WILMINGTON, DEL. (July 2, 11:15 a.m. EDT) — Craig Naylor and his staff at DuPont Performance Materials (Booth 2655) are keeping their eyes on the prize, even in a difficult stretch for the economy and the plastics industry.
Naylor is group vice president for Performance Materials, which ranked third among DuPont Co.'s six business units in 2002, with sales of $4.9 billion. That number represented more than 20 percent of total sales at DuPont, the largest U.S.-based chemical firm. The Performance Materials unit is a major producer of nylon, polyester, acetal and other specialty plastics, and represents DuPont in the DuPont Dow Elastomers and DuPont Teijin Films joint ventures.
In 33 years with Du-Pont, Naylor held a variety of technical and manufacturing positions before assuming his current post in early 2002. He's now keeping the unit focused on new products while defending Du-Pont's position in areas it's pioneered.
Naylor, 54, recently took some time in his Wilmington office to outline DuPont Performance Materials' positions on a number of vital topics.
Q: With challenging conditions in the overall economy — as well as in engineering plastics — are there reasons to be optimistic in the middle of 2003?
A: We're very optimistic at this point. I've seen some figures from some other players in the industry as far as revenue growth last year and in the first quarter of this year, and we're definitely on the high side of what we're seeing in the industry. Last year, we saw high-single-digit growth, and that's not true of most of the industry as far as I can tell. We've seen very nice top-line growth, and most of that is attributable to the application development work we're doing that's being supported by new products.
Both new applications and new volume in existing applications are fueling growth. We're even finding — in industries like automotive — that there are categories like safety systems that are growing much faster than the regular auto industry. If you hit one of those, you can see multiples of [gross domestic product] growth.
Among our products, nylon is the most tied to automotive, so it sees the impact of lower production in Detroit. But we can still work on penetration of pounds per vehicle. We don't see the cyclicality in automotive that other businesses that have a fixed amount of pounds per vehicle do. We track that so we know what our automotive content is in engineering polymers and even corporately — DuPont does over $6 billion in total auto-related sales every year.
Our auto penetration rate has been growing at 6 percent per year, and sales in Japan have been up in the high single digits or low double digits, even though the Japanese economy has been going sideways. We don't see any reason why that rate of penetration and application development is tailing off. As long as we can maintain high productivity in this environment, we continue to be quite optimistic.
Q: Is the role of research and development changing? Is it tough to maintain R&D spending in this current market?
A: You really have to make a commitment and stick to it. What we've found is that although everyone seems to benchmark R&D as a percentage of sales, we're finding that's less important than what we're doing to improve the productivity of the R&D part. How do you more closely link R&D with the marketplace and customers' unmet needs? That's what we're working on today — making that link between the science DuPont has and what I like to call superior customer insight.
Quarterly pressure is always there for U.S.-based, Wall Street-driven companies. But we've attained a level of productivity that's allowed us to stay the course in R&D spending and market development. That's always an easy place to cut to meet quarterly numbers, but we've found that's a short-sighted approach. The key is developing a level of productivity that allows you to keep reinvesting in R&D.
Q: How do you measure the impact of R&D?
A: We look at what percentage of sales are from products that have been brought to market in the last three to five years. We like that number to be around 33 percent — that's the goal the company has set. Engineering polymers is marching toward that. Right now, we're almost at one quarter, 25 percent, and that's increasing each year.
Q: Is the role of North America in the global supply pattern changing?
A: We do see a different dynamic going on — what you might call a production shift as far as increasing manufacturing in Asia, and China in particular. In Europe, production is moving from west to east for cost reduction. We see those dynamics, but there are a couple of things we try to use to our advantage. One is our global footprint — whether it's Asia, Southeast Asia, Europe, we have people on the ground. We have tech facilities, market development people — the D part of R&D — close to customers and that plays to our advantage.
We've been somewhat accustomed to global competition in engineering polymers. We've seen some emerging competitors in Asia, primarily in acetal and somewhat in polyesters. There haven't been any new nylon competitors in Asia over the last several years. But we're familiar with that dynamic [of global competition] and we're learning, as all companies are, how to use locals to play our efficiencies vs. any new competitors in Asia.
