NACD: Staying Ahead of the Competition

03 December 2013 11:13 Source:ICIS Chemical Business

North American chemical distributors are continuing to invest and grow their businesses for the future, even as financial and business conditions remain tough. Their role is constantly evolving as they strive to do more for their customers and suppliers in an increasingly competitive environment.

Challenges abound ranging from a shifting regulatory landscape, lower economic growth and high unemployment, to globalization, industry consolidation and a shrinking customer base. Yet, challenges also bring opportunities that distributors are eager to grab as they try to stay ahead of the competition and differentiate themselves.


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So, what do North America’s high performing chemical distribution companies see as their formula for success in this leaner financial climate? People and company culture were rated by all as a top, and differentiating, factor.

“The main reason for our success is the expertise of our employees and the outstanding customer-oriented support of our commercial team, and all our staff from warehousemen and drivers to administrative personnel. Every one of them makes a difference every day”, says Markus Klaehn, CEO of Brenntag North America. The company is the second largest distributor in North America, posting sales of $3.9bn in 2012 and employing 3,800 people. Klaehn believes that the company’s culture of incentivizing employee performance, both individually and collectively, as well as a healthy competitive team spirit attracts the best people in the industry.

“People are our differentiator as is our overall philosophy on how we treat our employees and our customers,” says Edward Polen, president of EMCO Chemical Distributors, ranked tenth in the North American distribution industry with sales of $303m last year. He adds that a good relationship with external supporting organizations such as bankers and accountants are another major element in the many parts of a successful operation.

Communication, customers and a focused approach are top priorities too. Talking to customers and suppliers, understanding the different market segments and trends, and providing technical support and vital market intelligence are essential parts of a distributors’ role today. Although it remains the backbone of distribution, no longer is the business just about delivering product from the factory gates.

Terry Hill, executive vice president, industry relations of Univar – North America’s leading distributor with 2012 sales of nearly $10bn – says: “The fundamentals of getting product from where it is made to where it is consumed remains critical, but customers are also counting on what distributors can do to add value. We want customers and suppliers to rely on us for what we can bring to the partnership.”

Nexeo Solutions, North America’s third-largest distributor with sales of nearly $3.5bn in 2012, is making continued efforts to engage in closer collaborations with customers and suppliers. Hank Harrell, senior vice president, chemicals, says: “We are obsessed with connecting our customers and suppliers in simple and unimagined ways.”

The company has significantly increased its technical capabilities and adopted a high degree of end-market focus, which has been enabled by a centralized approach for its systems and processes; network planning giving forecast transparency and inventory optimization; and price management capability. Nexeo Solutions says, as a result, it has been successful not just in increasing its share of existing markets, but also by growing the volumes going through distribution.

“We have seen differentiated growth in our dedicated end markets such as energy, personal care, paints and coatings, household, industrial & institutional, and industrial manufacturing,” says Harrell.

Family-owned Hydrite believes its flexibility, its focus on long-term customer relationships and its conservative values all contribute to its success in being the sixth largest distributor in North America – it posted sales of $480m in 2012. Mark Laehn, vice president, legal risk and treasury, says, “We are very flexible in doing business with customers the way they want. If a company has really rigid policies, it can lose a lot of business.”

The company primarily serves the American Midwest for commodity and basic chemicals, and distributes specialty chemicals coast to coast. It also has comprehensive manufacturing capabilities for cleaning and sanitizing products, food ingredients, and bisulfite solutions, as well as supplying foam control technology for industrial and food processing. Hydrite also provides tolling services for some of the largest chemical companies in the US, according to Laehn who says that Hydrite’s proprietary manufacturing technologies and capabilities differentiate it from other distributors.

As globalization travels its inexorable path, the top three distributors continue their efforts to maintain a global presence, as well as a strong local touch. Brenntag’s 130 locations in North America ensure proximity to its customers and its presence in specific market segments has been strengthened too by targeted acquisitions. These include Houston, Texas, water treatment company Altivia in January this year, followed in March by Oklahoma-based Lubrication Services (LSi) which distributes lubricants and chemicals to the oil and gas industry.

Univar’s Hill says its global intelligence, with market insights from Europe to Asia to South America is important for its local customers. “While there are some that may not care if we are global, it gives us the strength and breadth of best practice around the world. Things that happen in Asia and Europe can affect our customers, even the small- to mid-sized companies,” he says.

Note, for example, the earthquake and tsunami that devastated Japan in March 2011 and had a detrimental impact on global supply chains, particularly for automobiles and automotive parts, and semiconductors.

Klaehn says Brenntag North America’s customers value its expertise in reducing their exposure to supply chain interruptions. “We understand markets and can anticipate product shortages – avoidance is a key role in preventing supply chain interruption,” he says.

In recent years, distributors have been boosting their technical capabilities as customers continue to scale back their own resources. Nexeo Solutions says it is spending tens of millions of dollars every year on developing its technology, laboratory facilities and sales resources. It is planning to build a new laboratory with formulation and testing capabilities near company headquarters in The Woodlands, Texas.

Univar too has been investing heavily to strengthen its technical expertise. Hill says customers and suppliers are asking for distributors to be more innovative and work with them to understand and develop the next generation of products.

This year has been an active one for all in terms of capital expenditure. Both Nexeo Solutions and EMCO Chemical Distributors have relocated their headquarters. Nexeo Solutions moved in June to The Woodlands, Texas, a booming suburb of Houston. Harrell says the move reflects the growth of its business, which is demanding larger, more collaborative working spaces, brings it closer to customers and supplier partners, and allows it to be more competitive from a recruiting perspective.

