Over the past three years, chemical manufacturers have seen cumulative inflation of around 30%, and over the same period, less than half of chemical companies held or expanded margin. Pressures are expected to persist as global commodity markets face increased price volatility from lingering geopolitical concerns, the rush to low-carbon energy, and growth of the global middle class.

Even in this volatile environment, some companies have expanded or maintained margins, while others have seen margins erode significantly. So why then, are some chemical companies thriving in the face of volatility while others falter?

My name is Tyler Wlazelek and I'm part of Oliver Wyman’s Energy and Natural Resources Practice in the Americas. After studying chemical engineering and business, I moved into leading commercial teams at a global chemical company to shape and implement commercial transformations for businesses ranging from clean energy to automotive parts and specialty chemicals. My passion is helping our clients drive commercial transformations optimized for profitable growth by building and integrating advanced analytical capabilities into their commercial processes.

In my work with our clients, I have noticed that there are four key factors needed to thrive during periods of heightened volatility.

The first step is to be agile and informed with an intimate understanding of the impact volatility has on your business to predict and plan appropriately. Analytical tools can help track historic cost development at a raw material SKU level and provide visibility into how costs are expected to develop in the future. Firms that do this well can develop an understanding of how a 100-basis point increase in the cost of crude oil will impact the cost of all their customers within a matter of minutes.

Second, we help our clients leverage their unique market knowledge to know their core markets better than their customers and competitors. Developing an understanding of how a 1% price increase will impact end user demand and the profits of your customers can help evaluate the impact of passing on inflation or deflation. And in the multinational world we live in today, understanding how technology, operations, and geography play a role in the cost structures of your competitors can help anticipate market responses to inflation or deflation.

Next, customers of our clients have become fatigued by a flurry of price actions from suppliers in response to inflation. So, when we work with our clients, we ask them to move from a transactional approach to an approach grounded in differentiated value selling. Key to this is understanding the value our clients provide to their customers. We help our clients to analyze their position in the marketplace, the unique value they provide to their customers, and opportunities for further differentiation. In addition, we help our clients craft stories that communicate the differentiated value they provide and opportunities for future mutual growth, thus shifting negotiations from transactional conversations to conversations grounded in mutually beneficial value creation.

Finally, even companies who implement the previous three elements can struggle to win in the market during times of volatility. So we take an active approach to helping our clients build a strong culture of commercial excellence and continuous improvement. We help our clients set clear, realistic targets and cascade them throughout their organizations and to be relentless in tracking, monitoring, and refining their approach to meet and exceed profitability targets. We help our clients condition their customers to make price and value regular agenda items in the spirit of mutually beneficial relationships.

To summarize, deploying sophisticated analytical tools in combination with advanced storytelling abilities and thoughtful negotiation tactics to identify and communicate the need to capture or defend price to customers is the first step. Leveraging learnings of volatility conversations with customers to further differentiate your businesses is the second step. Third, continuously refining and improving margin management capabilities by incorporating new, sophisticated digital tools such as artificial intelligence. Managing volatility is a crucial element of the modern energy and natural resources executive's toolkit, and building capabilities to understand how costs are impacting your business, translate cost understanding into targeted actions, leverage value selling approaches with customers, and build a culture of excellence are key to successfully navigating volatile times.

I'm Tyler Wlazelek, and this has been my take on price and inflation management.