Inside the Raw Materials Industry
Why do raw material prices seem to be continually increasing? When are all clay suppliers going to offer online purchasing and order tracking capabilities? When is someone going to develop the perfect blend for my manufacturing process? Do my suppliers really have my plant's best interests at heart, or are they just looking to make a quick profit?
To find the answers to these and other commonly asked questions, Ceramic Industry decided to go straight to the source-the raw material suppliers themselves. Their responses provide some key insights into the challenges and economic trends being faced by the ceramic industry as a whole, as well as some of the steps suppliers are taking to ensure that they can continue to provide a high level of quality and service to their customers. From increased production efficiencies to customized material solutions and innovative sourcing strategies, today's clay suppliers are positioning themselves and the industries they serve for the best possible success.
Manufacturing TrendsOver the past decade, an increasing number of sanitaryware plants have been moved to lower-labor-cost regions, and U.S. tile producers have lost a significant amount of market share to imports. A greater demand for porcellanato tile in recent years has forced Italian and Spanish tile producers to alter their product lines, and a global economic slowdown has caused companies in many ceramic manufacturing sectors to operate far below capacity or close plants altogether.
As a result of these trends, raw material suppliers have also had to change the way they do business. Many suppliers are positioning themselves through acquisitions and mergers to serve the markets wherever they're located. For instance, WBB Minerals, headquartered in Sandbach, Cheshire, U.K., has made significant efforts over the past several years to become an "international clay producer."
"We have clay deposits in a number of different regions-including France, the U.K., Spain, the Westerwald, and the Ukraine," says Mark James, marketing director - ceramics for WBB Minerals. "As a result, we should be able to satisfy the majority of our customers' requirements-whether it's with blends of products from those deposits or with materials stockpiled at other locations. For instance, we stock some of our U.K. clays in the Westerwald because that's closer to Eastern European ceramic producers. We feel we are well placed to service the global market because of our geographical spread of operations."
Imerys, headquartered in Paris, France, has taken a similar approach, as evidenced by its large number of acquisitions across a variety of geographical regions. By capitalizing on the synergies of these combined resources, individual divisions can continue to compete in an increasingly difficult market.
"[As part of a much larger organization], we are able to use a much broader reserve base and processing techniques to offer more engineered kaolin products to the sanitaryware market," says Michael J. Yarborough, vice president - general manager, K-T Clay/K-T Feldspar, Imerys. "The other advantage K-T's and Imerys' customers have seen is the marriage of K-T's sales and marketing team to the tableware and sanitaryware products supplied from our sister business units in Europe."
Suppliers are also responding to the current manufacturing trends by offering innovative new products and, in some cases, more diversified product lines.
"As with every industry, the name of the game in ceramic manufacturing is productivity," says WBB's James. "To offset rising labor rates, an increasing number of ceramic producers are looking at automated technologies, such as pressure casting. WBB has developed products like 21-C, which is a refined ball clay specifically designed to optimize the pressure casting process. We've also begun putting together body formulations purely for pressure casting."
As demand for porcellanato tile has increased, WBB has also continued to make improvements in its Ukranian clays, which are a key component in those products. Additionally, at ceramitec 2003, the company will be launching a product called Ceramic Composite, which features all of the components for tile production already mixed together in the perfect charge for the ball mill. Rather than having to develop their own bodies from a variety of different materials, tile manufacturers can simply use one pre-made formulation. The company has also begun offering an engobe from its Fuchs division for brick and roof tile applications, making it easier for customers in those areas to produce new colors for a broader market appeal.
R. T. Vanderbilt Co., Inc., headquartered in Norwalk, Conn., has battled the downturn in traditional ceramic sectors by finding other areas to service. According to Randy Johnson, vice president - minerals sales, the company has developed several new products for ceramic molds for the foundry industry, as well as for the paint market. Diversifying its product line enables R. T. Vanderbilt to remain financially stable despite difficult economic conditions-and this stability, in turn, allows the company to continue to provide high-quality products to its remaining ceramic customers at the best possible price.
Economic ChallengesFor many ceramic manufacturers, the "best possible price" simply isn't low enough in today's difficult economic environment. But suppliers are facing many of the same challenges as their customers, making it difficult, if not impossible, to maintain their current pricing structures. The high cost of labor, employee health care and compliance with environmental regulations have continued to pressure profit margins, forcing suppliers to either absorb those extra costs or pass them along to their customers. While many suppliers have resisted the latter, maintaining a high level of quality and customer service requires a healthy bottom line.
