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March 6, 2004

6 Min Read
Words of Wisdom:  Restructuring the Internet materials marketplace

Mike Kmetz is CEO of IDES Inc.

It?s now been about three years since the Internet frenzy sailed through the plastics industry. In its wake was an onslaught of failed investment, poor business decisions, and disappointment. One must consider, however, that great successes and quantum technological leaps rarely, if ever, occur without such failures. Now, as the country recovers from the economic downturn, and the job market is once again looking positive, the time is right to learn from what all of us in the plastics industry have experienced the past few years and then push aggressively ahead.

Most plastics-industry Internet activity was focused on resin purchasing. This made sense since the transaction between buyer and seller represented the biggest piece of the pie in terms of dollar volume. An onslaught of Internet startup companies focused their entire business strategies around these transactions.

Although there were a number of business models, the essence of each was to use the power and availability of the Internet to put sellers and buyers together. Since processors are the principal buyers of resins, they were the targets not only for these pure Internet companies but also for existing distributors with their own web-based e-business strategies.

One blatantly apparent outcome is that the Internet has not fundamentally changed the way processors buy plastic materials . . . at least not in the sense that Amazon.com or eBay has changed the way we buy consumer goods. What have we learned? How will resin-buying change in the future?

Buying Resin

First of all, relationships are still at the heart of making good business transactions. What an illusion we were all under a few years ago. The Internet prognosticators referred to it as ?disintermediation.? Startup Internet companies serving plastics processors wanted to remove the cost and inefficiency of doing business with the middleman. In other words: No more GE Polymerland, General Polymers, and PolyOne Distribution. Processors would buy directly from suppliers via the Internet. Both would win as a result of not having to deal with a third party.

The Internet prognosticators overlooked a few simple points.

  • Processors want to buy from people they know and trust. Yes, getting the best price is very important, but if there is no support when it comes to running the material, the price of the resin is almost immaterial. Resin distribution has gone through some inevitable change over the past few years, but it is not going away. Many of our resin distributor customers were able to grow their businesses 15% to 20%, even through the economic downturn of the past few years. During this same period, few if any of the pure Internet companies stayed in business.

  • Buying resin is not at all like buying other discrete goods or supplies for a processor. Let?s face it, buying plastic is not simple. There are more than 50,000 materials on the market today, and the material supplier characterizes each of these materials in the form of a technical data sheet.

  • A purchase decision cannot be reliably made based solely on a datasheet. IDES has worked with these data sheets for almost twenty years now, and we know one thing for sure: Candidate materials can be identified based on a rough screening of datasheets, but from there the material must be sampled and further evaluated to determine if it is suitable for a given application.

The process of identifying candidate materials, then requesting samples and additional support from resin sellers, can be assisted through the use of web-based technology, but at the end of the day, no one has figured out how to leave the human element out of it. Unfortunately, resin suppliers have laid off people with technical expertise due to tough times, leaving processors with inefficient trial-and-error processes to determine which materials work best for any given job.

Internet Service Providers

IDES has learned a lot from working with thousands of processors over the years, and there is a great deal of work to be done to leverage technology and the Internet to help processors get the job done. We recently introduced Prospector X5, a free data sheet service to help processors locate plastics to purchase. We will be the first to acknowledge, however, that access to data sheets is just one element of what processors ultimately need to buy and convert resin.

Since the level of support that processors receive from suppliers and distributors has fallen dramatically, there are a multitude of services that can assist with identifying and buying resins, getting real-time support on materials issues, troubleshooting molding problems, and simply helping processors find what they need to operate their businesses.

IDES has developed a service called Sourcing to help the resin buyer. Historically, processors tend to use the same type of material from the same supplier simply because it has worked in the past, and they don?t have time to scour the universe looking for a better material option. To help find new options, processors can access our materials database at no charge to find a resin, then submit a single request to multiple distributors for price and availability. We leverage the beauty of the Internet to find qualified sellers of the material, or alternative materials that the processor can use. Everybody wins; the processor doesn?t need to take time to track down a distributor, and the distributor gets qualified leads. These types of services, and many more, can drive efficiency within processors? organizations and help them get the best possible material.

Market Your Business

Last but not least, processors have not embraced the Internet to help them market their own businesses. Try it for yourself; see if you can find all molders in the Detroit area who can quote you on 100,000 9-oz parts/month running a Santoprene 181-55 from AES. Not only do you want the quote, you want to make sure that the company will be a solid supplier that can meet quality and delivery requirements. Google.com can address this question, but not very well. A better solution is needed in the future.

The use of the Internet will undoubtedly continue to become more pervasive and more useful throughout the plastics industry. The speed with which adoption takes place depends almost solely on the value that processors and OEMs extract from the services offered.

In its simplest form, the Internet is an evolutionary technology; just another arrow in the businessman?s quiver. Those who persist over the long haul and continuously seek ways to truly help processors will ultimately be the winners. As with any emerging technology in the history of our country, failures, although painful when they occur, are an inevitable part of the path to the best solutions.

Contact information
IDES Inc., Laramie, WY
Mike Kmetz
(307) 742-9227
[email protected]

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