E-Commerce: B2B or Not 2B

Bob Efferth of Enterpulse, a business-to-business (B2B) e-commerce service provider, cut through the hype and offered facts on what B2B e-commerce can do for companies. Efferth projected that U.S. Internet business-to-business revenue will rise to $2.7 trillion by 2003, equaling 16% of the Gross National Product. Forrester Research also projected that 53% of the $2.7 trillion will be performed in B2B digital marketplaces (connecting buyers and sellers) by 2004.

"Buy-side" e-commerce/e-procurement can reduce process costs by 50 - 70% and reduce the cost of goods by 3 - 25%. "Sell-side" e-commerce functions (automation of existing distribution channels) such as order entry, customer service and product marketing substantially reduce the process costs and the cost of sales and service. For instance, customers going on line to receive order status or answers to common questions could reduce the cost of service by 20%. On line product catalogs help create opportunity for new market revenue. "Marketplace" e-commerce enables many buyers and suppliers to perform on line trade in an open market forum, find new suppliers or acquire hard-to-find goods at lower prices. To date there are 34 plastics/chemicals marketplaces on the web.

Companies are moving rapidly to define their e-commerce strategy to see how they can save money and expand in to new markets. An e-commerce strategic plan should be closely linked to the company's business strategy -- this is not a technology driven initiative. A cross-functional e-team of business managers needs to be formed to review of the business strategy and assess the company's strengths, weaknesses and opportunities to reduce cost and increase revenues. Next the e-team should analyze the company's internal environment (core competencies, change readiness, and the technology of the company). External factors, such as competition, on-line industry sites, best practices also need to be assessed. To help determine the starting point for implementing the e-business strategy the assessments and ideas need to be categorized into a value matrix and an implementation matrix.

The cost of developing a B2B e-commerce site depends mostly on the objectives and strategy. Commerce leaders expect the costs to double by 2002. E-commerce consultants are helpful in assisting companies in defining strategy and implementation plans. However Efferth cautions, "Before hiring an e-commerce consultant make sure you know their experience, how they'd specifically approach your project, and make sure they have the ability to define strategy and implement solutions." When shopping for software and hardware look for enterprise-class software solutions that support multiple forms of e-commerce, (buy-side, sell-side and marketplaces) and be sure to understand how the solution can be deployed in an application service provider model for turnkey operation and lower capital outlay. For more information on Enterpulse, go to www.enterpulse.com.

Customer Satisfaction Key to Successful E-commerce Plan

Greg Morris presented a case study on the world-class plastics e-commerce site, gepolymerland.com. Aside from GE Polymerland's e-team reviewing the corporate business strategy and conducting internal assessments, GE Polymerland extensively surveyed their customers on their wants and needs. Based on this customer in put, GE Polymerland focused its site on buying (real-time inventory, order placing and status, shipment tracking), design (product specifications, material data, agency ratings), industry interaction (links to on-line plastics companies, advertising, career searches), and research (technical assistance, literature, case studies). In addition to addressing their customer needs, Morris attributes the success of gepolymerland.com to the entire company being on board as all the business processes had to become digitally capable and integrated to interact with the site.

Other e-commerce uses of the Internet were discussed at the conference. Omnexus representative Michael Thaler talked about the benefits of neutral marketplaces and the on line services that Omnexus provides processors for the purchasing of resin. On the other side of the coin was Jim Morris of Resin Technology, Inc. who shared his belief that on line resin purchasing is another tool available to the processor, but that the majority still want to directly deal with the traditional resin sale person as they place a high value on personal relationships.

Shared Producer Responsibility: Is it coming to a state near you?

Jerry Hayes of Sonoco and Damian Bassett with Corporation Supporting Recycling alerted conference attendees to the growing trend of Extended and Shared Producer Responsibility (EPR/SPR) for the shifting of the financial burden of product disposal from the government to producers. The difference between "extended" and "shared" responsibility is that extended responsibility involves the shifting of the total disposal burden to the producer. Shared generally means that several stakeholders participate in the financial management of product/packaging disposal.

