How companies lose margin — and how they can recover it?
For years, purchasing strategies in the chemical industry were based on a simple assumption: buy at the lowest possible price. In a stable environment, this approach was rational. Today, however, amid geopolitical shocks and sudden price fluctuations, it is becoming a strategic mistake.
When quotations remain valid for only a few days and supply chains are disrupted along critical trade routes, the pursuit of the lowest unit price becomes less important. The key challenge is managing unpredictability, as it directly leads to margin erosion and destabilises operational planning.
How can companies regain control under these conditions? We present six key levers for stabilising raw material costs and building business resilience in a volatile market.
From price optimisation to managing uncertainty
The traditional purchasing model, based on securing the lowest possible unit price, is no longer effective. In a stable environment, cost minimisation was a logical operational objective. Today, however, when raw material prices are influenced more by geopolitics and energy costs than by supply-and-demand dynamics, this approach is becoming a strategic mistake.
Why are the assumptions that worked in the past no longer sufficient? The greatest threat to financial performance is no longer the increase in prices itself, but their complete unpredictability. Sudden cost fluctuations and disrupted supply chains mean that budgets prepared at the beginning of the year can become little more than outdated statements of intent overnight.
Cost uncertainty acts as a hidden mechanism of value destruction:
it erodes margins that cannot be protected against sudden increases in raw material prices,
it increases working capital requirements by forcing unplanned expenditure,
it leads to decisions being made under time pressure, significantly increasing the risk of errors in R&D and purchasing.
In today’s environment, cost is no longer a fixed element to be “optimised”, but a variable that must be actively managed. Moving from a purchasing model to a management model requires a strategy built around six interconnected levers: from precise risk analysis and adaptive planning to a new supply chain architecture and stronger R&D support.
These are not separate operational initiatives, but elements of a coherent decision-making system that determines margin stability over time.
We examine how to implement these changes and regain control of the process before market conditions force action.
Lever 1: Understanding which raw materials truly create risk
Effective cost management does not begin with price negotiations, but with the precise structuring of data. Most organisations have information on prices and volumes, yet rarely translate it into an integrated view of risk. As a result, raw materials with fundamentally different security profiles are managed in the same way, which in a volatile environment is one of the fastest routes to margin erosion.
Two raw materials may generate a similar annual cost, while having a completely different impact on business stability:
raw material A – produced locally by several suppliers, with relatively stable energy costs,
raw material B – sourced from a single region, such as Asia, highly dependent on oil prices and transported through vulnerable logistics routes.
In a purchasing spreadsheet, both materials may appear similar. In a risk management model, raw material B is a “ticking time bomb” that requires a completely different mitigation strategy from a standard purchasing approach.
To regain control over financial performance, companies need to move away from classifying raw materials solely by price. The key is to build a matrix based on substitution difficulty, supplier concentration and energy sensitivity. A three-tier classification is recommended:
critical raw materials, requiring forward-looking decisions, secured volumes from alternative suppliers and continuous monitoring of market indicators,
sensitive raw materials, requiring ongoing trend monitoring and prepared contingency scenarios,
standard raw materials, managed operationally, where pure cost efficiency remains the priority.
The greatest risk today is not overpaying for a raw material, but failing to identify which ingredient in a formulation has the potential to undermine the financial performance of an entire quarter.
Lever 2: Moving from static planning to flexible adaptation
Most companies treat purchasing plans as a one-off exercise. This is a mistake. An annual budget can become outdated almost immediately when a supplier shortens a quotation’s validity, for example from 30 days to 7, or when lead times suddenly increase. In such a model, the company does not manage volatility — it is managed by it.
The most mature organisations do not focus solely on improving forecast accuracy. Instead, they adopt an operating model built around speed of adaptation. This model is based on three pillars:
rolling forecasts, replacing rigid annual plans with short cycles of market data updates,
scenario planning, with predefined procedures for sudden increases in energy prices or logistics disruptions,
shorter decision-making cycles, ensuring that market signals move from purchasing to R&D and finance within days rather than weeks.
The winner is not the company with the most rigid budget constraints, but the one that can translate a market signal into an operational decision faster than its competitors.
Lever 3: Integrating procurement, finance and operations into a single decision-making system
Raw material price volatility affects the entire business model — from cash flow and inventory levels to final margins. In an uncertain environment, the greatest risk is siloed decision-making: a buyer’s local price optimisation may generate storage costs or technological risks that R&D or finance cannot absorb.
To regain control, companies need to move from “buying” to integrated value management. The key changes include:
multidimensional purchasing assessment — evaluating every decision not only in terms of price, but also its impact on EBITDA and the operational risk profile,
dynamic planning (S&OP/S&OE) — replacing a rigid annual budget with a model based on continuous updates of market data,
significantly shorter response times — rapidly translating market signals into action before a change erodes the planned margin.
