The last two years have been daunting for most companies in the plastics industry, what with recession, the demands of global business, competition from offshore manufacturing, consolidation of supply, soft pricing, and other concerns. Even for a 35-year industry veteran like Harold J. Faig, who has pretty much seen it all when it comes to good times and bad, the current business environment is unique and challenging. It is not, however, without opportunities for companies that aggressively adapt operations to meet evolving market needs, he says.
Faig is president and chief operating officer of Milacron Inc., the largest supplier of plastics machinery and equipment in North America and one of the biggest in the world. He and his management team are fine-tuning Milacron’s business plan to meet the challenges of a changing marketplace. The result will be a company that takes a holistic approach to meeting processors’ needs, by focusing as much on supplying process technology, applications development, and specialized services as new machinery and hardware.
The objective, says Faig, is to give processors the means to add value to the work they do and thus further differentiate themselves from competitors, thereby increasing the volume and profitability of their business.
In an interview at Milacron’s headquarters in Cincinnati, oh, last November, Faig, whose 35-year career has been spent with the company, said that the dynamics of the market are changing at all levels of the industry.
One reason for this is the recession, which began in the U.S. just over two years ago and triggered slowdowns in other parts of the world. Machinery makers and processors have been hard hit. “I’ve been in the business since 1968 and I’ve never seen anything like what we’re going through now,” he says. “The recession came on so hard, so quick, and went so deep; it went beyond anything that any company was prepared to deal with.”
Other factors that are affecting the market for processors include the continuing shift of manufacturing offshore to low-cost production areas, a trend that marginalizes companies that do not have specialized capabilities or a diverse customer base.
Another influence is downsizing among oems, whether by consolidation or reorganization. This not only limits the business that’s available, but puts greater demands on processors to provide capabilities oems no longer have because of cost, job elimination, or other reasons. These capabilities range from product development to secondary operations like finishing and assembly, quality control, and inventory management.
The list of capabilities increasingly includes process diversification. Faig says that even though oems are contracting more operations out, they do not want to deal with a large number of vendors. Supply-chain management dictates that oems seek fewer suppliers with more process capabilities. “An oem will say, ‘We need blow molding, extrusion, and injection molding for a particular job. Here’s what our requirements are. What can you do for us?’” Milacron not only supplies the machines for different processes, Faig says; it puts them together in a system and makes them work.
“Sixty percent of processors [in the U.S.] are losing money,” he adds. As a result, “every company is focusing on what to do to improve its competitive position.” The “shoot-and-ship” strategy no longer works.
Milacron is well positioned to provide processors with an array of capabilities. The company builds injection molding machines (hydraulic, electric, horizontal, and vertical; thermoplastic, thermoset, and structural foam) in the U.S., Germany, and India; blow molding machines (single- and two-stage shuttle models) in the U.S. and Italy; and single- and twin-screw extruders in the U.S. Indeed, some of the industry’s best known brands are part of the company’s product lineup: Ferromatik Milacron, Autojectors, and Milacron/Fanuc, for injection molding machines; Uniloy Milacron, for blow molding machines; ExtrusionTek, for extruders.
Milacron also produces mold bases and components in the U.S. and Belgium through its D-M-E division, and has a machine-refurbishing operation in the U.S. The company recently started Concentric Custom Services, an independent consulting business that helps processors upgrade operations and reduce operating costs.
Faig notes the contrast between the Milacron of 1991, which had one product line, injection molding, that it sold in North America, and the Milacron of today – a diverse and global machinery and equipment supplier. “I would not want to be in the position of 1991, with a single product line.” Milacron now has 60% of its plastics sales in the U.S.; 24% in Europe; 7% in Canada and Mexico; 7% in Asia; and 2% elsewhere.
Faig believes that Milacron’s strategy of enhancing processor capabilities is a way to counter the split between jobs that are moving to low-cost production areas and those that remain in high-cost regions like North America, Western Europe, and parts of Asia like Japan. The jobs that go offshore are mostly commodities. A lot of the work that remains is sophisticated or highly proprietary and so requires more process expertise. As a result, Faig says, “We find that processors are focused on value-added work. They want to understand what alternatives they have to improve their position with customers, either through methodologies or capabilities. Otherwise, they risk losing business to the steady migration offshore of standard molding.”
Milacron’s global reach and extensive r&d programs in North America and Western Europe assure that there is a wealth of technology the company can apply to any application need. Examples include multicolor and multicomponent molding in injection molding; wood-composite and other specialty extrusion; and electric blow molding machines. Faig says that in the past only a fraction of Milacron’s customers asked for these and other advanced technologies. As process capabilities become more critical to competitiveness and profitability, he estimates that 70% of customers are looking to advanced technologies for an edge in business. Several years ago, by contrast, “we typically had 1% of the customer base asking about them.”
Moreover, Faig says that as Mila-cron – and other machinery makers – promote applications capabilities worldwide, there will be a globalization of process technologies. This will produce two outcomes: processors will have greater access to a diverse range of technology; and primary machinery and controls will become more similar. With little difference between ma-chines built in Western Europe and North America, for example, units will be more readily adaptable to application needs anywhere in the world.