Presently both EPR and SPR exist in Europe, Asia, Latin America, Canada and the United States. Germany was the first country to adopt EPR for all packaging materials, followed by other European countries. The European Union has since enacted Directive 94/62/EC, which attempts to provide fair and consistent EPR legislation throughout the European countries to eliminate trade advantages/disadvantages from one country to the next. In Asia, Korea's EPR represents a wide spectrum of packaging restrictions, including limits on the amount of packaging allowed relative to a products size. The British version of shared responsibility designates percentage shares of the total disposal costs to all sectors in the packaging continuum including raw material suppliers, package converters, packer/fillers and retailers. The proposed Canadian system of Shared Producer Responsibility will divide the share of disposal responsibility between industry and municipalities, and CSR is recommending mandatory participation to ensure fairness.

In the United States many examples of Extended Producer Responsibility exist for consumer products such as tires, motor oil and batteries, which require consumer disposal fees at the time of purchase. Many U.S. states and counties have implemented bottle deposits. In Kentucky a bottle bills was defeated during this past legislative session, but may be reintroduced. A proposed South Carolina disposal bill for computers and office equipment never came to fruition. Massachusetts is evaluating its current bottle bill to be replaced with some form of extended producer responsibility.

The EPR trend is growing in the U.S. and around the world in spite of arguments that EPR/SPR laws are difficult to enforce fairly, costly to manufacturers, and disruptive to the market place causing unfair advantages state-by-state and country-by-country. Questions remain: what is being done with the recovered materials? Proponents believe recycling rates will increase, but the demand for recycled material doesn't correspond to the supply. Will EPR/SPRs then lead to mandatory content legislation? All in all, the plastics industry must remain vigilant and united.

You Can Run, But You Can't Hide from the Global Economy

SPI's Global Business Council (GBC) director, Lori Anderson, presented data on the growing markets overseas, along with the many tools provided by SPI to assist members in exploring and developing foreign markets. She stressed that companies that focus on the costs of going global and avoid participating in the global market may miss out on opportunities to increase sales and profits, reduce dependency on existing markets, and penetrate fast growing markets; most of which are growing faster than domestics ones. Anderson recognized that added costs in administration, travel, obtaining additional financing and licenses, learning new cultures and developing new marketing materials are legitimate concerns to consider when preparing to go global, but emphasized that the long-term gains are worth it.

Presently, the U.S. consumes 24% of thermoplastic resin, but represents only 5% of the world's population. Worldwide consumption of thermoplastics is 114 million metric tons, representing an annual growth rate of 5.6% in the past ten years. These statistics translate to growing opportunities for plastics around the world. Some of the fastest growing plastics markets include Mexico, China, India, Malaysia, Thailand, Indonesia, and Brazil. China is presently ranked as the 9th largest trading nation, and is expected to become the 2nd largest in coming years.

SPI has many resources to assist members in exploring and entering new markets. Market reports are available on a number of countries and include consumption rates, number of plastics facilities, resin capacity, import/export statistics and trade barriers. SPI organizes trade missions to put members in direct contact with foreign officials, industry leaders, and other resources through pre-arranged tours and meetings, making the exploration process cost efficient and convenient. Other elements of SPI's global business strategy include information on international practices and standards, networking and seminars, developing international association connections and participating in the international public policy arena. For more information on SPI's Global Business Council, contact Lori Anderson at 202/974-5281 or landerso@socplas.org.

South of Border: The Challenges Faced by One U.S. Processor

Technimark's Robert Wellington shared his experience in starting up three injection molding plants in Mexico and how he resolved some key challenges he faced there. The main reason for setting up the Mexican operations was due to the request of a large Technimark customer for saving on assembly lead-time and shipping costs. Initially Technimark acquired a pre-existing facility and then built two new plants in Reynosa and Chihuahua, which were operational in six months. In hindsight, Wellington says that they should have given themselves more than six months to prepare and train their Mexican employees in North America before starting operations.

