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January 1, 2002

8 Min Read
Market Snapshot: A hopeful gaze into the future

Editor's note: Last month IMM looked back on 2001 and reported on some of the strategies molders used to cope with a rapidly declining economy. In this month's Market Snapshot, molders look at the year ahead with both hope and dismay, and discuss how they plan to deal with challenges presented in 2002. 

Everyone smells change in the wind. Bankruptcy notices and plant closures have caught molders' attention. When people talk, they mention shockers like Security Plastics (Miami Lakes, FL) entering into Chapter 11 after 32 years as a strong molding business. Some molders know they're one customer away from the same fate. 

Amidst this uncertainty, molders are left trying to figure it out. "I don't know what the future of molding will look like," says Brenan Riehl, ceo of GW Plastics (Bethel, VT). "Certainly there's a shakeout in the industry—a lot of consolidations recently." 

The custom molder of the future understanding the needs and wants of its client base and is capable of supplying those needs.

Rapid growth and a frenetic acquisition pace in the mid to late 1990s can be blamed for some of the corporate failures, Riehl believes. "Some grew too rapidly at the expense of profitability," he says. "Our chairman often cautions us that growth without profitability is death. We remain focused on growing the top line, but not at the expense of the bottom line." 

Randy Barko, vp of sales and marketing for Nypro Inc. (Clinton, MA), acknowledges this as well. "In the U.S. we're seeing a tremendous amount of consolidation, and many companies we've heard about for 20 or 30 years or more aren't going to make it." 

Plastech Corp. (Forest Lake, MN) fought last year's downward spiral by trying "not to participate in the recession," says Dave Brentz, senior vp of sales and marketing. He adds that the company's 2001 sales are higher than in 2000 and will show an increase in the single-digit range. 

However, the company isn't as hopeful for 2002. Plastech's primary customers are in consumer durables. "We're very concerned about 2002," Brentz says. "I expect to see some slowing in the first quarter, but past that is a big question mark." Consumer confidence is a key issue for molders that produce for the durable goods markets. Whether or not people feel confident in the economy makes a big difference in what they'll spend. 

One Man's Loss . . . 
It's not lost on salespeople of surviving molding companies that as those molders in trouble begin closing plants, an opportunity to pick up new work opens. "That sounds harsh, but yes, that's what many of us are doing," acknowledges the sales manager of one large custom molder. 

Webster Plastics (Fairport, NY), like many successful molding firms, promotes its financial strength to OEMs that do business with molders on shaky ground. "It's a natural evolution for business to move to molders who are stronger from other molders that aren't," says Alan Gross, the company's director of operations. 

Plastech's Brentz makes no apologies for the company's willingness to accept programs being moved from financially strapped competitors. "We can make the investment to support their programs," he says. "We know what our costs are and we're competitive, but we're also going to be here long-term. We have a very good track record for seamless program moves. That's worked to our advantage as much as anything." 

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Keys to Future Success 
Nypro's Barko says that his company's development of supply chain expertise from procurement sourcing to real-time information on the plant floor has increased its value to Nypro's customers and helped both be more successful. "Most of our big customers are having us make products for them in more than one location in the world, so reducing the risk of high-dollar inventory to minimize cash flow problems is the key to success," Barko explains. 

The competitive watchword, says GW's Riehl, is lower labor costs, labor efficiency, and speed to market. "It is important to lower labor costs by either manufacturing products in a low-cost-labor environment, or obtaining greater efficiencies in a higher-cost-labor environment," Riehl explains, adding that strong financial controls, establishing aggressive productivity targets, and running a low-cost operation are keys to a successful business model. "Reducing turnaround time and increasing speed to market will also remain a continuing trend that custom molders must capitalize on if they intend to stay in the game going forward." 

Mark Schaefer, business development manager for Midwest Plastic Components (Minneapolis, MN), sees the custom molder of the future as a contract manufacturer "that truly understands the needs and wants of its client base, and is fully capable of supplying those needs through alliances, acquisitions, or greenfield plants to become an integral part of its clients' business." 

