Processors should employ ``only contributors,'' minimize debt, renegotiate supply programs and use auctions mainly to buy commodities, said Hoop Roche, chairman and chief executive officer of Erie Plastics Corp. in Corry, Pa.
For the long term, Roche suggests firms use an outside consultant to develop a ``sound, clear and doable strategic plan.'' Roche spoke at the Sept. 17 Management Day conference at Plastics Encounter Indianapolis and moderated a panel discussion.
``This economic war isn't going to be over soon,'' said Roche, predicting a recovery period of two or three years. Processors need ``a strong focus on business essentials, managing your business, managing your cash flow [and] managing your efficiencies. It's back to basics.''
Regarding foreign competition, Roche said, ``At the end of the day, China won't be successful. If we weather the China phenomena, we have some things to do'' including just-in-time manufacturing and work on related design and engineering issues.
Equity investor Scott Murray observed that businesses are contracting today.
``There is overcapacity in the market,'' said Murray, managing director and co-founder of Madison Capital Partners of Chicago. ``To be a survivor, you need to be flexible, creative, looking at solving your own problems. You can't just sit back and wait for the economy to turn.''
Madison Capital owns seven businesses including several plastics processors and equipment manufacturers.
``It is a difficult time to operate manufacturing equipment companies, but it is a good time to buy'' those companies that big firms want to divest, Murray said. ``The valuation base is much lower than two years ago.''
For those in the plastics industry, inertia is not an option at this time, said Ed Rivera, an associate with MuÃ±oz Investment Banking Group of Arlington, Va.
``It is going to be a very fluid and dynamic environment in the near future,'' Rivera said. He noted that the trend to move manufacturing to Mexico has been negated in various ways. Mexico lacks sufficient infrastructure and, at this time, ``molding is not a reason to be in Mexico,'' he said. Being near a customer may remain as a driver in some cases.
The top 10 injection molding firms hold a 27 percent share of the domestic market, Rivera noted. His prognosis: ``Injection molders with greater critical mass and resources will lead the industry in growth.''
In a separate program, consultants Jeffrey Wincel and Hazel Beck gave advice on how to improve a firm's profitability. Wincel focused on procurement, noting that about one-half of an average product's content usually is purchased.
Management often fails to give proportional respect to what should be viewed as a profit center rather than an overhead activity, said Wincel, president and founder of LSC Consulting Group of Holland, Mich.
Many executives ``don't recognize the importance of having someone on their immediate staff controlling costs,'' he said. Often in a downturn, procurement efficiency can generate greater savings than cutting overhead.
Effective communication is needed between all value-chain links, said Beck, CEO and co-owner of Value Innovations Ltd. Firms should exchange technology roadmaps, clearly define customer requirements and recognize that each partner needs to be profitable.
Beck, who is based in San Diego, suggested engaging suppliers and welcoming their suggestions, cultivating a cost-reduction mentality within the organization, measuring results and celebrating successes.