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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.
Tailspin is always from a supplier side that is viewed. That 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?
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 superregional 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. I have talked to a smaller company and they said when Univar and Nexeo combined, one of their concerns was their two biggest suppliers are 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.
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 documents. We are working on putting something out later in 2021. We call it an Omni Portal. It's going to provide what our customers are asking for, what I listed out. We will also build in the eCommerce capability. I'm not naive to think if I will say when that becomes important. There are some challenges with that in the specialty space with principals. It stands to reason. It is another channel on the market. You are going to grow sales with an eCommerce platform beyond what you have.
In terms of the specialty space, the value we provide, the ship of a bag, the ship of a pail, a couple of drums, you still have the logistics piece. The manufacturing world is not set up with Amazon warehouses all over the country to address that. That is one challenge. In a lot of these platforms, there are 3 or 4 different models. They are open price models. If you are a specialty chemical manufacturer and you want to head down the path of eCommerce, you run the risk of driving market pricing down to the lowest common denominator. If you go out and you see the money that principals, manufacturers in the specialty space spend in R&D, you will start to say, "Do we want to take all that equity that we built into some neat stuff and find it being driven down?" You have got that. It will be figured out that much I'm sure.
One of the things that people across the industry rely on is that there is differentiation whether it would be of product, service, information. That is one of the things that allows you to drive some pricing differences. It allows you to have that cost competitiveness. Your discussion of that as an open model seems more difficult. Particularly when you are dealing with a lot of chemical products that have some inherent, underlying risk hazards. You need to understand how you are handling it. You need to make sure it's going to an appropriate end-user that knows how to use the product. There are still a lot of boundary conditions around an actual sale. On the flip side, having more information about your historical orders and invoices. Who doesn't want that? We are used to that on a personal basis. Log into whatever account it might be whether it's Amazon, Target or another store. You can see what you've done in your purchase history and understand that. There is a lot of value there.
There is one component on the customer side worth mentioning too. In the specialty space, the products are problem-solving products. Although there are certain products that we sell that cater to eCommerce, they could easily be bought that way. Customers are looking for a channel to buy the product but also to help them solve technical problems. That is probably another area. An eCommerce platform is straight transactional, "I can buy this product." There is still a lot of work to be done working with the R&D community to choose the right product in the first place when it comes down to it.
It is a technical product that needs to be formulated and supplied. It needs to be used. You need to help them with that. When I have talked to some other folks, they say their younger employees, in particular, are expecting this. Do you see this as a generational thing that will start driving it? Is it more an overall trend because of our human behaviors and what we are used to in our personal lives?
I caught myself short of saying if and when. It is going to be a part of a multichannel strategy to market for both manufacturers and distributors. There are distributors that either have their own or are engaged in public eCommerce platforms. It is not foreign to the distribution world. You made a great point. We have seen it purely in the manner in which we sell. There is a generational aspect of, "If I can stay behind the box or use my phone, great." You cannot ignore it. For somebody that has been doing this for years, you can't stick your head in the sand and say, "That will never work." It's common. The challenge will be figuring out how to fold it in and make a complimentary to direct outside sales, inside sales.
What about sustainability? Sustainability is one of these trends that got a lot of legs. It has been around for a long time. We are seeing an increasing interest certainly. The United Nations had made some declarations around sustainability. The Biden administration was seeing more activity, talk about sustainability and environmentalism. How do you see that playing out for you in distribution? What is the role of sustainability? How you go to market or how you engage across your business?
There are a couple of aspects of sustainability in distribution. There is what the conventional piece that people think of. In distribution, maybe not so much that the largest global players who may also be in addition to distributing goods, maybe have some of their toll manufacturing blendings. They have got a little more exposure. For us, we don't make anything. It's like, "What does that mean to a company like ours or peers of ours?" At a minimum, it influences who we partner with on the principal and the customer side. Making sure that we are partnering with companies that are forward-thinking as it relates to sustainability, number one, same with our 3PL partners.
We are a company that doesn't own any of our warehouses or trucks. We have the supply chain competency but we outsource the actual logistics piece. It comes into play when we are working with interviewing, selecting 3PL partners. How are they handling chemicals? How are they disposing of chemicals? What you will see too, not just in distribution, is sustainability as a member of society or a member of the community as a chemical distributor. Core values, community engagement, diversity inclusion have become a priority. There is this sustainable when you think of it whether it's circular, plastics, the more chemistry side of what people think of when they think sustainable. There is a non-chemical socio-economical aspect of sustainability that is gaining momentum within the distribution.
