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Speaker: Learn economics behind resin buying

By: Bill Bregar

May 29, 2012

CLEVELAND (May 29, 3:40 p.m. ET) — Shirish Patel used to head resin buying for the big guys like Little Tikes Co. and Newell-Rubbermaid Inc., but he told an audience of rotational molders that, since resin is their biggest cost, even small molders should devote the time and energy to material sourcing.

Management spends a lot of effort trimming labor, which he said accounts for less than 10 percent of total costs. “Materials, on the other hand, represent as much as 50 percent. And very little time is spent on materials, because you all have been conditioned that you can’t do anything about it,” Patel said. “And I’m here to tell you today that you can do something about it.”

Patel advocated knowledge — about the economy, the energy cycle and polyethylene feedstocks such as ethane and natural gas — during a presentation on strategic resin sourcing May 7 at a conference in Cleveland organized by the Society of Plastics Engineers’ Rotational Molding Division. Patel, who has more than 40 years of background in plastics, runs a consulting firm, Wisdom Plastics in Brecksville, Ohio. At Newell Rubbermaid, he was responsible for buying 1.6 billion of resin.

But he said even small processors should develop a strategy, designate a specific person to buy resin and empower that buyer to make decisions.

He outlined several different types of buyers. A “relationship buyer” develops long-term supplier contacts and can enjoy consistent quality and supply, even in times of shortages. But that type of buyer is dependent on getting all information from the resin salesperson, he said.

Patel said the “knowledge buyer” does the homework needed to understand the dynamics of upstream economics and can get an idea of forecasting — a real asset to management.

Both buyer and seller need to work as partners, with mutual respect, the consultant said.

“You respect them. You respect the information they’re giving you. They’re giving you the right information, because they understand that you understand the cost components and you have some gumption about what’s going on,” Patel told the rotomolders.

He said the resin buyer should check several sources of pricing, the overall economy and key markets. There is plenty of publicly available information on natural gas, the key driver of prices for PE, by far the biggest rotomolding material.

“Again, you might think this is a lot of work. It’s not a lot of work. You might think it is very complicated. I’d like to think that is no more complicated than figuring out the brackets during March Madness,” Patel said, drawing laughter.

He suggested that even smaller companies send their resin buyers to a petrochemical conference to understand the economics. The buyer also should set up a spreadsheet to keep track of pricing information.

When he was buying resin, Patel developed detailed reports for management explaining the full picture.

Resin makers “will always tell you that you can’t do anything about it, but you can,” Patel said

“It’s like everything else in life: If you think you’re broken, you will be broken,” he said. “It all depends on how you want to handle it. Ultimately it’s whether you will manage changes or changes will manage you.”