Phil Karig is managing director of Mathelin Bay Associates, a consulting firm based in St. Louis. He has more than 30 years of plastics and manufacturing experience, including time with Spartech Corp. and Uniroyal Technology Corp.
Karig recently spoke with Plastics News about challenges facing the plastics supply chain, which has been squeezed by many factors since early 2020.
Q: Since early 2020, the pandemic, hurricanes, the ice storm and logistics challenges have had a huge impact on supplies of plastic resin and other raw materials. What should purchasing executives be focusing on as we move into the second half of 2022?
Karig: With few exceptions, the only thing that is predictable about unpredictable negative events is that some will eventually occur. The tough part is figuring out exactly what form they will take and when, exactly, they will occur.
While it's impossible to anticipate and prepare for every contingency, good procurement planning in the current environment should focus not only on identifying potential worst-case scenarios, but also on what can be done, ideally in advance, to mitigate or minimize potential negative impacts.
If, for example, a key raw material is single-sourced and produced by a supplier with only a single plant in a hurricane-prone area, now is the time to work to find and approve alternatives. The biggest mistake that we have seen many plastics processors make is not to look for alternative raw materials until an emergency strikes — when everyone else will be trying to do the same — and then abandoning the alternative raw material approval process as soon as the emergency clears, which leaves them exposed to a cycle of repeating crises.
Q: How have inventory levels been affected by these recent events? Is it still possible to have just-in-time inventory?
Karig: While there has been some increase in raw materials levels overall at the margins, there are still constraints on increasing stocks, especially for imports. Concurrently, when it comes to domestically sourced commodities, such as some resins, inventory levels haven't increased dramatically.
Q: Are manufacturers taking more steps to have backup suppliers or even backups to those backups?
Karig: As indicated above, many plastics processors tend to be more reactive than proactive in approving alternative raw materials and alternative suppliers. One challenge is that a number of end users are resistant to changing their specifications, while a number of plastics processors are wary about bearing all or most of the costs of new raw materials testing.
A possible solution is for plastics processors to identify the raw materials going into an end user's products that are single-sourced and work jointly with the end user to find and approve alternatives before a risk becomes an emergency.
Q: Is the current supply situation being looked at as temporary? Or do you think it will bring lasting change to purchasing strategies?
Karig: Some things will always be a risk to the supply chain, particularly hurricanes and ice storms. Logistics challenges, like inflation, were initially thought to be "transitory" but have proven to be more lasting than originally predicted. The problem with expecting the logistics system, for example, to clear and go back to where it was before the pandemic is that suppliers across the economy have discovered that they have more pricing power and more total profit in a tighter-capacity market and many suppliers will be reticent to go back to the way things were before.
Q: Will the impact of these recent events on global supply chains lead companies to do more purchasing in their home regions?
Karig: From a cost perspective, some resins such as polyethylene lend themselves to sourcing from North American suppliers, while others such as PET are often available at lower cost from overseas manufacturers. Some processors may be willing to pay more for higher-cost, locally sourced resin, but there are limits to how much more many of them would pay without some willingness from their customers to share part of the additional cost.