For most manufacturers, raw materials are the biggest expense on the balance sheet, and nowhere have price increases been more noticeable than with chemical raw materials. From the end of 2020 to the end of 2021, the average price of chemical raw materials rose approximately 23.8%, and some chemicals rose as much as 84%.

What is less obvious is that many of these costs had little to do with the manufacture of chemicals itself, and more to do with supply chain issues—especially for chemicals being made abroad. On top of that, the operating costs around receiving, handling, and storing chemical raw materials—so-called carrying costs—deserve a lot more scrutiny than they get. If chemicals are not used right away, their storage and handling can, over time, end up costing more than the materials themselves once one factors in carrying costs associated with temperature controlled warehousing, safety systems, protective gear, insurance, and so on.

The good news is that manufacturers can get ahead of supply chain issues and carrying costs, if they have a supplier with the resources and willingness to partner in solving this problem.

After all, prices for raw chemicals are not something manufacturers can control easily. Businesses will always pay at or near going market rates. But the carrying costs of that inventory, while significant, can be contained with the right strategic partnership.

To see this, let’s look at the example of Bellrock Chemical’s own strategic warehousing capabilities, and consider a specific speciality chemical—citric acid (C6H8O7), a common food additive used as a flavoring and a preservative, and sometimes as an emulsifying agent.

Strategic Warehousing and Purchasing Schemes

For many of our customers, we offer alternative purchasing schemes that allow them to ship part of their purchase direct to their door, and keep part of the purchase at one of our local warehouses. Customers pay for what is shipped directly to them, and make a promise to buy the rest of their stock at a future date. Using our warehouses and spreading out payments gives manufacturers a huge amount of flexibility to navigate supply chain issues and carrying costs.

Buffer Stock Smooths Out Supply Chain Issues

For example, a customer might ship 80% of a given purchase to their factory for use in a process, but keep 20% reserves in our warehouse. This “buffer stock” can be called upon if there is a delay in their order shipments, allowing them to keep operations running while the supply chain catches up.

Take our running example of citric acid. Citric acid can be sourced from a number of places, but fully 50% of it is synthesized in China. (Other countries that produce it include India and Mexico.)  While the prices of Chinese producers are competitive, supply chain issues have increased lead times for orders. Orders that typically took between eight and nine weeks for delivery began to take 12 and 13 weeks, sometimes longer. Even as those issues resolve, backorders can mean that delays can continue to occur for some time.

Foreign manufacture is also sensitive to events. The calendar of holidays in India or China might be different that it is in the U.S., and could create delays if overlooked. Weather is a factor, too, as the massive floods in India last month revealed.

A three-to-five week gap in supply can mean an unacceptable amount of downtime for a line that needs to keep running to stay profitable. Having buffer stock in a local warehouse means that manufacturers can smooth out the ebbs and flows of their supply chain.

Freeing Up Floor Space and Capital

Suppose that you need a fair amount of citric acid throughout the quarter, and you make the decision to store it on premise so that it’s ready when needed. What would you as a manufacturer need to do?

There would be the warehouse space or floor space needed, of course, which means larger facilities (or less room for other supplies and equipment). But more than space is needed. Citric acid is hygroscopic, which means that it readily absorbs moisture from the air; thus it must be stored in tightly sealed containers and kept in a dry, well-ventilated area, lest it spoils. And as the name implies, it is also an acid; and though it is a fairly weak one, it still needs to be kept in tanks with appropriate structural integrity and resistance to corrosion.  Citric acid is stable for up to three years, but should be used within that timeframe or else is wasted.

This means that the carrying costs for citric acid include the cost of special tanks, the warehouse space where it will be kept, the utilities to keep the space dry and well-ventilated, and possibly insurance to cover goods that are wasted or that become compromised through an accident (a fire, for example). These are all ongoing costs on top of the original investment in the chemical itself.

A manufacturer using one of our warehouses can, essentially, have our team deal with those costs. We can store a complete container of citric acid (or another chemical) and ship, say, five pallets at a time, as needed. Storing the chemical off-premise frees up floor space, and having a payment plan to cover just what is shipped to your factory means freeing up cash flow.

Going Above and Beyond as a Supplier

Again, when sourcing chemical supplies, there is more to consider than just the raw cost of the chemicals themselves. This is especially true of specialty chemicals, and those being shipped from abroad. Supply chain issues and carrying costs can quietly eat into the bottom line just as much as the cost of the raw materials.

Which makes it surprising that more suppliers do not work with their customers on that side of the equation, nor do customers think about working with a supplier instead of ordering directly from a factory. Having a supplier with local warehouses and a willingness to work out a payment plan can do wonders for containing the costs associated with shipping, handling, and storage.

If this is something you need to consider in your sourcing, reach out to us here at Bellrock Chemical. Let us know your product or project, industry, and the locations you need material sent. We can work with you to formulate a plan that works for all parties, keeping costs stable. We source hundreds of products for dozens of industries, and we might be able to help you.