Navigating Complexity: Supply Chain Optimization for Specialty Chemicals

  • October 11, 2024
  • Blog
Warehouse with blue barrels on metal shelves.

The complexity of specialty chemicals is due to more than just their end-use applications. The supply chains needed to source, manufacture, and distribute these high-performing products are themselves multifaceted and too often fragile. 

To keep up with shifting demand, strict regulatory requirements, and the sheer number of different products out there, an optimized supply chain is a must-have. As a one-stop shop, Seatex can help you streamline your flow of materials and finished products in and out so that customers get what they need in a timely manner. 

Read on for helpful tips on getting the supply chain right for specialty chemicals. 

The Specialty Chemicals Supply Chain Explained

Also known as performance chemicals, specialty chemicals are the highly engineered compounds and blends customized for use in niche applications across a wide variety of sectors, from automotive to construction to water treatment and more. Their supply chains include both the inbound stages–materials sourcing, manufacturing, packaging–and the outbound–warehousing, transportation, and distribution.

As specialty chemicals depend on specific “feedstock” chemicals in their production, suppliers of these ingredients play a critical role in the specialty chemical supply chain. They contribute necessary commodity/bulk chemicals to the specialty chemical process, such as benzene, which is used in the chemical formulation of a wide range of products, such as plastics, resins, and lubricants.

Logistics partners are another key player in a specialty chemical’s supply chain. They facilitate the handling, storage, and movement of both raw materials and finished products, which often require special protocols and containers. They are experts in safety and regulatory standards that pertain to the transportation and handling of hazardous chemicals.

Distribution centers, brokers, retailers, and of course customers may all play a role in the outbound supply chain, as well, depending on your business model. Because specialty chemicals are often small-batch, they may not require distribution centers, but bulk chemical manufacturers rely on them for making deliveries on time, as well as for value-added services like quality assurance and technical support. 

Challenges in the Specialty Chemicals Supply Chain

One of the biggest challenges for makers of specialty chemicals is the high degree of complexity in materials sourcing. This issue is compounded by a low degree of visibility into that sourcing, as well as the fact that typically, these materials can’t be easily replaced in a formulation with an alternative material. This makes specialty chemical companies susceptible to supply disruptions and extreme price swings when feedstocks are disrupted. 

For example, the COVID-19 pandemic roiled supply chains for months (and likely taught many a specialty chemical manufacturer some valuable lessons). Manufacturers reported to SOCMA (the Society of Chemical Manufacturers and Affiliates) in late 2021 stories of huge shipment delays, increased costs incurred by the need to source from China instead of the EU, operations oversight neglected while searching for supply, and more. 

Specialty chemical supply chains are also faced with regulations imposed on the handling and transportation of hazardous materials (HM), as well as the demands of moving perishable ingredients, both of which often apply to specialty chemicals. Consider the responsibilities list for HM shippers, as laid out by the Federal Motor Carrier Safety Administration…

  • Determine whether a material meets the definition of a “Hazardous material”
  • Proper shipping name
  • Class/division
  • Identification number 
  • Hazard warning label
  • Packaging
  • Marking
  • Employee training
  • Shipping papers
  • Emergency response information
  • Emergency response telephone number
  • Certification
  • Compatibility
  • Blocking and bracing
  • Placarding
  • Security plan 
  • Incident reporting

It takes a chemical maker significant time, effort, and resources to comply with all these duties. What’s more, international specialty chemicals providers must have a full grasp of similar regulations in every country they market to. 

Building a Resilient and Adaptive Supply Chain

Manage Potential Risks

Market analysis firm McKinsey outlines three universal types of supply chain risks:
  1. Absolute shortage: No products are available in the market, at any price. This includes unforecastable events such as natural disasters and worldwide pandemic lockdowns, but more commonly, supply and demand cycles that can be navigated with adequate planning. However, this involves ongoing “bottom-up” assessment of the market, collaborating with resource experts, and awareness of who else is competing for your supply and what steps they’re taking to beat you.

  2. Supplier risk: An individual supplier defaults but supply is available elsewhere. This risk highlights the importance of supplier evaluation and communication–is yours transparent about its own sourcing network, its financial health, its internal regulatory oversight? Having an understanding of a supplier’s challenges gives you time to pivot while clouds are gathering, instead of being blindsided one day as your supply is suddenly cut off.  

  3. Inflation risk: Prices rise rapidly, sometimes as a result of supply shortages. There are a number of ways to try to mitigate this risk, such as:
    • Reducing waste in your manufacturing process, packaging, etc. to offset the higher input costs
    • Keeping up-to-date on the state of the market, with hard data, so that you can push back on supplier attempts to justify major price increases
    • Collaborating between your procurement and business teams to develop cost pass-through strategies. 

Improve Supplier Relationships, and Forge New Ones

Suppliers are likely to be most transparent once you’ve established a solid relationship, which takes time. Using collaboration tools to facilitate better communication can help move the process along, but mutual growth and stability are probably best for strengthening bonds. 

In the meantime, you can spread risk around by not putting all your eggs in one basket. Engaging multiple vendors reduces your dependency on a single source and minimizes the risk of supply chain disruptions, and might even save you money. Exactly how many suppliers you should have will vary, but if keeping tabs on them all becomes a headache, it’s a sign you have too many. 

Digitize Forecasting and Collaboration

Digital forecasting and collaboration

We’ve already alluded to the use of technology, but here it is in plain language: you should be using smart tools to optimize your supply chain. Data analytics can be applied looking back (trend analysis) or looking ahead (predictive analytics) to help you identify patterns, predict demand, prepare for potential supply chain disruptions, and manage your inventory and production. 

And don’t forget about collaboration tools. An integrated collaborative planning, forecasting, and replenishment (CPFR) platform can help you and your supply chain partners align production schedules and inventory levels with demand. Feedback channels are important as well, with both suppliers and customers, to help you continuously improve processes and relationships.

Use the Right Inventory Strategy

Many-a-business got burned during COVID by operating on a just-in-time (JIT) production schedule. Keeping a lean inventory backfired when they quickly tapped out what stocks they had and couldn’t replenish their supplies for months. 

However, barring such dramatic worldwide events, JIT manufacturing offers reduced waste and lead times, increased quality and productivity, and streamlined workflows. Thus, in the wake of the pandemic, instead of abandoning just-in-time, some companies are modifying their JIT systems with buffers: some combination of inventory, backup capacity, redundant suppliers, and facilities shared with other businesses, even including competitors.

Companies that employ JIT production sometimes require their suppliers to stockpile a certain amount of supplies for them. A similar tactic is to give the supplier partial control of the inventory management process, known as vendor-managed inventory (VMI). In this way, the supplier can use the data you provide as the buyer to determine the appropriate order size to replenish the amount of inventory held in VMI. 

This can be a powerful technique as it not only strengthens your relationship with the supplier, it can reduce inventory costs, improve stock availability, and insulate you from supply shocks. 

Let Seatex Stabilize Your Supply

With our long-established relationships with raw materials providers, transparent operations, and logistics expertise and capacity, partnering with Seatex is the simplest way to optimize your specialty chemical supply chain. 

Click below to learn why we are an industry leader in special chemicals manufacturing.