An Inside Look Into The Chemical Distribution Space With Ronald Zmich

Updated: Jul 16

TCSP Ronald | Chemical Distribution

Chemical distribution is a wholly unique space within the chemical industry as a whole. Ronald Zmich has been working in this space for over 25 years. He is the Vice President of CASE at Palmer Holland, which is a specialty chemical and ingredient distributor of raw materials based in Cleveland, Ohio. Join your host, Victoria Meyer and her guest, Ronald Zmich as they talk about all things chemical distribution. Learn how the chemical industry was affected by COVID-19, how eCommerce is changing things, and how big of a role environmental sustainability plays in the chemical industry.


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An Inside Look Into The Chemical Distribution Space With Ronald Zmich

I'm delighted to have with me Ron Zmich from Palmer Holland. He's the VP of CASE at Palmer Holland, which is an American specialty chemical distributor. Ron has been in the industry for many years. We are going to have a great conversation about distribution, chemicals and all the things that go with it. Ron, welcome to the show.

Thanks, Victoria. I appreciate the invitation. We are going to have a lot of fun. I am looking forward to the discussion.

Tell us a little bit about Palmer Holland.

We are a North American chemical distributor. We are based in Cleveland, Ohio. We have been around since 1925, founded in Cleveland. Specialty chemicals and fine ingredients are our focus. We sell into five major market segments. We are aligned with five businesses. CASE is the business in which I work. We have plastics, lubricants, health and nutrition and an agricultural business. We are a conventional distributor. Logistic is our core competency. We are as much a sales and marketing organization as we are a logistics provider.

What is the role of distribution in the chemical industry? It plays a big role and yet sometimes people don't fully understand how it fits. How would you describe that?

In the most general sense, we bring the manufacturer, which we would call principals and the consumer sector or customers together across a segment of the market that otherwise might be difficult to make that connection because of resources on either side of us and then their reach. We get to a fairly large segment of the market on our principal's behalf. They ordinarily wouldn't be able to get there with their own direct sales staff. We serve as a spring in the supply chain both from a pure product logistics perspective and maybe from a financial or a terms perspective. Companies in our space can be a little more flexible, nimbler and offer some services to the market that the manufacturers can offer on a direct basis.

Having a channel partner such as Palmer Holland tends to feature heavily in chemical producers' go-to-market strategies. They see that you solve some different issues. Why do customers and producers come to you? What problems are you solving? How are you fitting into that landscape?

I will take that into two parts. On the principal, the supplier side, we reach a segment of the market that they are not able to get to and with that comes visibility. They are operating with these large global companies in our space or any space for that matter. They are certainly getting that view of the market. We bring additional views, some that augment and some that are different. We get into some niche segments that perhaps they don't get into. It's market visibility, reach. With the types of accounts and the number that we call on in service, we tend to get innovation traction quickly, smaller companies, nimbler.

As new products come out from our principals, we tend to get them introduced quickly and probably as importantly get feedback to our supply base as to what we're seeing. The overall service aspect of it is that they are not reached from a sales support perspective and on the logistics side, managing not only LTL quantities but sometimes less than pallet quantities, a couple of bags here, a pail there. It's something that a distributor does a little bit better than the manufacturer. Finally, there's a working capital aspect primarily based on an inventory and resources that we can afford. On the customer side, it's similar. I talked about the technology traction.

We are talking about customers in some cases that might struggle to know what's the latest and greatest out there for coating or adhesive. We afford them a channel to learn. Certainly supply simplification, a buzzword is tailspin. With many customers, there is this portion of the raw material spend. They buy them because they have always bought them. Being able to step in and help and manage that. It’s the primary area where we are bringing value to our principal partners and our customers.

Managing the tail something that suppliers often focus on. This is an area that distribution can help support. Customers get into the smaller purchase quantities. It sounds like from a customer perspective as well.

There has been a lot of changes in distribution. We have seen a lot of consolidation. There seems to be more activity in private equity. What do you see? You have been in the distribution game for several years. How has it changed in that time?

When serving any customer, communication is key.

Having worked for a big chemical manufacturer, I also worked for a customer and with a distributor. I have been around distribution for my entire career. When I first started, you had a regional model, particularly for specialty in the United States. You might have 8, 10, 12 different distributors with defined geographies representing a given manufacturer. What drove consolidation was consolidation on both sides of us predominantly on the customer side. As the distributor's piece of the pie got smaller, as traditional distribution accounts got acquired by direct customers, you had to figure out, “What do we need to do to back that up?”

