What is your company's resin plan and is it part of a knowledge-based buying strategy? Officials with Resin Technology Inc. of Fort Worth encouraged processors to answer these questions during the firm's 2011 Executive Forum for Processors, held May 11-13 in Fort Worth.
If you need any further support for your organization to pay attention to the power of resin costs, take the following into consideration: Polypropylene went up and down 8 cents in one year. Plastics News' May 2 issue announced a double-digit increase in the North American PP market. Since April 1, that has meant an average price increase of 15 cents per pound. Since April 1, North America's polyethylene market has seen a 6-cent increase.
(Note: Prices in this story represent the performance of markets as of May 11.)
“We are at historic highs for PP,” said Sam Beasley, PE business development director at RTI, during his opening remarks May 11.
“There's another 9 [cents] on the table for [May]. PS [is] approaching record levels once again. Resin markets are real volatile. [There are] no real signs that it's going to let up. There is nothing more important in your business than knowing you're paying the right price for resin every day.
“You should have a resin plan because of pure economics. Resin is the most critical cost component in your business. If it's not No. 1 one, it's certainly No. 2,” Beasley said.
Companies successfully maneuvering the current environment have a common theme: They have market knowledge, a solid operating foundation and they execute strategies and action plans. Officials at RTI are focusing on this as ResinSmart, the knowledge stream of information and training that improves your bottom line.
Companies also need to evaluate how they are set up internally to take advantage of the knowledge and pay attention to key operating guidelines that will position the company at its maximum level.
Purchasing is the champion of the resin team, and the champion has to have a direct link to the executive team, whether it's the CEO or the chief operating officer. In some cases, companies treat resin purchasing as an afterthought, not an integral component that needs to be managed and maintained. One company, for example, had a person in human resources doing its resin purchasing.
“The goal is to buy the right product at the right price for the business,” Beasley said. “Resin demands the focus of an organization, not just the focus of one person.”
RTI looks at nine key indicators as real-time market drivers for its ResinSmart strategy. Those are pricing benchmarks, natural gas and crude oil, demand, supplier actions, secondary market, feedstocks, international market, sourcing benchmarks and producer operating rates/inventory.
The largest mistake companies make is designating one source that gathers the information for indicators. Companies need to have a line of sources giving officials knowledge in all these areas.
One of the keys also is paying attention to the secondary market, Beasley said. It is a leading indicator.
“It's the first to go up, first to come down,” he said. “You can make large inventory decisions based on what you see in the secondary market.”
Paying attention to feedstock prices is crucial. From December 2009 to date, the cost to manufacture a PE pellet and get it to a processor's door has seen a 3-4 cent increase; but producers have managed a 24-29 cent increase in price.
“It's a seller's market,” Beasley said. “Producers have been doing everything they needed to do to shove increases through and they've been quite successful. But it is going to change.”
When it will change is anyone's guess. But to compete effectively, processors must fully understand the competitive environment in each product category and be positioned to take full advantage of the change when it happens. Officials must determine their risk tolerance in each area and create a process and an environment that ensures a competitive position all the time.
“Establish a knowledge-based buying strategy,” he said. “Know the end game before ever getting started. The hurricanes [Rita and Katrina] changed our industry quite possibly forever. The producers realized they could shove large increases through in a given month. They became really disciplined in how they run their business and it shows today.”