Put plastics industry executives in a room together and eventually the conversation turns to sustainability issues, recycling, China, resin costs and the shortage of production workers with math, reading and communications skills.
That was the case at a November meeting in Richmond designed to give economic development officials in the state information about the plastics industry and plastics companies in the state. The group also discussed industry trends at the meeting, sponsored by the Virginia Economic Development Partnership, based in Richmond.
``The big question we have when hiring workers is will their math and communication skills be what we need,'' said David Bryan, president and chief executive officer of Gala Industries Inc. of Eagle Rock, Va. ``Sometimes we have to interview 50 people to get one capable of running a machine center or one that we would be willing to put in front of the customer.''
Another executive at the meeting agreed. ``There is an education gap in the workforce,'' he said. The math and communications skills, and the general skill levels of workers that come through the door aren't as good as firms need them to be, the executive said.
That education gap among potential workers is becoming more critical as costs rise, he said.
``Raw material and energy costs are escalating and going through the roof, driven by the price of oil. We need to be a lot better about taking costs out, and the workforce needs better skills to do that,'' he said, especially as plastics companies move toward Six Sigma, lean manufacturing and total production systems.
With that in mind, Wilmington, Del.-based DuPont Co. uses an elaborate, six-month hiring process to hire shop floor employees for its Zytel nylon resin plant in Richmond.
``We hire people with the right behaviors - not just forklift drivers,'' said Jay Valvo, plant manager. ``We figure if we get someone with the right behaviors we can train them to do everything.
``Our training costs are higher than in a traditional work environment, but the belief is that you get that back 10-fold,'' Valvo said. ``Our operators understand [return on net assets] and the need to improve RONA.''
A worker's financial understanding of how to reduce costs and improve profits is critical for several reasons.
``A 2 percent reduction in operating costs yields a 10 percent increase in net income or profit margin,'' said Jeffrey Samet, senior vice president in the Baltimore office of real estate consultant Colliers Pinkard. ``One dollar saved in costs is the same as a $14 increase in sales.''
In addition, retailers like Wal-Mart Stores Inc. ``won't allow prices on its store shelves to raise,'' said another executive at the meeting. ``There is intense pricing pressure down the supply chain'' because of that and because of competition from China.
``Resin costs are at very high levels,'' said Bill Wood, president of Mountaintop Economics & Research Inc. in Greenfield, Mass. ``The cost of materials are an enormous cost of the product, so plastics companies, at the present time, are very vulnerable to material costs.''
Those rising materials are compounded when combined with sustainability and environment issues. Those issues are triggering some plastic product bans - mostly expanded polystyrene takeout containers and plastic bags - and prompting retailers to reassess whether to keep selling products and using packaging made from certain plastics.
``There is some shift in retail packaging from PVC to alternative polymers, as well as a demand for post-consumer recycled content,'' said Greg Pagonakis, commercial development manager at the Gordonsville, Va., plant of KlÃ¶ckner Pentaplast of America Inc. KlÃ¶ckner makes sheet for flexible and rigid packaging for food products, cosmetics and electronics and for pharmaceutical blister packs.
Wal-Mart has had a program to reduce PVC in some of its products and packaging for two years. And, in October, Target Corp. said that it is pursuing opportunities to reduce PVC in its products and packaging, ``where technically and economically feasible.'' The big-box retailer said its branded children's utensils, lunch boxes and coolers now are PVC-free. Its branded baby bibs also will be PVC-free by January and its Target-brand infant changing tables will be made from a PVC alternative.
``Plastics gets a bad rap unfairly,'' with respect to sustainability, said Larry Richardson, business development manager at the Powhatan, Va., plant of injection molder Tessy Plastics Corp. ``We need to have a multipronged answer and a movement toward a life-cycle mentality because the solution needs to be comprehensive,'' and not just focused on one aspect of the equation.
With the growing sustainability, environmental and health concerns, Pagonakis hopes that informed choices will be made and decisions won't be made in isolation without looking at the larger picture.
``We want our customers to make an educated decision based on the requirements of the packaging,'' said Pagonakis. That includes being able to understand all the sustainability issues, including recycling, he said. ``We have concerns over all the biopolymers because of the potential to contaminate the recycling stream.''
Similarly, he said, state efforts in California and elsewhere to force recycled content could backfire.
``Forcing recycled content could make the situation worse if there is not a recycling infrastructure,'' he said.
But Pagonakis and other executives added that the industry, along with the U.S., needs to improve at recycling plastics.
``We need to do a better job as a country of getting material and products back,'' he said. ``I wish we would have a uniform recycling approach'' for materials such as bottles, clamshells and PVC.
Despite those challenges, there is optimism about the future, with growth rates of 5-10 percent expected in most markets. Additionally, there are even signs, some said, that China is no longer viewed as the panacea for manufacturing.
``In spite of sharply higher resin prices and strong competition from low-cost imports, the U.S. plastics industry continues to expand,'' Mountaintop's Wood said. ``The production volume lost to overseas has been replaced by higher-value-added plastic products,'' with much of that achieved through ``increased investment in equipment and technologies that enhance productivity and efficiency,'' he said. ``This will continue for the foreseeable future. The China mystique will be exposed.''
``There are intellectual-property concerns and poor communications and slow response to changes in tooling,'' when dealing with China, as well as the issue of the use of ``noncompliant'' products in production, Richardson said.
``The low-cost solution is not always China,'' he said. ``There are additional unforeseen costs of doing business there, including sending people and engineers over there to fix things. We are seeing an increase in things done here [in the U.S.] except for commodity industries. U.S. molders are leaner on prices because of high-speed presses and better efficiencies.''
Gala's Bryan agreed: ``Some companies have found out that the overhead to support that cheap labor in China isn't what they thought it was.'' He noted additional logistics costs, intellectual-property expenses and exchange rate liabilities, in particular.
``Before you look at building anything offshore, you need to run it through the grinder to make sure you can't do it better here,'' Bryan said.