Fecc: A marriage made in heaven?

12 June 2013 18:49  [Source: ICB]

A successful and long-term collaboration can exist between producers and distributors if they both work hard at building trust, respect and openness

Is the ideal distributor a figment of a corporate imagination, or does it really exist? A partnership between a producer and distributor can resemble a marriage, experiencing both ups and downs, but certain elements are crucial if the parties are to stay together.


 Business partnerships can deliver when based on openness and good communications

Copyright: Rex Features

The importance of distribution has grown with rising demand for chemical products in a diverse range of industries. Parallel to this trend has been the split between the role of a commodities distributor and that for specialty chemicals.

The commodities market is characterised by logistical requirements and price sensitivity, while the specialty chemicals market has become ever more service-oriented, says Birger Kuck, CEO of Germany's Biesterfeld Group.

Crucial in a bulk commodities market is reliability and flexibility, states an independent oil company. "A producer needs reliability of off-take, and in all conditions. Flexibility is also key," the company says.

Principal suppliers and customers in the specialty market expect a lot more from their distribution partners. Here, distributors are expected to provide technical service, application support, specific chemical know-how, regulatory expertise, sales and marketing tools, market intelligence, and so on.

Demands from customers for a one-stop shop have grown while, at the other end, suppliers have been cutting the number of distributors they use. Kuck says suppliers and customers are concentrating on selected partners to reduce effort and optimise costs in the supply chain.

A partnership can truly add value, but the right - or ideal - partner needs to be found. A survey conducted last year by German consultancy Stratley found producers and distributors agreed the most important criteria for cooperation were market and application coverage, reputation and existing relationships.

The survey, "Producer-Distributor Relationship in the Supply Chain", showed that principals were more concerned about market coverage and skill sets, while distributors' priorities revolved around the constant search for highly qualified staff as well as retaining strong relationships with their principal suppliers.

Several companies maintain the critical ingredients for a long and happy business life together are: trust, transparency, fairness, mutual understanding, respect, reliability and honesty. Mario Preissler, head of DKSH's business unit performance materials, says both parties must also have a common, long-term perspective, a mutually exclusive relationship, and enjoy personal interaction.

Specialty chemical producer Dow Corning says distribution is becoming an increasingly important part of the market. Klaus Hoffmann, Dow Corning's president for Europe, Middle East and Africa (EMEA), says partnering with distributors is a significant piece of the company's strategy and an important channel to market in terms of both geography and application.

For Hoffmann, distributors are crucial in expanding the company's coverage in the marketplace. "They are a great fit in our growth strategy and are essential for our efficiency and effectiveness," he says.

Hoffmann understands companies do not always work in harmony but, as in a marriage, respect for the individual and its business goals, is important. "We have to let companies act as an independent individual, otherwise we will lose a lot of what attracted us in the first place. They are complementary, not a moulded replica of your own business," he advises.

When selecting partners, Gabriele Henke, managing director of German specialty distributor Nordmann, Rassmann, says they must have a true distribution strategy that is important to their business. "We do not want to be the fifth wheel on a car," she says. She believes that the industry has much more space for good partnering opportunities, both for distributors and principal suppliers.

She also emphasises that customer success should be the overall, key objective for both parties. Watching for future trends and bringing customers new concepts are of major importance, particularly as many of the industries served by specialty companies are driven by innovation, for example, in healthcare, personal care and nutrition.

Without innovative products from first-class suppliers, it is difficult to survive in the chemical distribution industry, says Kuck, who adds that the right mix of experienced specialists and "new blood" is important for the company's success. "We have no plants or brands. We have to invest in our people."

For Azelis CEO Hans Joachim Mueller, distributors particularly focusing on specialty chemicals must have a good mix of blue-chip principal and local suppliers, in addition to a broad, lateral value chain, or portfolio, that it can offer to the market.

Mueller says balancing its suppliers' portfolios with its service offering to customers creates a pull on both sides. He has worked hard since joining Azelis in October last year to more closely align the company's strategy with that of some its key principal suppliers. "We have the potential to do more here, building on what we have already achieved," he says.

He advises that partners must be more strategic in their approach and not just look for quick wins. "Having a strategy behind what the business is trying to do is the key denominator for continued success," Mueller says.

The issue of business development versus demand-driven activity is also highlighted by Hoffmann of Dow Corning. "How much are distributors going to push volumes in a market which is seeking product versus looking for opportunities to further develop and grow new business in the future?" he asks. This clash of ideas can be a challenge, and he says distributors should take the medium to long term view, rather than the short-term activity.

Hoffmann says some distributors believe that principal suppliers may take back business when it has become big enough to be attractive. But he says this is the wrong approach for suppliers to take and the industry must learn to look from the customer's perspective. "To best serve a customer, it may be that they switch back and forth between the supplier and distributor during their lifetime," he says.

Distributors are a key element in developing and growing a business for their principal suppliers and can often grow the market faster than they can grow it themselves. It is distributors' market insights and analysis, coupled with their ability to identify future trends at an early stage that keeps suppliers innovating new and improved products.

DKSH's Preissler says: "With a broad product portfolio, a distributor has even wider access to industries and better market penetration. This is an advantage compared to a producer."

The results from Stratley revealed that between 10-20% of a principal's business is carried out by distributors. It also showed that distributors could realistically be expected to contribute up to 20% of all new business development.

Producers want the benefits and critical mass of a multinational organisation with centralised logistics capabilities, laboratories and technical service centres. They also want a strong local presence, proximity to customers and deep market knowledge.

Think globally, act locally, is Biesterfeld's slogan, which is reiterated by several others too. Local language and currency, local cultures and local rules are very important, particularly for smaller customers, say distributors.

To get the right chemistry in a partnership and create a win-win situation both sides, just as in a marriage, need to be compatible, and expectations must be fulfilled. The bottom line is that both parties must profit, both financially and strategically from a cooperation, and the good times must outweigh the bad.

As well as increasing sales, improving service, growing market coverage and developing new products, a strong collaboration can also reduce financial and economic risks.

The ideal distributor has to be the perfect partner for its principal suppliers and its customers, fulfilling all their expectations globally and locally - in essence being all things to all parties. Does that sound like reality or a dream?

By: Elaine Burridge
+44 20 8652 3214

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