(Dec. 2, 2002) — The U.S. market for the plastics processing industry has seen a radical change not only in terms of machinery sales but also the overall lower levels of business for the plastics processor. This is a continuation of trends that emerged from the 1980s. With this understanding comes the next opportunity to benefit and grow from these changes.
We know that prior to about 1985 the injection molding industry operated by what is known fondly as the shoot-and-ship principle. The demise of the shoot-and-shipper was accelerated with the advent of a global trade emphasis and the subsequent pressures on original equipment manufacturers to reduce costs in every facet of their operations to remain competitive.
Step one was to centralize or consolidate the purchasing of materials to take advantage of larger quantity discounts. Centralizing the purchasing function put pressure on injection molders by chiseling away at the cost-plus business models of the times.
Step two was to give a select few larger production orders while reducing the overall number of component suppliers. For OEMs, this meant less time managing relationships, reviewing quotes, talking to sales people and demanding results for contracts, and more time spent on core business operations.
For the plastics processor, longer production runs resulted in greater efficiency and the ever-popular misconception that they can make up for short-run profit with larger volumes.
The supplier-reduction process has proved to be successful for OEMs, and they continue to look for ways to take advantage of the relationship with their remaining plastic processors. OEMs are asking for and often receiving upfront engineering, process engineering and other services in the value-added theme of recent times.
More recently, OEMs have demanded post-molding capabilities, such as assembly, finishing and distribution. In order to maintain market share, the plastic processor has been forced to become multifaceted. Those not able to be as comprehensive have been squeezed into the Tier 2 or 3 level.
The net effect equals another failed effort by the plastic processor to demand a price premium for services that the OEM can see no value in. All too often, mold work is subsequently moved to another plastics processor in a deliberate effort to churn the vendor base, when the rock of costs has finally been squeezed as tightly as possible by OEMs.
You, as the plastics processor that has survived the costing purges in the OEMs' voracious pursuit of cost reductions, now have the kernel of opportunity to grow your profits anew. OEMs desire to peer into your profit and loss statement and remove the perceptions of your fixed costs from their piece-price costs. This forces the processor to avoid fixed cost solutions of the past and move more operations to services that can be turned off or on as required.
As an example, machinery manufacturers have utilized contract-engineering staffs for specific projects and, when the project has been completed, they are dismissed until they are needed again.
Potentially there are areas of your injection molding machine plant operations that are arcane and outdated procedures, or self-created production bottlenecks traditionally fixed with the costly addition of machines. There may even be opportunities for savings hidden in the fine print of the latest quality report from your customer.
The question then becomes: What can you do less of to get your costs down?
The answer has arrived in delegating noncore services in a “centralized” way so that you are not wasting your time in managing those multiple resources, in much the same way as step two defined a consolidation of molders. These noncore issues serve only to deflect your true business purpose and to deliver a product to your customer at the lowest cost and best margin possible.
Here are a few examples that may be occurring in your plant today:
One Ohio-based company defined nearly 15 separate vendor contracts for just one of its five facilities and is now looking to consolidate these relationships under one source and provide consistency to its operations from plant to plant.
Another company has been fighting a shortage of trained, reliable maintenance staff and a resulting falloff in preventative maintenance on its aging injection molding machines and primary auxiliaries. It has a source that will be providing basic services to take care of the lubrication, inspection and filter changes and other basic services, giving the client increased machine uptime. In time, the company will move toward a computerized maintenance management system that will allow it to transition into a predictive preventative maintenance effort.
As a result of a benchmarking assessment, a southern Ohio company identified the true costs of new employee training ($175,000), a tax credit oversight by its accountant ($75,000) and mold changeover issues that could result in machine utilization increases.
Consider for one more moment how you could use:
* A quality program to help your production staff eliminate a part problem and provide assurances to your customer that your processes are within limits.
* Advanced operator training to maximize your primary asset, the injection molding machine itself.
* Benchmarking production to better measure your performance on the factory floor in comparison to the industry.
* Risk avoidance health/safety environmental surveys to spot potential issues before the Occupational Safety and Health Administration or the Environmental Protection Agency arrives.
* Part/mold design to augment your capability before a prospective customer.
* Facility services to design, build and then maintain the building, water systems, cranes, forklifts, etc.
* Enterprise resource planning to connect the front office and shop floor to handle the electronic flow of order entry, raw material order, scheduling, production and invoicing.
Perhaps it is time for you to consider a centralized source for these services.
Conan Miller is the director of business development for Concentric Custom Services of Cincinnati, a division of Milacron Inc.