Current Trends in the Plastics and Resin Industry
Supply chain challenges have hit the plastics and resins industry hard, forcing many organizations to rethink their supply chain strategies and prepare for a lengthy period of disruption.
Like most industry sectors, the plastics and resin industry has experienced some major upheavals over the last 20 months. From initial concerns about a pandemic-driven recession to high demand for goods when the world reopened to persistent raw material shortages, companies operating in this sector have had to make quick pivots and fast decisions in order to cope with this “perfect storm” of challenges.
Plastic Resins in Short Supply
Plastic resins were in short supply much of the year due to the supply chain turmoil. Used to manufacture everything from plastic bags to face masks to milk containers, the tiny pellets have been in especially high demand this year. With the market unable to fulfill current demand for these and other raw materials, order lead times have extended significantly over the last few months.
Bloomberg reports that Pentagon Plastics in the UK is having a difficult time filling orders due to the raw material shortage, while Minnesota-based MedSource Labs can’t get the disposable gloves it needs to assemble its personal protective equipment (PPE) kits. “Things that never happened are happening,” MedSource’s CEO told Bloomberg. “It’s kind of like the Wild West out there for medical device procurement and manufacturing.”
The problems started when plants were forced to shut down due to COVID-19, but were exacerbated by other factors like the Texas winter storm, a global shipping container shortage and unexpectedly strong economic recoveries in the US and Asia.
The chemical shortage has inflated pricing for paints, plastics and other vital raw materials. PBS reports that the price of polyvinyl chloride (PVC) has increased by 70% this year while the cost of epoxy resins has jumped by 170% and ethylene has surged by 43%. Companies like Ford Motor Co., are now dealing with the double-whammy of petrochemical scarcity in the midst of a worldwide global semiconductor shortage.
Lesson Learned from the Pandemic
To address the current supply shortages while also learning some valuable lessons for the future, Resilinc’s Bindiya Vakil says companies are now assessing their vulnerabilities and rethinking how they run their global supply chains. She says those that had experts managing different commodity categories—and that monitored performance and detected early-warning signs of a problem—were more prepared to face the potential supply constraints.
“A wide range of materials go into a single product, and it’s important to know where those materials come from,” Vakil writes in HBR. “In the case of the semiconductor shortage, the carmakers’ inability to get a $5 chip from a Tier Three supplier derailed the entire automotive industry.”
The Road Ahead
As they move forward, companies are also rethinking their supply chain practices and moving away from just-in-time (JIT) strategies; reshoring or near-shoring manufacturing operations; and putting a bigger emphasis on demand planning and forecasting.
“For decades, companies moved production to China to capitalize on lower labor costs. They also held down expenses by keeping inventories to a minimum,” PBS reports. “Using a [JIT] strategy, they bought materials only as needed to fill orders. But as the recession and recovery showed, keeping inventories threadbare carries risk.”
Other organizations are preparing for a lengthy period of ongoing supply chain challenges across various product categories. “I think we should expect, as business leaders,” Ford’s CEO Jim Farley told The Associated Press, “to continue to have supply chain challenges for the foreseeable future.”
The Old National Bank's Commercial Banking Team's bankers are actively involved in the Plastics and Resin industry and our market knowledge will guide you in growing your business. Talk with Michael Bromfield or Chris Hannon to discuss financing options for your business at Michael.Bromfield@OldNational.com, or Chris.Hannon@OldNational.com
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