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Well you thought it could not get worse in the North American
plastics industry. Guess what, it got worse and will deteriorate
even more before it gets better. Just as the survivors thought
they had bailed out all the water in the lifeboat it sprang
more leaks. Plastech, the most prominent failure, Delphi
struggling with financing to get out of Chapter 11, Blackhawk
down (again), Bluewater sunk, plus many other lesser known
companies. The latest blow to hit is the American Axle strike.
It will be the final bell for many companies; they will not
be able to get off the canvas again. To add insult to injury,
there are not even that many white knights around to pick
up the pieces because of the growing liquidity crisis. The
banks and the private equity opportunists are paying the
price for their greed and rush to participate in high return,
can’t fail, investments. What fitting justice that
these proud financial institutions, famous for imposing conditions
on their customers, are now paying the price for their own
lack of foresight and managerial competence. Anyone can make
money in good times, they can all posture and play the role
of pros, but it is times like these the true leaders need
to emerge.
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There will be no relief on resin pricing. All of the elements
are against it despite a shrinking market. Feedstock’s
are up at record pricing and the dollar is at record lows.
Plastics, metals, gasoline, diesel, feedstock’s, building
materials are all at record heights. We are getting inflationary
increases on even foodstuffs and we are fast approaching
a significant tipping point which will take us into uncharted
territory. Decreasing profits, increasing prices, companies
and people cannot adjust fast enough. If the USA does not
get its currency and economy under control, we could swamp
the rest of the world’s emerging economies.
The IMF has now reached this same conclusion and has determined
that the US is headed for recession. That is no surprise
to the people of the mid-west. Our trading partners who were
anxious to share in our prosperity will now share in our
gloom.
The prevailing conditions
in the plastics market are causing unprecedented changes
in the polymer industry. From the majors such as Dow and
GE, to the secondary suppliers such as Schulman and PolyOne,
we are seeing a total re-alignment of the market. The ?giants
can’t re-size fast enough
to keep frustrated shareholders at bay. Management is
bringing in outside “specialists” to
evaluate their options (I think that is called surrender).
Today’s market is beyond the vision and training
of many top executives. How many of them have seen a recession
such as this?
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Purchasing executives are inexperienced
in this economy. Their normal measurements of economic conditions
do not apply anymore and their ability to leverage suppliers
has gone. In today’s market they need to have options
in place before they need options. They need to have a defensive
and survivor strategy in place. Do not assume your current
supplier will be around for ever. Forget price protection
and think about supply protection. How fast can you implement
a new source? Who else is out there who is capable of doing
a good job for me? Many new suppliers brought on in a hurry
fail because of a lack of understanding of the systems and
demands of the North American market. Failure to perform
can result in hugh penalties and cost backs. We have seen
suppliers that were sourced out of India and China fail miserably
because of miscommunications and a lack of flexibility in
dealing with schedules in a lean system. Lean systems may
have to be reevaluated in today world. Delivery failures
can result in $mm’s of lost production. The purchasing
managers of today need to be empowered to reach out to new
suppliers and develop them as partners. They need the full
support of their CEO’s to overcome
the knockers and blockers that stand in the way of change.
They need training in survival tactics. They need to acknowledge
the need for a new approach and be able to bring in resources
to help them get where they need to be quickly.
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While there was a lot of talk about
India in Tampa last month, we are pleased to report that
some of us were actually in India “walking the walk,
and talking the talk’.
IndUS Plastics had a 3 week expedition to India, covering
Mumbai, Chennai, and Delhi. They exhibited at Plastech in
Chennai where they were well received, met significant players
in the automotive and construction market, and had multiple
discussions with Indian investors. For a more detailed summary,
visit www.indUSplastics.com.
Despite all of the talk and interest in Indian sourcing,
India could provide a very profitable outlet for many North
American products. Their markets are booming, construction,
automotive, agricultural and all need to be fed with materials
and products. Although their economy will stumble a little
because of our recession the projects already in place
could provide welcome relief for North American companies
looking for new markets.
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All of the talk about re-sizing and
right sizing is really a cover up for bad management and
bad planning. Well run companies constantly evaluate their
market share and the resources they allocate to the market.
They have profit goals and monitor them tightly. The problem
with companies large and small is the inability to anticipate
market change and to have a lack of balance in their product
and market portfolio. The current situation in this market
has been developing for some time and still many plastics
companies are within one cancellation or late payment of
going under. The big tier ones are faced with a fast shrinking
market exasperated by strikes and plant closures. When companies
like Ford have way forward plans that literally take years
to implement, there is no way to get it right fast enough.
Each quarter is a new challenge of declining sales and profits,
the negotiations and changes that looked good 6 months ago
are no longer adequate. Plus the product plan is way off
with too much emphasis on large platforms. Is anyone really
surprised that everyone is buying, if they are buying anything,
small fuel efficient vehicles! Gas has been $4 per gallon
plus in Europe for years, we play well in that market with
our European products! We should have been prepared and willing
to sell the same vehicles here. Instead business is going
to the Korean and Japanese models. To add insult to injury,
we keep complaining about the new Federal mileage standards
instead of just getting on with it and giving the market
what it needs. No customer is happy paying $80 for a fill
up. They will embrace smaller, more space efficient vehicles,
just as the Europeans and Japanese did.
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Jenerxx is constantly re-evaluating
the options it can provide it's customers. It seeks to find
the best new resin suppliers and help position and qualify
them for our client base. It helps bring real solutions to
a market in need of a fresh approach. Its activities in India
under the IndUS Plastics name are a further example of our
preparedness to go the extra mile. If you feel we can be
of help to you please contact us at the address on the left.
Good luck to you all in this challenging world,
Bob Chaplin
President, Jenerxx, Inc |
“Tales from the Front” is
an independent point of view from a company that believes
in change and can help you implement it. |
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