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Outsourced Dispersions: Why a reasonable premium in the cost of a raw material makes GOOD business sense

By January 31, 2022 No Comments

additive dispersions | IR Tubes
This article has been reproduced with the permission of the author Paul McKavanagh, Director – Aquaspersions Malaysia

Users or processors of natural and synthetic latex, such as gloves, condoms, and catheter producers, are technologically highly competent. They require their additives to be in a pre-dispersed form before compounding into the latex. However, many of the most successful of these companies continue to outsource the preparation of water-based dispersions and emulsions to specialists such as Aquaspersions. We are now in an era where business adaptability to the constant change in market conditions is a necessity.

Furthermore, we are in a market sector (latex dipped goods) that has continued to grow globally even during periods of recession. Due to these factors, a decision to outsource additive dispersions is technically sound and makes better business sense than ever before.

Despite improvements in technology and know-how, producing the required quality of additive dispersions for latex is not as simple as it sounds.The dispersions contain solid particles dispersed into the liquid (water) phase. Mostly the solid particles, especially additives like sulphur, accelerators, pigment and zinc oxide have a significantly higher density than water. As a result, there is a strong natural tendency for these materials to settle down due to the forces of gravity. This can result in the dispersion being un-usable due to heavy sedimentation, and of course after compounding the dispersion into latex, the same natural forces apply to the solid additives now inside the compounded latex.

The technical requirements of the users of additive dispersions continue to be many and varied. The most important ones, applying to all users are

  • The functionality of the additives contained inside the dispersion. The additives should play the required role in the user’s process of converting the compounded latex into finished products with the right properties.
  • The physical properties of the dispersion should enable the user to use it in a consistent manner. The dispersion should flow well when transferred either by means of gravity or pumping, mix well both prior to compounding and when compounding into the latex.
  • The dispersion should also retain in storage for as long as possible its physical properties and have consistent properties both chemical and physical, from batch to batch. In that way, its functionality in use would be consistent.
  • The natural solid sedimentation processes, earlier mentioned, should be slowed down as much as possible to avoid significant sedimentation in the dispersion and compounded latex. Such sedimentation would be wasteful and could eventually affect the quality of the finished products.

Referring to the issue of solids settling down in the liquid (water) phase, the rate of settling can be decreased by reducing the particle size. This is an important part of the dispersion manufacturing process. There are a number of different types of wet milling machinery which can be used for this particle size reduction. However, they all have certain things in common.

  • Energy intensive processes,
  • The machinery requires expert maintenance,
  • Good control of the process conditions is needed to get the right product

On the other hand, when the size of solid particles is reduced, especially below the 3 to 4 microns level, there are physical (and sometimes chemical) forces causing them to come together as agglomerates. If particles agglomerate in this way, then their behaviour in the dispersion will change. Often the viscosity of the dispersion can increase, even to the level where the dispersion forms a gel. Also, as far as sedimentation properties are concerned, the agglomerated particles will behave like larger particles (i.e. faster settling). So, making quality dispersions is not just a matter of mixing the right ingredients in water and grinding to a certain particle size. To make things worse, especially for the SE & South Asian regions, the natural processes of sedimentation and agglomeration happen faster the higher the temperature is.

That is where development of the right formulation of active ingredients, water content and auxiliary ingredients (e.g. surfactants & dispersing agents) is necessary to achieve the best quality which can be consistently reproduced batch after batch. It is well known that such consistency of dispersion quality is one key factor of success for producing top quality dipped latex goods. Typical problems in latex gloves from using inconsistent dispersion quality can include wrong mechanical / physical properties (e.g. tensile strength), pinholes, white spots, heat ageing and reduced shelf life in storage.

These technical issues facing producers of water based additive dispersions, be they specialists like Aquaspersions, or users who make their own dispersions in-house are important reasons why many users of additive dispersions outsource this activity to the specialists. However, there are a number of additional reasons for an outsourcing decision, which can broadly be described as ‘Commercial Reasons’ involving cost, strategic considerations, cash flow, management focus, peace of mind, and added value.

