Chemical Industry Overview

Owned by Mike Deskis
Last updated: Aug 28, 2024 by Ioana Kocurova
4 min read

CHEM00 - Master Data and General System Setup

CHEM01 - Improve long-term agreement profitability by automating complex formula-based pricing​

CHEM02 - Improve contract renewal performance and long-term visibility via analytics KPIs​

CHEM03 - Improve spot price target achievement with real-time market/cost/value pricing models​

CHEM04 - Improve spot margin performance vs. margin/volume forecast via analytics KPIs​

CHEM05 - Improve price realization by simulating impact of mass price change scenarios​

CHEM06 - Improve profitability due to better cost recovery via cost-to-serve analytics KPIs

CHEM07 - Improve price effectiveness by monitoring market feedback via realization analytics KPIs

CHEM08 - Identify and eliminate underperformance via customer/product insights analytics KPIs

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Chemical companies produce a wide variety of base chemicals, plastics, and fibers from many different types of raw materials.  In most cases, these manufactured products are “downstream” derivatives of crude oil and natural gas. As output from these companies is dependent on their technologies and positions in key raw materials, customers are often suppliers and competitors. Specialty chemical companies are distinguished by differentiated technology positions and improved understanding of customer needs.  

Most products from major producers are processed further downstream before reaching end customers.  The nature of the business is usually B2B.  Distributors are used in this industry to break down bulk shipments into smaller package sizes and to provide logistics and storage support.  

Pricing indicators or indices are publicly available for many commodity products. Raw material, packaging, freight, warehousing, and distribution costs are important factors for this cost-sensitive industry. 

Browse different pricing scenarios based on our client’s needs and see how our solution helps in every use case to drive profitability and optimize pricing.

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This is dependent on the nature of the product and markets served, and the acumen of the company doing the price setting.   These are the industry pricing strategies:

  • Cost-plus and inventory-based (spot) – a pricing strategy based on adding margin targets on top of cost to produce. This strategy is typical for commodity products.

  • Market-based - pricing strategy based on a goal of achieving a certain price position vis a vis a defined customer set. This strategy is often used for both commodity and specialty products. The more highly branded products, the more likely to use a market-based strategy.

  • Inventory-based - pricing may change based on current or future inventory levels in order to clear volumes or hold volumes for the highest-value customers. This is common for products that come directly from a plant and where storage space is limited, or spoilage potential is high.

  • Value-based – more typical for sellers of specialty products who have a strong command of end-use applications in downstream markets and can accurately estimate value in use that corresponds to differing customer willingness to pay.

The general transaction mechanics used in this industry are:

  • List prices – they exist but are not usually valid indicators of market pricing.  Most chemical companies set customer pricing individually; not based on discounts from the list. 

  • Price change mechanisms: 

    • Mass price changes - applied to all customers in a product, market, customer industry, and/or geography.   

    • Formula and index-based price changes – most often on a monthly or quarterly basis are driven by changes in publicly available information on raw material or finished product price levels and trends.  Formula pricing is most often used in commodity product areas.  Formulas are typically defined as part of a sales agreement of at least one year in duration. 

    • Market price changes are agreed between suppliers and buyers.  Changes can be part of a long-term (1 year or longer) sales agreement or simply done on a routine transactional basis. 

    • Spot or inventory-based pricing (pricing NOT based on a contract), changing as needed to move excess quantities of product out of inventory. 

    • Price changes are frequently announced to the public with 30-90 day advance notice before becoming effective.  This can serve to create an orderly competitive marketplace.