.pquote { background: url('http://www.industryweek.com/site-files/industryweek.com/files/uploads/2014/08/openquote-iw.png') no-repeat!important; color: #000000; font-style: italic; margin: 10px; padding: 10px 1px 1px 50px; font-size: 24px; } .article-image .image-description p { margin: 0; font-size: 16px; line-height: 1.9; } .image-description { background: #F8F8F8; font-size: 11px; padding: 5px 5px 3px; color: #000; font-weight: normal;!important; } .pcaption { padding-left: 20px; padding-right: 20px; font-size: 12px; line-height: 1.9; padding-bottom: 2px; } We think there is still more to be done in terms of product development and innovation. That's our lifeblood.' -- Charles Bunch Title: Chairman and CEO Company: PPG Industries Prior Positions: President; Chief Operating Officer; Board Member; Executive Vice President, Coatings; Senior Vice President of Strategic Planning and Corporate Services Degrees: MBA, Harvard; Undergraduate Degree in International Affairs, Georgetown The IndustryWeek Leader of the Week highlights the manufacturing leaders, executives and stars who are driving growth in today's industry and helping to shape the future of manufacturing.

The New PPG: Tougher, Slimmer, Stronger

Sept. 3, 2014
Under CEO Charles Bunch's leadership, PPG Industries has concentrated on its coatings business and divested most of its glass and chemicals operations. This has enabled the company to emerge from the recession a leaner, meaner, more focused manufacturing machine.

PPG Industries' story over the last 15 years has been one of growing stronger by slimming down and becoming more tightly focused.

In the late 1990s, PPG's leadership team saw their company's biggest customers shifting production to Asia, South America and elsewhere, and they quickly intuited that PPG would have to follow suit to keep those customers happy.

But they also saw that they would have to make some tough choices in order to keep pace with their key customers' globalization. The toughest choice was to shed most of their company's glass and chemicals operations and focus almost exclusively on coatings, because they deemed coatings to be PPG's most durable and sustainable business segment.

Led by Charles Bunch, who has been with the company for 30 years and has served as CEO since 2005, PPG has managed the transformation well. After making it through the Great Recession intact and not much worse for the wear, the company has rebounded sharply, posting several consecutive quarters of impressive growth in net sales, record earnings, and a steadily rising share price, which recently hit a 52-week high.

IndustryWeek recently sat down with Bunch at PPG's headquarters in Pittsburgh to talk about the company's transformation, its recent success, and its plans to sustain the forward motion.

IndustryWeek: PPG has posted very strong financial results of late, especially over the last few quarters. What do you attribute this momentum to?

Assistant store manager John Whiteman scans products of the newly combined North American PPG architectural coatings business at the Glidden Professional Store in Valley View, Ohio.

Charles Bunch: For PPG, the biggest story over the last few years has been a continuing transformation to being the leading coatings company in the world. We've moved from a more diversified portfolio and concentrated on what we felt were our best businesses, in coatings.

We have a real commitment to innovation, technology and product development. That's being demonstrated now in some of our key businesses such as automotive, aerospace and industrial. And we have a good product development cycle.

Also, we did a lot of work during the economic downturn in order to improve the productivity, efficiency and performance of our operations. And now that we're beginning to see some improvement in economic development here in North America, as well as the beginning of signs of improvement in Europe, we're able to capitalize on the opportunities now because we've done a lot of hard work in terms of productivity and investment during the leaner times.

IW: Tell us about some recent investments PPG has made in its North American business. Also, do you have tangible signs to show you that these investments are achieving their objectives?

Bunch: We've continued to make investments in our operations in our coatings businesses here in North America. Two of the strongest markets for us have been automotive OEM and industrial. We have significant investments in Ohio in our automotive and industrial coatings businesses. We have our plant in Cleveland, as well as one Circleville, Ohio, and another in Delaware, Ohio.

We've continued to make investments in our operations in our coatings businesses here in North America.

We've expanded capacity and invested in additional process control equipment and quality systems in order to supply our automotive and industrial customers. And, you know, we're back now. If you look at automotive production levels here in North America, we're back to our pre-recession levels. We're probably going to make more than 16 million vehicles in North America [this year].

On the other hand, on the construction side, housing and nonresidential construction have not recovered yet to the extent that they were at in 2005-2006. But automotive has.

For our North American business, we also have a large plant in San Juan del Rio, Mexico. We are in the process now of expanding production there, increasing resin capacity, and also investing in new product development and quality systems.

And I think the results are obvious. We've done well in our automotive business with our new-product introductions. This has enabled us to fill these new investments as they come onstream. And all of our customers in North America and the market in general for automotive have continued to do well.

Big Buy

IW: Let's talk about your recent acquisition of AkzoNobel's North American architectural coatings business. How is the integration of that business going?

Bunch: We're just a little more than a year into the acquisition. Of course, you would know Akzo's architectural coatings business in this country by some of its key brands: Glidden, Liquid Nails, Flood Stains. And it also had a big presence in the Canadian market.

So we bought that business from Akzo, which is a large global coatings company based in the Netherlands. And we now are integrating that business with PPG's architectural coatings business here in North America. And we're ahead of schedule in terms of the integration.

IW: What is the schedule? How long do you expect the integration to take?

