Feedstocks like ethylene and benzene are critical raw materials in industries such as plastics, chemicals, and manufacturing. However, their prices can be highly volatile due to factors like supply chain disruptions, geopolitical events, energy market fluctuations, and demand shifts. For procurement teams, managing this volatility is a complex but essential task to ensure cost efficiency and supply chain stability. Here’s how effective procurement teams tackle volatility in feedstocks like ethylene and benzene.
Volatility in feedstock markets often stems from:
Supply Chain Disruptions: Natural disasters, plant outages, or logistical bottlenecks can restrict supply, driving prices up.
Energy Market Linkages: Ethylene and benzene are derived from crude oil or natural gas, so fluctuations in energy prices directly impact feedstock costs.
Geopolitical Factors: Trade sanctions, tariffs, or political instability in key producing regions can create supply uncertainty.
Demand Fluctuations: Shifts in downstream industries, like packaging or automotive, can cause sudden spikes or drops in demand.
Procurement teams start by analyzing these drivers, using market intelligence tools and data analytics to anticipate price swings and plan accordingly.
Relying on a single supplier or region increases risk. Procurement teams mitigate this by building relationships with multiple suppliers across different geographies. For example, sourcing ethylene from both North American and Middle Eastern suppliers can hedge against regional disruptions. This diversification ensures supply continuity even when one market faces constraints.
To stabilize costs, procurement teams negotiate long-term contracts with fixed or indexed pricing. These agreements provide predictability, shielding companies from sudden price spikes. For instance, a contract tied to a benchmark like Brent crude can smooth out benzene price fluctuations, allowing for better budgeting.
Sophisticated procurement teams use financial tools like futures, options, or swaps to hedge against price volatility. By locking in prices for ethylene or benzene through futures contracts, teams can mitigate the financial impact of unexpected market shifts. This approach requires close collaboration with finance teams to align hedging strategies with procurement goals.
Maintaining strategic inventory buffers is another key tactic. Procurement teams analyze historical consumption patterns and lead times to determine optimal stock levels. This ensures supply during shortages without tying up excessive capital in inventory. Advanced teams use just-in-time inventory systems, balancing cost efficiency with risk mitigation.
Staying ahead of volatility requires real-time data. Procurement teams invest in market intelligence platforms that track feedstock prices, production capacities, and global events. For example, monitoring cracker outages in Asia can provide early warnings of ethylene supply constraints, enabling proactive adjustments.
Effective procurement teams work closely with internal stakeholders like production, finance, and R&D. By aligning procurement strategies with production schedules and financial forecasts, teams can better anticipate feedstock needs and avoid over- or under-purchasing. Collaboration with R&D can also lead to exploring alternative feedstocks or formulations to reduce dependency on volatile materials.
To handle ongoing volatility, procurement teams are increasingly adopting technology-driven solutions. Tools like AI-powered demand forecasting, blockchain for supply chain transparency, and IoT for real-time inventory tracking are becoming standard. Additionally, sustainability pressures are pushing teams to explore bio-based feedstocks, which may offer more stable pricing in the long term.
By combining diversification, financial hedging, data-driven insights, and stakeholder collaboration, procurement teams can effectively manage the volatility of feedstocks like ethylene and benzene. These strategies not only ensure supply chain stability but also position companies to thrive in unpredictable markets.
support@lassoprocurement.com
© 2025 Lasso Supply Chain Software LLC
This website uses cookies to ensure you get the best experience on our website.
