Newell Rubbermaid Inc. has seen the future - and it's a future with less plastic in it.
The Sandy Springs, Ga.-based consumer products giant has been ``strategically exiting'' resin-intensive categories and is ``looking very aggressively'' at alternative materials, Paul Box, global purchasing vice president, said at the CMAI World Petrochemical Conference, held March 29-31 in Houston.
For a company that may be the best-known injection molder in the world - one of the few that is a true household name - executives know the plan sounds awfully radical.
``When people say Rubbermaid, they think plastic, but we want to lessen our dependence on resin,'' Box said. ``We're moving to a model where we're not buying beads and pellets to shoot and ship.''
As proof, Box cited wicker laundry baskets and metal closet organizers that the company now is making. High resin prices are part of the reason for the change.
In 2004, the average cost of resins used by the company jumped 21 percent.
Newell Rubbermaid was able to recover only about 40 percent of those increases from customers such as Wal-Mart, Target, Lowe's and Home Depot - and those increases were won only after a three quarter lag.
``Efforts to raise prices have met with fierce resistance,'' said Box, a purchasing veteran who joined Newell Rubbermaid in 2002. ``A 40 percent recovery is unacceptable. [Resin] producers have the ability to pass through cost more efficiently than converters can recover it.''
Box humorously recalled a situation from when he started his position with Newell Rubbermaid. In 2002, Box received his first price-increase letter from a resin supplier and crumpled it up, only to get a call from one of his plants 30 days later when they were running out of resin.
``I became a plastics guy pretty quick,'' Box said.
Newell Rubbermaid also plans to increase its presence in Asia and the portion of work that it outsources. By 2007, Newell Rubbermaid wants to have 60 percent of its manufacturing in Asia. By comparison, 76 percent of that work had been done in North America and Western Europe as recently as 2001.
Its 2001 outsourcing rate of 34 percent is expected to hit 65 percent by 2007, Box added.
Newell Rubbermaid plans to spend $550 million on resin in 2005, but it has struggled to balance the higher prices it has been paying for raw materials with the selling prices for its products.
In 2003, Newell Rubbermaid's raw materials costs increased by $82 million, but its product prices dropped almost 2 percent. In 2004, the situation didn't get any better: Product prices dropped 0.1 percent even as raw material costs increased $116 million.
For 2004, the firm expects to increase product prices 1.5 percent, with raw material costs expected to be up $170 million.
``We have to educate customers about the plastic-making process, from extraction at the wellhead to retail,'' Box said.
In Newell Rubbermaid's cleaning and organization unit - the largest of its five operating units, containing such brands as Rubbermaid, Roughneck and Take Alongs - 65 percent of the cost of goods sold is tied up in resin. The company's total materials-cost average is 56 percent.
Newell Rubbermaid periodically reviews its resin suppliers, grading each in several areas of performance. The firm also is reviewing other products it may move out of plastic.
``If we're in a market today where the margin's unacceptable, we may move in an alternate direction or shed those categories,'' Box said.
The cleaning and organization unit saw its sales drop almost 8 percent in 2004 to about $1.86 billion. Overall company sales dropped more than 2 percent to $4.86 billion. Newell Rubbermaid posted a loss of $116 million in 2004 after losing $47 million in 2003.
The firm's shift away from plastics has been evident since at least 2003, when it announced it would close its landmark Wooster, Ohio, molding plant. Around that time, Chief Executive Officer Joseph Galli told analysts that Newell Rubbermaid wanted to outsource more molding, exit some low-margin product lines and sell poorly performing operations.
Newell Rubbermaid ranks No. 7 in this year's sales-based injection molders ranking with an estimated $720 million in relevant sales.
Since Newell Co. bought Rubbermaid Inc. in 1999, the combined firm has closed 86 plants and eliminated 12,000 jobs. The company also has sold off more than $1 billion in low-margin businesses.