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Compounding success

November 1, 2004

3 Min Read
Compounding success

The order was sizable, but Subhash Pahuja, president and CEO of toll compounder Alloy Polymers Inc. (Richmond, VA), would have to pass. Pickiness derived from heading a highly successful company? Not quite.

Pahuja says Alloy has made money in every year but one during his 22-year stint as owner by adhering to a business model that emphasizes long-term relationships over short-term paydays. If he''s tempted to deviate from this mantra, Pahuja quickly recalls 1995, the company''s only year in the red.

"[In 1995] we just lost focus," Pahuja says. "We became too big for our size. We''re just a small company, and we started to act like a big company. I know flying first class, when that really was not the culture we grew up with, ate us up."

The passed-over offer arose at a visit with its newest partner, Berstorff (Florence, KY), during an open house. Alloy recently bought two lines and has agreed to standardize its Gahanna, OH plant with Berstorff extruders as capacity is added. As it does with customers, Alloy views vendors as partners-collaborators in a project to make all involved money, ultimately ensuring future projects and revenue.

"As our expansion needs materialize," Pahuja says, "we''ll continue to work with [Berstorff]. Today, as we''re talking, they''re upgrading one of our lines to an ultra-torque-type extruder. Our thrust is to create long-term partnerships, arrangements, relationships. We''re looking at what a customer needs and how to provide it. How can we keep that customer more competitive?"

Big changes

Originally an attempt by precious-metal supplier INCO Ltd. to branch into plastics in the mid-1970s, Alloy Polymers was put on the auction block in 1980. Although it took eight months and proposals to nearly 50 banks, Pahuja secured capital and purchased the business, which had employed him, in 1982.

Pahuja moved Alloy to Richmond, VA from New Jersey in 1987, but it was an acquisition opportunity in 2002 that spurred the biggest change.

Alloy''s Richmond facility had focused on engineering resins, running 13 twin-screw extruders and compounding 100 million lb annually, but an offer from Basell Polyolefins to acquire its five-line, 110-million-lb plant in Gahanna, OH gave it a chance to branch into PP compounding with an established, familiar partner in Basell, for which Alloy would continue to create compounds.

"Two years into the deal; it''s been a godsend for us," Pahuja says of the Basell deal. "It got us into a partnership with a resin company on a strategic basis, which is something that we''ve been trying to achieve for some time. It gave us a start on the business model that we''re talking about."

Consummate contract manufacturer

The life of the toll compounder is unique within the plastics industry. Not selling any materials or products of its own, toll compounders of Alloy''s ilk only derive business from companies in a capacity pinch-businesses facing a material-demand spike that don''t have the urge or capital to increase capacity.

This makes the toll compounder the quintessential "contract manufacturer," so much so that Pahuja actually gives presentations at various events addressing life as a contract manufacturer, and how outsourcing some portions of your business can have a palpable affect on your bottom line. Pahuja preaches the philosophy because he lives it.

But any time a company gives money to someone else for work it normally handles, expectations change. Pahuja offers the analogy of renting a car. A person''s own car could be littered with trash, but if that same person rents a car with even a single wrapper on the seat, they''re likely to notice and be upset.

"Fundamentally, when people are putting out money," Pahuja says, "their expectations of value delivery are different then when things are done internally; but I believe they have the right to expect the highest value for their money."

Tony Deligio [email protected]

Contact information

Alloy Polymers Inc.  

www.alloypolymers.com

Berstorff  

www.berstorff.com

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