2022 Strategies and Tips to Find, Negotiate and Plan for Raw Materials | Guide for Entrepreneurs | Small and Medium-Size Businesses | Large Corporations | Procurement Specialists
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There is a good chance if you look around you, you will agree different industries are affected by the world's shortages.
It could be:
- A personal care product that is unavailable.
- Your favourite snack is packaged differently.
- Might be electrical or plumbing supplies delayed for a few months.
- Children's toys not yet delivered.
- The car dealership informed you that the heated seats you wanted were unavailable.
- Or Starbucks announcing they suspended your favourite product.
HOW DID WE GET HERE?
The answer is layered and blaming the Pandemic will not help you find, negotiate and plan for raw materials in 2022.
So let's quickly go over the events.
10 things that take us from pre-pandemic times to today:
1/ Global Business organized around "Just-In-Time (JIT)" manufacturing. With integrated supply chains and the internet, it allows pretty much any size business or Government to acquire and get delivered anything to create a product on the assumption that everything is available within a few days, a week or a month.
2/ China has been the "World's Factory" manufacturing most of the world's Goods, critical Raw Materials and critical Medical Supplies.
3/ 19 months ago today, on March 11th, 2020: The "WHO" declares a pandemic, and some countries go into lockdown.
4/ Hours into the lockdowns, the industrialized world was preparing for an economic slowdown. Companies started reducing production for most goods. Global supply chains were also getting ready for a slow down.
5/ A surge of consumption catches most industries off-guard. Consumers want more of everything, and we start seeing empty shelves.
6/ Remember China was the "World's Factory"? They also had to deal with the Pandemic, lockdowns, political unrest and still today; power outages are slowing down manufacturing.
7/ The compound effect of the Pandemic and the increase in Global consumption leads to global shipping woes:
Shipping a container from point A to point B costs more than ever, with slower maritime traffic, congestion at the ports and a lack of shipping containers. Regarding the cost of shipping containers, most experts agree there is no relief insight: Higher Shipping Costs Are Here to Stay till at least mid-2022.
8/ Nine months ago, in February 2021
A polar freeze hit the State of Texas. The chemical coast of Texas runs between Brownsville and Corpus Christi, approximately 161 miles. It essentially consists of 350 miles of indoor and outdoor pipping across 44 football fields. A 3-hour car drive of chemical plants.
The February freeze triggered mass blackouts that led to massive shutdowns that disrupted global supply chains, causing shortages of key raw materials needed for everything from medical face shields to smartphones. They couldn't even operate their backup generators. And because they had to inspect every inch of pipping before restarting production, the shutdown lasted for months.
Why is that a big deal?
The TEXAS CHEMICAL COAST manufactures petroleum products used in all industries, including plastics. Since the "Texas Freeze" prices for polyethylene, polypropylene, propylene glycol, vegetable glycerin and other key compounds used to make personal care products, auto parts, computers, and a vast array of plastic products have reached their highest levels in years in the US and Canada. That is why the price of many things that use plastics has gone up, everything from the next vehicle you buy to adhesives used in homes to some of the consumer electronics that you're looking at buying during the holidays.
There are positive signs for the Chemical Coast:
The state has undergone significant reforms of its power grid, natural gas supply chain, and electricity market to prevent another such incident. On Wednesday of this week: Peter Lake, chairman of the Public Utility Commission (PUC) and Brad Jones, acting president of the Electric Reliability Council of Texas (ERCOT). Convened the press and issued joint statements:
"Because of all these efforts, the lights will stay on this winter."
"Texans should know that they have the best grid they've ever had."
We will have to wait and see.
9/ As we write this article, Multiple key industries remain impacted.
10/ 2022 and beyond, what should we expect? Raw Material analysts and supply chain experts agree that continued increased consumption, strained global supply chains, labour shortages, rationalized raw materials and new variants are here to stay till at least early in 2022.
RAW MATERIALS AFFECTED BY SHORTAGES
The chronology above from 1 to 10 has strained the availability of some raw materials. The legend below indicates the compound effect of the chronology.
In white: KEY RAW MATERIALS, these products are available BUT used to manufacture a long list of other raw materials.
- Acetic Acid Glacial
- Dimethyl Sulfoxide (DMSO)
- Hydrochloric Acid
- Potassium Hydroxide
- Propylene Glycol
- Phosphoric Acid
- Sodium Hydroxide
Yellow: PERSONAL PROTECTION are examples of raw materials in high demand because we know what. I don't want this article to be about March 11th, 2020.
