As coatings makers continue to develop high-tech, innovative and application-specific products (paint that can patch its own scratches, for example), the procurement organization within those coatings makers are taking on the job of building and maintaining relationships with marketing, internal R&D and the cutting-edge suppliers needed to develop such innovative products. But in addition to innovation, buyers in the coatings market are looking to suppliers for cost-reduction ideas.

Coatings industry consultant Scott Detiveaux at Orr & Boss says much of the academic research into new chemistries and technology development in the coatings industry is happening at the raw materials supplier level. And procurement organizations at coatings makers are working to match those new whiz-bang capabilities with what their customers' demands.

"The overall lesson in the coatings market is that you have to understand what your customer wants and align your supply chain back from that to deliver it properly," Detiveaux says. "Some companies are doing that better than others."

Steve Lampe, director of raw materials at coatings maker PPG Industries in Pittsburgh, agrees that the purchasing organization needs to serve as the connection between customers, internal R&D and supplier innovation in the coatings industry. In an effort to foster increased supplier participation in that process, PPG is breaking down long held barriers and providing suppliers with greater access to technical projects and information today so suppliers can "proactively bring us a product or service that may meet our needs and our customers' needs."

While PPG has an extensive internal R&D organization, suppliers are often a good source for ideas and materials that can improve an existing PPG coating's cost or capability. "We recently made a concerted effort internally to improve the communication between the purchasing team and the technical organization," Lampe says. That means organizing more joint meetings with the different organizations and working to ensure that the various organizations within PPG provide a single, clear message to its supply base.

But make no mistake, material price will remain a major factor in the coatings industry, no matter how high-tech its products get, but the emphasis on price may vary depending on the product's level of sophistication. Detiveaux says that most often in nonindustrial product lines, there is a lower perceived switching cost for sourcing, so price plays a big factor in selecting materials.

"But in sourcing materials for the more niche coatings applications, there is more value in the material for the coatings supplier, so price may not be as big a factor."

Lampe echoes those sentiments, pointing out that in some instances, coatings makers are actually striving to source less cutting-edge materials which can then be altered and formulated into the next whiz bang coating. Why? Cost. The most technologically advanced material doesn't help PPG if it costs enough to erode the end-product's margin.

"We still gain or lose business on cost more than anything," Lampe says. "Sometimes we prefer our suppliers to provide products that are not exclusively made for us, but that we can use to develop an exclusive product with our in-house capabilities. We can take a nonexclusive product we can get at a good cost and then use our own process and make a differentiated product."

Buyers at coatings makers are on the lookout for suppliers providing the nanotechnology required to make their coatings products more functional.

In addition to new suppliers, PPG sees some new competitors coming online in China and other regions in Asia, especially in the industrial and automotive segments, which means margin management becomes more critical. And margin management from a buyer's perspective typically means monitoring the commodity markets that go into coatings, which can be very complicated these days.

Because many of the materials used to make coatings are petroleum-based, they are becoming more volatile of late. And increased demand from other industries that use these feedstocks can mean tighter supply for coatings makers.

"So coatings buyers need to understand the full supply chain picture," Detiveaux says. "For example, nylon production uses a certain type of acid that is also used in making coatings. So a spike in the demand for nylon will impact the coatings market, even though they are two very separate industries."

Lampe agrees that raw materials have become more volatile in recent years and tracking the demand from other industries is important for buyers in the coatings market.

"We have a large group of suppliers and we haven't changed the way we source [due to the volatility]," he says. "We need to be able to point to examples of how our supplier management strategies improve the bottom line."

“We still gain or lose business on cost more than anything.” —Steve Lampe, director of raw materials,  PPG Industries

Buyers in the coatings supply chain are under increased pressure to source materials that meet a variety of environmental and regulatory standards in both the markets being sourced from as well as the markets the end product is being sold into. And while some of the responsibility in this regard falls on the material suppliers to document their compliance, the challenge for buyers at coatings markers is to ensure that the compliant materials do not change the efficacy of the end product.

"As you formulate to tighter controls you could lose some performance properties," says Detiveaux.

Lampe points out that, in some cases where the amount of red tape is high enough and the sales volume for a given material is low enough, suppliers are discontinuing products due to margin pressure. That means coatings makers have to review their formulas and products and talk with their customers and suppliers about switching materials.

"Regulatory issues will drive a lot of challenges for buyers in the coatings industry," says Lampe. "The tendency is to divert attention and resources from strategic issues to compliance-related issues. That will be a challenge to purchasing organizations for the next three years or so."