Canadian Plastics

A Less Cloudy Future

To download the full version of this article including tables and graphs in PDF format, please click here....

January 1, 2005   By Michael Legault



To download the full version of this article including tables and graphs in PDF format, please click here.

We may have turned the corner. Based on the results of our 9th annual Injection Molders Survey, this conclusion does not appear to be merely wishful thinking. After four straight years in which the number of plants buying new injection molding machines languished under 50% (see chart), a record 60.7% of molders say they intend to purchase new machines in 2005. The next best year, when 58% of the molders surveyed bought machines, was way back in 1998, at the height of the late-90s economic expansion. Even more telling, over 67% of the molders who are planning to buy in 2005, say they are buying new machines for additional capacity, rather than replacement of old or obsolete equipment (see Equipment Benchmark section for full analysis).

While this appears to be a big breakout year on capital spending, our survey provides other useful management and strategic business measures that let you benchmark your company against others in the industry. The structure of the survey allows us to analyze the data according to plant size, as determined by number of employees, and by the main market served. Space constraints prevent us from showing all the detailed data, however important trends or sharp distinctions between various sectors are noted in the text.

RESPONDENT PROFILE

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The features which describe the basic business characteristics of the respondents are similar to previous years with a few minor differences. Approximately 35% of the molders are exclusively custom operations, while 30% mix custom with some proprietary molding–numbers that are roughly equal to last year’s survey. Plants doing strictly proprietary molding account for 17% of those surveyed, which is again similar to last year’s figure (18%). The noteworthy observation here is that the percentage of molders that are exclusively proprietary has gradually risen over the years: In 1997, 1998 and 2000, the number of exclusively proprietary molders was 11%, 13% and 14% respectively.

As seen in previous years’ surveys, the prevalence of custom, proprietary and captive molding among operations is somewhat dependent on the type of main market served. For instance, a higher percentage of automotive molders (43%) are exclusively custom shops; while all the molders in the packaging market (a total of four respondents) are exclusively proprietary. As well, molders which describe their main market as “other” (see Table 1), have a higher percentage (26%) of exclusively proprietary molders than the overall average.

About 55% of respondents have fewer than 50 employees, which is similar to previous surveys. These numbers have been fairly consistent over the years with the only discernible trend being a slight increase in the number of shops with 50 to 99 employees, and a slight decrease in plants with 20 to 49 employees. Over nine years of survey results, the number of injection molders with over 100 employees has remained steady, roughly 25%.

Main market breakdown approximately follows last year’s numbers, with the exception of a drop in the number of molders calling packaging their main market (from 11% to 5%) and also an increase in the number of shops that primarily serve the construction market (from 5% to 12%). These two shifts are inconsistent with previous surveys, and is most likely a one-time anomaly unique to this year’s sample set. One long-term trend in the markets worth noting is the decline of shops calling general consumer goods their main market: 39% in 1998, to 18% in this year’s survey. The data shows molders have primarily migrated to the “other” market, where the number of molders has increased from 15% to 28% in the same period. As Table 1 illustrates, “other” is mainly composed of molders with increasingly specialized and proprietary niche markets.

EQUIPMENT BENCHMARK

As noted in this report’s introduction, a record high percentage of shops (60.7%) plan to purchase new injection molding machines in 2005. The vast majority of these purchases will be for additional capacity (Table 2), suggesting significant growth across all segments of the Canadian injection molding market, after a number of years of segmented growth and, in some cases, stagnation.

Historically, the accuracy of the percentage of molders who say they intend to buy has been confirmed to a high degree. For example, last year 43% of respondents said they intended to buy machines in 2004; and in this year’s survey, 46% of the respondents said they actually did buy a machine in 2004 (Table 2).

One cause of increase in buying plans in the industry is apparent from a plot of the average machine utilization rates of shops over the past four years (see chart “Utilization rates”). Over 56% of respondents to this year’s survey report a machine utilization rate over 70%, the highest percentage in this time period.

A number of other trends related to machine use are shown in Table 3. The table shows the answer which had the highest percentage of responses for a given question broken out by plant size. Not surprisingly, plans to buy new injection molding machines increase with increasing shop size. Somewhat unexpectedly, a majority of molders at plants with 100-249 employees report that over 75% of their machines are older than five years, whereas smaller shops in the categories of 20-49 employees and 50-99 employees report having a lower percentage of their machines older than five years. Machine utilization rates are up at all plants, but utilization rates have increased the greatest at larger plants, with 50 or more employees, compared with survey results from previous years.

BUSINESS BENCHMARK

There is more variation in the hourly rate paid to an operator in plants of similar size than there is in the average hourly operator rate between plants of different size (Table 4). With the exception of plants with more than 250 employees, the average hourly rate paid a machine operator is roughly $12 to $13 an hour. The wide variation in operator pay rates between plants of similar size may be a by-product of main market served, union vs. non-union plant or regional location.

Resin consumption figures show the expected rise with plant size (Table 5). Productivity based on pounds of resin consumed per employee can be roughly estimated by dividing the average annual resin consumption by the median number of employees in each plant size range, e.g. 4.5 employees for the plant-size grouping of 1 to 9 employees. According to this method, plants with 50 to 99 employees were the most productive in this year’s survey, consuming over 60,000 lb. of resin per employee, while plants with 100 to 250 employees were the least productive, consuming less than 23,000 lb. of resin per employee (Table 6). Factors such as market, business volume and type of product molded obviously account for some of the discrepancy in productivity, however better workflow, increased automation, etc., also play a likely role in higher productivity numbers. It should be noted that molders in the packaging market, traditionally the largest consumers of resin, have not skewed this productivity estimate: There are no survey respondents serving the packaging market with plant sizes of 50 to 99 employees, for example.

Estimated 2004 average plant revenue is up across all plant sizes, with the exception of plants with more than 250 employees (Table 7). The most significant increases in plant revenue were realized by plants with 20 to 49 employees (+230%), and plants with 1 to 9 employees (+150%).

Reject rates plotted by main market indicate the industry continues to make overall progress at reducing scrap, with the majority of molders in all markets reporting rates below 3%. (See chart “Reject rate”). Curiously, the highest overall scrap rate was among packagers, where 100% of the respondents in this market have scrap rates higher than 3%.

MANAGEMENT BENCHMARK

The most dramatic change is in the increase i
n the percentage of molders offering assembly service; as well, to a smaller extent, a rise in molders providing design and in-house moldmaking. As with last year’s survey, the majority of plants are putting about 1 to 2% of their budgets toward training (see chart “Training”). However there is a decrease (from 13% to about 5%) in the number of molders who will invest nothing in training–another sign that revenues and business are generally on the upswing. Over 40% of molders have allotted 3% or more of their 2004 budgets for research & development, compared to only 24% of molders who spend 3% or more of their budgets on training. This suggests that in the battle for budget dollars, R&D may be winning out at the expense of employee training at some plants (although 14.5% of respondents will invest nothing in R&D).

The largest segment of respondents (31.3%) reported they export more than 50% of their product. However, the data also shows that a majority of shops (57% in total) still sell less outside the country than they do inside the country. When quoting new business, the majority of molders (almost 60%) have less than a 20% success rate (see chart “Quoting new business).

Lastly, in a sign of the impact the Internet is having on business, over 64% of respondents say they have accessed the Internet to buy equipment, resin or other supplies in the past four weeks. This compares to only 34% in 2002 who said they made purchases through the Internet. One can easily imagine the day we will have to retire this question, as there will be no molder who isn’t using the Internet to buy supplies.


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