The biggest challenge that he encountered at the Mexican plants was the lack of a skilled workforce. A process technician there with 5 to 6 years experience is not going to have the skills that you would expect in the U.S. Their lack of knowledge resulted in increased wear on equipment and parts costing thousands of dollars. Technimark had hired a well-known training consultant to conduct extensive training through an interpreter, but there was a gap in communicating. The communication dilemma was two fold. The first translators they hired could speak English conversationally, but were unable to translate technical terminology accurately. To overcome this, a translator with a strong technical background was hired and trained by the consultant. This improved the quality of training, and helped to reduce the quality inspection rejection rate of 35% prior to the solution to less than 2% after implementation.

Secondly, the autocratic management style in Mexico effected communications and productivity. Traditionally, Mexican workers are not expected to think for themselves or take initiative. They work hard at doing what they are told to do by their direct supervisors, no more - no less. For instance, one manager may ask an employee not directly under him to complete a task, and the employee will appear to understand the expectation. Meanwhile, the task goes uncompleted because the employee is waiting for his immediate supervisor's approval. Once this cultural difference was recognized, Technimark developed procedures and practices to fit the structured environment the workers were accustomed. Wellington strongly recommends having U.S. managers come to the foreign operations to personally train and mentor new managers.

Companies starting up in Mexico need to be aware of other concerns, such as the potential for power interruptions and increases in water and power costs. Existing companies in Mexico that provide outside support, such as shipping, are known to fall short in service and quality. Financially, strong U.S. companies moving South of the border have a competitive advantage if they are able to acquire financing in the U.S., as Mexico's interest rates around 35% with business loans difficult to secure. According to Wellington, "The opportunities are there," but he cautions "Do your homework. The economic development people in that country will make it sound easy."

Overall Economic Outlook for Processors Favorable

Plastics industry economist, Michael Paslawskyj of CIT, forecasted that the outlook for the plastics processing industry remains favorable, with GDP growth slowing to 4% or less, and the near term risk of recession remaining low, but rising. It was noted that foreign trade is of growing in importance to U.S. processors. U.S. exports of processed plastic products were $10.3 billion, up from $6.8 billion in 1995 and $3.7 billion in 1990. Since NAFTA was passed in 1991, U.S. plastic products exports to Mexico have doubled from 15% to 31% in 1999. Canada is second with 28% of exported U.S. plastics products going there. In contrast, U.S. imports equaled $9.1 billion in 1999, with 7.6% domestic consumption of foreign plastic products. Paslawskyj predicts a plastics industry trade surplus of $2.2 billion by 2002 with exports around $12.4 billion and imports of $10.2 billion.

Paslawskyj cautioned that threats to the industry exist, such as soaring resin prices, environmental regulation, and namely lagging productivity. Since December 1998, the wholesale price index for thermoplastic resin is up 31%. In the 1990's, plastics processing showed an annual productivity growth of 2.3% as compared to 3.7% for U.S. manufacturing as a whole. The low productivity rates for the plastics industry can be correlated to the decline in the industry's overall investment in state-of-the-art machinery and robotics. The decline in equipment purchases since 1995 is attributed to low processor capacity utilization. Even during the recession of the 90's, plastics employment rates showed no decrease. To remain competitive Paslawskyj advises, "Companies must start reinvesting in equipment, specifically focusing on integrating robotics and computers into the entire manufacturing process to reduce labor inputs."

What's Behind the Increase in Thermoplastic Resin Price Indices?

As resin costs continue to rise, processors are more curious than ever about the factors driving higher prices. With this in mind, Howard Rappaport of Chemical Market Associates, Inc. (CMAI) presented an analysis of the worldwide trends for polyolefin supply and demand. On the supply side, most of the ethylene manufactured in the U.S. is derived from natural gas; however, natural gas costs have risen dramatically along with crude oil prices.