TOTAL COST

A simplistic comparison of only the raw material cost would normally lead one to believe that in-house manufacture is cheaper than buying readymade dispersion. However, to make a fair comparison, the dispersions user MUST consider the real costs of in-house dispersion manufacture which include many other items & factors as listed below

  • Non-active ingredients cost
  • Capital cost of plant & equipment for dispersion manufacture
  • Cost of Maintenance & up-keep of plant & equipment including keeping an inventory of essential spare parts
  • Capital and running costs of laboratory & laboratory equipment required to control the quality of in-house dispersions
  • Cost of keeping and controlling raw materials inventories for multiple materials (outsourced dispersion can be a ‘composite’ containing several ingredients) including staff costs, factory space & financial outlay.
  • Cost of the factory space utilized for the in-house dispersion making activities. This is not only the actual cost of rental / purchase but an additional ‘opportunity cost’ if the space can be more profitably used for production of the mainline product (e.g. gloves)
  • Cost of the labour / staff to carry out and control the production and QC
  • Cost of energy (usually electricity) for the mix preparation, milling & packaging operations.
  • Costs of treating effluent and disposing of wastes arising from dispersion manufacture
  • Cost of raw materials packaging waste (may require disposal in same category as chemical wastes)
  • Cost of potential downtime on mainline production which is replying on the in- house dispersion
  • Cost of wasted or down-graded final product if the quality consistency of the in- house dispersion is not maintained
  • Compared to a specialized dispersion manufacturer, the user making in-house will have a smaller scale of operation which will result in
    • Bigger impact from fixed and capital costs
    • Higher percentage of materials wasted
    • Lower purchasing power on raw materials
    • Costs of regulatory compliance per tonne of dispersion will be more
    • Labour / staff cost per tonne of dispersion will be higher

When all of the additional real cost factors associated with in-house dispersion manufacture are taken into account by the dispersion user, it becomes easier to see why many dispersion users are prepared to pay a raw material cost premium for buying readymade dispersions. This is a ‘current cost’ basis of comparison which if considered in full can be enough to make an outsourcing decision attractive. However, there are even more things for the professionally managed business to consider. Please read on.

MANAGEMENT FOCUS

Despite the fact that the glove market continues to grow at a higher rate than general economic growth, and during recent years has proven itself to be “recession proof”, it still remains highly competitive. In such an environment, the most successful glove producers are those who can expand fast enough to meet the growth opportunities whilst locating where they can add most value in the whole of the supply chain.

Those who are most successful in meeting this challenge usually have one thing in common. They FOCUS on their core competency in relation to where they can add the most value for their customers. Irrespective of the product(s), strong marketing is the first step backed up by strong concentration on Core Competency and rapid response to market changes.

This is well proven Business Strategy but for producers of dipped latex goods who outsource their additives dispersions it translates into the following benefits

  • Rapid expansion of operations to gain economies of scale and new customers is easier, both in practical terms (less space, less equipment to buy) and cash flow
  • Management time is used more effectively, for example to add value through product segmentation, as opposed to making necessary improvements to a non- core activity which will not impact so much to the bottom line.
  • If the company to whom the additive dispersions are outsourced is really a specialist, (Aquaspersions does nothing else other than make additive dispersions & emulsions), they will work extremely hard and effectively as their whole business is depending upon doing a good job. They will also be very keen to work with customers to innovate and add value.

Even in the “at one time controlled” major markets of China, which is continuing to be a major engine of a global economic growth, all kinds of organizations are coming to terms with the need to focus on core competency, outsource what they used to make themselves and import high quality raw materials to facilitate major improvements in business performance and finished products. A new generation of Management in this economic powerhouse is really driving this change forward.

HEALTH, SAFETY & ENVIRONMENT (HSE)

Last but definitely not least, whatever the sphere of business or wherever the location, HSE issues are always very important. World class companies like Dupont have long recognized this fact and put it at the top of their priority list. It’s a bit negative to say so, but ignoring the importance of HSE can result in the extreme cases in total collapse of your business. Over the past decades we have seen several such high-profile cases (which the author will not deliberate on in this article.)

In the most practical sense by outsourcing additive dispersion & emulsion users can

  • Avoid the handling of dusty material
  • Make the handling of any hazardous chemicals much safer
  • Significantly reduce process operator exposure to the chemicals
  • Avoid the cost of dust abatement & filtration equipment
  • Reduced chemical effluent & waste, saving both the environment and costs
CONCLUSION

After taking all the above-mentioned factors into consideration, it continues to be abundantly clear why paying some reasonable raw material cost premium for outsourced dispersions makes extremely good business sense.

I R Tubes Private Ltd., Pune are distributors for quality chemicals of Deutsche Oelfabrik of Germany, Omya UK Ltd., Robinson Brothers, UK, Emery Oleochemicals Ltd and Aquaspersions. Our chemicals are used in the manufacture of Rubber, Plastics, Latex, Adhesives and Sealants.

Raju Jethmalani
IRTubes Pvt. Ltd., Pune

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