The traditional business model of chemical distribution is under pressure as never before
The traditional business model of chemical distribution is facing unprecedented pressure. Industrial customers expect their suppliers to have more and more clear positioning in the selected customer industries or value chains, and require the chemical industry to improve their business portfolio and core competitiveness accordingly.
Investors are also driving the global transformation of business models, making portfolio and corporate valuation mark ups more homogeneous. This reorientation is the main driving force for M & A in the chemical industry. Recent large mergers and acquisitions have repositioned downstream as more homogeneous individual transactions, such as the merger of Dow Chemical and DuPont, with the aim of establishing suitable global industry leaders; more chemical companies will follow suit.
The digitization of chemical business models has also driven changes in functional requirements for an integrated, multidisciplinary portfolio of products and services. The role of chemistry in ecosystems is changing and barriers to entry into specific value chains are decreasing.
To become a leader in the chemical industry, it is increasingly necessary to have the ability to comprehensively optimize customer value chains, work closely with partner networks that often operate in other value chains, and create new business models. In this process, issues such as sustainability need to be addressed.
As a result, the challenges faced by chemical distributors have increased significantly. Business models and the role of distributors between chemical production and users or industry are currently under review.
Over the years, the importance of chemical distribution has been steadily increasing as chemical enterprises gradually focus on core competitiveness and more strategic products and markets.
More and more chemical enterprises have begun to transfer their distribution business to third parties, especially in those markets which are not important from the perspective of a single enterprise, or markets of customers and product groups that are not strategically relevant.
In terms of procurement, many companies also benefit from bundling and outsourcing chemical raw materials to distributors, which reduces their own complexity, improves efficiency, makes them specialized, and increases their attention to strategic procurement categories.
Compared with chemical companies, distributors can provide purchase and distribution, as well as simple value creation of chemical products, which is more effective than a single chemical company by bundling different companies' C product lines.
The agility of distributors in dealing with small, often less strategically relevant suppliers and customers remains an important feature.
The profits of chemical companies come from distributors entering markets and product groups where their products are not of sufficient scale or necessary development level.
Through the use of distributors, chemical enterprises can also reduce the credit risk and cash management of smaller customers, who are usually in a market where the payment process is complex and time-consuming.
For chemical customers, due to strategic relevance, they can understand the quantity and order size of products provided by chemical manufacturers, which they cannot receive (or can only get high price increases). In addition, distributors integrate individual requirements of different chemical products, reducing the complexity of the supply chain and procurement costs.
In addition, chemical distributors often provide c-series products with improved delivery time and reliability, as well as customized or additional services such as quality control, document management, waste management and product technology development support.
At first glance, the competitive environment for chemical distribution is not as stable as that for chemical producers. A number of large companies with a wide range of product and market portfolios, as well as a large number of small, often professional, individual players, are dividing the market into their own. For example, 32 distributors cover 80% of the European market share.
According to the business model, different types of chemical distributors can be distinguished, from specialized in specific industries, products or services, through distributors, to full product line suppliers with a comprehensive portfolio.