- Alcohol Isopropyl
Blue: CHINA MANUFACTURING is interesting since China manufactures most of the world's critical raw materials. We symbolically listed:
- Ascorbic Acid or commonly known as Vitamin C
- Citric Acid
But the list of critical Raw Materials from China is long. Your favourite supplements will continue costing more money moving into 2022.
Pink: PHARMACEUTICALS critical Pharma.
Why Iodine and Potassium Iodide?
Yes, another March 11th once-in-a-lifetime event. Not a pandemic. This time in 2011, Fukushima declared a nuclear's emergency. On that day, Iodine and Potassium Iodide Global inventories are instantly forwarded to the Pharmaceutical companies. These raw materials are used to manufacture products that protect the thyroid gland in a nuclear emergency.
So why PVP-Iodine?
PVP-Iodine is one of the first raw materials that became in high demand by the Pharmaceutical industry following the 2020 pandemic. PVP-Iodine is used to create (Povidone-Iodine) products such as antiseptics, gargle solutions, nose sprays and cremes. There are currently studies underway to evaluate the efficacy of these products against viruses.
2022 STRATEGIES AND TIPS
We separated the information into four groups.
Let's keep in mind, these strategies and tips apply to industries requiring raw materials.
1/ Regardless of the news cycle. It's a good time to start. We find entrepreneurs and new projects are adapting faster to the changing times with creativity and using local resources. The trend seems to avoid creating new products outside of their Country. When possible, work with people and companies inside your Country.
2/ Find a successful regulated similar product and start from a place of passion. These two combined will serve you in positive ways. Having a constant reminder, a click away of where you want your product to be, will stimulate you and can be used as a reference when you interact with collaborators.
3/ Three tips:
- Perfecting your formula or recipe by adjusting raw materials quantities.
- Making sure to have a product differentiator.
- And expressing your passion in all copy-material.
These three can accelerate the creation of a sustainable product. In the beginning, quick adjustments and adapting to change will be required.
4/ Start small and take measured steps. On your own, start finding customers and distributing your product. Consider distributing your product free of charge in exchange for honest feedback. Get some results without friends and family.
5/ Expand slowly with co-workers, friends and family. When feedback from co-workers, friends, and family is equal to your customer feedback, that is a good sign. But be careful; at times, co-workers, friends and family will sugarcoat the input. Consider as soon as possible to start manufacturing a licensed product and prepare a launch.
6/ Now, it's time to create a product and spend some money. You must understand all the compliance requirements on your own. I suggest hiring professionals to advise you. It is a well worth investment. Hire a professional formulator located in your Country that shares your passion and understands your product and industry. Make sure your formulator speaks your native language, has verifiable references, is not overly expensive, and provides you accurate Industry information. A formulator that is really into your project will NOT request a retainer and will forward free of charge various resources that will accelerate your progression. Save money by finding a private facility in your Country that will co-pack your product. Make sure to always pay for professional services quicker than the terms negotiated.
7/ Your product is manufactured from Raw Materials and will almost certainly require multiple changes of recipe. Shop around for quality Raw Materials for one production cycle at a time. Do not let the shortages of Raw Materials dictate the size of your purchases.
8/ When contacting suppliers, be passionate, realistic, concise and professional. That will carry you a long way.
9/ Repeat your initial cycle more than once—set objectives of selling "X" amount of units. Make sure to understand your numbers. Repeat, repeat, repeat. Do not quit your job until you start losing money working at your job.
10/ So you have a product and have some traction. Do not spend money on infrastructure until you consider budgeting for:
- Your next production.
- Formulation updates.
- Raw Materials.
- And everything else that follows.
SMALL & MEDIUM-SIZED BUSINESSES
Ok, you have probably transitioned from starting a product at home to building a company. I am happy to share these ten Strategies and Tips for 2022 with you.
1/ Being organized.
- If you are transitioning from selling 1 product to a small or medium-sized business, you will find this a big change. It requires applying the lessons you have learned into a structured and organized system.
In this new world of limited face-to-face interactions, video conferencing will create familiarity and better information sharing.
Email is great for certain communications. But manufacturing goods using Raw Materials requires attention to details that email at times is lacking.
It is easy to take a conversation sideways, especially when you are having general discussions about a subject.
2/ Have compliance or regulatory information available a click away. The information should always be up-to-date and available to share with collaborators and employees. Revisions, recalls, or changes to your licensing should be archived and shared.
3/ Your product will probably go through changes. Improvements either on the formulation side or imposed by compliance. Formulation versions should be documented and archived. Include communications with your collaborators and co-workers.
4/ Manufacturing a product from Raw Materials. With shortages and last-minute surprises with Raw Materials, Bottles, Boxes, Closures and Packaging, You will need to communicate more often different scenarios with your private manufacturing or your team if you are the manufacturer.
