Alternate Supply

As a result of global shortages on several key raw materials over the past few months we have received a large number of calls from new customers looking for product.   In some cases, we are able to help by providing the material that they need immeditaly.  Due to our global supply relationships, we have been very fortunate to be able to get additional product from our suppliers to meet this increased demand.  In other cases, if we don’t have product available, we can recommend an alternate supplier that may in fact have product available. 

In instances where we ourselves are on allocation with our suppliers, we may not have any additional volume to sell.   Our #1 priority has been to take a long-term focus and help loyal customers, even if a new customer is willing to pay a signficant premium.  If a customer has already bought a product from us or our supplier in the past, it is infinitely easier to get them material.  Our suppliers tend to be more amenable to customers that are already “in the system”, as opposed to spot buyers that will never order from us again. 

With this in mind, this climate is an excellent time to approve our products as alternates to your incumbent suppliers.  By giving us a minority supply position, your chances of getting product in the future are greatly improved.  Customers that have multiple approved sources seem to be fairing much better than those that pitted one supplier against another.

Global Supply Chains

With the recent earthquake and subsequent tsunami in Japan, several customers have asked about interruptions that we our experiencing or anticipate experiencing in our supply chain.  Fortunately, thus far we have not had any substantial impacts.  However, we fully expect that there will be secondary effects that we feel in due time. 

We currently have two major suppliers that are headquartered in Japan.  The first, based in Southern Japan, was unaffected as far as personnel and plants.  They did a great job of communicating early and often to us, reviewing their U.S. inventory holdings, shipments in route, as well as reiterated their ability to transfer production to alternate facilities outside of Japan.  Within 36 hours of the earthquake, we had communicated this information to our Sales and Management team for dissemination to our customers.  Since the earthquake, we have continued to communicate with this supplier on a daily basis to obtain updates. 

Our second Japanese supplier, was directly impacted and has experienced signficant production interruptions primarily related to inadequate power supply.  They are putting on hold all material warehoused throughout the world, until they can better understand the length that their production stream will be interrupted.  Fortunately, they too had a large inventory built up in the U.S. and our customers should not experience any supply interruptions. 

Our sourcing model is one that takes us to all corners of the globe.  We continually discuss contingency plans and worst case scenarios, to best plan our business.  However, there are numerous things that occur that cannot be controlled.  By maintaining high levels of inventory, communicating frequently with our customers to make sure they are apprised of the situation, and taking quick action when things outside of our control do occur, we lessen the risk that our customers face.

You can obtain more information about our company at www.marooninc.com

What value can distributors provide?

This is a question that we often get asked, typically by a new or prospective customer.  In the past, many companies felt that they could get a better price by buying direct from a manufacturer.  However, this is often times not the case as the costs incurred by a distributor would be incurred by a manufacturer if they went direct to market. 

Distributors can create the following value for customers:

1. Reduced lead times.  In today’s Just-in-Time manufacturing environment, with significant pressures on cash flow, manufacturers do not want to carry large inventory levels.  Whereas multinational chemical manufacturers often times require 2-4 week lead times or more, distributors can typically deliver in a matter of days or hours.  On an average day, we ship out approximately 35% of the orders that we receive that day.   The only reason that we don’t ship out more is that our customers don’t need same day delivery.  Not having to sit on 4 weeks of inventory brings tangible value to our customers.

2.  Financial flexibility.  As smaller, more flexible entities, distributors often times can provide more flexibility with payment terms.  We can either extend payment terms to our customers, or put in place consignment programs that allow customers to be billed upon usage.  Not many manufacturers are willing to extend terms beyond the standard Net 30 days and if a past due reaches 35 or 40 days, you may risk being put on credit hold.  Coupled with carrying less inventory, these two affects can be significant. 

3.  Global sourcing.  Distributors can reduce the risk for our customers by handling the global sourcing and logistics of key raw materials.  Many of our customers do not have the scale, interest, or internal expertise to import products.  They want to take advantage of lower cost alternate suppliers, but if you only buy 1 pallet per month, it is not feasible to import direct containers.  Distributors can bring in full containers, which we can sell to multiple customers.  This assists small to mid-size producers to compete with competitors that are importing direclty.  

