Industry benchmarking gives negotiating power to sandwich and core company in China, delivering 6% cost savings

The client is a world leading company specialized in making sandwich and core materials.

They launched a new production plant in China and started to source the raw chemical materials locally from major suppliers in the market (e.g. BASF, Bayer, Momentive, etc.)

Sandwich and core materials

The client established a new production plant in Zhangjianggang in the end of 2016 and planned to start operations with a pilot production in the beginning of 2017.  The company had started negotiating with eight potential raw material suppliers in China since Oct 2013 without success.  With the imminent pilot run, they are now pushed to finalize the contract and price negotiations with the potentials suppliers to make sure that the raw materials are available when the plant construction is completed and ready for the initial production runs.

The client has commissioned ARC Consulting to support their global raw material team to finish the contract and price negotiation in China.

ARC Consulting proposed the following Plan of Action:

  • Negotiation background research: this to confirm the status of the negotiation and understand the bargaining power with each potential supplier.

– Phase 1:  understand the background of the company, suppliers and industry

– Phase 2:  do a benchmark study of each supplier’s current offer (price, payment term and lead time)

– Phase 3:  provide related chemical raw material market price trend analysis and forecast

  • Price and Contract Negotiation Support

-Support the global raw material team during the price and contract face-to-face negotiation meeting

-Follow up the contract progress with each supplier to make sure they are completed within the stipulated times

-Compare the final price with the target and market prices and develop a price summary report

After facilitating the face-to-face negotiation meeting between the client and the suppliers, ARC Consulting recommended the following steps to guide the client to meet its long-term cost saving targets.

  • Focus on establishing a good purchasing relationship the current supplier and review the contract yearly
  • Continue to monitor and study the raw materials market price and trends to help them when negotiating updated prices with suppliers each quarter
  • Find more substitute raw material suppliers in the market, not only focusing on big international suppliers such as BASF and Bayer, but also on local China leading suppliers such as Wanhua.

ARC Consulting assisted the client to successfully complete the contract and price negotiation prior to the opening of the new plant and pilot run was planned. The main achievements are:

  • Signed contract with eight potential customers detailing payment term, lead times and other related technical requirements in the contract.
  • Delivered an average of 5.99% cost savings compared with the market price levels.
  • A monthly savings of RMB 50,000 to RMB 110,000 was estimated based on the final agreed purchasing price.
  • Establish a long relationship between client and its suppliers.

See more about our supply chain management and sourcing consulting services and our experience in the industrial goods and services sector.

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