SOCMA chief tells buyers: Be prepared
Acker tells conference attendees to heed caution signs on the low-cost country sourcing path
By Alan Earls -- Purchasing, 9/18/2008 6:08:00 PM
Joseph Acker, president of the Synthetic Organic Chemical Manufacturers Association (SOCMA) had a message hidden within his presentation at today’s Chemical Purchasing Summit: Be Prepared. Although the main focus of his talk was on the outlook for North American purchasing of organic chemicals, and was based on a survey conducted in 2007, much of the deepest insight came from the anecdotes he delivered as asides.
To be sure, he noted, many of the facts and figures in his presentation still serve to represent the state of the industry, though 2008 has been something of a roller-coaster. For instance, based on anecdotal information, Acker said that capacity utilization, which had hovered around 75% in recent years, has recently been moving up. Acker says as a consequence, he has seen more indications of capital spending plans moving ahead and in recent months, more and more companies seeking SOCMA help to achieve regulatory hurdles on new product introductions. His survey data also supports this, with 44% of respondents indicating they had actual plans in place to make investments in 2006 and 52% in 2007.
Similarly, R&D spending has risen consistently from 6.5% of revenues in 2005 to 8 percent in 2006 and 8.6 in 2007.
The crux of Acker’s “be prepared” message, though, is focused on purchases made from developing countries. A rise in anticipated sourcing from low-cost regions (68% of respondents in 2005 compared to 80% in 2007) underscores this potential vulnerability as the mean portion of chemicals coming from emerging market suppliers (across SOCMA membership) has slowly risen to more than 25%, with a projected level of more than 30% for the current year. However, Acker warned that this projected figure was probably too high given the global economic slowdown.
Still, with a substantial portion of supplies coming from relatively untested suppliers in relatively immature markets, risks abound. Acker cited the high-profile problems with products sourced from China ranging from tainted infant formula and dog food to lead in toys.
He cited at least two cases he has encountered of Chinese suppliers running into problems and, unbeknownst to their U.S. customers, attempted to use lower quality suppliers to gap fill, resulting in wide product quality variability and costly investigation and remediation activities for the customer.
“Transparency is the key and in many cases it just isn’t there,” he notes.
Acker’s closing advice for buyers? “Know your suppliers—and their suppliers and their suppliers. You must know as much as you can about them, especially in emerging economies.” And, he added, it helps to have not only a second source available but also a third and fourth source, too.
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