Henkel Case Analysis - Luis Montero - Claro Blacio - Kota Shimizu

Henkel’s Journey to purchasing excellence  – Case Analysis Luis Montero  – Claro Blacio  – Kota Shimizu Background:

Henkel is a German multinational company focused in the production and commercialization of a diverse variety of chemical products. They are organized in business units and the recent strategy was focused in deliver excellence to their customers. The new strategy also involves the global purchasing area with the objective of reinforce the relationship with strategic suppliers to supporting Henkel growth ambitions. Katharina Wallace just accepted a role as Head of Global Purchasing for Polyester and she has several challenges ahead. The prices of the raw material had been increasing in the last years, there are few suppliers and the competitors of Henkel are offering the product at lower prices. Problem Definition:

How can Katharina Wallace align Henkel global strategy and secure a competitive supply of polyester? Situation Analysis: 

Is the company making good use of opportunities for concerted action among different vision and subsidiaries?

This is a specific raw material that could not be use in production processes of other business units due to the variability of products of Henkel 

Can the company avoid anticipated supply bottlenecks and interruptions?

Henkel is not en position of anticipate bottlenecks and interruptions due to the unique supplier that limit the backup options 

How much risk is acceptable?

The company needs low risk because of the strategic importance of this material that can t be substituted. ’

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What make or buy policies will give the best balance between flexibility and cost?

Henkel is not in a good position for negotiate because the low variety of suppliers and the strategic importance of this raw material.

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To what extent might cooperation with suppliers or even competitors strengthen long term supply relationships or capitalize on shared resources?

Cooperation with competitors in order to receive more importance to the category from suppliers could improve the bargaining power of the companies involved in adhesive production. On the other hand, cooperation with suppliers could secure a long term availability of the material. Classification:

Polyester is classified as a strategic raw material for Henkel due to the low substitution possibilities, the low availability of suppliers and the highly competitive demand. This product is a high risk high profit impact item and the scarcity of it will affect considerably negatively the competitive position of Henkel and the strategic goals achievement. Market Analysis:

 Alpha is the only supplier of Henkel on polyester, it has been a reliable high quality partner offering no product interruptions and in time deliveries. The relationship between the two companies had been long and stable. Henkel acquired around 30% of Alpha capacity in the last year. The growth rate of Alpha had been stable and sustained in 2.2% in the last 3 years. There are 6 companies that offer this product with a capacity of 2 million of metric tons. Of those Alpha is the only that can satisfy the full demand of Henkel. The other companies can only offer a part of the demand of the varieties of polyester required by Katherina.

Strategic Positioning:

Henkel strategic position is defined as a low supply market strenght due to the difficulties to find other suppliers, the low importance of adhesives for the market (only 10%) and the strategic need of this material for the business strategy of the company. Additionally the company strenght is medium due to the market experience and variety of products and the high competition that is facing.

Action Plan:

Henkel needs to diversify their suppliers base adding new suppliers that can be a backup in case of interruption of the Alpha operations or changes in the relationship with that supplier. Firstable Katherina should ask for the support of the top level managers of the company specially the CEO and CPO, in order to align the company strategy with the purchasing area and convince the stakeholders about the importance of the changes in purchasing polyester. Also is important to gather highly accurate information about demand, other suppliers conditions and competition prices. With this information the new strategy should be focused in solve the problem in the short and long term. In order to reduce the supplier risk in the short term Henkel should search for 3 suppliers with enough capacity to fullfill the requirements of the company in most of the products available. In the long term Henkel should create a cooperation agreement with Epsilon that is a company with positive growth rate and enough capacity to cover the requirements. The negotiation with Alpha should be made when the company has secured the other sources of supply for at least a part of the requirements. Katherina should insist in highlight the importance of reducing the price in order to make Henkel

more competitive and not compromise its positon in the market. If this happen  Alpha could suffer because Henkel competitor  s will increase their barganing power and could affect Alpha position. Another option is to work closely with the R&D deparment in order to develop a substitute product of the polyester due to the high correlation of the price of this product and the oil prices is a threat that should be taken in consideration for the long term availability of the raw material. ’