30.10.2019
Cost Management: How Companies Reduce the Cost of Chemicals
World trade enables the economic growth of an economy. It generates additional prosperity and creates more jobs through international division of labor. Economists agree that without the positive effects of globalization, traded products and services would be more expensive within the affected economies. For companies oriented on the world market, however, world trade is above all one thing: a high load. The binding of existing markets and the development of new markets and potentials are becoming a Herculean task for many companies due to the fierce competition. In order to remain internationally competitive, companies are continuously reducing their costs without sacrificing the quality of their products and services. Companies in the chemical industry succeed in doing this by reducing their costs for raw materials. In this blog post, we explain how you can minimize your chemical costs.
Large Cost Savings Potential for Raw Materials
A statistic published by Statista Research Department in 2016 with focus on cost reduction in chemical companies shows where chemical companies see great potential for cost savings. For the statistics, 300 managers in the German chemical industry were confronted with the question in which areas their company would aim to reduce costs in the next 12 months. At 47 percent, almost half of all interviewed persons responded with „raw materials“ – followed by „administration“ with 35 percent. Only a few German chemical managers said savings potential in marketing (five percent), IT and sales (two percent each). This is by no means surprising, considering that stricter budget restrictions in marketing and sales have a negative impact on operating sales. Cost reductions in information technology are also less sensible in view of the digital transformation and the associated efforts to develop new software and hardware solutions and to prepare for the digital age. A reduction in the cost of raw materials, however, results rarely in a lower product quality.
Especially in the area of commodities, which are standardized chemicals with low differentiation potential, chemical buyers benefit from a buyer’s market. Comparatively few buyers are confronted with many chemical sellers with a large supply. Manufacturers of specialty chemicals who need these basic chemicals for further processing benefit from the strong position as buyers by, for example, using chembid to compare chemicals worldwide and select the cheapest offer. In addition to procurement, optimized consumption also plays an important role in reducing the cost of chemicals. More and more dosing stations are being used for this purpose. Although these must first be procured, the high dosing accuracy allows optimized discharge values and a lower raw material consumption, in order to reduce costs effectively. The costs for such devices usually amortize within a few years.
Reduce Chemical Costs: From Chemical Specialists to Dosing Stations
Below we have compiled four measures to help companies reduce the cost of chemicals.
1. Get a Company-Wide Overview of Your Use of Chemicals
Before chemical costs can be reduced, it is first necessary to analyze which chemicals are used in the company and its purpose. Chemicals have a degree of purity that usually defines not only the price range but also the intended use. In general, the purer a chemical, the more expensive it is to procure. From a financial point of view, it therefore makes little sense to use chemicals with a high degree of purity for an application for which chemicals with a low degree of purity are suitable. In addition to this fact, the interaction between the chemicals is also relevant. An example from the food industry illustrates this.
Traditionally, there are three types of chemicals which are used for cleaning in the food industry: Chemicals for cleaning production plants, process water treatment and wastewater treatment. In most cases, food manufacturers have both a chemical supplier for cleaning production plants and a chemical supplier for wastewater treatment. However, both suppliers pursue different goals with their products. While the first supplier wants to ensure that production facilities are cleaned according to sanitary standards without considering the effects on wastewater treatment, the second supplier uses its chemical to ensure that wastewater is treated according to current regulations. It is important to both suppliers that their product fulfills the application purpose. However, the chemicals in the application company interact with each other. The use of the chemical in production facilities has a direct impact on the use of the chemical in wastewater treatment. The more the first chemical is used, the more the second chemical will be needed. In short, the former chemical determines the use of other chemicals. Diluting the chemical for cleaning production plants can lead to lower consumption of the chemical for wastewater treatment. For this reason, it is important to find out the correct concentration and dosage of chemicals in order to plan the use of further chemicals cost-effectively.
2. Select the Correct Chemicals
More than 80,000 different basic chemicals are traded worldwide. In addition, there are several thousand specialty chemicals. It is therefore understandable that even a chemical specialist can lose track of things. For companies that are dependent on the use of several chemicals, it can be worthwhile, however, to inform themselves about different chemicals and their supplier. For example, wastewater treatment requires several basic chemicals to achieve the desired result. Manufacturers of specialty chemicals offer all-in-one solutions in only one product. Although specialty chemicals are generally more expensive, their use eliminates the coordination effort of several basic chemicals, the risk of shortages of certain commodities and the incorrect composition of the basic chemicals. The procurement and use of these specialty chemicals can therefore be financially reasonable. Furthermore, numerous manufacturers of specialty chemicals offer additional services such as on-site testing to determine the individual ratio of chemicals to find out the most efficient use.
3. Optimize the Dosage of Chemicals
When chemicals are used, the correct dosage is crucial. If a chemical is under-dosed, the chemical mixture will not achieve the desired result. However, if it is overdosed, the chemical is wasted. Dosing stations provide a remedy here. They enable the optimum mixing ratio and reduce waste to a minimum. In the meantime, there are countless manufacturers of equipment that fulfill different functions depending on the industry. In wastewater treatment, for example, it is advantageous if the dosing station displays the pollutant load of the wastewater in real time and automatically makes dosing adjustments. The dosing stations should be checked and maintained at regular intervals.
4. Rely on Chemical Specialists
Thanks to specialists, companies can save money. They analyze and monitor the company-wide use of chemicals, keep an eye on all relevant markets in procurement, and coordinate and communicate with suppliers. The technical and digital progress in the chemical industry offers companies more and more opportunities to use raw materials more cost-efficiently. In order to make use of these achievements, specialists, who can understand and apply these innovations, are needed. Procurement specialists are also indispensable in such a volatile environment as the chemical industry. They know important chemical markets and compare prices for raw materials worldwide in order to procure chemicals cost-effectively, considering market fluctuations and lot sizes.
In the global race for the lowest costs, the reduction of raw material costs is of great importance. In contrast to other cost types, companies do not have to fear any loss in the quality of their products or in their sales. With enterprise-wide consumption analysis, the right choice of chemicals, optimized dosing and the use of chemical specialists, companies can significantly reduce their chemical costs and gain a competitive advantage over the competition.
In another blog article, we report on the pricing of chemicals. Find out which factors influence the price of chemicals and how you can use a good pricing strategy to consolidate your prices on the market.