By Karen Hanna
For resin buyers, unpredictability has always been expected.
But the last two years — as bad weather, labor shortages and other factors have choked off supply and sent prices soaring— have been especially trying. In an era of just-in-time-manufacturing, automotive industry and supply chain experts said the turmoil could inspire changes in how plastics parts makers look at resin.
Of special concern for Team 1 Plastics, which manufactures under-the hood and engine components, has been a shortage of glass-fiber-reinforced resin, said Dave Sanford, the plant manager at the Albion, Mich., custom molder.
“We’re being real careful and projecting what our needs are,” he said. “There’s been a lot of force majeures … over 2021, so, just because you ordered it didn’t mean that’s what you were getting.”
As processors struggle with material availability and rising prices, experts said they should re-examine their contracts and relationships with customers and suppliers, and rethink how they handle inventory.
Linda Watson is a lawyer with Clark Hill, a firm that handles commercial disputes. Over the past two years, she said she has seen a lot of issues involving force majeure notices, stemming from the COVID-19 pandemic and plant outages caused by massive storms.
In the wake of the crisis, Watson said plant managers and executives should hone a new habit — regularly poring over contract terms to be sure their companies are doing what they can to insulate themselves from supply and price fluctuations.
“It may be the way they send out a request for quotation, it may be a way that they issue a quote, it could be their purchase orders, or their terms and conditions,” said Watson, a member & chairwoman of the Automotive and Manufacturing Industry group at Clark Hill. “There’s a lot of different opportunities in the documents that generally govern a relationship for companies to take a look at and determine whether or not they can improve the language in those documents.”
Increasing prices for resin, along with labor and other expenses, have some manufacturers seeking to negotiate new terms with suppliers and customers.
“We’re seeing more dynamic [pricing]. I think the leading manufacturers out there are realizing they’ve got to provide more flexibility, they can’t just have a standard way of working with their supply base. They have to involve them in this,” said Jade Rodysill, EY Americas chemicals and advanced materials industry leader, who provides consulting to companies in the automotive industry.
While companies looked to extend payment terms to conserve cash in 2021, companies might now seek to relax payment terms to limit inflationary price increases, he said.
Passing on costs, though, isn’t easy.
“Getting the resin in time when you want it, getting it at the price you need to get it at, being able to pass along a price increase to a customer is a huge issue,” said Laurie Harbour, president and CEO of Harbour Results, a consulting firm that serves small and mid-sized manufacturing companies, including injection molders and mold shops. “The OEMs or the larger Tier 1 suppliers are not very amenable to taking on price increases, even though the whole world knows that [price of] plastics has gone up.”
The shortages of the past two years, along with price volatility, could have processors looking to stock up in the future, some supply chain experts said.
“I think that what we're seeing right now anyways is that people are holding more inventory, and they want to avoid those supply shocks as much as possible,” said Greg Alonso, a consultant with Plante Moran, a professional services firm that provides services to middle-market businesses in a variety of industries, including manufacturing.
To ensure continuity in production, some manufacturers also are requiring that their suppliers carry more materials, Watson said.
Peter Bolstorff, executive VP for the Association for Supply Chain Management (ASCM), observed that machine time isn’t a limiting factor in what automotive-parts suppliers can make right now, but raw materials like resin, as well as computer chips, might be. They have become “pacing factors,” he said, in determining production capacity.
Harbour said her clients have felt the pinch.
“They’re definitely losing productivity, and they’re missing out on production because of a lot of these material issues and things of that nature. Some are doing better than others, meaning some are talking to the customer and managing through it, and others are really struggling. It’s affecting everybody, I couldn’t tell you a customer that’s not seeing major problems,” she said.
As a Lean manufacturing consultant, Rick Bohan has worked with companies in many industries. When it comes to inventory, he believes the correct amount is whatever is required to ensure production doesn’t break down.
Companies should map out what they actually use — and factor in the difficulties of obtaining materials, and the potential costs of not being able to acquire them.
As an example, Bohan told the story of an Ohio musical instrument supplies and accessories maker that had stockpiled two years’ worth of piano wire. “Why so much?” he asked his clients.
They told him: “ ‘Because when we order it, the vendor says, ‘We’ll get it to you when we can. It might be six months, might be 12 months, might be 18 months; we’ll get it to you when we can.’ ” The vendor, he said, was the only one on the continent, so the company had no other choice but to carry large amounts in inventory.
The instrument supplier’s experience could bear lessons for resin buyers.
“it pays to have as much resin as you need on hand,” Bohan said.
To determine how much is the right amount, he said companies should weigh the answers to a few questions:
“What’s the cost? What’s the carrying costs of resin? How much does having more resin than we need increase our complexity? What’s the risk of running out of resin?"
Sanford said his company reassesses the situation daily. It has navigated the crisis by holding more material, and balancing the extra costs that generates against the potential of angering customers or having to pay for expedited shipping to avert further problems.
“It was primarily luck, but we did increase a lot of our raw material purchases, so that we could get reduced pricing and that type of thing, so we ended up holding more material in stock. But, at the end of the day, that came to be a benefit to us because, when the force majeures started and the shortages started, for the most part, we were sitting fairly decent on material,” he said.
Karen Hanna, senior staff reporter
Contact:
Association for Supply Chain Management, Chicago, 773-867-1777, www.ascm.org
Chagrin River Consulting, Akron, Ohio, 216-409-9046, www.chagrinriverconsulting.com
Clark Hill PLC, Birmingham, Mich., 248-642-9692, [email protected], www.clarkhill.com
EY Americas, www.ey.com/en_us/chemicals
Harbour Results, Southfield, Mich., 248-552-8400, https://harbourresults.com
Plante Moran, Southfield, Mich., 248-352-2500, www.plantemoran.com