Some processors, however, will still be at risk of losing business to offshore manufacturing even with heightened applications capabilities. Faig says Milacron can help. With its global presence, the company can assist processors in finding local partners in places like China. “We have offices in Beijing, Shanghai, and Shenzhen. We can act as a facilitator to help our customers develop manufacturing networks and alliances. This helps when a processor needs a lower-cost solution to molding,” Faig says. “The North American molder can keep an oem customer by managing the business offshore.”
Faig adds that he can cite “at least two dozen examples” of where Milacron has helped a processor keep a customer by facilitating a manufacturing agreement between the company and a producer elsewhere in the world. “To fully support our customer base means knowing how to help them stay in business,” he says.
Some of these changes Milacron is making are in place; others are being added. Most will be presented at the National Plastics Exposition in Chicago, June 23-27. Faig says that while Milacron will have some machines at the show, the focus will be on customers and applications.
“I think the days of taking hardware to the NPE to kick it and let it sit are gone,” he remarks. “I want our organization to focus on customers and applications. The technology is there that we can demonstrate our capabilities without having a hunk of iron on the floor. I would rather take the money that would have been spent to bring equipment to the show and run it, and invest it in people, training, and customer applications,” he remarks.
“All machinery companies want to do this,” Faig claims, “but are afraid to. I would have a hard time explaining to a customer why we are spending several million dollars or more on a show and not on an application [that could benefit] him.”
Milacron’s strategy will be a critical component of growth in coming years. At a presentation made to the Deutsche Bank High Yield Conference in Scottsdale, az, last September, Robert P. Lienesch, vp. of finance and cfo, estimated that 2002 sales for Milacron’s Plastics Technologies division would range from $570 million to $600 million. This is a decline of 9 to 14% from 2001 sales, and up to 34% lower than 2000 sales of $874 million.
In addition to plastics, Milacron also has an industrial fluids division, which was projected to account for $100 million in sales last year, and a round tools and grinding wheels unit expected to add up to $70 million in sales last year.
Lienesch told the conference that Milacron’s 2005 sales goal is $1 billion-plus, a 30% increase over the $770 million top-end forecast for 2002. This would represent average annual growth company-wide of 10%, of which plastics machinery and equipment would account for the lion’s share.
Faig believes Milacron is well-positioned for growth. He sees strong demand for plastics worldwide, especially in developing countries. While the recession has been long and deep, it has also been “an opportunity to clear our balance sheets and strengthen the company to go forward.”
Indeed, Milacron in recent years has consolidated in some areas. It divested several of what Faig calls non-core assets. The most recent was last August when the company sold Valenite, the North American metal-cutting insert tools business, and Widia & Werkö, the overseas metal-cutting tools unit. Between 2000 and 2002 Milacron also eliminated 1700 positions and closed 11 plants in the U.S. and Europe.
Consolidation has not affected manufacturing efficiency; if anything, it has improved. Faig says lead times for injection machines range from three weeks for 150-ton units to 16 weeks for models 2000 tons and above; and he expects these to be reduced by half in coming years.
Ten years ago, plastics sales at Milacron (then known as Cincinnati Milacron) totaled $301 million, of which 85% was machinery, 12% services and after-market, and 3% durables (mold bases and components). In 2002 the sales mix was 50% machinery, 30% services and after-market, and 20% durables. The company has clearly achieved a more even product mix. To broaden its opportunities, it will also expand in Asia.
Milacron has a sales and service operation in China. In the next 3 to 5 years, the company will look for “strategic sourcing opportunities” as a “natural progression to an assembly operation” there. Faig calls this process “organic growth.” What it means is that Milacron will develop a reliable supplier base that meets its standards for quality, then begin building machines in China.
“If you go to China blindly and expect to find suppliers with European standards, you’ll be woefully surprised,” Faig says. If a company takes the time to develop a network of suppliers and applies Western methods to sourcing materials, the effort will pay off. Other industries do this quite well, he notes. Milacron’s goal is to sell machines made in China locally and around the world.
This was the strategy Milacron used to develop a manufacturing presence in India. It worked so well that the company now produces more than 400 injection machines in India, making it the largest supplier there. Models range from 85 to 2000 tons, and include a high-tech tiebarless machine (though controls and some additional engineering for the model are done in the U.S.).
The machines made in India are equal in quality to those Milacron builds elsewhere. They are, in fact, shipped around the world. One major benefit for Milacron is price: machines cost 30 to 35% less to build in India than in the West, Faig says.
Faig describes himself as cautiously optimistic about business for 2003, though he believes it may take until the end of the year before any real improvement occurs. Nevertheless, he is enthusiastic about opportunities in the plastics industry. “The markets are as excellent today as ever because the challenges are much greater,” he remarks.
“The changes that are taking place today are invigorating. It gives every person an opportunity to drive change in his company and create value in a dynamic market. The dynamism of the market comes from change, and the people who embrace that change will be very successful. I’m an optimist about this industry more so than I’ve ever been. My optimism lies in the ability to capitalize on that change.”