Newell Rubbermaid Inc. has fired a shot across the bow of the resin supply industry. Paul Box, the firm's global purchasing vice president, told an assemblage of executives and analysts in Houston that his firm, stung by rising resin prices, is “looking very aggressively” at alternate materials.
Box picked his forum carefully to get the biggest effect from his bombshell. Newell Rubbermaid has been chronically uncommunicative about its plastics operations, until it had a complaint to bring directly to marketing and other management types at the recent World Petrochemical Conference, held March 30-31 in Houston. Box threatened that the search for alternate materials will extend to materials as radical as … wicker.
What if the price of twigs and fronds climbs?
Newell Rubbermaid is one of the biggest resin users around, and consequently it gets some of the best pricing. This year it expects to spend some $550 million on resins, Box revealed. At the deep discounts the firm gets, that adds up to a mountain of plastic, about equal to the size of many resin production plants. If it has trouble competing against rivals that use a fraction of that amount of resin and pay considerably more for their pellets, then Newell Rubbermaid's profitability problems are weighted elsewhere.
To be sure, resin prices make life difficult for the firm. But Box's complaints draw attention to persistent problems within his company. Despite years of closing plants and cutting management layers, product lines and staff, it never has seemed able to reap scales of economy that should have been available after Newell and Rubbermaid merged in 1999. If closing 36 facilities and eliminating 12,000 jobs over six years can't plant a company in the black, then a lot more than raw material costs must be amiss in the Sandy Springs, Ga., business.
Predecessor Rubbermaid was out-hustled by its competitors, partly because it was slow in adopting robotics, as well as modern inventory- and production-control systems. It also failed in its attempt to stare down mass retailers like Wal-Mart in price wars, creating an opportunity for its smaller, hungrier rivals to fill store shelves. Newell's takeover was supposed to fix those and other problems, but it looks like much work still needs to be done.
Outsourcing, especially in Asia, is being touted as a solution to Newell Rubbermaid's profitability problem. How well that strategy improves the bottom line is debatable. What the company saves in labor, it might lose in shipping. And the move doesn't eliminate the effects of resin prices.
It's natural that the consumer-products giant will look at alternate materials to ease its dependence on resin, and we probably will see the firm adopt metal, glass, cloth and even wicker in some niche areas. But saber-rattling aside, Newell Rubbermaid researchers are sure to find plastics the best choice for many household goods, for the same reasons they adopted plastics in the first place. As for high material prices, we're all in this together, so let's learn to live with them.