4.  Product Bundling.  Most distributors carry a wide range of complementary products.  Our customers can consolidate their number of suppliers by buying from distributors.  At a minimum, a reduction in freight expense can often times be realized. 

5. Customer Relationships.  Distributors are typically located in a customers geographic region, which allows us to visit with them on a more frequent basis than a global manufacturer.  This allows distributors to foster strong working relationships with the purchasing, operations and technical staffs of our customers.  Our customers often times call us first when formulating or attempting to source a new raw material.  These types of relationships become mutually beneficial. 

The real value of distributors varies for each customer.  By tailoring solutions to our customers specific needs, we can become a valued supply partner.   There is a saying “In the manufacturing business, its all about products.  In the service business, its all about people.”  Successful distributors focus on the customers needs and how they can best meet them.

Learn more information about Maroon Inc. at www.marooninc.com.

Our first post!

Maroon Inc. is pleased to announce that we will begin blogging about various topics related to the specialty chemical distribution business.  As a distributor for more than 30 years, supplying customers in the Paint & Coatings, Plastics, Graphic Arts, Adhesives and Composites Industries, we have a unique perspective on this business. 

Our goal is to provide information that you will find informative and useful in better understanding the dynamics of our markets.  Our business is global in nature and we are impacted by many factors, both micro and macro economic.  We will be addressing topics such as Pricing, Supply Constraints, New Product Developments, Industry Consolidation, etc.

Learn more information about Maroon Inc. at www.marooninc.com

What’s happening with raw material pricing?

The last eighteen months have proved quite volatile for raw material prices.  Despite a general lag in the U.S. economy, several key markets for specialty chemicals have experienced very strong results in 2010.  This is due to a resurgence in the N. American automotive segment, as well as strong exports due to the weak dollar.  Other segments continue to lag, such as residential and commercial construction. 

Several factors have led to rising prices:

1.  Reduced supply.  After a very difficult 2008, several key producers permanently reduced capacity in 2009.  Capacity at chemical plants in not something that can be turned on or off very quickly.  Often times, plants take years to construct and require hundreds of millions of dollars of capital investment.  In the global economic climate that we have experienced over the last few years, not many companies have made the decision to add capacity.  Coupled with recovering demand, prices are bound to rise.  This impact is expected to continue into 2011 as the construction markets begin to recover.  In our opinion, many manufacturers are not eager to increase capacity as they are enjoying the benefits of higher sell prices.  Take a look at the profitability of most multinational chemical companies; many at at or near record levels and sell prices are one of the key drivers of this.    

2. Increased demand.  As demand recovers in N. America, and supply remains tight, prices will continue to be driven up. It will be very telling later this year as the Paint & Coatings season kicks in, to see what impact this has on the overall market demand.  Over the last eighteen months, we have experienced shortages on several raw materials.  Many products still continue to be on allocation today.  This will continue to be a limiting factor for some of our customers if they are unable to get enough product to make their finished goods.

3. Weak $.  Many key chemicals are imported to the U.S. from Asia, Europe, etc.  As the U.S. dollar remains weak, the price of these imports will continue to rise.  Fluctuations with the Japanese, Chinese and EU currencies will continue to directly effect the price of chemicals in the U.S.     

4.  Crude oil.  The price of crude oil continues to rise (over $100/barrel today) and therefore the price of many chemicals will increase as well.  Many resins, solvents, etc. are produced direclty from oil and the more expensive that oil gets, the more expensive that chemicals will get.  There is a snowball effect with the price of oil on plastics, consumer goods, packaging, etc. 

When looking from a historical perspective, price volatility today is at very high levels.  Time will tell what the rest of 2011 will bring, but indications are that prices will not be dropping any time soon. 

As a distributor, in essence stuck in the middle between manufacturers and customers, we are forced to pass on increases as we receive them from our manufacturing partners.  The costs structure and margins that distributors make do not afford us the opportunity to absorb higher costs.  One big problem that we see today is that manufacturers continue to provide less and less lead time on these increases.  In the past, where we may have been able to ramp up our inventory levels to delay passing on increases to customers, this is becoming more and more difficult when we get as little as 7 days notice.

Learn more information about Maroon Inc. at www.marooninc.com