Indianapolis — Productivity for injection molders has been skyrocketing — it's up 17 percent in the last 10 years — but press utilization decreased for the first time in five years, and the industry needs to be careful about maintaining prices with customers.
So says “data geek” Jeff Mengel, a partner at Plante & Moran, who studied survey results of 108 businesses with 160 facilities and $4.4 billion in sales in the United States, Canada and Mexico for the North American Plastics Industry Study.
Mengel presented the survey results Oct. 22 at the 2015 Benchmarking and Best Practices Conference put on by the Manufacturers Association for Plastics Processors in Indianapolis.
“Here's the harbinger. Here's the omen we have to deal with,” Mengel told a sold-out conference crowd. “Let's not go back to 2004-05 quoting practices. We've had four to five good years in the industry. Let's keep that discipline where we're not bidding on just getting our presses fully utilized.”
Although thoughts of the recession linger, Mengel cautioned, “Press utilization does matter but it doesn't trump good discipline. Bad discipline in quoting will kill you. It will drain you out.”
He suggested company officials turn their attention to equipment that is aging, labor that could use some training and highly-complex customers that should probably get the boot.
In 2014, molding presses less than 100 tons were 14 years old on average and cost $25 an hour to run without an operator, Mengel said. That compares to an average of 8 years old and $21 an hour in 2004, he added.
“Our presses are old,” Mengel said. “We're not investing as much as I thought. If someone asked me what's the biggest take away in our survey, it's the fact that I thought we were buying a lot more presses. … We have to start investing in new equipment.”
The good news is that plastics processors did increase what they charged customers so they did get more money from the same presses. Gross profit margins inched up for the first time in four years, the study says, and customers are not shy about asking for price reductions in exchange for continued growth.
However, it's time to tell some customers their prices are going up, Mengel said. He singled out customers who make up the bottom 20 percent of sales yet require short-run molds or little-used resins.
“Good utilization with crappy contracts does nothing but frustrate you,” Mengel said.
Those customers make if difficult to manage production and they also disrupt organizational alignment and employees' focus.
“There's nothing more gratifying than going to a customer that's generating very little income, very little sales, and has a fair amount of complexity and telling them they have a price increase,” Mengel said. “And, there's nothing more depressing than for them to say I was wondering when you were going to do that.”
Undertaking such an exercise also helps a business go after the customers of their choice. Companies that can choose their customers do better than those taking on customers to fill capacity, Mengel said.
“You won't get profitable that way,” he said of filling machines. “Hopefully it takes you to the next stage where you can start culling those customers and then start making money with customers of focus that you want to have.”
When it comes to profitability, materials and labor are the biggest cost components in the four walls of a business. Yet, “purposeful labor” is one of a company's greatest assets, Mengel said. These workers easily deal with shift handoffs and manage technical requirements.
“What are we doing to develop our staff?” he asked.
Companies also should take a hard look at where they stand in the competitive landscape and then seek competitive differentiation through product development and design as well as proprietary manufacturing processes.
Businesses that filled out the survey rated their uniqueness as 6-7 points on a 10-point scale when theoretically the average should be 5.
“Our customers may have a greater perspective of our difference from our competitors than we do — a scary proposition,” the study says.
Mengel put it this way: “I've gone into facilities where they say they're unique and no, they're not. Look at your competitors and see where you are. That's how you get the competitive differentiation to have fewer competitors. And, when you have fewer competitors, you make higher margins.”
