AVON LAKE, OHIO (June 27, 3:15 p.m. EDT) — In Steve Newlin's world, customers come first.
They also likely hold spots two through 10 on his list of priorities as he takes the reins at PolyOne Corp., the Avon Lake, Ohio-based firm that ranks as North America's largest compounder. Newlin, 53, joined PolyOne in February after a three-year stint with Ecolab Inc., a specialty chemical maker based in St. Paul, Minn. Prior to Ecolab, Newlin spent 23 years with Naperville, Ill.-based specialty chemical maker Nalco Co.
Newlin enters PolyOne at a pivotal point in its brief history. The firm was launched with great expectations in 2000 when compounders Geon Co. and M.A.-Hanna Co. merged. But a manufacturing slowdown and internal challenges have prevented the firm from reaching its potential. In its first five years of operation, PolyOne lost almost $280 million as annual sales fell from $3.1 billion to $2.2 billion.
But Newlin, a South Dakota native, sees brighter days ahead, as evidenced by PolyOne's first-quarter 2006 results. The firm posted a profit of almost $49 million — its best-ever first-quarter showing.
Newlin recently sat down with Plastics News at PolyOne's Avon Lake headquarters to talk about what the future may hold.
Q: What's the biggest challenge facing PolyOne? Raw material costs? A smaller North American manufacturing base?
Newlin: Both of those are challenges, but they're not the biggest challenges we really face. Our biggest challenge is to get customer focus and help our customers be more successful and grow. There's nothing we can do that impacts our performance more than that. So that's what I'm trying to get my arms around.
Internally, I've already talked to our employees about being more customer-centric and really defining what that means. It begins with listening to and understanding our customers better and getting closer to them, calling on them more frequently and asking the right questions. Really trying to understand their business better, including their business economics, and even their end customers. That's how we can best provide solutions, when we really immerse ourselves in our customers' business and are thought of as being part of their profit stream and revenue stream.
So that's what we're trying to do, and there are a lot of ways in which we're trying to add a service component to our business, whether through innovation or unique formulations or through absolutely superb delivery services. Or by helping lower [customers'] energy costs or improve their quality and throughput. Those are the kinds of things we have to do rather than just being a resin supplier or formulation company.
Q: Do you see PolyOne being more market-focused or product-focused? For example, would a packaging team sell all of PolyOne's products to the packaging market?
Newlin: We don't know the answer to that yet. We've got a lot of market intelligence work to do before we can get there. Customers are really focused heavily on this, and we're going to listen to their vote. But we've done some different things in these areas in the past that weren't successfully executed. What I have to understand is: Was that a problem in execution or was it the wrong strategy? So we're studying and trying to understand right now what makes the most sense. I suspect it may be little bit of a hybrid in the end.
We're doing some work right now that may be hybrid. We have some key accounts where we've named a commercial leader to handle those key accounts, to represent all of PolyOne to those markets.
Q: If that hybrid model evolves, would it be on an account-by-account basis or based on geography?
Newlin: I think we're at different stages around the world and have different degrees of development. Our customers have different needs and sophistications as well.
Q: It sounds like it will be more case-by-case.
Newlin: What it's all about is really getting more specialized and getting a better understanding of our customers' business needs. The challenge of going market-specific is that you have to be careful, because you need people [on your staff] that know color, that know engineered materials, that know all we have to offer and that know the customer well enough to create value. At the same time, they have to have the knowledge to differentiate us. You can make a case either way. It just comes down to which will you be able to execute better.
Q: PolyOne's product application seems more specialized already, based on the new products you're showing at NPE.
Newlin: I think it's an early step, and these things take some time and some focused effort on our part. It goes back to market intelligence, where these products are headed and what our customers' needs are down the road. Not just where they are today, but sort of anticipating and then developing a value proposition for these products and services that makes sense for where our customers' businesses are heading.
Q: It's almost like you're putting product application and research and development back onto customers, as far as direction is concerned.
Newlin: I think we'll take the lead from them and work on R&D efforts that are both unique and that are able to be leveraged.
Instead of just doing an R&D project for one customer, we have to do one for groups of customers and one that the market can understand. We need to find areas where we can help our customers more and better reward ourselves and our shareholders.
Q: It's probably harder to find a niche with a company of PolyOne's size.
Newlin: We have to understand the size of the niche better, and what's the degree of profitability. How comfortable are our customers and their customers, and will they reward us for that? Do they need our services? That's how we'll look at things in the future. We really need to define the segments and sub-segments that are out there.
Q: Are there some parallels between your previous work experience and some of the things you're looking at with PolyOne?
Newlin: Both Nalco and Ecolab are outstanding specialty chemicals companies that have done a terrific job with customers. I think I've had the great fortune of learning ways to connect better with customers, what customers expect from business partners, how to connect and develop uniqueness and a strong value proposition. That very much applies to what PolyOne is doing.
Also, there was the global aspect of [Nalco and Ecolab]. I was fortunate to lead Nalco's business in the Far East in the early-to-mid '90s. Then I led [Nalco's] business in the Netherlands for four years, running businesses in Europe and the Middle East. I got some great global experience there, and with PolyOne being a global company and having good-sized operations in Europe and needing to expand through Asia, that's very useful.
I also don't believe in being a specialist CEO. It's a leadership role, and the broader your experience is, the better. And coupling that with leadership skills and understanding how to energize an organization and take an organization to its full potential is the biggest challenge a CEO faces today.
There are examples in corporate America today of people transferring to businesses they don't know a lot about. At 3M, at Hewlett-Packard, people are doing terrific things with different backgrounds. There are some connections, but they're different companies. What's most important are the leadership skills you bring.
