Henkels 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 cant be substituted.

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.

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 competitors 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.