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Plante & Moran Benchmarking Study of North American Plastic Industry Reveals Performance Trends


SOUTHFIELD, Michigan —
Plante & Moran, PLLC, the 12th largest CPA and business consulting firm in the United States, recently released its 2008 North American Plastics Industry Study. According to the study results, industry employee productivity continues to climb as measured by value added per employee but the enhanced productivity has not translated into higher profits. In addition, continued price pressures and rising material costs are having a dramatic impact on profitability.

More than 172 companies representing 244 facilities in a broad array of processes throughout North America, including, the United States, Canada, and Mexico participated in the study, which is conducted and published by Plante & Moran.

“The results of the study show there is hope and perhaps prosperity ahead for those industry participants who persevere and have a well thought out strategy,” said Jeff Mengel, Partner and Plastics Industry Practice Leader at Plante & Moran. “We have compiled statistics on the most profitable companies and identified success­ful companies as those with more than 10 percent earnings before interest, taxes and owner’s compensation, 30 percent return on net capital employed, and at least five percent sales growth. These companies are few and far between. Of the 172 companies participating in this study, only 15 met all of these thresholds, while up to 55 met one of the three variables for success.”

Key findings contained in the research study include:

Continued Price Pressures — Complex, fast, and large products have remained, while simple, slow, and small products are manufactured in low-cost countries. Approximately 10 percent of the survey respondents lost more than 15 percent of last year’s sales through the resourcing of jobs by the customer, which is consistent with prior years. Almost one in four survey participants were subject to e-bidding on exist­ing programs, resulting in a loss of contracts or reduced sales dollars (60 percent retention with a three-point-one percent price reduction).

Rising Material Costs — The inability for some companies to pass along rising resin costs has hurt their bottom lines. This year alone, polypropylene resin prices rose 36 cent a pound—a 42 percent increase for many molders. Assuming 50 percent material content, this represents a 20 percent increase in expenses. Since the average plastics company’s net earnings are only six percent, most companies are losing 30 percent every month in profits.

Successful Company Performance Comparison — Highly successful companies invest more in sales and marketing and have a broader diversifica­tion of customers. The successful companies have addressed how to reduce the noise that plagues the manufacturing environment. Complexity is managed through compartmentalization or extreme flexibility and quality issues are managed to meet customer expectations. Most importantly, successful companies’ new sales possess a higher value proposition than the current sales, so margins are improving year after year even with negotiated price reductions. Successful companies also maintain excellent pricing disciplines, with very few sales returning margins less than 10 percent. Finally, successful companies retained slight superiority in just about every cost category — the cumulative impact having a positive impact on the bottom line.

About the North American Plastics Industry Study
Plante & Moran’s annual North American Plastics Study is widely regarded as the most in-depth benchmarking survey available linking profitability and performance in the plastics industry. The study measures key performance indicators in areas such as strategy and marketing, financial performance, human resources, and operations. For hundreds of contributing participants, the study provides an objective view of what drives success in the plastics industry.

The complete 88-page Plante & Moran 2008 North American Plastics Industry Study is available exclusively to survey participants. A summarized report is available for purchase from the Society of Plastics Industry at http://www.plasticsindustry.org/. More information on the study, including how to participate, is available at www.plantemoran.com/.

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