By James R. Kinnett II, CEcD, The Kinnett Consulting Group
In the words of Mr. McGuire from the movie the Graduate (some of you may remember it, 1967) “There’s a great future in Plastics. Think about it.” Plastics continue to thrive and grow in spite of the press it periodically receives. With the coming changes that the Plastics industry is beginning to experience, growth and expansion are the future of the business. Due to the emergence of new stock sources, the industry is finding new opportunities in creating new and broadening products that it will produce.
Emerging trends are crossing a number of activities and are quickly changing the playing field when it comes to an ever-expanding industry. Some of the more salient trends that are and will be affecting not only the Plastics industry but industry as a whole are:
- New Materials
- Lightweighting and Small Parts
- Recycling, Reclaiming and Renewable
- Near Shoring
- Automation and Customization
- Connected Factories
But first let’s take a look at the industry as a whole. According to a recent survey of corporate plastics executives by the Manufacturers Association of Plastics Processors (MAPP), 90 percent of executives anticipate a steady or increased business activity in 2017-18; 34 percent of these executives reported an increase in fourth- quarter profits up nearly 10 percent from the previous year. Also, 97 percent indicated that the production work weeks will increase or remain the same in the first-quarter, while 96 percent think that the number of production employees will either increase or remain the same.
As far as sales are concerned, it is estimated that 94 percent of the executives predict that sales over the next 12 months will either remain stable or increase. And according to Reuters, consumer optimism about the economy peaked and is at the highest level since 2001, which reinforces the trend to an increased market. Another impact on the industry is the significant increase in resin production here in the United States. The American Chemical Council noted that the production of plastic resins in North America rose to 108 billion pounds in 2014 and that the industry continues to see that expand. It generated $87.1 billion in annual revenues. And in 2015 about 225 new plastic resin projects had been announced with investments projected through 2023 of $137 billion. This is due to the opening of numerous gas fields throughout Pennsylvania, Ohio and West Virginia as well as others identified further to the west. With the increase of resin processors the abundance of raw product has soared. This has brought about one potential negative to the marketplace in that virgin resin has become so economical that it is at times lower priced than recycled product, thus hurting that side of the business. The top seven resin production locations in the country are:
- Texas (102)
- California (97)
- Ohio (78)
- Pennsylvania (59)
- Illinois (56)
- Michigan (56)
- New Jersey (44)
The number of these facilities will only expand based upon both the demand and availability of raw materials in the marketplace. This is evidenced by the announcements of five projects totaling in excess of $18 billion investment and the creation of over 5,000 direct jobs to the industry. Overall, it is estimated that there will be over 100 billion invested in the resin production over the next five years.
Another impact on the industry involves a problem that all employers are experiencing and that is Workforce Development. According to the MAPP study over the last seven years, plastics executives have rated workforce development issues including training, recruiting and retaining employees as the top challenges facing them today. An interview with a Plastics Industry Sales Executive revealed, “That at a recent meeting in Chicago, a number of Plastics executives expressed frustration in the inability to find qualified applicants to fill the needed positions for their companies”. In the study in 2012, 45 percent of processors indicated that workforce development issues were a top challenge, today that number has doubled. Early in 2017 92 percent of plastic processors indicated that recruiting and training qualified employees were major barriers to their growth potential. As a result these executives are not looking to invest large amounts of capital into workforce development. They are however, looking to invest significant portions of capital into automation and robotics. In this study only about 14 percent of the executives indicated that they were planning to invest in workforce development while 22 percent were addressing the issue with automation and robotics.
The trends that are derived from the growth of the overall industry and their need to compete will see numerous changes in the industry and how they react to these trends will dictate who are the survivors and those that go by the wayside. The first trend to delve into is that of Materials. The primary issue that is driving the materials impact is the constant drive to reduce weight in consumer and industrial products. The automotive industry has been the leader in this push but it is now being addressed in numerous other sectors as well. The Sports industry has more recently embraced plastics, from equipment to helmets to shoes all using new state of the art composites. Another is the construction industry, which is seeing many changes in the replacement of wood, concrete and metals to structural plastic components. By using both recycled and virgin plastics, firms are creating structural components that are being used for bridges, railroads, buildings etc. This trend will continue into the future as new and different compounds are identified and put into production.