You started to see regionals extend their reach geographically. You also saw principals look to try and do more with less. They couldn't manage that number of partners. You saw the consolidation from a regional play to a super-regional play a better part several years ago. Over the last few years, they have pushed in the specialty space to more and more of a national player, with several players extending across the US. There have been 109 M&A transactions since 2010 in the specialty chemical space. You mentioned private equity. That's one model. We continue to see more and more private equity in our world. Historically, they spent more time looking at manufacturers and even customers. Distribution seems to be becoming sexy.

The consolidation is evident. It is something that, for the next several years, I don't expect to slow down. What it has resulted in are a few things. We are starting to see more offshore sources coming to the US both from Europe and Asia. There are two reasons. One is with a model that didn't exist several years ago. If you're a European chemical company, an Asian chemical company that would like to get into the US market but you don't want to set up infrastructure and make that type of investment. At the same time, from across the pond or thousands of miles, you don't want to manage multiple partners. There wasn't an option. Now there are options.

You are starting to see longstanding, reputable chemical manufacturers that never had a channel coming to the US conversationally because of the consolidation. It's like musical chairs. Unfortunately, if a supplier was once working with 4, 5, 6 distributors and they consolidate down with one partner, there are 3, 4, 5 companies that no longer had that chemistry but they have got tremendous tribal knowledge. Seeking similar chemistry offshore has been something that has picked up as well.

I think more about the US producing, exporting and trying to move their products to other geographies. The US is an attractive market still for many companies and wanting to bring their product in. It sounds like distribution has an opportunity to help with the globalization of the markets.

A small chemical company I've spoken with said that when Univar and Nexeo combined, one of their concerns was their two biggest suppliers became one. Trying to create diversity in their supply base is challenging with all these consolidations. From your perspective, there are both opportunities as well as challenges when that consolidation starts occurring.

It's almost with everything we do in distribution. There is a principal aspect of it and a customer aspect of it. The point you raised is the case. With the consolidation, Univar and Nexeo, that was a biggie. I make it a habit in my role to keep tabs on the competition and the what-ifs. I didn't see that one coming. That was a big one. With the consolidation, not just Univar and Nexeo but any number of others that have happened, there are fewer choices for customers as it relates to supply. They are looking to diversify. It validates what you were saying.

2020, 2021 has been crazy. 2020 was supposed to be an amazing year then the pandemic hit. It completely disrupted everything going on in life as we know it. The chemical industry across the board started looking solid coming into 2021. The Texas freeze hit. There has been a lot of ups and downs. How have you seen the markets?

I remember the day. It was March 19th, 2020. I remember sending an email to a colleague. I signed it. It's something like December 100, 2020 has come to an end. The pandemic affected our business predominantly on the customer side. The good news is for us in our industry, not just CASE but the other businesses here at Palmer Holland, virtually everybody was declared essential. With only a few exceptions, our customers stayed open. They were making products and buying at a lesser rate. When you make a habit as an organization, we are technical salespeople. The audience that we sell to are formulators, chemists, the R&D community. When you sit with the R&D community home, it's awfully hard to get anything new going.

We had to get through that period. Gradually our customers managed to get back into their space. A large portion of our customers is not allowing you as a salesperson to see them. They are back in the lab. That's good. We have become accustomed to this type of meeting. It is still different. It is still adapting to a way of selling that we would have never thought we would have had to do. Driving customers to begin to look at new products, to innovate again when it was a pretty scary time in 2020. It was like, "Keep the lights on. Make what we make. Don't worry about getting too crazy introducing anything new." We are starting to see that high turn. We are starting to see the innovation pick back up. That is what I would say about the pandemic. It was probably more customer affecting than it was supply side.

It's interesting that the innovation stalled. We saw aspects of innovation needed because supply chains were disrupted. There is an element of you go back to your known entities. You are not necessarily looking to make a change when you are in an uncertain period of time. If R&D is not in the lab, not able to take on the same activities that they were. You can't create new formulations. You can't innovate the same way that you might have otherwise.

