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