Nobody told Tom Waltermire there'd be days like these.
Since taking the helm as chairman and chief executive officer at PolyOne Corp. in August 2000, Waltermire and his staff have worked to combine the assets of Geon Co. and M.A. Hanna Co., the two compounding giants that were brought together to form PolyOne. But the road hasn't been easy for the Cleveland-based firm, as a string of financial losses has resulted in plant closures and job cuts.
With a 12 percent share of the North American compounding market - including leading positions in PVC compounds and color compounds and concentrates - PolyOne could be well-positioned to benefit from an economic upswing. It's Waltermire's job to keep the ship pointed in the right direction until that moment arrives.
Waltermire, 53, joined Geon forerunner BFGoodrich Inc. as a financial analyst in 1974 after doing his undergraduate work at Ohio State University and earning an MBA from Harvard University. He rose through the ranks at Goodrich and stuck with Geon when it was spun off as an independent company in 1993.
NPE 2003 was sort of a homecoming for PolyOne, which announced the merger of Hanna and Geon at the last NPE in June 2000. Waltermire recently sat down with Plastics News to take stock of the plastics industry and PolyOne's place in it.
Q: What's PolyOne's overall perception of the economy right now? Are you picking up on any positive indicators?
A: If you look at the macro picture, there are signs that give us some optimism. But it's hard to look at the attitudes of our customers and cite signs of a lot of improvement. The stock market's not always a valid predictor, but it's been optimistic about the economy on a pretty sustained level now for a couple of months. Clearly, investors sense a bottom, if not a pickup. Investors are in business to take a broad view and they talk to a lot of companies, while most of us are captives of our own narrow worlds. Interest rates, the tax cut, a variety of things are all pushing in the right direction. The cumulative weight of all these things is reasonable cause for some expectations to pick up.
But obviously, right at the moment, if you look at all the data and all the economic measures, they still say that if you're a manufacturer, you're still bumping along the bottom. Our customers are cautious; they're concerned about the long-term. They're still driving like mad to take cost out.
Q: Are customers looking for one particular thing to believe there's a turnaround?
A: To an extent, part of what's been missing in the last year and a half is business investment. [Consumers] are continuing to spend at reasonable levels, but one big consumption category is missing, and that's business investment. There's no doubt that we've lost some manufactured goods from products produced outside the United States, particularly in Asia. I don't know what the exact impact of that has been, but it's been a contributor.
But a lot of big investment has been business investment and that typically doesn't take place until the economy and consumption have grown and you need capacity added. Clearly, it's not gotten to that point. We need business investment and we need consumer demand to continue to grow enough that it can absorb extra capacity from productivity gains in the second half of the '90s, as well as offset demand lost from business now supplied from outside the United States. We need both of those things for the economy to be strong.
Q: Consolidation almost always is described as a step in the right direction in the plastics industry, but have PolyOne's struggles caused the industry to question the value of consolidation? Or has it just been unfortunate economic timing that's slowed PolyOne's progress?
A: Our first big challenge was the falloff in demand in '01. Then by mid-'02 that was followed by the challenge on raw material costs and trying to recover those costs in the marketplace. Those have been the main things affecting us.
If you take as a widely accepted principle that our customer base is under increasing demands for cost reduction, the economies of scale that a company like ours can deliver give us an advantage. Take a couple of macro drives - driving down cost plus the ongoing globalization of business. By consolidating PolyOne, we're set up to meet those challenges.
The particular challenge we have in our segment of the market is that our business is driven by a lot of small transactions. So the challenge is how to retain the flexibility and speed we want to have while also delivering the economies of scale that our customers are looking for. They want lower and lower and lower cost. We have a lot more ways of bringing that than a traditional small, regional compounder or masterbatch house does. Those are relatively low-cost operations, but they don't have a lot of new economies to bring. They are what they are, but we've got the ability to get low raw material costs and low logistics costs and the ability to integrate our own raw material supply.
It's been a very tough environment to implement all the changes we've been working on, but we're continuing to come up with more and more ideas on how to get more productivity and efficiency out of what we're doing.
Q: How does the role of new products change in this type of business environment, where customers are cautious about spending? Do you go with a more limited lineup or a wider selection?
A: Our sector is very application-driven. Our business is not at all about creating the next fancy plastic molecule. We rely on the fact that the chemical companies are continuing to invest to do that. Our job is to take those new materials and additives and help the chemical companies go to market. We've got strengths that a typical traditional compounder in our field doesn't have, because of the number of applications and markets we know well. When there's that new material or additive that brings performance, we're a very attractive place for the people with those innovations to come.
In the current environment, what customers are most interested in are those innovations that allow them to have lower costs or a lower-cost way of achieving a certain performance level. At the moment, we have more of those being brought to us than we have the resources to fully pursue. As we screen which ones we want to devote our resources to, those with a lower-cost way of achieving performance in an end product are the ones that get higher marks. Customers will more rapidly adopt innovations that lead to lower costs for them. Our job is to help polymer and additive innovations actually get adopted in the marketplace. We turn them into applications and understand where they actually have value.
Q: So it's no longer just a matter of saying your new product sells at a premium to your existing product, but it offers improved performance?
A: It's more a matter of saying, here's our new compound that can do the same thing, but because of the way the material is designed it can do the job at a lower cost, or a customer can use less of it, or it can make a customer's machine run faster. This isn't a 180-degree change, but customers now are being faced with cost-down demands and most of them face some kind of offshore competition.
Q: Do you think more compounders will try to become global in nature? Or is that too much of an investment to make?
A: I imagine many, many people will think about it, but we know from experience that it's a challenge to do that, to get that under way. You need to have business built on relationships, so it's not just a matter of plunking a plant somewhere. You have to build infrastructure and you have to build relationships in the marketplace. It's challenging to enter a market in a culture you don't know anything about. We're blessed with strong units in Asia and Europe, and we see those as real advantages.
Q: Is PolyOne seeing more of a focus on aesthetics in color compounds and concentrates? More focus on product differentiation?
A: For our sector, I don't know if that's a new trend. The magic of our new OnColor technology is speed, but it doesn't do anything different in the end result that people like packaging companies and consumer product companies have wanted all along.
I think if you look at what's actually behind all of this recent activity in color programs, it's a response to having color variability faster. The faster and cheaper you can achieve color variability, the more it allows you to have mass customization.
OnColor doesn't create different colors, but it allows the time from concept to marketplace to be cut dramatically. You can cut out the laborious process of sending color chips back and forth and can see true color and tie it to our rapid- response capabilities. The whole thing is designed to cut time to market, and that's valuable.
It makes it even easier to use color to differentiate your product. If you want different color cell-phone plates, you can sit there [with OnColor] and conceive of 40 of them, whereas in the past it may have been prohibitive to go to that many variations.
It's all about speed and cost. Those are the two things we're driven by.