Thomas Larson, ProcurementIQ Lead Analyst
As originally published in ISM's Inside Supply Management
In some chemical markets, a variety of products have come under scrutiny due to concerns about their environmental effects. As a result, laws have been proposed and enacted at the municipal and state levels across the country to eliminate or reduce the purchase or use of products produced from these harmful chemicals.
While some organizations have acted independently from the regulatory environment, most have altered their production processes or adjusted supply chains in response to new laws. As regulations increase, procurement practitioners may have to reevaluate their supply chains.
Concerns in the Plastics Market
In recent years, for example, bans on plastic products — which are derived from crude oil — have become more frequent. These laws have originated primarily at the local government level, with few bans affecting entire states. Local and state governments have taken it upon themselves to monitor the products being used within their jurisdictions in response to concerns from their constituents.
Most bans have focused on single-use plastic items, such as polystyrene foam-based food containers that usually cannot be recycled. Furthermore, cities such as Malibu, California, have announced bans on plastic straws, which are produced from synthetic resins, in restaurants.
These laws have a direct impact on procurement practitioners — even those working in cities that have not passed plastic bans. Buyers in industries (and cities across the nation) that rely on these plastic products, such as food and beverage companies, grocery stores and restaurants, are forced to adjust their supply chains to comply with government regulations. For example, in the polystyrene-foam market, restaurants are a major source of demand. Restrictions on plastic products reduce demand from restaurants. As a result, there are heightened supply chain risks for suppliers of synthetic resins and polystyrene foam.
Service Disruptions Possible
In addition, bans lead to revenue-stream reductions for suppliers, causing these companies to experience greater financial stress. Suppliers with revenue streams that lack diversity are at a higher risk, as they could be unable to make up for dips in demand. Such a situation could lead to the company exiting the market and disrupting service continuity for buyers.
As regulation and concern for the environment increase, procurement practitioners should inquire about their synthetic resin or polystyrene foam manufacturer’s client base before entering into supply agreements. Buyers can mitigate risk by ensuring suppliers have diversified revenue streams and can weather demand decreases due to new regulations.
Read more about what companies are doing in the wake of plastic bans, such as searching for alternative materials like silicone, and how that is affecting supply.