In a volatile environment, the winning organisation is the one that can make one coherent business decision instead of three inconsistent ones.
A resilience strategy is an interconnected system — from supplier selection and flexible formulations to the full integration of finance and operations.
Lever 4: Redesigning the supply chain — from cost efficiency to resilience
Viewing cost solely as the purchase price is now a dangerous oversimplification. Models based on minimal inventory and a single global supplier were efficient in stable times, but under volatile conditions they have revealed a fundamental lack of resilience to disruption.
In the new reality, costs are not linear. A single logistics or energy-related disruption can increase total cost of ownership (TCO) by far more than the savings negotiated at the purchasing stage. Moving towards a “maximum resilience” model requires designing the supply chain around multiple scenarios through:
multi-sourcing — diversifying supply sources for critical raw materials and maintaining a second, local supplier as a form of insurance,
selective redundancy — building safety buffers where disruption risk and the cost of downtime are highest,
regionalisation (near-shoring) — shortening supply chains to reduce exposure to global turbulence and accelerate response times.
The outcome is not an immediate reduction in unit price, but a lower cost of disruption. In a mature business, the cost of prevention is always only a fraction of the losses caused by an unexpected interruption to production continuity.
Lever 5: Treating supplier relationships and inventory as strategic assets
In strained supply chains, access to raw materials is no longer equal for all buyers. The market is challenging purely transactional approaches — in critical periods, not every customer receives the same level of priority. Today, access to materials depends not only on price, but also on the quality and transparency of relationships across the entire supply chain.
In a stable environment, supplier relationships were often limited to purchase orders and invoices. Today, they have become a key management asset. Suppliers prioritise predictable partners that share forecasts and production plans. This upstream visibility enables both sides to safeguard continuity where the spot market fails. Moving towards a partnership model delivers measurable benefits:
priority access to supply, including reserved volumes during periods of limited availability on global markets,
more stable commercial conditions based on trust and predictable rules rather than sudden market fluctuations,
synchronised planning, enabling the creation of selective inventory buffers aligned with specific production cycles.
The role of raw material inventory is also changing. It is no longer viewed solely as “capital tied up in stock”, but as a tool for stabilising the business. The absence of a single critical ingredient may create risks far greater than its storage cost — including production line stoppages, contractual penalties and loss of customer trust.
In modern risk management, inventory of critical raw materials is treated as an insurance policy. The cost of prevention remains only a fraction of the losses caused by an unexpected disruption to production continuity
Lever 6: Scenarios, technology and R&D as sources of competitive advantage
In an environment of sudden market volatility, planning based on a single expected market trajectory is no longer an effective management tool. Competitive advantage no longer comes from producing more accurate forecasts, but from preparing several courses of action in parallel and activating the right one before market conditions force a response.
Resilient organisations treat scenarios not as an analytical exercise, but as a decision-making mechanism. For critical raw materials, specific actions are assigned to defined market scenarios, such as a sharp increase in energy prices or logistics disruptions:
activating alternative sourcing channels that are ready for immediate use,
adjusting safety stock levels in response to current market signals,
changing the purchasing mix or dynamically adapting the pricing policy for the finished product.
Modern R&D and implementation teams are also changing their role. Rather than optimising products solely in terms of technical performance, they are building raw material flexibility. In practice, this means:
simplifying formulations by reducing dependence on unique raw materials exposed to high price volatility,
developing pre-qualified back-up INCI options at the prototype stage, enabling rapid implementation without delays or additional testing during a crisis,
applying cost engineering by selecting technological pathways that allow rapid adaptation to changing market conditions.
Organisations that integrate market intelligence with operational systems protect their margins while the rest of the market is only beginning to register rising costs.
A new logic of competitiveness: from price optimisation to volatility management
Over the coming months, competitive advantage will not depend on securing raw materials at the lowest price in a single transaction. The winners will be the organisations that interpret market signals faster and translate them into decisions before rising costs force them to act.
The nature of competition is changing: access to materials and unit price alone are no longer sufficient. What matters is the ability to manage volatility actively through a flexible supply chain architecture, full integration of procurement, finance and R&D, and rapid scenario-based decision-making.
This shift also changes the role of the distributor. Rather than acting solely as a supplier of goods, the distributor becomes a partner supporting decision-making processes — from identifying risks further upstream in the supply chain and planning appropriate buffers to providing technical support when qualifying and implementing alternative sourcing options.
The market will not return to its former level of predictability. Success is no longer about securing the best price at a single point in time, but about building a model that remains stable in an unstable environment.
The key question is no longer: “How can we reduce raw material costs?” but rather: “Does our current purchasing model and choice of partners enable us to stabilise performance, even when the market itself remains unstable?”.
