MARKETING & INNOVATION


SUPPLIER EXPECTATION


Market reach and customer access (‘Capillarity’)


Application orientation Technical competence Laboratory infrastructure Financial solidity Transparency IT connectivity ‘Bulk breaking’ ability


Industrial chemicals, like acids,


lyes or basic solvents, are sold typically in high(er) volumes and at comparatively low (unit) prices. Products are more homogeneous and hence interchangeable. Their distribution has more of a transactional character with services aligned to bulk-breaking, security of supply and activities are more short-term and pricing oriented. Products will not be transported far, because logistics costs represent a high portion of the invoiced price, as mentioned earlier. In the markets for specialty chemicals, where unit prices are often (significantly) higher and typical volumes/order low, logistics costs are less of a concern. Here the distributor needs a more application- and solution-oriented approach, aiming at engaging with its suppliers and customers on longer-term projects. It is essential to keep the total cost- to-serve in mind, as the additional service needs to be adequate and its value transparent and understandable to the downstream customer. The distributor needs to be able to manage customer projects, often with an extended time period between the initial contact (to discuss technical options) and the handing over of a sample and then finally the first commercial sale of the tested and approved product. The main process steps and


keys to success for the two different approaches can be seen in Figure 3.


Growth opportunities and challenges Over the last few years, producers of chemicals have increasingly re- directed their own investments to the faster growing markets in Asia and emerging countries. Infrastructure in Europe was ‘maintained’ at best, investments sometimes de- emphasised. Technical support has


INDUSTRY CHALLENGES Managing complexity


Managing supplier and customer expectations Managing regulatory compliance (eg REACH in Europe) Managing ‘cost-to-serve’


CUSTOMER NEEDS


Product range Reputable suppliers Technical capabilites including laboratories Local presence and proximity JIT deliveries Security of supply (access to product) Credit and vendor financing Competitive pricing


Distribution is, in essence, a local business but you have to think and act in a global context


been made available only to large direct customers. Handling small(er) customers was, and is, ‘outsourced’ to distributors, which meant that they have grown above chemical industry (ie producer) growth rates. Especially in the more complex


markets of specialty chemicals, for- mulated products, nutrition, pharma and personal care ingredients, the shift of responsibilities and capabili- ties from the producer to the distrib- utor continues to be a challenge but also an opportunity. Setting-up and operating analysis and development laboratories, staffing technical joint- development projects and supplying capillary market research capabilities is a key differentiator for the success- ful distributor. A distributor acts as an important


bridge between producer and customer, but the position can also be characterised as being stuck between robust interests, that are not always aligned. Balancing the producers’ expectations and the customers’ needs, the chemical distributor must be able to manage a certain level of inherent tension in the system.


The chemical distribution market


is characterised by a diverse set of players and a very wide range of capabilities, which also results from the relatively low initial investment needed to set up a distribution business versus a production-unit. Product knowledge, market access and customer contacts used to be a sufficient basis to start a distribution business early on, the required hardware, for example, logistics and warehousing, could be sourced-in. The development towards


globalisation – competitive products from China and Asia plus a strong supplier position – and down-stream specialisation have initiated an ongoing consolidation of distributors


Caught in the middle, distributors must be able to manage tension


in a market or region, driven by acquisitions, mainly initiated by the larger players, or smaller and medium-sized distributors merging and joining forces, sometimes in alliances, to establish specialist capabilities for an application or market.


Summary 26%


At 26% each, petrochemicals and specialty chemicals make up more than half of European sales.


Value creation lies in the acceptance of the chemical distributor as a partner to the initial supplier rather than a customer.


As mentioned earlier, growth in chemicals distribution is outstripping overall market growth. The key drivers of this are the intensified focus of producers on economies of scale and servicing the needs of larger customers. Also, as the capabilities and competences of the chemical distributor improve, producers are more willing to outsource additional operations and services to a more dedicated and sophisticated player for specific segments of their sales. This is an opportunity for


existing and dynamic distributors in their respective region and area of expertise, and also for industry professionals in the chemical industry. Chemical distributors have become very interesting employers, not only for staff in commercial roles, but also increasingly for technical personnel and specialists, such as chemists, biologists, pharmacists, toxicologists, ecologists and to help cope with the challenges on the technical, application-development and regulatory frontiers. Chemical distributors have


developed and improved their ability to serve customers and develop strong, lasting and meaningful relationships with those customers. These capabilities will become more important in the future in order to capture value through the development cycle of the European chemical distribution industry and elsewhere in the world as those economies evolve and mature.


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