A tonne of solvent can leave a plant in Gujarat and arrive at a paint maker's factory in a single truck. On paper, that looks like direct supply. Commercially, it rarely is. Before the invoice reaches the processor, the material has usually changed hands three or four times, and every hand-off takes something from the producer's price.

This post breaks down where that money goes, why the current structure keeps producers at a disadvantage, and how a different route to market, the PPP (Producer → Platform → Processor) model, changes the economics of chemical distribution in India.

How chemicals actually move from plant to processor in India

Most bulk and intermediate chemicals in India reach small and mid-size processors through a dealer chain: a C&F agent or distributor, then a stockist, then a sub-dealer. Even when the truck goes straight from the plant to the factory, the transaction passes through each layer.

That matters because the dealer, not the producer, owns the processor relationship. The dealer sets the commercial terms, carries the customer credit and decides which producer's grade gets offered that week. The producer's sales are really a set of dealer relationships, and every inefficiency inside that chain is eventually passed back up to the producer's price.

Where the ₹3.3/kg goes: the hidden cost of chemical distribution

Source's estimates from processor-cluster order data put the channel leakage at about ₹3.3/kg. On a ₹100/kg product, it comes from two structural costs, plus a third that never appears on the invoice.

1. Re-transportation (about ₹1.9/kg)

Material often moves plant to regional warehouse, then to a trader's warehouse, then to the factory, instead of plant to factory. Every extra leg adds freight, handling and storage cost.

2. Re-intermediation (about ₹1.4/kg)

Each layer in the chain adds its own margin and its own cost of funds. Three or four layers means three or four margins stacked on the same molecule.

3. Receivables: the cost that doesn't show on the invoice

Producers selling on credit terms are effectively funding the channel. As an illustration, 45 days of dealer credit at a 10% cost of funds on a ₹100/kg product works out to roughly ₹1.2/kg. Add it to the channel leakage and the total comes to about ₹4.5/kg, or around 4.5% of the price, before the producer has done anything wrong.

The imbalance: dealers have options, producers don't

There is also a structural imbalance in chemical distribution. Dealers already behave like small platforms. They carry several producers' grades, switch supply to whoever offers a better price that week, and keep their own flexibility.

Producers, meanwhile, depend on a few exclusive or semi-exclusive dealers in each region. The dealer has many producers to choose from; the producer has few dealers. In a tight market that may not hurt. In a surplus, when new capacity comes online and prices soften, it leaves the producer with little room to move volume without cutting price.

What is the PPP model in chemical distribution?

The PPP model adds a neutral platform between producer and processor that acts as a single commercial hop rather than a physical one. The truck still goes plant to factory. What changes is everything around it.

How it works for the producer

• The producer quotes ex-works: its own price, grades and brand. The platform does not set the producer's list price.

• The producer is paid before dispatch. No receivables, no credit risk, no collection follow-up.

• The platform sells to the processor on F.O.R. terms, quoting a landed price and running inland logistics from gate to gate.

• The platform carries the processor: it underwrites and funds processor credit, and brings demand from a mapped buyer base.

Importantly, PPP does not replace a producer's key accounts or existing distributors. It adds a third channel that reaches the long tail of small and mid-size processors that a producer's own sales team cannot serve profitably today.

Global producers already sell this way

This is not an untested idea. Large chemical producers abroad have spent the last decade building multi-channel, digitally led routes to market. Dow's management said almost 40% of its sales ran through digital channels at the end of 2023, roughly double the 2021 level, as reported by Digital Commerce 360.

Covestro handled about 13,000 transactions through its own direct store in 2022, while keeping key accounts direct and leaving the rest to traders and distributors. Neutral marketplaces have grown alongside them: Knowde listed over 8,000 suppliers with storefronts by December 2023, including several of the world's largest chemical companies.

The pattern across these examples is consistent. Producers run several channels on purpose, each matched to a customer tier, and the platforms that reach scale are the ones where rival producers can sit side by side.

Why neutrality decides whether a platform works

A producer will not share price, volume and customer data with a channel that also makes a competing product, or that holds inventory it needs to clear. That is why single-producer platforms tend to struggle: competing producers won't list on them, so processors get no real choice and keep buying through their dealer.

Source was built around this constraint. It owns no plants, holds no inventory and buys back-to-back, which is what allows it to run the PPP model across producers of polymers, solvents and other industrial materials.

A checklist for producers evaluating a platform channel

Before adding any platform as a sales channel, a producer should be able to answer these questions clearly:

• Does the platform make a competing product, or plan to?

• Does it hold inventory it needs to clear, which could pressure your price?

• When are you paid: before dispatch, or on credit terms?

• Who sets your price: you, ex-works, or the platform?

• Do you get end-use and demand data back, or does it stay with the channel?

• Can you start with a defined pilot region and grade, so existing distributors see a clear boundary?

If the answers keep the producer in control of price, cash and customer data, the platform is adding a channel. If not, it is just another layer.

Frequently asked questions

What is the PPP model in chemical distribution?

PPP stands for Producer → Platform → Processor. A neutral platform buys from the producer ex-works, pays before dispatch, and sells to the processor on delivered terms while carrying the processor's credit. It removes the extra commercial layers between plant and factory without changing the physical route of the material.

Does a platform channel replace existing distributors?

No. PPP is designed as an additional channel alongside key accounts and existing distributors. It works best for small and mid-size processors that distributors under-serve, such as buyers in clusters far from distributor warehouses.

How does a producer get paid under the PPP model?

The producer quotes an ex-works price and is paid before the material is dispatched. That removes receivables and collection risk from the producer's side entirely.

Who carries the credit risk on processors?

The platform does. It underwrites processors and extends their credit, while the producer has already been paid before dispatch.

Read the full PPP thesis

This article covers the core problem and the model. The full thesis goes further: the realisation gap between producers who adopt early and those who don't, the competencies a producer builds through demand data, and answers to the hardest questions producers ask. Read it at sourcegroup.in/ppp-model.

Disclaimer: Figures in this article are accurate as of the research date (October 2026) and are drawn from Source's own estimates and publicly available industry sources. Leakage figures are Source estimates from processor-cluster order data; the receivables figure is an illustration, not a measurement. This article is for general information and is not legal, financial or compliance advice.