The traditional chemical distribution business model is facing unprecedented pressure. Industrial customers expect their suppliers to be more and more clearly positioned in the selected customer industry or value chain, and require the chemical industry to improve the business mix and core competitiveness accordingly.
Investors are also pushing the transformation of global business models, rewarding more homogeneous portfolio and business valuation plus. This reorientation is the main driving force of the merger and acquisition of the chemical industry. Recent large mergers with downstream reorientation to more homogeneous individual transactions – such as Dow and DuPont – are aimed at establishing appropriate global industry leaders; More chemical suppliers will follow up.
The digitalization of the business model of the chemical industry also promotes the change of the functional requirements for the comprehensive, multidisciplinary product and service combination. The role of chemistry in ecosystems is changing and barriers to access specific value chains are decreasing.
To become the leader of the chemical industry, it is more and more necessary to have the ability to optimize the customer value chain comprehensively, work closely with the network of partners operating on other value chains, and create a new business model to solve the problems of sustainable development.
As a result, the challenges facing chemical distributors have increased significantly. Business models and the role of distributors between chemical production and users or industries are being reviewed.
Profitable intermediary status
Over the years, with the chemical suppliers gradually focusing on core competitiveness and more strategic product and market segmentation, the importance of chemical distribution has steadily increased.
More and more chemical suppliers have begun to transfer distribution business to third parties, especially in the market that is sub critical from the perspective of a single company, or for customers and product groups with low strategic relevance.
In terms of procurement, many companies benefit from binding and outsourcing the procurement of chemical C raw materials to distributors by reducing their complexity, improving efficiency, specialization and increasing attention to strategic procurement categories.
Compared with chemical suppliers, distributors can provide more effective procurement and distribution and simple chemical value creation by bundling C product lines between companies.
The agility of distributors in dealing with smaller, often non strategic related suppliers and customer groups remains an important distinguishing feature.
Chemical companies profit from distributors entering the market and product groups, and their own offers are not of sufficient scale or necessary development.
By using distributors, chemical enterprises also reduce the credit risk and cash management of smaller customers, which are often in the market with complex payment process and long time consuming.
For them, chemical customers can get the number of products and order sizes they will not get from chemical manufacturers (or only at a significant price increase), because of their strategic relevance. In addition, the integration of distributors’ individual requirements for different chemical products reduces the complexity of supply chain and the cost of procurement.
In addition, chemical distributors often provide better delivery time and reliability for c-series products, as well as customized services or additional services, such as quality control, document management, waste management and technical product development support.
At first glance, the competition environment of chemical distribution is not as stable as that of chemical manufacturers. Some large companies, which are widely diversified in product and market mix, as well as many small, usually professional individual participants, are dividing the market from each other. For example, 32 dealers cover 80 per cent of the market in Europe.
According to the business model, different types of chemical dealers can be distinguished, from specialization to specific industries, products or services, through distributors to all-round product line providers.
