Tyco Plastics & Adhesives President Terry Sutter has more than 8,000 reasons to be concerned about high resin prices.
That's the number of rail cars of resin - mostly polyethylene - that roll into Tyco's film plants every year. The cost of Tyco's 2 billion-pound annual resin buy has gone up significantly in the past 12-18 months, even with the volume discount a buyer of Tyco's size can command.
Sutter sized up the challenges facing his Princeton, N.J.-based company - which is part of Tyco International Ltd. of Pembroke, Bermuda - during an interview at Chemical Marketing Associates Inc.'s World Petrochemical Conference in Houston. Sutter spoke at this year's event, held March 30-31.
``We've been successful in getting more than half of the increases passed on to our customers,'' Sutter said. ``The magnitude [of the increases] is such that we can't get it back in productivity alone. No one can absorb that much.''
Resin makes up 50-60 percent of Tyco's component cost for its film products. The unit placed third in Plastics News' recent ranking of North American film and sheet makers, with estimated sales of $1.1 billion.
Sales of Tyco's own products are up as well, leading the firm to add four to seven lines this year at various locations. Tyco operates 21 film plants in the United States, one in Canada and four in the United Kingdom.
Tyco's use of Six Sigma management practices also has paid off, he said, yielding savings of $20 million in 2004. That number is expected to reach $30 million this year.
But the resin picture - where every penny increase costs Tyco $15 million a year on PE alone - has been taking up much more of Sutter's time recently. He meets often with plastics President Brian Strauss and lead buyer Vike Engh, as well as major suppliers such as Dow Chemical Co. and ExxonMobil Chemical Co.
``We spend a lot of time on the [resin] supplier side, moving volume around and trying to create competition,'' Sutter said. ``We want resin suppliers that have the technology, capacity and desire to work with us.''
The current market also creates more work on the customer side for Tyco.
``We've worked hard to explain what's going on to our customers,'' Sutter said.
``We've tried to educate our sales force and make sure it doesn't look like a single event is responsible for higher prices. The worst thing for our customers is being surprised. They don't like that.''
Not that Tyco needed any extra challenges. The Plastics & Adhesives unit just completed a restructuring that saw the closing of 30 plants and elimination of 1,200 jobs between the fall of 2003 and the end of 2004.
The overall company is emerging from the shadow of a public scandal that saw two of its top executives indicted for allegedly defrauding the company for $600 million in expenses.
Sutter, who joined Tyco in March 2003, said the company is ``moving beyond'' those troubled days. He credited Chairman and Chief Executive Officer Edward Breen with helping to rebuild the company.
Sutter added that although Tyco has closed some film plants - in some cases, Tyco had three of four film plants operating within a couple hundred miles of each other - the overall North American film market still has too much capacity.
``There's still some rationalization that can take place,'' he said.
And Sutter remains hopeful that a calmer resin market can get Tyco back to the types of things it enjoys doing.
``We'd rather be working with our customers on product innovation and taking cost out of their systems than talking about ethylene economics and natural gas,'' he said.