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By looking inward to improve operations, plastics processors can boost profitability without relying only on sales.

Rick Dunne

March 19, 2024

5 Min Read
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At a Glance

  • Embracing technology is one of the most effective ways to boost profitability
  • Engage in regular dialogue with your customers to obtain feedback and give them no reason to take their business elsewhere
  • Conversely, sometimes a customer simply isn’t worth it — it’s best to respectfully discontinue your relationship

Because the bottom line is critical to any “for profit” company, business owners and management are constantly looking for ways to improve. The key is to advance profitability without relying solely on sales. 

How? Look around — profitability boosters can be found throughout the average plastics processor’s operation. Technology in the form of automation, for example, provides the foundation to become more efficient, cost conscious, and less wasteful. And there are plenty more opportunities. In fact, here are seven often overlooked areas where you can enhance profitability.

Technology integration

Operational efficiency is one of the most effective ways to boost profitability. Plastics processors can best achieve this by streamlining production processes, adopting lean manufacturing principles, and embracing technology. Automation accelerates productivity, reduces labor costs, and maximizes operational equipment effectiveness (OEE), leading to higher output with lower operational expenses.

Investing in an enterprise resource planning (ERP) system has a measurable impact on operational efficiency. This integrated software solution facilitates seamless communication between shop floor and front office departments, enhances real-time data visibility, and provides the insight for informed decision-making. By identifying and eliminating bottlenecks in the production process, manufacturers can maximize equipment and achieve higher output without increasing costs, which in turn leads to increased profits. 

Related:Plastics processing: A five-step program to improve profits and optimize production

You could perform all of this manually, but why would you and at what effort? Why not turn the job over to a proven plastics industry ERP system and concentrate on your core competence — plastics processing.

Inventory and supply chain

It’s important to stock an optimum level of raw materials. For this, many plastics processors are using just-in-time (JIT) or overstock inventory management practices. Be aware that each has its advantages and disadvantages. While buying in bulk will ensure that jobs won’t be affected by low material levels, stocking too much inventory can have a detrimental impact on cash flow and carrying costs. Similarly, JIT relies on the reliability of your supply chain, and we all know how that went a few short years ago.

Leveraging predictive analytics along with the capabilities of an ERP system provides a clear and concise understanding of raw material requirements in the coming weeks. Envision a purchasing system with automated, visual, traffic-light controls to assist you in keeping the optimal amount of material on hand.

Additional profitability improvements can be found throughout your supply chain. Forging strategic partnerships with suppliers not only can get you better pricing in many instances but also provide access to the type, quantity, and quality of materials faster than your competitors. 

Material utilization

Effective raw material management provides the ability to reprocess and reclassify scrap material into usable regrind that can be incorporated into other product recipes. This not only reduces costs but ensures maximum usage of scrap materials while keeping inventory levels accurate and intact. 

For plastic film manufacturers, effective material management provides opportunities for lightweighting. These companies can leverage options to minimize material consumption while continuing to meet tolerance specifications and quality standards.

Customer retention

Like any company, plastics processors build their reputation and business on quality, service, and on-time delivery. It is therefore imperative to engage in regular dialogue with your customer base to obtain feedback and ensure that there are no hidden issues that could escalate.  

Look beyond what you’re currently providing the customer and consider opportunities to upsell through value-added services. This might include adding assembly, product decorating, or drop shipping services, for example. Being a reliable supplier while providing customers with the extras not only grows the bottom line but it gives them no reason to take their business elsewhere.

Customer non-retention

The hard truth is that sometimes you just have to walk away from a customer. While cutting ties might seem counterintuitive, it is good business sense in some cases. Plastics processors must track and analyze their profit margins by individual customers and product SKUs. Evaluate contracts to quantify such factors as: 

  • Time and complexity involved in tooling setup;

  • excessively high scrap rates associated with the job;

  • excessive demands for quality testing;

  • how much it drains your resources.

Remember, there are times when a customer simply isn’t worth it. In these instances, it’s best to respectfully discontinue your relationship and pass the headache — and financial drain — along to a competitor. 

Accurately pricing material

Profitability is correlated to many variables, not the least of which is pricing accuracy. Without knowing the exact costs to run a job — setup, materials, tooling-specific machine runtime, operators, secondary operations, and so forth — you’re guessing. In a best-case scenario, you’re not fully maximizing profitability. In the worst case, you could lose money.

Every manufacturer — and nowhere is this more true than in plastics, where constant material cost fluctuations are the industry norm — should have the ability to easily update raw material pricing on a weekly basis and review its impact on profit margins by product, product group, and customer. However, because many companies rely on disconnected accounting systems, spreadsheets, and manual inputs, such updates are extremely cumbersome and are rarely performed. By integrating the latest material costs into your estimates, you can track and automate the reporting of your true cost of goods sold. 

Employees

Human resources are perhaps the most often overlooked opportunity that a company has for growing profits. Establishing a culture of continuous improvement is essential for sustained profitability. Regularly assessing and refining production processes, based on performance metrics and feedback, allows processors to identify and rectify inefficiencies. 

Like many other sectors of the manufacturing industry, plastics processors face a labor shortage. Investing in ongoing employee training programs ensures that the workforce stays abreast of the latest technologies and best practices. A skilled and knowledgeable workforce is more adept at troubleshooting issues, minimizing downtime, and contributing to overall operational efficiency.

Employee involvement in profit-building initiatives fosters a sense of ownership and innovation within the workforce. Solicit input from your workforce and reward ideas that save money or contribute toward profitability in other ways. 

Finally, an ERP system can greatly simplify the operator’s experience and help to attract and retain skilled workers. These systems automate and accelerate production while reducing tedious manual tasks associated with documentation. 

Sustained profitability contributions

While expanding the customer base is the traditional route to growth, and should always be top of mind, plastics processors can supplement profitability by turning their attention inward. Embracing automation, optimizing supply chains, maximizing material and equipment utilization, maintaining customer relations, reducing expenses, monitoring daily production profitability, and fostering a culture of continuous improvement will contribute to profit growth. 

The impact of such actions should not be underestimated — the financial gains often are substantial and sustained. In this way, plastics processors not only can weather industry challenges but also build a foundation for sustained profitability.

About the Author(s)

Rick Dunne

Rick Dunne is the director of sales and a partner at CyFrame. He has more than 20 years of experience dedicated to helping plastics processors identify and resolve inefficiencies in their operations through complete enterprise integration. His mission is to enable business owners to simplify their operations while better managing in real time, with accurate shop floor data to effectively strengthen their bottom lines and scale for growth.

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