If Dan McGuire and Tom Mueller want to call themselves the founding fathers of plastic resin distribution, they won't get much of an argument. Outside firms just weren't selling prime resin in 1973 when McGuire and Mueller founded General Polymers in Troy, Mich. GP, which became a division of Ashland Chemical Co. in 1983, changed all that. Today, GP handles material from 26 resin makers and distributes more than a billion pounds of resin a year from 21 district warehouses. Mueller has retired, but McGuire, 60, is still calling the shots at GP.
When I worked for Eastman Chemical as a seller in the Detroit office in the 1960s, I wondered why Eastman cared so much about big customers and cared so little about small customers. That's not a knock on Eastman; I found out all raw material suppliers were the same way. But when I worked for Thermofil, which was a compounder, I became one of the customers.
We were very small, our credit wasn't very good, we were struggling to grow and nobody called on us. We got very lucky and were in the right place at the right time with reinforced polypropylene — talc and glass and, back then, asbestos — which all experienced huge growth in under-the-hood applications.
We then became large buyers of plastic in bulk rail cars and everybody in the world started calling on us. That bothered me at the time, but I wasn't able to put it all together.
Then in 1972, Dow Chemical announced that it would serve only customers that bought 40,000 pounds of a single product. That was almost the turning point in my assessment, in that there's a void out there somewhere and people weren't going to take care of small to medium-size processors.
When I was at Eastman, I dealt with a lot of small processors in Michigan, Ohio and Indiana. When I was at Thermofil, we served a lot of small processors and also original equipment manufacturers, since automotive was by far our biggest market.
I had begun to put the picture together of what was missing — that as the chemical companies built bigger and bigger world-scale plants, they didn't have time for the thousands of mom-and-pop shops. So, along with a partner, I left Thermofil and started General Polymers in 1973 for the explicit purpose of being a distributor, not a broker or reseller.
We weren't the first broker or reseller, but we were the first to handle prime virgin products and to represent the supplier as an extension of its sales force. Our big challenge was to convince suppliers to let us represent them and use their names.
Our second big challenge was to convince customers that it was OK to buy from us. In other words, if Dow would sell material to us in a Dow bag and we could give the customer a letter of certification saying it was Dow formula so-and-so, that's OK. You're still getting all the support a major chemical company can give you. Unfortunately, a large percentage of brokers and resellers had a bad reputation. It was almost: ``Buyer beware. I'll sell you something a nickel a pound below the going price, but if it doesn't work, that's tough, you bought it.'' I always hated that.
Suppliers sold what we refer to as pencil-down prime as well as off-grade, wide-spec, floor sweeps and all the different grades, but they never did think they had an organization they could trust that would represent prime, virgin, certified product in an appropriate manner. So we had to sell that, which took a little time, until we were able to convince them we worked for them and they made all the rules.
Then we made what was probably the single-best decision we ever made in our lives in the business world.
The strength of brokers and resellers is their customers. The supplier doesn't know who the broker's customers are, so the supplier doesn't have an easy way to get to them. But that also builds distrust, because the supplier is king and he's the one making the product and giving it to you at a competitive price — or not — depending on how comfortable he is.
Our decision when we formed General Polymers was that on a monthly basis we would provide suppliers with a list of every sale of every product to every customer by name.
If you're a broker, that's like giving the keys to the fox before going into the henhouse. But in our case we didn't want the fox in the henhouse, we wanted both of us to go in the henhouse together. Now they could start looking at us as an extension of their sales force and we've never changed that. It's a little better today than when I would write it out longhand, but we still do the same thing.
In general, all processors who buy in bulk rail cars shouldn't buy from distributors. The producer's going to ship the product straight to them. There's no just-in-time advantage and very little technical advantage.
But if you're a processor buying packaged goods and you buy a multiplicity of products, that's where we can bring value.
I don't believe very many small-to-medium-size processors focus a lot of attention on buying from prime suppliers. They have a multitude of good distributors to choose from and, if they're wanting to get a competitive situation started for a lower price, they do it between distributors rather than try to get Dow to fight Carbide or somebody.
Today there are three national distributors in the U.S. or North America. In the next five to 10 years there are probably going to be one or two or three others. It wouldn't surprise me if some foreign somebody — whether it's the Saudis or Japanese or somebody — wants to own a distributor in North America that could handle nothing but imported-type commodities.
Can and will medium-size distributors go national? I think we'll see that as being very limited, based on who owns them and who has the assets. To go regional, you need a small amount of assets and a reasonable amount of borrowing power. But to go national, you have to have lots of supplier strength and lots of financial strength, and most regional distributors don't have that.
Can they, over a period of time, get it? Well, one way to get it is to consolidate. I think we'll see consolidation among some regional distributors developing into national distributors, more so than seeing regionals going national themselves over the next five years.
Generally speaking, in commodities, when we started, customers who bought 40,000 pounds or more a month belonged to the supplier, and anybody who bought less-than-truck amounts, regardless of how it was packaged — bags, boxes, even drums, back then — could be managed by the distributor. In engineering materials, that number was 10,000 pounds. Almost every year, or couple of years, that amount has gone up and up and up.
Today, that number varies depending on what products and what circumstances we're talking about, but that 40,000 a month for commodities — about 500,000 pounds a year — is [now] around 2 million pounds a year. For engineering materials, it's about 500,000 pounds a year.
Many of our commodities suppliers are saying that number should be around 4 million or 5 million. We have two suppliers that say they don't want to call on acounts that are less than 20 million. So it's a question of who's going to manage this as it continues to grow. That's why I'm still so excited about the plastics industry and the future of plastics distribution.