The next trend involves the Lightweighting and Small Parts Production. This is quite close to the previous trend in materials because it is having the same overall impact by reducing weight, however it is also impacting the industry with the ability to use these new materials to produce products much smaller and stronger than ever before. As a result, we will be seeing plastic parts replacing metal parts both large and small. Some of them will even have electrochemical properties that before, one could only use metal in the process. Some examples of the changes include plastics gears, sprockets, bearings and clamps and are being used in consumer electronics, internal components, as well as outer castings.
Recycling, Reclaiming and Renewable plastic production is the third of the coming trends. While the current volume of recycled product is down due to the price of virgin resin, there is still a demand for the product. Specifically in the area of construction including structural components (studs, joists) decking, roofing to railroad ballasts and in use with concrete. There is another area in this category and this includes the use of bio-based plastics. It is specifically being looked at by Global leader John Deere by studying the use of plastics made from soy and flax to use in the construction of its equipment and products.
The fourth trend is near Shoring. More companies are returning to North America to compete with more favorable regulations and protection for their intellectual rights. While this is not necessarily helping the U.S. directly, the fact that the production is again being done in North America is helping to reduce cost of production while protecting the rights of the Corporations. There is potential that the U.S. could regain these locations by embracing the Industry 4.0 initiative coming out of Europe (this is discussed in more detail in the next two trends).
The fifth trend is Automation and Customization. This has the potential to have the greatest impact on both the industry as well as the communities these businesses are located in. As noted early in the section on the statistics for the industry, workforce development is an issue and the inability to find qualified labor is impacting over 90 percent of all Plastics operations. As a result the industry is going down the path of automation. With the use of IoT (Internet of Things), robots, 3D Printing, ITOT (Internet Technology/Operations Technology) and the cloud that supports it, the Plastics industry will leap forward in production capacity and innovation. With all of this emerging technology, the ability to more efficiently make customized products, much like what BMW can at its plant in South Carolina, will further the potential to further streamline the companies in both product delivery and innovation. This will, however, be at the expense of the workforce. A few years back the impact of a robot on the production line was to replace between three and five workers with a single robot at a reduced cost of production on the scale of a worker equivalent of $3-5 per hour fully loaded working 24/7 – 7/52. With the addition of new technologies since then this number will only come down and make the need for individual employees less needed.
The sixth and equally important trend is that of Connected Factories. This is quite close to the fifth trend in that it is all basically technology based. The ability to know what is happening on the production floor at any given moment is what is currently happening. In the last two years, Milacron (a maker of plastic injection/blow molding machinery) introduced the ability to track everything going on with their molding machines at real time, so that it can be monitored by technicians through sensors imbedded in the machines and can have corrective action taken immediately. Other companies are beginning to do the same thing by allowing the machines to communicate and correct problems while in production. The end result is significantly higher productivity and the ability to plan protective measures again in real time. The net result is higher profits and greater efficiency. Major progress is being made on this front in Europe with the introduction of Industry 4.0 (Smart Factories). The technical basis for this concept is built around the integration of people, machines, plants, logistics and that products communicate and cooperate with each other. As I review the concept, I find that it is a derivative of Quality and Lean but much more concentrated and is something to watch and possibly emulate.
The Plastics Industry is poised to have significant growth in productivity, innovation and product development and will be around for a long time to come. The future is good.
Bio: Mr. Kinnett has been in the Economic and Community Development profession for over 37 years. He is currently President of The Kinnett Consulting Group. His company provides services including site location, incentive negotiations, loan packaging economic development consulting, strategic planning among numerous other related activities. Mr. Kinnett has worked with over thirty companies in assisting them on their location and financing issues.
He is a graduate Indiana State University, the National Development Council’s Economic Development Finance Courses, and local Leadership and Quality programs. He currently serves as Chairman of the Miami Valley Chapter-Society of Plastics Engineers. He has served on the Board of Directors of the International Economic Development Council, the Polymer Alliance Zone Board, the Region 4 WIB Board and the Board of the Caperton Center for Applied Technology.