Arysta LifeScience’s Procurement Revolution
Stephen Pearce wants to change the way crop protection companies think about purchasing.
When we talked in late June, Arysta LifeScience’s road warrior had traveled 20 out of the 26 weeks that far into the year to make supplier relationships more strategic versus transactional. It begins with making sure the $1.8-billion company has the right products in the right place at the right time in the right quality, but that’s just the table stakes for supply chain partners.
The next level includes deliberate, strategic, growth-based relationships that look five, 10, and even 20 years into the future.
“We want to make joint judgment calls with our partners about materials and market development,” Pearce tells AgriBusiness Global in an exclusive interview at the Institute of Directors in London. “We want to be more culturally aligned. It’s as important for us to understand the culture of the companies we are dealing with as it is for them to understand our culture at Arysta LifeScience.”
The close contact he keeps does far more than just backward integrate the 10th-largest crop protection company in the world, it allows him to keep detailed data on material prices, labor markets, operational challenges, and other input costs that influence manufacturers. He keeps a database of the prices and output for hundreds of intermediates, adjuvants, AIs, and finished goods so he can understand how wholesale prices might be influenced, which has been especially helpful during the past few years in the environment of soft product prices. Much of the data he procures is confidential and only shared with him because of the quality of the relationship he has developed.
He also keeps scorecards on suppliers that he shares with them so they understand the expectations and satisfaction throughout their relationship. He says they relish the information, and the process creates a higher level of intimacy and understanding so trading partners can grow together. He incentivizes the buy-in by linking contracts to relationship lifecycles.
The more strategic the partner, the longer the contract, and assessments tend to be more focused on value creation rather than performance.
“Uncertainty breeds panic. In times like these, you need to be sitting with your suppliers, on the ground, making pragmatic judgment calls as a team,” he says. “That’s how strategic supply chain partners capitalize on opportunities together and mitigate risk. It needs to be a face-to-face exercise.”
In addition to supplier relationship management and the active benchmarking of materials, Pearce, Head of Global Procurement, also directs project management teams that execute on operations, and he regularly re-examines the organization to make sure people and cultures are aligned to the company’s systems, tools, and processes. “It all feeds into strategy and gives us agility so we can adjust when markets change.”
The New Arysta LifeScience
Pearce joined Arysta in 2010 and began to implement the supplier relationship philosophy he learned in the pharmaceutical industry. Pharma has a more diverse supplier community that requires a bit more rigor in vetting, validating, and collaborating. The notably smaller agchem industries seemed a bit simpler by comparison.
But simple doesn’t mean easy. Within a few years, Pearce would be charged with several large-scale integrations as a result of mergers and acquisitions. In 2014, Platform Specialty Products began an acquisition spree in the agrichemical space, bringing its low-asset, high-touch philosophy to crop protection. The company formulates a spectrum of chemicals that are sold into agriculture, animal health, electronics, graphic arts, plating, water treatment, and offshore oil production and drilling.
In April 2014, Platform announced it would acquire fast-growing Chemtura AgroSolutions for $1 billion. Chemtura’s 2013 revenues were $449 million and its EBITDA was $101 million, which had grown at a compounded annual rate of 19% from 2009 through 2013. In August, it paid €300 million ($333.5 million) for Europe’s Agriphar, which operated out of Belgium with strong distribution in France, Spain, Greece, and Italy. It generated €127 million ($141 million) in sales in 2013 with 20% EBITDA.
Then, in October 2014, it announced its intention to purchase Arysta for $3.51 billion, which posted revenues of $1.5 billion with 20% margins in 2013. Arysta reported $1.5 billion in sales in 2014, which constituted about 3% of global market share with more than 3,600 product registrations.
In six months, Platform accumulated a crop protection portfolio with registrations in more than 120 countries, distribution in fast-growing markets in Southeast Asia, Africa and Latin America, distribution in the highly profitable and fragmented markets in Europe, and a foothold and headquarters in North America. Earlier this year, Platform consolidated its agriculture companies officially under the Arysta LifeScience flag with its corporate headquarters in Cary, North Carolina, U.S.
Platform also bought into one of the industry’s fastest-growing segments: biostimulants. Arysta is one of the largest sellers of biostimulants in the world. The nearly $2-billion segment is well established in Europe, and it continues to grow with double-digit increases as adoption in the Americas, Southeast Asia, and Africa continues to grow.
“The quality of data and validation of claims has moved biostimulants well beyond the snake oil reputation,” Pearce says. “Plants must get the right stimulus to thrive. In many ways we can learn something from the animal health industry, which has had to worry about it a bit more because if animals aren’t healthy, then veterinary bills can be quite expensive.”
On the crop production side, biostimulants help to enhance crop vigor, yield and quality through physiologic stimulus, while alleviating abiotic stress from drought, heat and cold and other external factors. Arysta has great expectations for the sector going forward.
Product Price Rebound
Pearce says the traditional crop protection market is improving, too.
“We are starting to see some very early signs of firming in certain material areas,” Pearce says, adding that product prices could begin to creep up later this year and expects that trend to continue through 2017.
That mirrors what industry analysts and data companies are saying as well. Inventory in the value chain is beginning to liquidate, and commodity prices are hedging up ever so slightly, giving farmers more confidence in investing in inputs for the following year. That’s the kind of “end-to-end supply chain intelligence” that Pearce says differentiates the quality of conversations he has with suppliers.
That philosophy trickles down into the distribution part of the business as well, which keeps the company’s focus on delivering value for the end users. That’s something Pearce appreciates and part of the reason he works for an agriculture company: At the end of the work day, helping farmers is really what makes this industry a great place to work.
“I grew up on a family farm, and the decisions I’m making on a daily basis could affect people’s lives and livelihoods, and it is in an industry that is good and fundamental to humankind. I take a lot of gratitude in that,” Pearce says. “To be good at what you do over time, you have to love what you do. In that regard, time is the real currency.
“The key element to creating value in supply chain relationships is time and the high level of mutual trust and understanding that create a precessional intimacy that drives synergy and mutual value. This is a key success in an asset light, high-touch environment like ours. Therefore in terms of value creation with our strategic supply chain partners, time becomes our friend not our enemy.”
Email David: [email protected]