SUPPLY CHAIN RISK MANAGEMENT BLOG

How SCRM Solution helps to save money: raw material shortage and price rise caused by fire

Sep 5, 2014    Heiko Schwarz

 


Shock phase
On late Monday 07th riskmethods detected the fire forced shutdown of Chevron Phillips Chemical’s plant for ethylene production at Port Arthur (Texas) and released a news message to alert customers of the Supply Risk Network about possible shortages. Remind that at this time spot market price for Ethylene was 0.5775 per lb (pound).

Multiple market sources on Tuesday said the Chevron Phillips Chemical flash fire, which reportedly injured two workers Monday night, had resulted in the 830,000 mt/year steam cracker at the company’s Port Arthur facility to be shut. It was still unclear what impact the fire might have on production or how long the shutdown could last. Company spokesman David Hastings said Tuesday that the company does not publicly comment on operational issues which indicate the still unresolved situation. Remind that spot market price for Ethylene at this time was still unchanged at 0.5775 per lb (Pound). 

Awareness phase
While the following 24h hours it became very clear that the disruption is impacting the availability of Ethylene - experts say this phase is called awareness phase: companies realized that they have to take actions to secure the supply and “protect” their prices before others do. 

Reaction phase
Market participants started to cover their needs from alternative sources as well at the spot market: prices rose to a 13-month all-time-high at 0.60500 per lb (pound). 

Conclusion
Given this real-life example Supply Risk Network users were informed near-real-time of the possible shortage. Even while receiving the updated information after the event users had the opportunity to react and save 4.74% in price-increase (followed with the awareness and reaction phase). This recent example shows the importance of a comprehensive Supply Chain Risk Management and two essential aspects:  1) transparency into the entire supply chain is top-priority for buying organizations to ensure supply  and 2) an advantage in time and information is key to create a competitive edge.


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