Randy Barko agrees. "Very little of what Nypro does today is just molding," he adds, which is a key to Nypro's success in the face of tough economic times. 

Plastikon Industries Inc. (Hayward, CA) also plans to provide more services in the future. The company is developing new strategies for the upcoming months, including hiring additional salespeople to stretch its reach into the medical arena. Plastikon just opened a new 90,000-sq-ft plant to accommodate its automotive and medical business, while the current 35,000-sq-ft plant will focus on tooling and engineering. The new facility will also house a tech center with plans to increase R&D expenditures into painting and decorating. The company is already doing two-shot molding. "We're offering our customers more than just molding," says Susan E. Ball, director of sales and marketing. "Even though the economy is down, we're positioning ourselves for new sales for the future." 

At Webster Plastics, Gross says the company has honed its operations in a way that is paying off during the economic downturn. "For the success of smaller independent molders, we have to look at other value-added activities to keep ourselves viable," he says. "We're a niche-oriented custom molder, specializing in metals-to-plastics conversion—anything but me-too." He notes that Webster's lean manufacturing approach over the past five years has helped differentiate it from its competitors. "We're really seeing the benefits of our efforts toward lean manufacturing and our conservative nature," says Gross. (For more on Webster's lean operations, see August 2000 IMM, p. 109

Schaefer agrees. "There's a lot of talk about being lean and mean, but success requires an understanding of the true meaning of lean manufacturing," he emphasizes. 

Also operating under the lean manufacturing mantra is Fiesta Plastics in Tempe, AZ. Jack Thompson implemented this concept as Fiesta's business model when he started the company, and today runs a facility with nine presses ranging from 50 to 400 tons clamping force. Thompson keeps his debt and overhead low, and maintains his cash flow by refusing to take on business for less than what he needs to make a profit. "I won't give my work away," he says, adding that he sees molders quoting jobs for below the cost of materials just to get work in these tough economic times. 

There might be some short-term advantages for the buyer in temporary price reductions as some molders take anything to keep the doors open, but will they have a supplier long term? Thompson knows these are the ones who won't be around next year. He doesn't plan to be among them. 

Watching the customer base and carefully choosing new customers is another critical path to success. In this day of so many corporate bankruptcies, having a customer go out of business owing its molder isn't a pretty thought. Webster's Gross stresses that keys to success have to include "who you go after in new customers and who you have as a customer base, as well as the sourcing decisions you make." 

This was also a factor in Plastech's ability to boost sales and profits in 2001. "We attribute this to some very aggressive cost cutting at the first of the year, but we're also very selective in our customer base—no bottom feeding," Brentz states. 

Snapshot of the Future 
In spite of the depressing economic news, most molders are hopeful that all of the measures they've taken will allow them not only to survive, but also to thrive in the coming years. However, they're under no illusions that the molding community will look like it has over the past few decades. 

Plastikon's Ball says that in the future "it will come down to fewer molders, and those will have a lot more services to offer their customers." 

Charles Sholtis, managing director for Plastic Molding Technology Inc. (Seymour, CT), also knows that big changes are in store for custom molders. "There's a lot of rearranging of the landscape, but as far as 2002 is concerned, we're trying to map out what we need to do to grow business," he says. "The other big concern we have is all the bad news coming out of the moldmaking industry and how that will impact the future of molding." 

Some mention that the acquisition of molding companies by investment groups, who "jump in and suck the thing dry" and then get out, have been "very bad" for the industry, contributing to the overall weakness in molding. 

Barko says he believes the U.S. marketplace will "right-size itself eventually," but that the next couple of years will be tough for molders who don't have global reach. "More [molding] companies will pack it in and call it a day," he says. "The ones left will become molders to larger custom molders. The strong will survive and the weak will die off." 

Tom Johansen, cfo for GW Plastics, recalls that for older companies, "there's an institutional memory" of business cycles. "The boom times won't go on forever, but hard times won't go on forever either," he says. "That helps us stick to our long-term fundamentals. Things have been tough but we've been through tough times before. The fundamentals get us through both the good and the bad." 

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