Case Studies

A large buyer of plastics packaging selling its food products to Big Box Retailers such as WalMart was under pressure from its customers to reduce its costs and increase the amount of post-consumer content in its packaging. The food company was single-sourced with one plastics packaging supplier, largely because the packaging supplier had installed plastics packaging production equipment inside of several of the food company’s plants.

Though the food company was expert in its products it was not knowledgeable of the plastics markets and retained Mathelin Bay to help it reduce the cost of its plastics packaging.

During an initial audit of the many different types of plastics packaging that the food company was buying it was determined that there was little correlation between the cost of plastics raw materials in the packaging or the volumes of individual items that were being purchased and what the food company was paying. A number of high volume purchases containing little plastic were consistently more expensive than low volume purchases containing much more plastic.

As part of a long-term contract with the packaging supplier the food company was supposed to benefit from all rebates and discounts that the packaging supplier received from its plastic resin suppliers. After an extensive audit of the packaging supplier’s resin purchasing records and the formulas it was using to charge the food company for its plastics packaging it was determined that a substantial portion of resin rebates and discounts were not being properly credited to the customer and the oversight was subsequently corrected.

During this project it was also determined that some of the food company’s primary competitors were making their own plastics packaging and were buying substantial quantities of low cost imported resin while the food company’s packaging supplier was exclusively buying more expensive plastic resin from domestic suppliers. In addition, one of the food company’s largest customers was demanding that a substantial portion of the products it was buying be converted on short-notice to 100% post-consumer reprocessed resin which the packaging supplier had little experience buying or processing. Mathelin Bay helped the food company’s plastics packaging supplier to establish buying relationships with qualified foreign resin producers and with post-consumer plastic flake and reprocessed resin producers. Also included in the project was outlining international logistics delivery options and specifying unloading equipment for safely and cost-effectively handling resin imports delivered in Super Sacks and other flexible intermediate bulk containers.

A company in Latin America that was importing substantial amounts of finished plastics products from China and then distributing them decided that they could process the plastics products more cost-effectively themselves if they bought and installed several plastics extrusion lines.

After several months of trying to produce the plastic products themselves the company was experiencing very large and expensive returns from most of its customers. At this point, the company approached Mathelin Bay to identify the source of its production problems.

Within a short time Mathelin Bay determined that no amount of change in the company’s production process would solve the company’s problems because the products were not being rejected due to defects or contamination. They were actually being rejected because the products were not capable of meeting their customers’ requirements using the compounds being extruded. Working with the company, Mathelin Bay developed several new plastics compounds that solved the rejection problems, set up a local supply chain for raw materials, and helped the company to cost effectively compound the new formulations in-house themselves.

Mathelin Bay was approached by a mezzanine lender contemplating making a large loan to a company acquiring a plastics company and was engaged by the lender to perform operational due diligence on the raw materials supply chain at the company being acquired. Due diligence was especially important to the lender because the acquiring company’s ability to save substantial amounts of money on its raw materials costs was a critical component of the acquiring company’s ability to comfortably service its anticipated debt obligations.

Mathelin Bay was able to begin due diligence within 72 hours of first being contacted by the lender and shortly thereafter began the assessment, which included plant visits to multiple plastics processing plants of both the acquiring company and the company being acquired. In addition, extended due diligence beyond the supply chain area, including reviewing sales forecasts and personnel was also performed within the lender’s tight schedule for closing the loan.

Following the acquisition, Mathelin Bay was retained to perform periodic reviews of the acquiring company’s progress toward meeting its original goals for raw materials supply chain savings.

A custom injection molder was finding it difficult to successfully quote on new plastic parts projects when it used a particular plastics resin. The resin they were using was too expensive and too volatile for them to be competitive, so they decided to find another supplier of the resin grade that they were buying. After reaching out to multiple suppliers, domestic and foreign, of similar resin grades the injection molder was still unsuccessful in resolving their uncompetitive cost position.

Mathelin Bay was engaged to find the injection molder good alternatives and presented them with a unique solution which would mean their using a completely different resin that would be less expensive and less volatile. The injection molder was initially very much against proceeding with the alternative resin because it was a completely different polymer from what they were using—and it was also an extrusion grade rather than an injection molding grade.

The injection molder’s primary concern was that the new polymer would not meet the same physical requirements as their current resin, but tests of the new resin showed that it actually exceeded the physical performance of the current resin.

The injection molder’s second concern was that an extrusion grade resin would increase the cycle times of their machines, perhaps substantially. In addressing their concerns, Mathelin Bay advised them that even though the new resin would increase their cycle times a review of the capacity utilization of their machines showed that they were not running them anywhere near full capacity, even during their peak production season. As a result, the injection molder made the switch to the extrusion grade resin because they could see that it had a lower total cost than their current resin: it had a lower price, the price was less volatile, and the increase in cycle times only incurred some incremental utility and labor costs that were more than offset by the new business opportunities that they were now able to successfully and cost-effectively obtain.

Mathelin Bay was engaged by a foreign plastics processor to help them to choose a location for their first plant in the United States. There is an entire industry of consultants and State and local governments that is anxious to help foreign companies make investments in the U.S. or bring new plastics processing jobs to their area. What is sometimes unfortunately missing from such investment decisions is first taking the time to make sure that the plastics processor has performed enough due diligence to be sure that there is a reasonable chance of their succeeding in the new geographic market they are considering entering. Most very large plastics processors have enough experience to be sure to evaluate the market before moving ahead, but sometimes smaller or family-run companies are in a hurry to jump right into the site selection stage.

This foreign plastics processor had recently seen one of their competitors announce a major investment in the U.S. and was in a hurry not to be left behind in starting a plant for themselves in the U.S.  An initial review by Mathelin Bay indicated that the market segment the foreign plastics processor wanted to enter was very different than the experience they had in their home country market: The U.S. market for their product had little value-added and extremely low gross margins. There were few barriers to entry in the U.S. market, which resulted in lots of competitors and multi-year overcapacity. The foreign producer wanted to make only one plastics product in a new U.S. plant, but most of their potential competitors made multiple product lines and could spread their fixed costs across multiple market segments. Unlike in the processor’s home country, direct sales to end-users were uncommon and a variety of distributors interfaced directly with the end-users and further depressed margins. In addition, many potential competitors in the U.S. bundled their products with ancillary or supplemental products and services that the foreign processor had little experience in providing.

Sometimes the best investment is the investment that is never made.