Q: Can you describe the challenges in developing new engineering polymer materials? It seems that if you're really successful, the materials eventually move toward becoming commodities. Is there a certain window of opportunity for new products?
A: You have to have strong product technology and a competitive cost position. You also need the ability to move down the value chain and work with customers that might be two or three steps removed from where you transact. Develop a reputation with them first and be able to deliver productivity and functionality improvements that allow them to differentiate their products. And then coordinate with the entire value chain the steps between them and you, so you make it a commercial reality.
That way, you can extend the life cycle of a product so that even when the product starts to mature, you continue to work with customers down the value chain on new ideas and new innovations, so you can keep the pipeline healthy. If you just play [in one application] and don't do new applications and solutions development, you'll see much faster erosion. But if you continue rejuvenating with those customers, doing highly technical work, then you can offset natural commoditization dynamics.
When you look at our whole application profile, we've got some mature products, some embryonic and everything in between. What we've started to do is look at product portfolio management, which many people do, but we're now looking at it as managing a portfolio of applications. We have six business units that go through one marketing force. Not a separate nylon, polyester or acetal marketing force, but one that sells the whole product line. Their job is to pick the best product fit with the application, not just drive nylon or polyester.
Q: How do you consider productivity improvements to be R&D efforts?
A: Our R&D is improving how we close-couple and link our market insight with strategic technology. So we're not just taking every R&D scientist out to visit a customer. Typically in a science company like DuPont, the priority used to be to dot all the i's and cross all the t's in the technology area before you went to the marketplace.
Today, the speed of information and the rate of change in the marketplace doesn't allow you to be that perfect. So we'll take ideas before they're fully developed and pick one or more strategic customers and start working with them much earlier in the process than we would have done five or 10 years ago. That way we can start to qualify and find out if this is really breakthrough technology or something that will increase their productivity or improve the functionality of their product. This allows us to redirect R&D efforts much quicker to what's really going to make a difference. If going down blind alleys was ever affordable — and I'm not saying it was — it's certainly not now.
If you go and talk to our R&D scientists, they're much more pumped and more excited about the work they're doing. Because they're not any more excited than you or I would be about working on something that might never see the light of day. When they're more connected to the marketplace, it improves their productivity and their excitement. They'll go the extra mile to drive a project to commercial success.
Q: Do you think new potential breakthroughs for engineering polymers will be in metal replacement or in improving the performance of existing plastic applications?
A: I don't see any one silver bullet as far as a great new application that will take us to the promised land. The actual good news is that there's a whole host of areas, whether it's improved aesthetics or reducing the assembled cost of a system. Like the proprietary membrane for irrigation using our Apexa product. The material is formed into a membrane to clean up brackish water for vegetable and fruit crops in areas that are not now arable. We have some tests going on in places like the San Joaquin Valley and Baja California. This is an area that if someone asked me five years ago what I thought about chances for engineering plastic in irrigation, I'd have said, “What?” But it's a whole new form of engineering plastic with unique properties in cleaning up water.
Three of the seven new products we've got for NPE are aesthetic products that will allow our materials to play in appearance parts. We're finding there are ways we can modify our material to retain many of their properties, like high temperature and moisture resistance, but also make them useful in appearance.
The other four new products are functional improvements, including one in [electromagnetic interference] shielding. Today, many companies achieve shielding with plating or putting foil on a plastic part. Now, we can imbed a secondary functionality in the plastic and avoid plating, so the assembled cost is much lower.
Every one of these new products was developed with at least one strategic customer that helped us get to the point where we are today. A lot of times, a breakthrough isn't just taking an existing part and substituting our product for another product. We say how can we reduce secondary steps and assembly steps in secondary parts. That's why we haven't yet hit the heyday of engineering plastics. We're taking a systems approach vs. an application, and more opportunities seem to arise. Doing that requires superior customer insight. You have to be close to your customers and understand how they're trying to differentiate their offerings and how their manufacturing operates and how their supply chain works. Put that together and you can propose ways you can develop solutions for them.