When you are involved with sales, you have to wake up with three words on your mind every morning- Sell, Sell, Sell. In the fabulous world of chemical business you can either make stuff or re-sell stuff. Sometimes you do both. After all, you can’t make everything.

A well run mature chemical business will have more opportunities than capacity. By contrast, an immature company may have more capacity than opportunities.  Many companies get to the point where they have to start choosing which customers they want to make the happiest because they are low on capacity. During the ups and downs of the business cycle, plant capacity goes from abundant to slim and back. It is the job of the sales person to keep the plant booked solid.

When your plant is at capacity, a funny thing happens.  It occurs to people that not all products are equally desirable. That is, some products are more profitable than others. When this is the case, management will start to wonder why they are spending scarce reactor time with products that are the least profitable.  Suddenly, products that have been steady money makers over the years begin to look a little anemic.  Pretty soon, these products are seen to be liabilities of a sort.  There is loose talk about pushing them back on the timeline; of offering 12 week lead times rather than 4-6 weeks. Then one day, they are off the production schedule. It has been decided that we can no longer afford to “neglect” other products because of these lower dollar products.

So what do you do? There is still a market out there for these orphaned products. Here is one option.  You outsource the product and resell it.  The trick is to find a supplier whose price is low enough to allow for a decent profit when you resell it.  In fact, this is a way to increase plant capacity without having to buy any real estate or pots & pans. If you can pull it off, you might even come out looking like a flippin’ genius.

The trick is to find a low cost source- preferably one whose selling price is less than or equal to your old manufacturing cost. This allows for the profits that are the same or better than before. So where do you go?  Commodity feedstock costs tend to be similar around the world. But in some countries, labor costs and overhead may be dramatically lower.  At the present time, Asia- China and India- are attractive locations for low cost manufacturing.

But, buying from Asia may be trickier than you think and for reasons that you have not considered.  Neglecting import duties which may add 0 % to 10 % (or much higher) to the cost, and neglecting tranportation costs and delays, you have to think about how the actual business transaction is going to work. 

Here is the problem:  You want to start buying from a new manufacturer or trading company in Asia.  Now, I’m not talking about the the pharma business- I’m talking about fine chemicals. There is a good chance that whomever you contact on the web is not going to be a factory person. It is likely that your contact will be a trader of some kind. This is very common in Asia. My experience has been that these traders will represent a “stable” of manufacturers who have some kind of agreement with the trading firm.  In fact, making a direct manufacturer could prove to be difficult if you are limited to internet searches.  The best way to meet manufacturers is at a trade show.

The contact is likely to want prepayment at least initially, unless your name is Pfizer or DuPont. So, you will have to send a purchase order and do a wire transfer of some funds. That’s easy enough.

The question is, do you really want to do a prepayment? What if there is a SNAFU and your payment is taken, but the product isn’t shipped? In the US, you’d have some recourse in the civil courts.  Or, what if the quality is inferior?  You might find that getting a replacement or a refund is … difficult.

I have not yet had a really terrible experience with importing. At least not involving anything underhanded. Most of the problems that I have seen involve logistics. Yes Mr or Ms chemist, if you are to be involved with outsourcing in a non-trivial way, you will have to learn about the transport of hazardous goods. International transport of chemicals, hazardous or not, is a multimodal affair involving ground transport on both sides and air or ocean in between- trucks, planes, container ships, FedEx, UPS, DHL, etc.  Some things you can ship internationally by air and others have to go by boat. Remember, there is no overnight to Asia or Europe. At least without hiring a private jet.

Outsourcing involves way more than just finding a vendor and a good price.  Before you commit funds to the purchase, you MUST ascertain that the stuff will arrive in a timely fashion.  It has been my experience that Asian chemical suppliers I am familiar with  have gotten really good in the manufacturing part, but they are often lacking in the logistics part. 

When you contact a new Asian supplier from the USA, it is critical to drill in to find out just how they intend to ship the materials and what the Incoterms are. And here is a really important part, so put down your yogurt and pay attention. You have to get familiar with Incoterms. It is critical that you understand who is responsible for arranging for what and where you take ownership of the goods.  The sellers price will vary depending on the Incoterms. 

A common term might be “Ex-Works”, meaning that the seller makes the goods available on the sellers premises, and it is the buyers responsibility and risk to arrange for transport from there.  EXW strongly favors the seller.  Other terms include CFR, “Cost and Freight”; CIF, “Cost, Insurance, and Freight”; FOB, “Free on Board”; DDU, “Delivered, Duties Unpaid”; and DDP, “Delivered, Duties Paid”.  All of these terms have specific meanings with the responsibilities and liabilities defined. These terms may be negotiable.

For an R&D sample, these transportation details are not a big deal.  But for bulk materials, you can experience failure modes you never dreamed existed. There are companies that specialize in the international movement of materials. It is always best to engage a logistics firm to help with the coordination. For example, if you were going to send a cylinder of butyllithium to Argentina, how would you do it?  See what I mean?