Distributors selling to the chemical industry have to work harder than ever on service, technology and cost-reduction strategies to maintain or grow business with those customers. This is especially true for distributors looking for national account business with some of the industry's largest companies.

In many ways, the chemical industry is a microcosm of the larger industrial supply channel, where customers' demand for streamlined business practices and value-added service have changed the way distributors go to market. Large chemical companies are no exception to this rule, with their moves toward centralized purchasing, vendor consolidation and inventory management programs. In the past five years, these issues have changed the business landscape for many distributors.

"Supply chain management has become a key criterion for any company in industrial distribution that wants to be successful," says Patrick M. Visintainer, senior vice president of sales for Airgas, Inc. "We really try to sell a process to these larger customers in the chemical market that helps them manage their supply chain and use our products more effectively in their applications."

Airgas is a distributor of industrial gas, welding and safety supplies and the chemical industry represents one of its largest customer segments. While Airgas sells to chemical firms of all sizes, large companies represent a unique opportunity to build its national account business with an end-user that requires all of its products and services.

For example, gases are used in every phase of a chemical plant's operation: monitoring and analyzing raw materials, processing, maintenance, monitoring emissions in the plant, and analyzing the finished product. In addition, welding products and safety supplies are a vital part of the MRO equation. Hand in hand with those products go services like product and applications expertise, materials management, safety audits and Airgas' ability to service a customer's multiple locations nationwide. Airgas has 800 locations across the country.

In this effort, Airgas considers itself an integrated distribution network. Essentially, the company is a source for three product groups — gases, welding products and safety supplies — and can manage the supply of those products from the time they are ordered up until they're used. This enables the customer to concentrate on the product he's producing, says Visintainer.

That's a common approach to working with other large end-users, to be sure. With chemical customers, though, distributors like Airgas perform a vital service by overseeing the safety aspects of the products they supply and the processes for which they are used.

"Each of our three product lines requires some expertise to use them effectively. We have proven supply chain processes that help customers manage that part of the supply chain," says Visintainer. "As you do that, you reduce their safety liability and you allow them to have fewer employees that need to worry about managing those products on site.

"We document that value and make sure that they understand that it's not our business to just sell them gas. It's our business to help them improve their bottom line."

One way customers have tried to improve the bottom line is by reducing their supplier base. Naturally, the trend has caused distributors to compete even harder with each other for business. It's also led many customers in search of integrated suppliers, distributors that can provide them with most or all of the MRO products they need.

Sixty-three percent of distributors say their customers are reducing their supplier base, according to Industrial Distribution's 56th Annual Survey of Distributor Operations . The survey was conducted earlier this year among over 500 distributor owners and managers. On average, the group said customers are reducing their supplier base by 25 percent.

Visintainer agrees, but says vendor reduction no longer means trying to reduce all vendors down to one. He says chemical companies, among others, are taking a more strategic approach to the issue. He calls it focused vendor management, which means the customer will rationalize products into groups and partner with different suppliers to manage each grouping. A customer may contract with one distributor for safety supplies, for instance, and with another for industrial hose and accessories. In other cases, an integrator may enlist the services of a specialty company to manage some of the product groups.

"Focused vendor management is something that is more prevalent and probably more practical," says Visintainer. "Rather than going from 50 vendors to one, it may make better sense to go from 50 vendors to eight, if those eight specialized suppliers can help you achieve the right economies of scale."

While it may be changing, the trend toward supplier reduction will continue nonetheless, says Colby Forrester of Red Man Pipe & Supply Co. Forrester is manager of sales development and alliances for Red Man, a Tulsa, Okla.-based distributor of pipe, valves and fittings.

Red Man sells PVF products to customers in the energy, pulp & paper and industrial markets. Three acquisitions since 1995 have helped grow its industrial division, which represents roughly half of its overall business. This effort includes a push to supply large chemical customers, especially the petrochemical segment. Red Man operates in 14 states and uses its geographic reach, product mix and service offering to compete for the chemical industry's hard-to-get business.

The trend towards supplier reduction has caused Red Man to focus on its service offerings and supply chain strategies. Among the company's main goals are: To be the highest service level supplier at the lowest cost of operation and to use innovation, creativity and flexibility to service its end-users, says Forrester.

Technology has played a leading role in those efforts. For instance, the company is testing its Red Man Online e-procurement system with select customers and plans to roll it out to the general population by the end of the third quarter. The e-procurement program is the third element in a three-pronged approach to supply chain management. The first was EDI, which is available for all customers, and the second was a formal materials management program, also available now. Red Man Online integrates materials management with online shopping and ordering to help streamline the procurement and management of PVF products in the plant.

"We've targeted the industrial market, particularly chemicals and refining [customers], as one to take off with," Forrester says, explaining that many of those customers have the systems in place to handle such high-tech efforts. Similar to the situation with Airgas, Red Man's entire product mix matches up well with chemical customers, another reason to start there.

"When you look at the PVF commodity group ... chemical plants have piping systems that deteriorate fast because of the chemicals being used. So the same products are being used over and over again," Forrester says. "We're really gearing up as far as inventory, people and resources to service the industrial, refining and chemical customers."

Technology has made that goal much easier, Forrester adds, because "we're finding ways to integrate systems that were never before possible."

Technology will continue to play an important role in managing the supply chain, says Forrester, as will a company's ability to leverage its products and services to targeted customers. Both approaches help take costs out of the channel — for customers in the chemical industry and beyond.