People
A practical framework for margin impact in raw materials
Why procurement matters
For most chemical producers, raw materials consume 50–70% of total production cost. To minimize volatile and often unpredictable impacts, chemical companies have spent decades perfecting the art of incremental improvement. But small wins squeezed from annual supplier talks or slight market shifts leave the larger opportunity untouched.
In AlixPartners’ work with chemical producers and their investors, we see that no other cost line item moves margins as forcefully as direct materials procurement, yet it still often underperforms its potential. The big opportunity lies in dismantling the structural cost barriers built into how materials are specified, sourced, and supplied. A typical procurement function struggles to deliver 2% in annual savings (and takes close to a year to get there). But what we hear from CFOs is a desire for procurement strategies that deliver higher margin impacts; faster time to value; and confidence that gains will stick year over year. What we can offer is the strategy to achieve that.
The gap between what the C-suite wants and what procurement teams can deliver is partly a matter of language. Procurement teams describe their work as “savings,” while CFOs know that what’s really on the table is margin impact, EBITDA, or the P&L. That gap matters. Savings are an annual exercise, while margin impact is structural. AlixPartners works to move organizations from thinking about how much they saved this year to how they ensure those gains hold.
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