Sourcing refractory raw materials

Published: Tuesday, 27 August 2013

Capital Refractories’ group supply chain manager, Chris Wragg, examines the challenges of global sourcing refractory raw materials for a medium sized international company

In the world of refractory materials supply, many materials are relatively specialised and with no industry standards, there are often few suppliers of the same products. One consequence of this is it makes the world of refractory raw materials supply a rather smaller place than might normally be expected.

Whereas with some standardised industrial materials, there are many suppliers within a relatively close geography providing equivalent and fully interchangeable materials, many of the refractory raw materials are unique and consumers are faced with sourcing on a global scale to satisfy their needs.

With seven manufacturing facilities spread over three continents, Capital Refractories faces many of the same supply chain issues of a large multi-national group, but with the resources of a medium sized company.

Raw materials account for over 65% of the manufacturing costs of the whole Capital Refractories Group, with this ranging between 25% and 80% across the varied production sites. With such a high dependency on raw materials, it is essential that Capital optimises the global supply network and reacts to the continual changes presented.

As materials are sourced from an increasing number of countries, one of the major dilemmas is whether to purchase direct from the manufacturer or to deal through an agent or distributor. Some of the more commonly used materials like bauxite lend themselves to distributorship routing to maximise bulk shipping, which outweighs the margin of the extra link in the supply chain. For more technically specific materials such as white fused alumina (WFA), there are opportunities for users to choose between direct or indirect supply, although weighing up the advantages and risks can prove very difficult. The location of the producer can have a very significant influence on this decision-making process.

Continuing the example of white fused alumina, Capital has elected to progress along the more direct supply chain and to build relationships with producers. Of course there is the up-front benefit of lower prices due to the shorter supply chain, but then the more direct contact and greater knowledge about the producer will yield long-term benefits. Visits to the production facilities might seem extravagant at times, but they will likely prove to be invaluable at a later date.

Disadvantages of this direct approach can be many and varied; cash-flow is often improved by the presence of a distributor. In situations where they have ‘men on the ground’, the distributor can also provide a valuable quality control service, whereas when dealing directly with the producer, a company is ‘on its own’.

Capital uses WFA at four of its facilities, across the US, Europe and China, and this one material alone represents more than 50% of the group’s raw material purchase, equating to over £6m ($9.4m*) per year. This high dependence on one material means it is essential that Capital develops intimate and strong relations with its suppliers to create stability, yet remains alert to the complexities and fluctuations of the global WFA market.

Shifting factors in the macro-economy such as international shipping costs and currency exchange rates can easily change the attraction of one supplier compared to another, but to achieve the best long-term solution the relationships must be strong enough to withstand such turbulence.

Is it better for a company to put all its eggs in one basket and develop one supplier to gain the best possible overall supply deal? This certainly allows it to concentrate on the one focal point with fewer distractions. Or is it wiser for a company to spread its risk and introduce an active competitive situation?

Capital has chosen to follow a combined path, with a major supplier being ‘supported’ by lesser ones who strive for the prize of that top position. All this is of course influenced by the group’s own geographic locations. Clearly there would be expected considerable advantages for the indigenous producers within the countries or continents of Capital’s requirements, yet it seems that ‘outsiders’ can at times overcome these barriers and compete on a global scale.

Common to many industrial minerals, China provides a totally different supply market for WFA. Unlike Europe and the US, where producers are small in number, well established and very well known, China appears to house a relatively enormous number of WFA producers whose combined out-put capacity dwarfs the published domestic and export figures.

Within the space of less than two years, Capital has had direct contact with over 30 different producers and is yet aware that this represents only half or even less than a quarter (depending upon which statistics are used) of the country’s total number of WFA producers. Within this sample of the industry, there is a range of producers with capacities between 10,000 and 60,000 tpa and with different controls and technical abilities. Like most aspects of business, generally a company gets what it pays for.

Capital has found it essential to have direct contact with the Chinese producers that it has chosen to progress. Many stories could be told such as visiting the same factory twice in the same week with two different distributors. Having its own Chinese speaking staff on hand to facilitate communications has been essential to the good progress made and the development of the Chinese WFA supply in to the Capital Refractories Group. Only by having such a resource is it possible to know what a company is getting for what it is paying.

Capital’s interests in refractory materials other than WFA encompass much of the full spectrum on offer; bauxite, brown fused alumina, calcined alumina, tabular alumina, alumino-silicates, silicon carbide, magnesia, silica, zircon, zirconia.

The challenge for Capital’s group supply chain is to identify improvements in the supply chain by finding synergies across the operations and also by locating beneficial material sources and services.

Since there are no industry standards and most applications have their own very specific requirements, locating the optimum material source is a very interesting challenge.

All pictures supplied by Capital Refractories

*conversion made August 2013