Thursday, November 23, 2017

Supply Chain and Sustainability Management at a Few Chemical Companies

Fourteen large, mostly European chemical companies (with annual revenues ranging from $61 billion to $4.9 billion) belong to a non-profit organization, called Together for Sustainability (TfS), that assists each company in its supplier evaluations and audits.  Chemical companies of the size of the ones belonging to TfS often have thousands of suppliers paying billions of dollars, e.g., BASF, a TfS member, reports in its 2016 annual report it has 70,000 suppliers paying $36 billion to those suppliers and Clariant, another member, in its 2016 annual report, states it has 5,250 suppliers paying $2.1 billion to them.

These large amounts paid to so many suppliers represent a significant business concern for the companies and an important response to this concern is effective evaluations and audits of the suppliers.   Belonging to the TfS allows these companies to share supplier evaluations and audits, done by TfS directly or by TfS subcontractors, reducing the need for each company to do its own evaluations and audits for many, but not all, suppliers.

The emphasis on the evaluations and audits done by (or on behalf of) TfS is to support member sustainability management.  This management is intended to ensure the long-term sustainability of the company, a sustainability which depends to a large extent on suppliers.  Click here to go to the TfS website and read more about what TfS does.

The amount of data and analysis found in the annual and sustainability reports of the TfS chemical companies indicate the extent that these companies are embracing sustainability as an important strategic management goal.  The data and analysis demonstrate how value and supply chain considerations interact with sustainability considerations.  Reviewing several TfS-membered companies’ annual and sustainability reports found the following:

  • ·         Solvay seeks to detect sustainability risks and opportunities along the entire value chain (cradle to grave for products)
  • ·         AkzoNobel has a company-wide approach to continuous improvement of its integrated supply chain function, looking for breakthroughs in process, packaging, and digitalization
  • ·         Arkema is implementing improved information technology for supply chain optimization
  • ·         BASF sustainability is an integral part of its supply chain strategy
  • ·         Bayer has had more than 700 sustainability assessments of suppliers made by TfS and in 2016 conducted more than 70 external audits and more than 160 internal audits related to its suppliers
  • ·         Clariant has initiated an integrated planning landscape to improve supply chain management
  • ·         Covestro regards adherence to sustainability within the supply chain as crucial to value creating; social, ethical, environmental, and governance factors, in addition to economic ones, are used in supplier selections
  • ·         DSM has had 96% of their approximately 1,000 critical suppliers go through the evaluation and audit process
  • ·         Evonik, with approximately $8 billion spent on raw materials, supplies, services, and energy, emphasizes automation and optimization in its procurement process.

 A 2013 survey of more than 500 supply chain executives, conducted by PWC, focused on what these executives are doing to enhance their supply chain management.  Click here to read the report on this survey (PDF file).

Tuesday, November 7, 2017

Surfactants Business Prospects

The following public companies report (in their annual reports) that they produce surfactants: AKZO Nobel; BASF; DowDupont; Clariant; CRODA; Evonik; Henkel; Huntsman; KAO; and Stepan.  Of these companies, only one, Stepan, reports any financial data on their surfactants business.  For Stepan, surfactants is a separate, reportable segment.

Surfactants sales account for about 70% of Stepan’s sales.  These sales decreased $24.3 million from 2015 to 2016, a 2% change.  Gross profit margin percentages (GPM%) increased by 1% from 2015 to 2016, but was only 17% in 2016, not a particularly good GPM% for a chemical company.  Surfactant operating income in 2016 was 8% of sales and 9% in 2015.  These surfactant business results do not seem to me to reflect a strong, robust business.  And the Stepan results could reflect the surfactant business results for other companies that produced surfactants.

Countering what appears to be a recent lackadaisical surfactant business performance is the introduction of biobased surfactant products.   Of the ten public companies mentioned above, at least four of them write about biobased surfactants in their annual reports (Clariant; CRODA; Evonik; and Henkel).   CRODA has recently commissioned a manufacturing facility in the United States producing 100% biobased surfactants.

Targeting biobased surfactants could be an excellent example of good supply/value chain management.  The purchasers of these company surfactants, (retailers of detergents, soaps, and other products containing surfactants) are likely assessing their customers and are concluding that detergents, soaps, and other consumer products containing biobased surfactants are growing in demand.   A 2011 Genencor consumer survey found that more than 50% of consumers in the United States and Canada are likely to buy biobased products and more than 60% are confident that biobased products are better for the environment (click here to find more details on this survey).  A more recent, 2017 European-centered report examines trends in biobased products in several industrial sectors and found that in the personal and home care sector (i.e., soaps and detergnets) the market is especially receptive to biobased, environmentally friendly products (click here to read this report-PDF file).  Increasing demand for differentiated products usually leads to higher profitability.

Wednesday, November 1, 2017

Chemical and Metal Shortage Alert – October 2017

The purpose of this blog is to identify chemical and metal shortages reported on the Internet.  The sources of the information reported here are primarily news releases issued on the Internet.  The issue period of the news releases is October 2017.

Section I below lists those chemicals and metals that were on the previous month’s Chemical and Metal Shortage Alert list and continue to have news releases indicating they are in short supply.  Click here to read the September 2017 Chemical and Metal Shortage Alert list.

Section II lists the new chemicals and metals (not on the September alert).  Also provided is some explanation for the shortage and geographical information.  This blog attempts to list only actual shortage situations – those shortages that are being experienced during the period covered by the news releases.  Chemicals and metals identified in news releases as only being in danger of being in short supply status are not listed.

Section I. 

Graphite electrodes:  global; supply not keeping up with demand
Polyethylene:  United States; supply not keeping up with demand
Section II.   Shortages Reported in October not found on the Previous Month’s List

Magnesia:  Europe; production not keeping up with demand

Reasons for Section II shortages can be broadly categorized as: 

1.  Mining not keeping up with demand: none
2.  Production not keeping up with demand:  magnesia
3.  Government regulations: none
4.  Sources no longer available: none
5.  Insufficient imports: none
6.  Supply not keeping up with demand:  none