Those are key elements that people look at when they talk about sustainability. It is beyond the item and use. It's the relationship to its constituents. It's the DNI aspects of it. It's a variety of things. That is all good. What do you see playing out over the next years in distribution? You alluded to maybe some more consolidation, perhaps. What else do you see coming ahead for either Palmer Holland or the industry in general?
I see merger and acquisition activity to continue at all levels, strategic, financial. Private equity will emerge more. I have seen some deals with some notable private equity firms that might have played more in the manufacturing space or even the customer space like customers. They are entering distribution. We have talked about sustainability, digitalization and the supply piece. It’s one thing that I believe to an extent to resolve the pandemic. We are seeing it in our world as probably something more so. Over the years, there is a lot of offshore competition and it's a good competition. There are quality products from primarily Asia that had tended to have a lower cost position. They have been pretty competitive. Tariffs notwithstanding.
With what has happened both with the pandemic and what is going on with global supply chain constraints, it's not probably being quite as dependent. The customer base on those products may be bringing back a portion of the spending to the Western Hemisphere where the supply chains are shorter. Maybe there is a little more confidence in getting the product from point A to point B. You will see a little bit of a drift back in that direction over the next years. Moving forward, the companies in our space all excel on the sales side. They all excel on the logistics side. Short of eCommerce and digitization in an area where companies will begin to set themselves apart is more so on the marketing side.
What does that look like to you?
It’s maybe where that responsibility historically has fallen to the manufacturer, commercial insight, thought leadership, market trends. We are seeing principals and customers alike looking more and more to distribution to provide that type of information and guidance in the marketplace, which is fun. It's a little bit different and an area for us to grow.
On the flip side, let's talk about what you do for fun, Ron. Do you have time for fun especially in these crazy months that we've seen? What do you do when you step outside of the office?
If you ask anybody I work with, they will tell you I work but that is not true. I love to fish. I love to boat. Anything on, in, around water, you can convince me to partake, which is a lot of fun. You have talked about your dogs. We have three dogs. I enjoy spending time playing with the dogs out in the yard. It sounds maybe a little boring. I am spending time with family, friends and neighbors. I like to travel. I have had the opportunity to do a lot of travel with work over the years. 2020 brought that to a screeching halt. I am looking forward to getting back to do a little more traveling because I do enjoy that. Finally, I have a high school junior at home who is going to be a senior shortly. That is starting to consume outside time. It's exciting. We are all looking for colleges.
Ron, thank you so much for your time. I have enjoyed speaking with you. I know that people are going to be delighted to know about your perspectives on the chemical industry and distribution. Thanks for joining.
It was my pleasure. I am glad that I have had the opportunity. I have been reading your blog posts. They are great. I love the exposure that the chemical industry is getting by way of what you are doing. If I or any of my colleagues can ever be of help on something like this in the future, just say the word.
How can people find you or Palmer Holland?
There are a couple of ways. One is our website, www.PalmerHolland.com. Not only can it get you to Palmer but it can get you to me personally. My contact information is out there. I would like to think we do a pretty good job on the social media front as a company and personally. We have LinkedIn, Twitter, Facebook profiles. It's pretty easy to find us.
About Ronald Zmich
Ron currently serves as Vice President – CASE for Palmer Holland, Inc., a North American specialty chemical and ingredient distributor of raw materials headquartered in Cleveland, Ohio.
He has worked in the chemical industry his entire 25+ year career, getting his start with Air Products & Chemicals, working in both supply chain and sales across their Specialty Additives and Epoxy Additives businesses respectively. Subsequently, Ron held sales and sales management positions at Sauereisen, Inc. (Pittsburgh, PA) and GMZ, inc. (now part of Azelis Americas, LLC – Stamford, CT) before joining Palmer Holland.
Prior to his current role, Ron served as both Vice President of Marketing and Vice President of Sales for Palmer Holland. He holds a B.S. in Chemical Engineering from Carnegie Mellon University (Pittsburgh, PA), with concentrations in both Polymer Science and Economics. He and his family reside in Northeast Ohio.
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