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AI that actually works: built for chemical procurement

AI that actually works - built for chemical procurement

Finding chemical and raw material suppliers is tougher than ever. Use supplier scouting technology to quickly uncover relevant, qualified alternatives

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Nabil Azim

<h2><b>Market Volatility and Why It Matters</b></h2>
<p><span style="font-weight: 400;">Market volatility is an ever-present challenge for procurement professionals. From sudden price spikes to unexpected supply chain disruptions, today’s business environment demands agility and adaptability. The impacts of price volatility are far-reaching: unpredictable costs strain budgets, squeezed margins threaten profitability, and supply chain instability jeopardizes operational continuity. Though these concerns span across categories, direct materials, such as chemicals and raw materials, face an even higher risk as they directly impact a company’s core product. If prices skyrocket, margin is down. If supply becomes unavailable, revenue is immediately at risk.</span></p>
<p><span style="font-weight: 400;">The question is: <i>How can companies prepare for the unpredictable? </i>While traditional methods like supplier diversification and inventory management remain valuable, AI technologies have transformed how organizations can monitor, predict, and address price fluctuations. AI can act both as an enabler to traditional methods, while also unlocking new capabilities in an organization. Now is the time, if not already, for procurement teams to shift from reactive to proactive strategies, building resilience against the ever-pervasive volatility.</span></p>
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<h2><b>The State of Markets and Price Volatility</b></h2>
<p><span style="font-weight: 400;">Volatility has long been a feature of global markets. It stems from a never ending list of reasons—tarrifs, supply constraints, logistics breakdowns, force majeure, technological shifts, climate crises, and more. The more globalization has become commonplace in supply chain strategies, the more likely seemingly small events become global concerns. Although it may feel that today supply chains are faced with more disruption at volatility than ever, this has been a consistent issue throughout history. The difference is that today, companies have more tools available to manage.</span></p>
<p><span style="font-weight: 400;">Examining historical trends reveals some common themes in disruption. Let’s start by taking a look at a few global disruptors in the recent past. The Global Financial Crisis triggered a snowball effect of devastation across all markets, which included drastic price declines across many commodities. Conversely, the COVID-19 pandemic caused unprecedented price surges due to supply chain constraints and soaring demand for essential materials. Some categories saw prices spike to levels that haven’t been seen before. Both of these were major, unpredictable events that impacted a wide range of categories but had (generally speaking) opposite impacts.</span></p>
<p><span style="font-weight: 400;">There are also more localized events, impacting specific geographies or chemical categories, that can stem from geopolitical crises, climate change, or technological advances. Let’s start with geopolitics. Looking at something as standard as oil, the 2014 supply gut caused prices to plummet long-term, even into the negatives. Contrast this against price spikes enacted by the 1970s oil embargo. Catastrophic climate events, such as the 2011 Tohoku earthquake and tsunami in Japan, caused widespread shutdowns in chemical production. Similarly, the earthquakes and following tsunamis in the Indian ocean in 2004 disrupted Southeast Asian markets, including materials such as rubber and palm oil. Technological shifts drive market changes as well. The electrification of vehicles has led to a significant increase in demand for lithium, while advances in sulfur extraction from oil and gas processing caused a collapse in sulfur prices. These are a few major events in the past few years, and some more recent examples include events such as the Red Sea crisis, the Evergreen getting stuck in the Suez, and the unseasonable winter freezes in Texas shutting down plants.</span></p>
<p><span style="font-weight: 400;">These few examples highlight a critical lesson: price fluctuations are unpredictable and ever-present. They can be dramatic, as seen in global news, or subtle, requiring careful monitoring to detect. The drivers of volatility are equally varied, from technological advancements and geopolitical crises to regulatory changes and climate events.</span></p>
<p><span style="font-weight: 400;">It’s hard to guess exactly what the next swing might be, but it&#8217;s not hard to imagine the possibilities. Immediate risks such as tariffs and trade wars, geopolitical tensions, and increasingly extreme weather events suggest that procurement teams must remain vigilant. As markets grow more interconnected and external factors more complex, the ability to navigate uncertainty will become a key competitive advantage.</span></p>
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<h2><b>How to Proactively Manage Volatility</b></h2>
<p><span style="font-weight: 400;">To address market volatility effectively, procurement teams must adopt agile and data-driven strategies. AI technologies can play a major role in both enabling teams to perform their jobs more quickly, and to bring new insights into the organization that are difficult to gather manually. </span></p>
