Interview: Tim Boven, global product director, Adhesives & Performance Solutions, Dow Automotive
By: Martin Kahl, Thursday, October 20, 2011, AutomotiveWorld.com
Dow Automotive Systems, headquartered in Auburn Hills, Michigan, supplies the automotive, commercial transportation and aftermarket sectors. Tim Boven is the global product director for the Dow subsidiary's Adhesives and Performance Solutions portfolios, a role which gives him global profit and loss responsibility for the two business units. The Adhesives business unit includes all adhesive materials that Dow sells into the automotive industry, ranging from structural adhesives through to elastic PU adhesives; the Performance Solutions business unit incorporates a range of different product chemistries from polyurethane through to polyurethane elastomers.
Dow Automotive supplies customers of different product types at various stages of the automotive supply chain, including Tier 2 and Tier 1 suppliers, as well as delivering direct to OEMs. Boven cites as examples the supply of polyurethane foam to many of the large Tier 1 seat manufacturers, and the delivery of adhesive products to almost all OEMs worldwide.
In a recent interview with AutomotiveWorld.com, Boven discussed the impact of rising and volatile raw material prices on Dow's Automotive business, and what a supplier like Dow Automotive can do to defend itself against sharp spikes in material costs.
AutomotiveWorld.com: What changes have you noticed over the last 12 months in the prices of commodities and raw materials, and how has your company been affected?
Tim Boven: Commodities have been extremely volatile for the last 12 months. It is very evident throughout the entire industry value chain. Take propylene as an example - propylene has escalated up to 40% and even 50% at times. There has been a little relief lately, but nevertheless the price points of key raw materials like propylene and ethylene, are at an all time high. This is directly related to the cost of energy and oil. It has had an impact on our business - it impacts everything that we do, from production, to shipping and to running our plants. The changes in hydrocarbons and the changes in energy costs are unequivocally having an impact on our business.
AW: Have the price increases affected the development of products, leading perhaps to a compromise on materials used, or on the performance expectations of a product? And are you prepared - or forced - to pass on the costs to your customers?
TB: I would point to the latter. The rising cost of hydrocarbons is forcing us to pass portions of these costs on to our customers. All material suppliers in a similar position to Dow are forced to pass these costs on to their customers. For us to be successful, and for anybody to be successful, we have to share this new cost structure across the entire value chain, which starts with Tier suppliers like Dow and goes all the way up to the OEM. There is absolutely no single point in the value chain that can sustain all these costs and expect to have a long-term enterprise. It isn't viable. A significant approach to that is close collaboration with our customers and suppliers to mitigate these costs if that is possible, and on the customer side, work with our customers to pass on the costs in a reasonable fashion.
AW: What can you do to protect your business against rising and volatile raw material and commodity prices?
TB: The rising costs have been quite volatile, making it difficult to plan. We do a lot of different things within Dow to negate the impact of these rising costs. Many of those are associated around activities like lean manufacturing, Six-Sigma and other efficiency improvements that we have ongoing to offset the costs to the best of our ability. We also continue to work on process research, product development, and application science, namely developing all different types of products that meet the end performance expectations of our customers. At the same time we are working with our customers to see how our products could take out costs in their total system because although the product they buy from us may cost more, their total cost fixture is mitigated by efficiencies on their end. That is the sort of thing we can do to hedge and protect our business from the rising costs that we see.
AW: Have you encountered a situation where a customer stops buying a particular product from you because it has simply become too expensive, as a result of a material price change?
TB: There are situations where the market prices of products that we sell reach a point where they drive next-best alternatives, like different chemistry or different solutions. In such cases, we have seen that it is not economically viable for the customer. That can happen, and that is something we are conscious of. That can be a negative, if it is something that we are selling, and we are replaced by the next-best alternative. At the same time, it creates opportunities for us. It drives our innovation pipeline to develop products that can substitute more expensive products in the industry to help customers be successful and mitigate the costs that they are seeing.
AW: By being involved earlier in your customers' product development process, you could adjust the volume or use of the product and thereby counter some of the rising price. Is this something you seek to do?
TB: That is part of the collaboration that I mentioned. We strive to achieve that with our customers. If we can get involved very early in the product development cycle for them, and understand their needs and requirements, we can start putting energy behind our product development to meet those needs. At the same time, when we have a strong partnership with our customers, which we strive to do, we can start providing input to help develop a product at a lower cost. We strongly desire to get in early, because that is where the opportunity lies to mitigate as much cost as possible.
AW: You mentioned that some of the price rises have been in the region of 40% in the last 12 months alone. Have you experienced similar price rises in other years, and is the current situation as bad, or is this the worst you have known it?
TB: There are many similarities between 2011 and the cost escalation we saw in 2008, at least from the way the hydrocarbon market has shaped up, although the dynamics driving that rise and cost are different. The price of oil has been very resilient to coming down, and for most of this year it has been above US$100/barrel. That is precipitating the prices in ethylene, propylene and other key raw materials that we need to produce our products. The closest we got to this is 2008.
AW: Do you see this as a blip, or are you bracing yourselves for the long term?
TB: From our perspective, this appears to be the new norm. We are going to be operating under this escalated cost structure for many years to come. It is something that the industry has to rally around to address, and we think the way to address this is through innovation. We may see some short-term softening in hydrocarbon costs driven by macro-economic conditions, but if we look at the macro-economic conditions behind supply and demand, clearly we have a very elevated demand situation, which is going to keep costs relatively high - certainly much higher than they were five or ten years ago. So from our perspective, yes, we are planning for the likelihood that the cost structure we are operating in 2011 will continue for the foreseeable future.
AW: What long-term impact will material/commodity price changes have on your business, and what effects will this have on the automotive industry in general?
TB: This elevated cost structure creates short-term challenges. As I said earlier, there is no single participant in the value chain who can absorb all of these costs, so it is slowly making its way out to the end vehicle. Cars will ultimately have to be more expensive, whether because of rising steel, polypropylene or adhesive prices - these materials are all more expensive to produce. This new paradigm in which we are operating is creating a lot of new opportunities, and that is where we are focusing our energies. We are working with our customers because in order to fully address this, in order to mitigate cost, it has to be through innovation. One of the terms that we use is "chemistry-enabled car". We think chemistry is going to be the solution for the automobile of the future. We have a lot of fundamental products which, although more expensive because of this elevated cost structure, are allowing degrees of freedom that the automotive industry has not had in the past. That could be adhesive technology, or low-density foams - materials that are taking out weight, taking out total systems costs, to mitigate these challenges, and certainly meet the megatrends of the automotive industry, like reduced emissions, increased efficiency, improved safety and appeal. There are some short-term challenges, which I would refer to as business operation issues that we have to manage, the same as everybody else. But it does create opportunities, and it is driving our innovation pipeline.
AW: And this goes back to the question of whether you can get in early on your customers' design and development processes...
TB: Correct. We are a global company, and we have very strong relationships with global OEMs. We are working across the entire value chain to understand the differing needs of the different players in the value chain. Working in a vacuum is not going to allow us to be successful, so early collaboration with our customers would help all of us to win.
Martin Kahl is Features Editor at AutomotiveWorld.com. editorial@automotiveworld.com
Published on Thursday, October 20, 2011
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