|Plastics Industries Opportunities for 2012|
|by Laurie Harbour and Scott Walton, Harbour Results, Inc.|
|Outlook Winter 2012|
Plastic processors live in an industry that changes day-by-day or even minute-by-minute,
so as December fades into the distance, many companies will look to the past and attempt
to project into the future to see what is in store.
Has the end of the economic turmoil been seen?
Enumerating the Challenges The economy still is not rotating, despite all the changes that occurred in 2011. Unemployment remains at record high levels and as much as the government tries to create jobs, it still is not happening at the pace politicians would like. The crisis in Europe and its impact on currency are having a substantial effect on the US economy. The world stock markets are on a significant roller coaster, and no one can predict when or if stabilization will occur.
The effect of China and other low cost countries on the US manufacturing base is changing yet again. In 2011, the Chinese government instituted a mandatory 15-percent wage increase across the entire workforce. Additionally, the Chinese Government is anticipating more wage increases over the next five years as it works to grow the middle class and skill level within China. This will surely change the calculation of outsourcing to low cost countries and begin to level the playing field. Let’s not kid ourselves though – in 2012, China will continue to be a manufacturing powerhouse even with these unprecedented increases in cost. Chinese manufacturers are working on the right tactics to create sustained manufacturing excellence across multiple facets of their value proposition.
Economics were, no doubt, overshadowing all else in 2011 and left many muttering under their breath, “Been there, seen that, done that.” 2012 will bring another economic cycle, up and down, but plastics are now a fact of life. No matter how soft or unpredictable the economy becomes, polymers will continue to increasingly drive applications across multiple markets and industries. Even if fewer tablet computers and mobile phones are sold, they will still be made of plastic.
Probably the most significant underlying factor affecting the United States manufacturing base today is the stalemate in the government and the effect on consumer spending. The government will not move until the elections in November are behind us. Meanwhile, as companies continue to improve productivity and increase volumes, they are making money. Companies are performing better, operating efficiently and doing more with the same number of people. These productivity improvements, combined with the uncertainty of the economy and the government stalemates, have driven companies to hoard cash and only hire the critical few. Banks are lending money, but not without a painstaking, drawn out process. All these variables put significant pressure on consumers to spend money to spur economic growth. According to economists, if consumers can drive spending the economy will begin to rotate.
With all these challenges facing US companies in 2011, a bifurcation began to occur among plastics processors. The industry leaders are growing their revenue lines, financially strong and operating at over 85-percent capacity utilization. The laggards are struggling to maintain market share, operating at less than 50-percent utilization and just plain scraping by. The gap will continue to widen as the best companies become more selective and continue to sell value rather than capacity.
So what challenges are companies facing in 2012 and beyond?
In the next 12 months, beyond the underlying economic issues, plastics processors will face constant raw material fluctuations and supply uncertainty for the near term. Additionally, companies are looking at the next 12 months with a need to determine future sales demand. It has been erratic over the last 12 months, and uncertainty leaves companies wondering what to do about manufacturing forecasts. These uncertainties will force the best and brightest to continue doing more with the same to maintain a profitable competitive edge.
Focus on the Front End for 2012
2012 will be full of surprises as the next act from the financial and political power brokers unfolds. Saying farewell to 2011, there are some words of advice for 2012 – the most important being, “focus on the front end of the business”. Plastics processors should work more diligently than ever to understand where the market is headed and the demands customers will put on their businesses.
The vast majority of companies assessed by Harbour Results already have been pushed and pulled into a world of mass customization. The high-volume, low-mix model is becoming less and less common, and the new normal is a low-volume, high-mix manufacturing environment that changes more rapidly than ever. Operational flexibility and agility are becoming club dues and those organizations that can meet the ever-changing market dynamics will get the gold.
Building flexibility in this environment requires greater focus on understanding customer demand. Comparing internal historical data to customer projections and cross-referencing those numbers to an external market source will provide clearer visibility of demand. Processors can then apply this demand data across the entire business value chain, working to match their supply and demand at a 1:1 ratio. Wherever an out-of-balance condition is seen, it is time to stop to identify the over capacity or the bottlenecked condition, and then work to bring the demand and supply ratios back in balance.
Moving through the business model in this fashion will quickly identify those areas requiring additional flexibility. Processors should avoid the temptation to go right to the manufacturing process to find improvement opportunity. Sizable out-of-balance conditions often manifest in the transactional processes, such as quoting, costing, project management or engineering. And by all means, a focus should be placed on production tooling – this always is a land of opportunity.
Beyond the next 12 months, companies are concerned about what will happen with globalization. Will the balance of manufacturing change as costs rise in low cost countries? If so, what will the impact be on US manufacturing? Another huge concern of plastics processors and all manufacturers is the lack of labor in both skilled and general manufacturing. There is a related concern with the lack of young talent entering the manufacturing field. So, while China grapples with unprecedented increases in labor costs, US manufacturers continue to struggle with the next generation of skilled workers.
Address These Opportunities
As plastics processors look to the future, they should expect the uncertainty to continue as the US government and economy sort themselves out and the European Union woes continue. Sizable challenges and barriers will continue, and tomorrow’s leaders will need nerve, drive, knowledge and creativity to be effective. Companies need to focus on what they can control: continuous improvement, communication with customers, solid business plans and stronger employee involvement. Work on understanding customer demand, and position businesses to meet this demand with continued tenacity and determination. Driving flexibility in an environment is far easier with a greater understanding of future demand. Build an agile organization around this predicted demand pattern, and be prepared for anything. 2012 will surely deliver on a new series of challenges and opportunities.
Combining operational and financial advisory expertise with industry analysis and thought leadership, Harbour Results delivers results that impact the bottom line. The company specializes in manufacturing, production operations and asset intensive industries, as well as a number of manufacturing processes, including stamping, tooling, precision machining and plastics. For more information, visit www.harbourresults.com.