As ethylene is a major component of many thermoplastics (PET, ABS, PVC, PS, LDPE, LLDPE, HDPE), worldwide ethylene costs and capacity were reviewed. Globally, the Middle East had the lowest ethylene manufacturing cost, as well as low domestic demand for resin derivatives. Rappaport noted that petrochemical complexes with polymerization technology are under construction in the Middle East, which will increase the supply of the raw material for export into Europe and Asia. Continental Europe presently has the largest capacity for producing ethylene, but at the highest costs to manufacture. The U.S. capacity and cost of ethylene production ranks between these two extremes.

Aside from regional capacity and manufacturing costs, worldwide economic events such as the U.S. recessions and the Asian Financial Crisis impact the supply and demand curve for polyolefins. Business events such as producer consolidations also play a role. In 1994, the top ten polyethylene producers (representing 31.5% of the market share) showed a capacity of 13,717 million metric tons. In 2004, CMAI forecasts that the top ten polyethylene producers will represent 40% of the market share with a capacity of 28,063 million metric tons. Although the supply and capacity for producing polyethylene is expected to increase in the next two years, so are the worldwide demand/consumption rates. The highest per capita growth rates for polyolefins will be in Asia, which will produce most of its finished goods for export. South America is expected to import more polyolefins by 2004 for internal consumption.

For more information on CMAI's Global Plastics & Polymers Market Reports, go to www.cmaiglobal.com.

Industry Leader Receives Prestigious Service Award

Richard Averette, president of Precision Southeast (an injection molding company lin Myrtle Beach, S.C.) received the prestigious SPI South Distinguished Service Award for his dedication and leadership in advancing the plastics industry in the Southern regin. Averette serves his community and the industry as the Director of the Waccamaw HUB for Best Practices for Teaching Math and Science, and as a member of the Governors Math and Science Advisory Board and the Horry/Georgetown Economic Board. He has promoted careers in plastics by hosting annual plant tours for teachers and students, and has sponsored several PlastiVan school visits bringing this exciting polymer science lab to classrooms in his community.

Last year, Averette served as Chairman of the South Carolina Plastics Industry Leadership Group that worked with South Carolina agencies to develop a plastic industry training strategy for the state. As Chairman, Averette traveled to the state's capital to meet with key legislators to inform them of the training resources that South Carolina's plastic industry needs. The group's greatest accomplishment was the development and advancement of the Plastics Learning Network (PLN), which has benefited plastics processors nationwide. Today, over 76 plastics industry employees in South Carolina have taken PLN training courses, along with 127 others from nine

states around the country.

Member Services Guide Now On-line at
www.plasticsindustry.org/about/services/index.htm

Do you have questions about an SPI program? Need to locate an SPI staff member for assistance? SPI's newly revised and updated Member Services Guide has the answers. The on-line guide includes a comprehensive listing of SPI programs, committees and business units with hot links to detailed information about each and direct e-mail access to SPI staff contacts. In addition, the guide offers quick links to SPI information resources including SPI's calendar of events, literature catalog, membership directory, statistical data and more. For more information contact Jennifer Dills at 202/974-5282 or jdills@socplas.org.

SPI South and the Film and Bag Federation
Thank our Joint Conference 2000 Sponsors

ISO Poly Films

Lati USA     GE Polymerland     Du Pont Polymers     Van Dorn Demag

Upstreams Systems & Machinery     Cryovac Division of Sealed Air

Dart Container Corp.     Davis Standard     Vanguard Plastics     Wellman, Inc.

Fall 2000 PlastiVan Sponsors

Sew-Eurodrive     R.C. Molding     Cryovac Division of Sealed Air     ISO Poly Films
Mack Molding Company     Lord Corporation     CKS Packaging     Dart Container