Case Study Chemtech:
Established in 1980, Chemtech, Inc. is a manufacturer of chemicals that has become a leader in its field. Principal facilities include a manufacturing plant and an on-site distribution center that are located outside of Atlanta. The director of purchasing at Chemtech has recently experienced difficulties with some of its suppliers that are responsible for late and/or incorrect deliveries and for increasing backorder situations. Since Chemtech has many potential suppliers, the historical response to situations like these has been to change suppliers whenever problems arise. The director of purchasing is beginning to question this practice, as sometimes this just shifts the problem from one supplier to another. Potash is one of Chemtech’s principal suppliers. Potash maintains large inventories of most products purchased by Chemtech but sometimes has order fulfillment problems with slow-moving items that need to be ordered in from Canada and which sometimes require up to three months of lead time.
Chemtech has complained to Potash about its slow and uncertain delivery times, and Potash believes it may have let Chemtech down once again. As a result, the director of marketing at Potash is wondering whether the business at Chemtech is worth keeping. Although Chemtech is a major customer, the constant threat that Chemtech will change suppliers discourages Potash from devoting itself to Chemtech. Potash’s director of marketing is looking carefully at the overall benefits and costs that would be experienced at Potash if it was to change its customer strategy to focus on more long-term customers and less on companies such as Chemtech. Looking into some details of the Potash-Chemtech relationship, the current order-delivery process works something like the following: At the beginning of each month, customers of Chemtech estimate their requirements for the next month. Then, throughout the month, they place their orders by phone with representatives of Chemtech’s marketing department. The marketing representatives then relay the orders and forecasts to those who have responsibility for the sourcing and procurement activities. Subsequently, the director of purchasing at Chemtech places orders for needed products with suppliers such as Potash.
Also complicating the picture is that Chemtech’s customers sometimes have an urgent need for products, and this can place great strain on Chemtech’s supply chain to have the products available when and where they are needed. Even if certain quantities of these products are on hand at Chemtech, it is not unusual that much of the available inventory is already reserved for other customers who previously may have placed orders for the product. The newly appointed vice president of procurement and sourcing at Chemtech is wondering why its suppliers have been changed so often in the past. The marketing department is complaining about what they feel is a lack of proper planning and coordination by those who are managing logistics and supply chain activities.
Case Study Questions:
1. Do you believe Chemtech is currently following a long-term, partnership type approach to its procurement function? Why or why not?
2. What problems is Chemtech creating for its suppliers? How can it improve the situation?
3. If you were the vice president of procurement at Chemtech, what strategy would you employ to improve Chemtech’s supplier relationships and how would you work toward improving overall procurement costs?