- Have pre-designed worksheets that include your formula and list the raw materials with set quantities. This will allow discussing effortlessly changing scenarios pre-production.
If your product is also sold in bulk example: You have master boxes of 48 bottles.
- Create a 2nd set of pre-designed wholesale worksheets for a master box of 48 bottles.
5/ Your Raw Materials information should be archived and organized. Again, with 2022 shortages and last-minute surprises, it is advised to list all the Raw Materials you use. Categorize the information in advance in different ways.
- Supplier "A," make a list.
- Supplier "B" prepare another list.
- Then, by recipe, have the raw materials listed.
- By product or brand.
The particularity of your company requires the information to be tailored accordingly. It will save you time as you are certain to make decisions in changing scenarios.
6/ Prepare yourself like Large Corporations. Plan for disruptions and surprises; it could make your year. We know the supply of plastic remains tight as we start 2022. Create what-if scenarios for plastic-related items like Bottles, Closures, Liners and Packaging.
We also know the supply of some Raw Materials will continue to be tight in 2022. Try and think out of the box. Possibly create a different formula with an alternate raw material that is not in limited supply. Actively work on adding new suppliers. And improve existing relationships with suppliers.
7/ Small and Medium Size businesses are flexible. Finding new suppliers is easier than you think. Working with new suppliers will mitigate the risk of being caught off-guard for 2022. We have found that the companies finding their way are creative yet patiently aggressive.
8/ On-hand Inventory levels. Evaluate if increasing on-hand inventory for your most stable products makes sense. Suppose some of your products or brands are stable. First, evaluate the strength of your compliance, manufacturing and sales.
- Then maybe increasing on-hand inventory levels makes sense.
When cash flow does not permit increasing or maintaining higher than usual inventory levels for your stronger products:
- Then maybe that is your goal for 2022.
9/ If possible, interact with your suppliers more often. At times we are frustrated at higher prices and shortages from our suppliers. Know that most companies are going through these same challenges.
10 for 2022/ Is reinforcing your company, products and brands the right objective?
We see Companies getting closer with their compliance, formulation, regulatory, manufacturing and suppliers. Yes, closer relationships, but also geographically closer. Moving away from manufacturing products outside the Country. We see these companies marketing creatively: Made in the USA or Made in Canada.
Adding new products or brands with shortages and price increases could be a risky proposition.
Evaluating your company infrastructure might be the wise thing to do for 2022.
1/ With the current times, some companies are avoiding launching new products. But some are being creative and capitalizing on the lack of competition—especially companies with departments in-sync with the changing times. Ask yourself are opportunities still finding your desk?
2/ Large Corporations hate last-minute surprises. From Raw Material availability, pricing, shipping and the list goes on. Are Raw Materials a personal priority? Maybe announce your commitment internally or publicly. It could go a long way with employees or customers. Or maybe both.
3/ As the head of a large corporation, it's impossible to be everywhere. Maybe a trusted Executive could be included in all communications related to Raw Materials and manufacturing. That will support your commitment to Raw Materials being a priority. While keeping all the departments on the same page.
4/ Having more frequent communications with departments interacting with Raw Materials will create confidence. Verify how frequently are people communicating? How are they communicating? And always try and improve. If in-person is impossible, zoom on a regular schedule and try to be a fixture during those calls.
5/ Ask how can you have closer relationships with your key suppliers of Raw Materials? Review internally who and what departments are interacting with your Suppliers? Improve your relationships with suppliers of Raw Materials. And why not build new ones! When possible, visit your suppliers.
6/ Having a shortage of one Raw Material for Large Corporations could be costly. Have an Internal review of all departments interacting with Raw Materials. Increase the frequency of inventories. Verify your orders that are pending delivery. And why not check up on your blanket orders to see if changes are entered in the systems. You could review if, in the last 19 months, there are trends you are not aware of.
- Last-minute supplier change of dates.
- Multiple lot numbers versus one lot.
Those could all be signs that trouble is on the way. Look for possible vulnerabilities due to Raw Material shortages. If useful, maybe create new ways of keeping track of Raw Materials by Country of origin, brand, or product. Try not to outsource any department interacting with Raw Materials.
7/ Review supply chain performance and finding out if anyone is asking difficult questions.
- What if the Country so and so, for Raw Material so and so, what if?
- Or what do we do if a vessel, port, shipping container, a new variant, etc
- Increase frequency of internal reviews.
- Set parameters for red flags according to how the current times have affected your company or organization.
- And request that internal reviews include mentions of those newly implemented red flags.
8/ Create a plan « B » and « C » scenarios based on audits and reviews.
Example: What if a key ingredient overnight becomes unavailable?