You brought up a good point as it relates to the supply chain or supply shortages that might drive innovation. Fast forward to 2021, some of this started to surface in late 2020 due to a strong rebound in demand. Supply chain constraints due to the pandemic in the sense that what became a priority, getting masks shipped, getting vaccines shipped, getting medical supplies shipped. It put some constraints on. Winter Storm Uri exponentially made what was already coming into the year were some headwinds on supply shortages and supply chain constraints exponentially multiplied them. I look at three components in terms of what we are dealing with, supply shortages, supply chain constraints widely publicized, poor congestions, no place on ships, no truck drivers and then price increases. With each one of those three, I don't know that I have ever seen any of them as the higher as they have been. We are seeing some optimism. If we go back to February, March of 2020, I have never seen it as bad as it was with any single one of them. They all happened at the same time. It has been a completely different kind of stress in 2021 coming out of the winter storm.

How do you navigate that? You are in a unique spot in the market. There is always a tension I have found that exists between the principals, distributors and customers. When you are in a supply shortage, the dilemma is always which customer do you serve? In many cases, your suppliers, the principals have some incentives to want to serve their direct customers and yet you fulfill a critical role in the supply chain. Your customers need you to support them. You need your suppliers to support you. Has that been a problem? How do you navigate that? What is the key to navigating that?

It's communication. We have an incredible portfolio of partners on the supplier side. A short of the direst of circumstances where they truly forced matured declaration. It's a math problem. This is how much you are going to get based on historical purchases. We are partnering with some companies that are great. We are going to figure this out. It's probably going to be day by day, week by week thing. On the one hand, maybe we can't give you the visibility that you would like where maybe if we made it a straight math problem, we might make it easier. We are doing that in the spirit of being able to try and get you as much as we possibly can. By extension, we take the same approach internally. We are not a, "Slice it. Sorry. You didn't buy enough so you don't get any."

It's a lot of work rolling the sleeves up. Communication lines are open. Trying to keep what is in the best interests of the customers as well as what is in the best interest of our company front of mind as crazy as it sounds as we try to work through these supply shortages. As a leader of a team and a leader of the sales organization, saying, “No new customers.” Our supply situation may not allow us to take any new customers on but making sure that we are staying connected with the customer base, understanding their needs, where the competition is at too. The silver lining or consolation with what we are dealing with is everybody is dealing with it.

TCSP Ronald | Chemical Distribution
Chemical Distribution: Companies during the pandemic were not looking to innovate, the focus was keeping the lights on.

The chemical industry has been a very relationship-oriented business. I would imagine distribution even more so in some ways because of the variety of customers that you have and the multiplicity of relationships that you have. One of the big trends across the chemical industry is digitization. You have mentioned to me the rising role of eCommerce. Digitization and eCommerce in the chemical industry have been perceived perhaps as threatening to relationships and some of the traditional relationships. How has that played out for you?

As smart as I'm going to sound, our CIO is going to crucify me probably with this answer. As a distributor, we have been ahead of the curve with digitization and the study of eCommerce. eCommerce is like, "That is the channel that we provide you. What do you mean?" Let me take them into steps. Digitization is where we have made a tremendous investment in actuality versus what we can learn. The idea of taking data and analog, putting it in digital form, how do you leverage that? How do you bring value to both customers and suppliers alike? The pandemic catalyzed what we were doing. We had any number of projects or initiatives underway. The pandemic hit, sent everybody home, lockdown, can't see one another. Internally whether it was accounting, customer service, marketing, we fast-forwarded a lot of what we were doing digitally to push content out to customers and suppliers alike. It’s also to streamline and make more efficient the way that we are doing things internally whether we are in the office or not in the office.

Is it digitizing some of your core processes to make them more streamlined?

There are a lot of tools out there. I give credit to our IT/marketing team. Not only do they evaluate any number of tools but they are quick to get to the fail. If it's going to work, great. If it's not, learn from it and let's move on. It's not bringing value. To get into digital for the sake of getting into digital, if it's not going to show appreciable value then what's the point. eCommerce is another bag altogether. eCommerce is making progress in distribution but slowly. Maybe gaining more traction in the commodity space where price, volume, availability plays a much larger role in the specialty space is going to be slow to adopt.

We are finding that not that our customers would not appreciate eCommerce but what they are looking for is more of a portal approach. It’s perhaps more important than being able to place an order online, getting access to existing orders, invoices, tracking information and technical docum