preparation for product launch with minimal capital expenditures
Reliable swing capacity to accommodate unforeseen customer demand
Production of mature products while internal assets are allocated to more strategic uses
Outsourcing to custom manufacturers serves as a natural extension of the customer’s own operations, delivering production flexibility and allowing for rationalization of product portfolios.
The best custom manufacturer/customer partnerships lead to supply contracts that are longer and often extended by evergreen provisions subject to prevailing market conditions and business decisions. This level of commitment requires custom manufacturers to expertly plan their own production and sourcing, particularly for strategic raw materials required for the synthesis of starting materials, advanced intermediates and active ingredients.
Raw materials can range from the most basic solvents, to building blocks, to more intricate molecules, oftentimes manufactured in distant countries. The current geopolitical climate certainly adds risk. Another twist - strategic starting materials or intermediates may be provided by the customer as part of contractual requirements. Lastly, raw materials may be sole-sourced, further exposing weaknesses in supply chains and business contingency plans (BCP).
What can happen to a custom manufacturer if raw material deliveries are (1) found to have quality issues, (2) incorrect or shorted, (3) late due to logistics or customs issues, or (4) canceled altogether? These hiccups happen all the time, and simply answered, production stops. What does this mean for both the custom manufacturer and their customer?
Costs/penalties - Production campaigns are carefully planned to minimize free capacity and maintain low fixed costs for the customer. Interruptions add costs. Recognize any of these examples?
Lost time may trigger financial penalties for late deliveries of product to the customer
Delayed production may jeopardize timing of product campaigns for other customers, creating a domino effect of cost issues.
Safety stocks may need to be tapped, require restocking. This can also apply to inventories of critical spare parts required to keep assets in continuous operation.
Stopped production may require equipment cleanouts, adding costs to the campaign
Once and done - Unmet delivery commitments can cut short current contracts and jeopardize repeat business. Contracts require language to guard against these scenarios.
Industry reputation - Word travels fast, and unreliable custom manufacturers will be passed over in favor of competitors. Perception equals reality too often in today’s business landscape.
Improving BCPs with stronger supply chains means putting in the hard work of deep dive sourcing, qualifying, negotiating pricing with, and managing vendors to secure key raws at the best cost position. Custom manufacturers do their best every day, but they run lean. Spare resources are limited, and other priorities divert focus.
A winning solution involves virtual manufacturers i.e. chemical distributors adept at creative sourcing, with dedicated canvassing and market intelligence teams that create tailor-made solutions for their customers. Partnering with these experts saves time and builds robust supply programs with redundant sourcing options for key raw materials and intermediates. These companies offer local inventories, essentially buffer/safety stocks closer to the point of use, reducing the risk of campaign interruptions and minimizing working capital. In some cases, changing raws from a vendor in one country/region to another may be a significant enough improvement, and sourcing partners can offer those options.
To all those responsible for supply chains, strategic sourcing, materials planning, and production scheduling, a homework assignment awaits you: review your key raw material positions, name names, and expose those vulnerabilities. Then team up with a reputable sourcing partner, fortify your BCPs, minimize risk, and then treat yourself to a quality slice of pizza, but fold it in half, no knife and fork, please. Job well done!
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Curious about how sourcing partners may fit into your custom manufacturing supply chain plans? Reach out today for an initial consultation.