- Should you double your on-hand inventory?
- Should you find an alternate Raw Material?
- Do you need to update compliance?
- Update some labels?
9/ Suppliers of Raw Materials are going through the same challenges you are. Personally interact with your suppliers every chance you have. Who knows? You might avoid a shortage of 1 key Raw Material. Or bypass a shipping delay. It could make or save your year. Remember your suppliers understand you.
10/ Are you confident every department is in-sync with the times? Of course, you know packaging, bottles, containers and plastic caps are also in short supply. Review all departments with the same level of scrutiny.
Remember, some large corporations are creating new brands. They are creative and advertising aggressively: Made in the USA or Made in Canada.
So back to point 1: Are opportunities still finding your desk?
PROCUREMENT SPECIALISTSEverything was about digitalization, automation, and streamlining your supply chain for the last ten years. Integrated suppliers, manufacturing and company departments provided a sense of confidence. Yes, the cloud, analytics and upcoming new technologies will continue to improve.
But since March 2020, we know that the human connection is not replaceable. Creating warning systems, problem resolution and improvising with creative solutions regarding shortages and last-minute surprises about Raw Materials, Bottles, Boxes, Closures, Packaging, Shipping, Tariffs, Duties, and the list goes on.
In today's world remaining competitive Globally requires opening our minds to doing things with a human touch. With the expectation that 2022 will continue to be challenging. We share ideas and approaches that may apply to your unique set of circumstances.
1/ Make sure communications with management are pleasant and stable. Share with management the complexity you are facing in your daily tasks.
2/ With last-minute surprises affecting all industries, discuss possible alternatives to shortages or last-minute surprises that will continue to arise in 2022. Having an alternative solution for a possible shortage will go a long way for the company.
3/ Your Critical suppliers are in the same boat as you—common struggles unit people across countries. Create friendlier relationships with your suppliers when possible. If you think a relationship with one of your suppliers would benefit from management interacting with them.
Why not bring it up on your next zoom call.
4/ Get to know the people you work with directly and indirectly. Buying decisions are more complex and require dialogue across all departments. Promote having frequent pre-scheduled interactions, preferably by video conference.
5/ With 2022, we are almost sure to have more headaches. Make fun of the situation and keep things light with your colleagues. Attend social activities when possible if you have a strained relationship with a co-worker. Maybe promote working together on a task.
6/ Be positive, keep things simple, and you know what to expect. The world of procurement will continue to be filled with disruptions. The expectation of frictionless procurement is somewhat on hold. Removing obstacles and delivering on your business's top priorities remains the objective. So things are not really changing, just more unexpected surprises.
7/ If Pre-pandemic automated ordering or management systems were doing some of the lifting.
- Are they audited, reviewed or updated to adapt to the current times?
- Maybe staying informed about technical updates?
- Or discussing with management if a review is applicable?
8/ Reviewing the last 19 months of data across systems and departments may provide information or warning signs for things to come. Promote the implementation of automated real-time red flag warnings across multiple departments.
Example: Product so and so we have a last-minute problem with a closure liner.
- The liner inside the closure is unavailable for 90 days.
- Are all the departments informed in real-time?
9/ Planning for disruptions is the new norm. We know that Raw Materials, Bottles, Boxes, Closures and Packaging will continue to see disruptions. What ready-to-go alternatives do you have? Asking those questions is not easy but is required in this new world.
- What if you planned for a shortage of closures and liners and have on-hand 50,000 units that could be shipped today to your manufacturing facility.
- Or what if a pre-approved Raw Material from a different supplier and 4,000 litres could be shipped today to your manufacturing facility.
Such scenarios could save the day!
10/ Supply chain, sourcing, negotiations, purchasing and compliance will continue in your day-to-day. Obtaining goods for the lowest cost will stay a top priority for your organization. Procurement departments will remain essential for large corporations and Governments.
Moving into 2022:
Our advice is to promote to management:
- Training and going to procurement conferences as often as possible. Sharing your challenges with like-minded professionals will provide you with the best source of raw intelligence.
Funny how at the end of the day, the human touch is still is important.
It will be interesting to see how 2022 unfolds.
We do see signs that things are getting better. But some Raw Materials, Bottles, Boxes, Closures, Liners and Packaging will remain under pressure for the foreseeable future.
If we had to give two pieces of advice:
- Expect last-minute surprises.
- Plan in advance for shortages.
And if you operate a Starbucks, please stop announcing the suspension of our favourite products.
Products listed are available on our website. You can schedule a call with Ingredient Depot by clicking the link in the description. This is a free service for all your raw materials needs. And not a sales call.
Thank you for reading.