The soaring cost of energy-both natural gas and electricity-has also forced many suppliers to reevaluate their business practices. Companies have tried to contain their costs by implementing more energy-efficient technologies and renegotiating their energy contracts, but these efforts have only made a small dent in what is quickly becoming a very large problem.
"Our biggest problem right now is the cost of energy required to produce a product," says Vanderbilt's Johnson. "We've tried to put in some new burners, and we've gone to dual-fuel sources so we can shut off our natural gas and have fuel oil backup to ensure that there are no interruptions in the flow of material to our customers. We're also constantly looking at new contracts and trying to lock down lower prices. We do our best to hold our costs in line, but sometimes that's just not possible. The cost of the energy itself is a tough thing to overcome, and I don't see any near-term solutions."
As a result, a number of suppliers have been forced to implement "temporary" energy surcharges on their products in recent months.
For U.S.-based suppliers, transportation has posed another major challenge. Over the past several years, the cost to transport raw materials via truck or rail across several U.S. states has been steadily increasing. Meanwhile, cheap ocean freights and open trade policies have made the price of overseas products increasingly attractive to U.S. ceramic producers.
"With the low labor and processing costs in developing nations, along with the low shipping costs, it has become cheaper in many cases to import materials from overseas than to ship them across the U.S.," says Vanderbilt's Johnson.
However, Johnson and others caution that price should not be the sole criterion when making decisions about raw materials or other products. "Some companies might be short-sighting themselves to save $5-10 a ton," Johnson says.
To try to level the playing field, materials suppliers are constantly reevaluating their transportation options. For instance, R. T. Vanderbilt was able to save one of its customers thousands of dollars by helping the company implement a bulk material handling system. In addition to paying less for transportation, the company has also been able to buy its materials at cheaper bulk prices. It's also saving on disposal costs, since it no longer has to dispose of paper bags and pallets in a landfill.
Vanderbilt has also started adjusting its shipping schedules to prevent transportation issues from disrupting its product shipments. "If we can't get rail service on Fridays, then we adjust our schedules and ship maybe two shifts per day, four days per week. That way, if we're hurt by a cutback in rail service, we can still service our customers on a timely basis," says Johnson. "We also store some of our materials in warehouses so that we can get material out to our customers more quickly."
Online OpportunitiesAlthough the Internet has yet to become the moneymaking machine that some once predicted, it is proving to be a valuable tool for many in the ceramic industry. A number of suppliers have capitalized on this opportunity by providing a host of technical information on their websites, and some have also begun offering online ordering and tracking capabilities with a great deal of success.
R. T. Vanderbilt launched an online procurement service several years ago and has reported a continuing increase in the number of customers using the service. "Several hundreds of people have now registered and are using our online service," says Johnson. "People appreciate the speed of the service-rather than having to wait for someone to get back to them, risking a mistake being made with an order taken over the phone or having to fax a piece of paper and wait for an acknowledgement, they can do everything instantaneously online."
Being able to serve some of its customers online also helps Vanderbilt control its costs-which, in turn, enables the company to control its prices. "With E-commerce, we don't have as many people answering phones, and we're able to eliminate a lot of mistakes. That helps us keep our prices down," Johnson says.
Other suppliers, however, remain wary of letting their customers interface with machines. "The ceramic industry is still very much about personal relationships-our customers still want to interact with another person," says WBB's James. "We have a technical support team that will go out and do trials with customers, they'll work in a customer's factory to solve problems, and they'll work with a customer to improve their production efficiency. You can't get that type of support online. We feel that the market still requires a big personal involvement."
K-T Clay's Yarborough is also skeptical of the role the Internet will play in the ceramic industry's procurement process-but he's not willing to discount it entirely. "I think that this type of procurement is still in the ‘developmental' stage for our industry. K-T is currently investing in a new IT system, and implementation should be complete during early 2004. At this time, online procurement will not be part of this transition, but the capability exists to bring this to fruition if the need arises," he says.
Industry DedicationAs today's raw material suppliers try to anticipate manufacturing trends, overcome economic challenges and pursue myriad opportunities for meeting their customers' needs, they have one goal in common-to provide high-quality products at a fair price so that the ceramic industry can continue to be profitable.
"In today's economy, everyone has to do things more efficiently. We can play a part in that from the raw materials side, but it has to be in conjunction with our customers and what they're trying to achieve. Our overall goal is to work in partnership with our customers to develop mineral solutions that will enhance their business," says WBB's James.