Q: Are there any parallels on the raw materials side between those companies and with compounding, where resin plays such a big role?
Newlin: We used different forms of polymers at Nalco, but we were still involved in polymer manufacturing. The backbone of the chemistry is not that different. The chemical industry was one of Nalco's largest customer segments, as well as refining and petrochemicals. We did a lot of business with Dow and BASF, for example. So there were strong connections to the chemical industry emanating from what I consider a specialty industry.
Q: So you're used to getting up in the morning and checking the price of oil and natural gas.
Newlin: I am. I serve on the board of an energy utility company that develops oil and gas for a living, so I'm intrigued on several fronts. I wish we could do more about it, but I'm certainly paying attention to it.
Q: What's the status of PolyOne's resin distribution business?
Newlin: There's a lot of activity in the distribution arena. PolyOne distribution is a business we're very proud of. They do an excellent job, and we've validated this with customer satisfaction surveys. It's a growing business that has an outstanding organization. It's one of the best-run businesses in our company, and we're very happy not only with the returns we've been seeing but also with the channel it provides for some of our own products.
[Distribution] has been reliable and steady and consistent, and I think that's the kind of business you always want to have in your portfolio. We have no plans at this time to modify that part of our portfolio. We like it a lot.
Q: How does PolyOne prioritize its North American market base vs. higher growth markets abroad? How do you protect that base while focusing on higher growth? Is that a challenge?
Newlin: It's not a challenge, it's a must, it's an absolute, really. We have this wonderful opportunity in the Far East and in Europe as well to grow at a high rate. At the same time, we're going to protect our base. About 76-78 percent of our sales are North American.
In my previous positions, there's been more of an international mix. We want the weight of our business in Asia to be stronger. We're going to grow organically and through appropriate acquisitions and investments to make that happen.
I'm very pleased with our progress in the Far East. It's a nice business that's growing strong. We've put capacity on and filled it up pretty quickly. We're going to keep the faucet running to invest in opportunities to keep that business growing and try to be selective in more specialized niches.
We have this wonderful knowledge of formulating and an experience bank that's unparalleled, and we have to use it wisely for customers and niches that appreciate that. It's always a balance.
I don't think we're finished in North America. We have opportunities in North America that are very attractive niches that we need to pursue and pursue aggressively. It's tougher [in North America] right now, but we have to find that delicate balance of growing our home base and going into areas with higher growth. There's just not enough weight in our portfolio for the rest of world to offset stagnant growth in North America, but we can't afford to let our business in North America be flat. We need to keep that going and improve North America at the same time.
Q: The focus seems to have shifted as North America has slowed. There's more going on with the penetration of plastic vs. other materials. That had been the focus before, but when growth was high, the industry seemed to go away from it. Now it's coming back.
Newlin: That's music to my ears. I get the same sense. I'm new to this part of the business, but I know at one time it was “Go, plastics!” I sense we're on the verge of moving again toward more substitution. Our Gravi-Tech [polymer-metal composite] line is a good example. It's a great replacement for lead. I visited a compounding customer recently and was fascinated by this application. I didn't even realize it was plastic. It's really heavy and doesn't feel like plastic or look like plastic. These kinds of things are a great opportunity for PolyOne and for the plastics industry. A lot of dynamics are in play here, with prices for commodities like copper being as high as they are.
Q: Will that affect your R&D strategy?
Newlin: We're going to improve and upgrade our investment in R&D. PolyOne went through a period where we had to do a lot of things that we knew weren't the best long term for the business. But we did it to get through a really rough period. Now, we've put ourselves in a very strong financial position that will allow us to go make some investments in areas with very promising growth, but we've got to be selective, and we hope to be wise. R&D is one of the areas we want to make investments in.
We've got four fronts to investment. First is the commercial front, where we'll have more sellers on the street to call on additional prospects. Second is marketing. We want more marketing intelligence to better understand where markets are headed. We also need customer insights to map strategy on where to place emphasis.
The third investment area will be R&D and the fourth will be geographical expansion, in Asia predominantly, but also in parts of Europe.
Q: What are some things PolyOne can do about its raw material situation? We've heard of options ranging from sourcing more outside of North America to improving the quality of material while using less resin.
Newlin: Those are a couple of options, and there are several. We started a Sigma initiative in our vinyl business in July 2005, and it's made tremendous progress in removing waste on the manufacturing side. We're going to take those successes and leverage them across the company. We need to find ways to be smart about sourcing. You have to be smart and efficient in everything you do, including how to source, where you source from, scrap rates and the yields you're getting. You have to work on that all the time.
I was just at our plant in Pasadena [Texas] yesterday and was looking at the great work they've done and the impact that lean Sigma practices have had on that organization. They've not just reduced waste, but they've freed capacity and improved quality and on-time delivery to customers. The morale of these people was sky-high. They've internalized the concept and felt they made their company and their plant better. They're contributing more as a result and you could see that all over their faces. It was really uplifting.
Q: Have you had some pleasant surprises since taking the job?
Newlin: One of the things that's been a pleasant surprise to me has been our real knowledge of formulations. I understood when I did my due diligence [on PolyOne] that we were pretty good at it, but now I think we're outstanding. We're really terrific at this, and I'm very pleased with what I've seen so far.
The other surprise has been our financial performance. It's been very strong. We had an outstanding first quarter. What it's doing is giving a lot of financial flexibility to our organization. It allows us to do some things to grow down the road, things that will be helpful and useful to our customers as well.
One other surprise has been safety. Companies talk about people and safety and environmental health and safe practices, but we really live it here at PolyOne. We take it seriously, and it's woven into the fabric of the company. It's deeply imbedded as an asset to the organization. It wasn't a huge surprise, but it's been a pleasant experience to see how much we live it.