Bunch: Initially we said we thought we would have everything fully integrated in less than three years. And we think that now it's going to be a two-year integration schedule. We're now bringing the businesses together, and we've announced a new headquarters for the combined business that is northwest of Pittsburgh—between Cleveland and Pittsburgh.

We're also in the process of expanding our research and development labs for the architectural coatings businesses here in the Greater Pittsburgh area. We're combining the brand management team's supply chain computer system. We're in the process of bringing together two similar-sized businesses and moving them together as one business going forward.

Cans of Glidden paint roll off the production line at PPG's manufacturing plant in Huron, Ohio. PPG completed the acquisition of AkzoNobel's North American architectural coatings business, which included the Huron facility, in April 2013.

IW: Was AkzoNobel's presence in Canada a driving factor for this acquisition?

Bunch: Yes. In Canada, PPG had a small presence in architectural coatings, and this business was the market leader in the Canadian market. They had several strong brands, including Sico, Dulux, and CIL, and they were present in all channels: They were selling to home centers, independent dealers, and they had their own company store network. For us, that was attractive, because that was a market in which PPG had a relatively small presence. So in that area, the integration work of bringing the business together hasn't been as significant. But we've been able now to position ourselves in Canada as the leader in this business. Here in North America we're now the No. 2 architectural coatings supplier behind Sherwin-Williams.

IW: Have you encountered any snags or challenges in the AkzoNobel integration?

It's a lot of work bringing together different companies, different supply chains, distribution centers, manufacturing facilities, store operating systems, and the like.

Bunch: As with any integration of an acquisition where you have multiple channels and brands, there are always concerns about whether you're going to sustain the commitment and the level of investment in the brands. And we are doing that.

We're also integrating the store network. PPG had a company-owned store network here in the U.S. market. Glidden was present in all three channels: They were selling to the home centers, they were selling to the independent dealers, and they had a network of company-owned stores. So that's one area where we are bringing the businesses together: We're bringing the PPG and Glidden store networks together.

It's a lot of work bringing together different companies, different supply chains, distribution centers, manufacturing facilities, store operating systems, and the like. But as I said, we're ahead of schedule. We haven't encountered any problems that we didn't anticipate. But it is a lot of work.

Softness in Europe

IW: Let's talk about the European market. You've experienced very soft demand there in the last few years. My understanding is this has mainly been due to sluggishness in three of your key European end-markets: nonresidential construction, marine coatings, and architectural coatings. How big a concern has this been for PPG?

Bunch: The weakness in the European market over the last several years is a significant concern for us. We've had to manage through very weak economic conditions. Now, in 2012 and 2013, as we were recovering here in North America, and Asia was still doing well, Europe was clearly lagging. They've had a lot of problems in their banking system, in government spending and budgeting, and in consumer confidence.

What we've seen in Europe so far this year is that the automotive and construction markets in the northern countries—the U.K., Benelux, Germany—have started to show signs of coming out of the recession. But we still haven't seen good economic recovery in some of the other markets, like France and Italy, where we have a presence in the automotive, industrial and construction markets.

To me, the European story is still one that is mixed. Some markets and countries are doing better than others, and some are still lagging. Overall, I think the markets are going in the right direction in Europe, but it's still going to be a slow process.

IW: You mentioned that you've had to "manage" the situation with the soft demand in Europe. What do you mean by that?

Bunch: We've had to focus on productivity and efficiency. Looking at our operation and saying, can we, by making more investments, bring down our costs? Can we become more efficient in our overhead operations? Are there opportunities for us to take costs out by combining operations, investing in more efficient administration, and the like? We've tried to focus on execution and making sure we're more productive getting our costs down so we can survive and sustain our businesses through this downturn.

PPG’s coatings manufacturing facility in San Juan del Rio, Queretaro, Mexico. PPG announced earlier this year that it would invest more than $27 million in the facility.

Now, we had already had some experience with that—with getting through an economic downturn—here in North America, obviously. And we pride ourselves on being good operators, and being efficient and productive. So with the crisis in Europe, we've been able to continue that focus on execution, keeping our costs lower so we can sustain our profitability without sacrificing customer service or product development, and continuing to deliver for our customers while being more efficient.

IW: Looking forward over the next five years, what would say are the most important challenges your company faces, and how do you plan to address them?

Bunch: We think there is still more to be done in terms of product development and innovation. That's our lifeblood. And we think that managing the global growth that we've been experiencing will be one of our biggest challenges.

If you look at where we're investing today, in addition to the U.S. and Mexico, we have new capacity additions going on in China, Brazil and Korea—three very important markets for us.

One of the biggest changes for PPG over the last 10 years has been the development of the markets in Asia. China is now, on a single-country basis, the largest automotive producer and consumer of vehicles. They're at 20 million vehicles now. For us, that growth has been one of our biggest challenges, because we are the No. 1 automotive OEM producer in China, as well as here. I think we've done a good job managing our position and that growth.

But we see further growth in emerging markets. If you look longer term, a five-to-10-year time horizon, markets like China, India and Brazil will be important markets for us. And we still have a way to go in developing our organization, our operations, and our facilities. We've been making investments. If you look at where we're investing today, in addition to the U.S. and Mexico, we have new capacity additions going on in China, Brazil and Korea—three very important markets for us.

So that's the biggest longer-term challenge: not only bringing technology and innovation into important product characteristics like sustainability and energy efficiency, but managing that growth and bringing the same value to our customers in these emerging markets that we do here in North America and in Europe.

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