North American plastics processors will look to rebound in 2012 after reverting to some bad business habits in the last year.
That was the message from industry consultant Laurie Harbour, president of Harbour Results Inc., who spoke at a recent conference hosted by industry trade group MAPP in Indianapolis.
“The economy's still not rotating,” Harbour said. “We're driving throughput and productivity, but we're not creating jobs.”
In assessing today's business practices, Harbour pointed to some troubling trends taking place among plastics processors, according to a recent survey of 108 firms — all but two of which were members of the Manufacturers Association for Plastics Processors. Harbour Results, her Berkley, Mich., consulting firm conducted the study.
One 2011 trend that Harbour found “really troubling” is that companies are holding sales meetings less regularly and talking to customers less than they did in 2010, according to respondents surveyed.
The most disturbing trend for her, however, is that top executives are taking on more roles in the business, she said at the Benchmarking and Best Practices conference, held Oct. 27-28.
“A lot of companies are going back to firefighting mode. They're not investing in people and training for future challenges,” Harbour warned. In fact, the study indicates fewer firms are emphasizing teamwork and training.
Also, fewer companies possess written long-term plans — just 49 percent compared with 57 percent in 2010, she said. “That's what scares me the most,” she said. “Where will [these companies] be in five years if they're not planning?”
Harbour urged attendees to focus on what she calls the four “built-to-last” pillars of sales and marketing, operational excellence, finance, and leadership and people.
Notable study results suggesting firms have changed the way they conduct business include:
* A drop in the number of companies — from 54 percent to 39 percent — with dedicated waste elimination teams.
* Just 14 percent reporting a heavy emphasis on teamwork compared with 30 percent last year.
* On a more positive note, the number of companies experiencing schedule disruptions two hours in advance dropped from 81 percent to 58 percent.
Challenges facing the region's plastics processors in the next 12 months, according to Harbour, are raw material pricing and availability, sales demand and operational challenges.
She also said her consulting firm “is starting to see separation” between strong companies — which she defined as having capacity utilization of around 85 percent — and weaker companies with utilization of 50-55 percent. That division might lead to more consolidations and bankruptcies, Harbour said.
Being able to raise prices also can benefit processors that are willing and able to do so. Harbour said that achieving a 5 percent price increase on just 15 percent of sales can increase a firm's earnings before interest and taxes by 25 percent. For a company with $40 million in annual sales, that means the difference between a $1.2 million earnings before interest and taxes and $1.5 million.
MAPP's executive director, Troy Nix, said business growth “is still all about execution, blocking and tackling,” which is why it's important to have full-time people devoted to specific functions.
“If you look at many small to midsized companies, the owners were the guys who had the idea in the garage, but sales and marketing isn't necessarily their forte,” Nix said.
Industry veteran Jeff Mengel also updated data from Plante & Moran PLLC's ongoing North American Plastics Industry Study. The study — which incorporates data from 142 North American plastics processing plants — now defines an average successful company as having the following financial profile:
* Annual sales of $16.8 million.
* Annual sales per customer of $642,000.
* EBIT and owner's compensation of 14.3 percent of sales.
* Two-year sales growth of 21.7 percent.
* Press utilization rate (for injection molders) of 35 percent.
Mengel, a partner with Chicago-based P&M, also provided comparison data for operating a standard-sized injection molding plant in the U.S., Mexico and China. That comparison defined a standard-sized plant as having:
* 50,000 square feet of manufacturing space, 20,000 square feet of warehousing and 15,000 square feet of office space.
* 25 injection presses from 100-1000 tons.
* 85 percent uptime, running three eight-hour shifts five days a week, for 250 days of operation per year.
* About 19 shop floor employees.
Operating such a plant would cost the least in China, with a rate of $4.86 per foot, according to Mengel. The same plant would cost $6.75 per foot in the U.S., and $7.28 per foot in Mexico.
The United States was the most affordable of the three in electricity costs for such a plant, however, with a rate of 6 cents per kilowatt-hour. Electricity rates for the same plant in Mexico would cost 11.5 cents per kwh, with China slightly higher at 11.6 cents per kwh.