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A large European company operating in the metallurgical industry was at risk of losing production capacity and marginal profitability. The company’s Director of Strategic Purchase turned to us for help and explained that raw materials, traded daily, were becoming dangerously expensive in their domestic market. He also explained that a major competitor was finalizing a new production plant that would have soon quadrupled their need of raw materials. He thought this could be good news for them, more traffic and more opportunities for all companies in that industry – we did not. Changing the Rules As a first step, we asked our colleagues at Research to perform an independent study and run diagnostics on the client’s domestic market. We found that the supply stream of secondary raw materials was almost at full capacity. The competitor would have soon caused the material to become scarce, hence pushing up the cost even further. We proposed a solution: identify a reliable supply stream in the international markets to (a) secure long term allocation; and (b) affect the local prices by importing materials for their own needs as well as domestic trading purposes. Our work was far from being completed: we had to research the international markets to identify supply sources and establish a trading platform for the client. They were now able to trade at the most competitive price, taking advantage of arbitrage opportunities and comparative advantages. Also, our colleagues at Logistics helped the client build and organize a logistics infrastructure to ship and receive the materials in containers rather than bulk: something absolutely unseen before for the type of good, and environmentally friendly too. Ahead of the Game Less than one year after completing our work, this client outmaneuvered its competitors in the procurement process of raw materials and was able to source from different international markets with a uniquely engineered logistics infrastructure.
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