Logistics & Supply Chain

Distribution 2.0

How the Chemical Distribution Industry Continues to Evolve

19.06.2013 -

When trying to assess changes within the chemical distribution market, one can outline and distinguish three central issues: business setup, adaptability and regional structure.

Business Setup
The original one-size-fits-all concept has become an outdated business model. Well into the 1990s it was commonplace for both producers and distributors of chemicals to act as generalists. The European production landscape at the time was dominated by about a dozen large-scale producers, with a product portfolio spanning a major stretch of the chemical value chain; from oil and gas, basics and specialty chemicals, to pharmaceuticals and even into consumer products such as magnetic tapes - monoliths such as BASF, Bayer, DuPont or Hoechst come to mind.
In regard to distributors, the market consisted of a rather homogeneous, well-established group of players; their respective portfolios consisted of a range of standard products used in various applications. The distributors at the time were rather undefined in their core product offerings, opportunistically incorporating any number of new products from producers into their portfolio. This more often than not led to a confusing piecemeal without a clear direction.
Twenty years onward, both the producer and distributor landscapes have changed considerably. Issues such as volume shifts, diverging levels of technical assistance, stringent storage conditions for products into many industries, the need for product testing and sampling, and other individual services heightened the level of complexity, forcing a concentration of activities. Furthermore, new market entrants (both producers and distributors), with exceeding performance in one core competency, have also made a generalist approach less practicable. A general observation of both producers and distributors is that they have streamlined their activities considerably.
On the whole, producers and distributors that offer a clearly defined set of complementary products and services are superseding the original generalist with a wide-ranging product portfolio, reducing complexity and unnecessary costs and simultaneously increasing service and customization aspects. Focus is the name of the game.

Adaptability is a Key to Success
Until recently, many distributors enjoyed "historically grown" long-term relationships with their suppliers, with or without formal agreements. Many of these connections were built on long-lasting friendships. While the perpetual motion of these activities undoubtedly makes life easy for principals as well as their distributors, these preordained agreements can also lead to complacency.
Today it is much more common for suppliers to end long-term agreements with their distributors in order to do business with another distributor, perceived to be more suitable for their strategic goals and regional endeavors. There is nothing to be said against this, provided expectations and performance assessments are clearly communicated. Distributors must learn to accept this paradigm shift and should make sure they do not take things for granted. Constant communication with the principals on all levels of the respective organizations is more crucial than ever.

Regional Structure
The regional scope of activities must be wider. In the past it was common for the majority of distributors (and some producers) to remain within their respective geographical region. In case a distributor was active in more countries, business was predominantly conducted through a head office location (the famous German "Stammhaus"), utilizing subsidiaries in extreme cases as sort of translators and local representatives. The same can be said for producers using local distributors more for overcoming linguistic, operational or legal barriers than for projection of their general business philosophy and marketing strategy.
This approach has become somewhat outdated, as the requirements of, and the understanding for, the customers have advanced considerably. Both producers and distributors have come to the understanding that the international markets are just too heterogeneous to cater to them in a uniform way. A closer look suggests that the state of any given national or regional economy greatly influences parameters such as the product portfolio, logistics (including delivery terms), level of technical service offered, financing alternatives, market research and regulatory compliance.
Depending on the maturity of a given sales region (country), the services offered by distributors vary significantly. During the first phase of a market's development, a country slowly opens itself to international trade. Here the focus lies on simply making products available, mainly through imports. Many aspects of the business can be described as opportunistic, as regulation is often still very basic.
As the market matures, many moves become more focused and strategic. Customers become increasingly demanding, international standards with regard to SHE (Safety, Health and Environment) are prescribed and subsequently policed. Countries such as Brazil, China or Turkey come to mind as they managed to develop their markets with high growth rates and have evolved toward being the current and future big players on the global scale.
In more saturated markets, differentiation becomes essential. Certain service elements, such as application-specific laboratories, are added, while other tasks are outsourced or bundled off to specialists, particularly related to logistics.
To minimize complexity and the necessity for more than a few intermediaries at the maximum, suppliers search for partners with a broad international setup that can simultaneously cater to regional or application industry-specific needs.
These regional and industrial differences have led to an increased importance of distributors as an intermediary, not only from the perspective of producers but also from customers in regard to the services rendered. Intermediaries in turn thrive by bundling the distribution rights for various producers.
While it is still true that producers can predominantly cater to their key accounts directly, the strength of local distributors is that they can meet the individual needs, requirements and demands of a given population of small and medium-sized customers. These encompass issues such as warehousing and small-volume logistics to ensure product availability, just-in-time deliveries and market penetration. Other important aspects in the supplier-distributor relationship are active communication, regular reporting and the minimization of financial risk resulting from the regional proximity of distributors to their customers and diligent debtor monitoring. Strong, professional and well-managed distributors make up a good "credit risk" from the perspective of suppliers.
Distributors have noticed that the regional coverage in combination with detailed market/industry knowledge has increasingly become a make-or-break issue in regard to obtaining the distribution contract from suppliers and the business order from customers. As vital as this characteristic is, only Brenntag comes to mind as being a truly global player. Others such as Univar, IMCD or Azelis are also significant in size, but still have to make up for partial continental or regional underrepresentation.
This has led many distributors to increase the velocity of international or even transcontinental acquisitions, despite this being a risky undertaking. Attractive targets have already been purchased or are simply not for sale, and price expectations can be out of touch with reality. Not only has this expansion route become increasingly costly and time-consuming but also very unpredictable in its outcome. Others have found it easier to just open a subsidiary in the respective region.

These developments have redefined the landscape in which we now find ourselves and operate. Companies have to learn to adapt, but the transformation is a substantial task and one that must be done with patience, perseverance and persistence. Family-owned and managed companies, such as the Ter Group, enjoy being able to make strategic decisions when opportunities arise and long-term investments are seen for what they are - namely a further milestone toward guaranteeing the longevity of the company for future generations. This strategic mindset, coupled with the foresight of the Ter Group employees, has enabled us to adequately focus, streamline and augment our scope of activities within Europe. Through investments in subsidiaries, testing facilities and warehousing capabilities, we pride ourselves in offering our suppliers and customers a comprehensive portfolio of expertise and in-depth support capabilities.


Ter Hell & Co. GmbH

Börsenbrücke 2
20457 Hamburg

+49 40 300501 0
+49 40 335050