Polen is proud of EMCO Chemical Distributors’ new 260,000 square foot state-of-the-art facility in Pleasant Prairie, Wisconsin, which houses its corporate headquarters and its manufacturing and distribution divisions. The move resulted in the company splitting its packing and distribution business; distribution moved to Pleasant Prairie with packing now concentrated in North Chicago and Colombia, Illinois. “Our goal is to upgrade both packing facilities in 2014,” says Polen, who adds that he is considering introducing barcoding on all its products. “If it is done right, it would have potential.”

A white/clean room for the food and drink industry is also nearing commissioning and should be operational to meet new standards coming into force in 2015. Polen says: “We think that will bring us a multitude of growth opportunities.”

EMCO Chemical Distributors has also expanded its product lines this year and added some new suppliers. Polen says its Canadian affiliate, EMCO Chemical Distributors Canada, is planning to do the same during 2014.

Record sums have been invested by Hydrite during the past three years and this will continue in 2014, according to Laehn. He says the company is investing ‘significant’ millions of dollars in expanding its manufacturing capabilities for the future. A large part of the expenditure is going on expanding the facility in California, and completion is scheduled for next year. The plant was part of Hydrite’s 2011 acquisition of Visalia-based Choice Chemical, which has boosted services to the food sector.

Growth in Hydrite’s sulfur business is prompting an increase in liquid sulfite blending capacity. Laehn says the company will also grow its foam control capability to meet additional demand resulting from new, long-term agreements. He does not rule out another acquisition but is mindful that it can be expensive and risky. He says: “We have not forced ourselves to make acquisitions but we are acquisition-minded. What we have done instead is to continue pursuing growth.”

Hydrite is part of the Omni-Chem network of independent distributors which it uses mainly for global sourcing. Laehn says Omni-Chem is seeking more international members to expand its reach. Until 2013, all 15 members were North American (13 in the US, 1 in Canada and 1 in Mexico). This year has seen the addition of Campi y Jove with assets in Spain, Portugal and North Africa.

This year’s major undertaking for Univar has centered on solidifying its industry approach and building up resources around specific industries, for example oil and gas. Hill says a tremendous amount of sales training has been done, as well as developing tools to help the team enhance its focus on markets, pricing and technical service to build more value for suppliers and customers.

“We want our customers to see us as delivering logistics, being a technical partner and solutions provider. For our suppliers, we need to bring best practices, be an advocate for their product, provide market insights, and develop their business,” Hill says.

The purchase of Texas-based Magnablend in December 2012 was a major move for Univar giving it additional capability in custom chemical manufacturing, blending and packaging solutions for the oil and gas sector.

The oil and gas industry is a focus too for Brenntag which has being growing its presence at several shales across the US this year through upgrading facilities and infrastructure. The company also created Brenntag Global Marketing at the start of 2013 to boost its position in the caustic soda market. For 2014, the company will continue to make investments in its facilities, as well as technical and human resources to support the growth it expects, says Klaehn.

Plans to buy Chemical Specialists and Development (CSD), which also operates Startex Chemical, Prist, Arpol, and ST Labs, were revealed by Nexeo Solutions in October; the transaction is expected to close before the end of 2013. The acquisition will expand capabilities in formula preparation, custom blending and laboratory testing, and enhance Nexeo Solutions’ contract and private label chemical packaging. It will also strengthen the company’s end market presence and increase its growth in the Gulf Coast region, says Harrell.

He reveals that Nexeo Solutions is planning a new product launch in November. According to the company, Nexseal is an innovative intermediate resin blend with unique properties that will provide customers greater value because of its lower application costs and longer lifespan. Another key development this year for the company is in oilfield services solutions, where it has developed new, sustainable and environmentally-friendly processes and products for hydraulic fracturing, including robust logistics and material handling expertise, 24/7 services, and innovative risk management designs.

Looking forward to 2014, Univar is seeking to build up its concentration on the chemical manufacturing sector. In October 2013, it hired Greg Vas Nunes as vice president of chemical manufacturing, a newly created position to drive growth in the chemical market which is changing rapidly because of the shale gas investments. There have been several announcements for new chemical production plants and debottleneckings over the next 10 years. Hill adds that Univar will continue to strengthen its services, such as Chemcare (waste collection), and Mini-Bulk, a storage and delivery system that minimizes exposure to hazardous materials.

According to distributors, their customers rate them highly in areas such as safety, health and environment (HSE), reliability, timely delivery and response times, technical expertise, problem solving, and partnering.

Their suppliers, on the other hand, rate as a top priority distributors’ access and reach to a wide customer base, feedback of market insights and trends, ethical approach, and the ability to grow the business.

However, distributors are determined not to become complacent and say they must not take their suppliers and customers for granted. Some areas cited for improvement range from the less serious need to change the telephone system’s on-hold music to wider marketing efforts, responding faster, and more innovation.

Klaehn says continuous improvement is one of Brenntag North America’s cornerstone principles, whether it is to add more value to customers and suppliers, or its commitment to safety where it constantly strives for zero accidents and incidents. “We want to be the safest, fastest growing distributor and the preferred channel for customers and suppliers,” says Klaehn. This sentiment is echoed by Harrell who adds that Nexeo Solutions is always looking to do things better and faster for its customers and suppliers. “That is embedded in the culture at Nexeo Solutions,” he says. Always being hungry to grow the business and staying ahead of the market is Univar’s aim, says Hill.

The constant push to be better, faster and more innovative is driving distributors forward in their businesses. They all emphasize that standing still is not an option if continued and successful growth is to be secured for the future. Market coverage and competencies, a diversified portfolio and service offerings, and of course a great team of people, are just some of the reasons behind their ranking in the top ten of North American chemical distributors.

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