<h3><b>Reducing the bid cycle</b></h3>
<p><span style="font-weight: 400;">Standard procurement cycles do not always allow the team to focus on a chemical more than once a year. There are plenty of examples where that would be even less. However, getting a regular pulse on the market helps companies stay competitive with shifting prices. Reducing bid cycles through “mini market events” allows companies to stay aligned with real-time market conditions. The days of annual (or longer) contract cycles are over. Procurement teams must keep a consistent understanding of the market to spot trends and adjust strategies proactively. AI technologies enable this without adding strain to the team’s workload. Tools such as Valdera help procurement teams quickly go to bid and get back quotes that help them understand the current market rate. If the data that comes back presents an opportunity, the procurement team can both negotiate with their incumbents and purchase the better-priced product from the new supplier. Real-time data transparency is key. </span></p>
<h3><b>Diversifying geographic risk</b></h3>
<p><span style="font-weight: 400;">When supply risks are local to a specific geography or supplier, a second source with geographic diversity allows for risk diversification. The more critical lever to manage price volatility is balancing sourcing from low-cost regions with stable, reliable suppliers closer to home for added security. Using supplier scouting solutions, you can quickly get a sense of the global footprint of any material that you purchase. Select suppliers that help diversify your regional presence to diversify risk of any localized events.</span></p>
<p><span style="font-weight: 400;">However, if facing a global crisis or a disruption that impacts the full category, this dual sourcing lever is less critical to manage the price volatility, specifically. However, you can still use the competition between the two (or more) suppliers to keep price gouging to a minimum. If you’re stuck with only one qualified supplier, they will likely be aware of this, and will use it to their advantage in times of crisis. On the contrary, if you’re in a multi-source position across different geographies, you can continuously reallocate your spend across those geographies depending on the short-term market volatility.</span></p>
<h3><b>Capped index-linked pricing</b></h3>
<p><span style="font-weight: 400;">Index-linked pricing is a commonly used contracting strategy for materials that are commoditized or have components that can be tracked to a commodity. When the contract allows for unbound adjustments to pricing, this sets up the company for unpredictable swings in margin. Capped index-linked pricing predefined floors and ceilings of where the price can go. This helps protect margins against extreme fluctuations. While this approach requires careful negotiation, it ensures that both buyers and suppliers share the risks and benefits of market movement.</span></p>
<h3><b>Inventory as a value-added service</b></h3>
<p><span style="font-weight: 400;">Building inventory buffers can safeguard against supply disruptions. However, companies must balance the cost of holding inventory with the benefits of having a safety net. Focus should remain on critical categories where continuity is essential. Even better, companies should look to where they can offset that cost of holding inventory. Look for distributors and manufactures that offer value-added services, such as warehousing. It may come at a slight premium, but it’s likely more effective than warehousing within your own organization for only a few critical materials.</span></p>
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<h2><b>Responding with Agility</b></h2>
<p><span style="font-weight: 400;">Proactive risk management sets your organization up for success. In spite of that, unexpected disruptions are bound to happen. You may only be 50% of the way through removing your single source positions, or two independent events wipe out your primary and back-up supply options. In this case, your proactive planning will only go so far. What matters most is agility. How quickly can your organization respond to these disruptions and find a new source of supply? AI technologies, such as supplier scouting solutions, can help you get to market fast and quickly identify new supply options available to you. Speed is ever important when facing unexpected disruptions, and it&#8217;s critical to have your team equipped with the right tools to act fast. In the end, business continuity and revenue risk is on the line, especially when dealing with direct materials such as chemicals and raw materials. </span></p>
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<h2><b>Taking action</b></h2>
<p><span style="font-weight: 400;">As markets evolve, procurement professionals must prepare for emerging disruptors such as ESG regulations, geopolitical shifts, and advancements in technology. The ability to adapt and act proactively will define success in an increasingly volatile landscape. By assessing current procurement practices and identifying gaps, companies can take the first step at mastering market movements. Solutions like Valdera enable organizations to monitor market trends, analyze pricing data, and implement faster sourcing strategies seamlessly. With the right tools and mindset, navigating market volatility becomes an opportunity for growth rather than a challenge to overcome.</span></p>


Mastering market movements: A shift from reactive to proactive