Measuring up

Rising resin prices and a falling dollar combined to create unsettling economic conditions for Canadian injection molders in the year 2000. The results from our fifth annual injection molding industry survey indicate that most molders weathered the turmoil reasonably well, and that in the short term the low dollar helped more than it hurt. Intentions to buy new injection machines and add capacity for the upcoming year are at about at the same healthy levels they were last year. Considering that many North American manufacturing end-markets served by molders are generally experiencing some leveling off in growth, and in some sectors contracting, this robust growth is a sign that Canadian molders are winning substantial new business.

The survey’s results provide many insights into the business and production operations of the country’s injection molding industry. Analysis of survey results is divided among three main benchmark categories: equipment, business/market and management. This year’s survey contains four new questions — related to annual resin usage, total revenues, operator labor rates and Internet purchasing practices — which provide readers with more critical benchmark information. Additionally, some of the questions on the survey have been revised to improve clarity or better reflect actual industry conditions. As usual, the survey results are summarized in a graphical format. Noteworthy trends and comparisons are included in the text that accompanies each section.

Survey respondent profile

As Table 1 shows, there is a significant difference between the make-up of this year’s and last year’s (2000) respondents based on company size. The total percentage of respondents from smaller companies with 1 to 19 employees jumped to 44 percent this year, up from 27 percent in 2000. The change obviously implies a different cross-section of respondents, in comparison to last year, at injection molding plants taken from our magazine’s circulation list (see Survey Method, p. 26). Given the number (702) of plants that received the survey, the diversity of that sample, and a response rate (16%) typical for a mass-faxed questionnaire, this swing in respondent profile is not unusual.

This year’s survey shows more businesses doing some amount of proprietary molding (Table 2), in comparison to last year. Likewise, shops doing exclusively custom molding have decreased in this year’s survey by 14 percent, to 29 percent overall. This suggest a greater interest among molders in diversifying product lines and markets, a trend that was observed in last year’s results.

Equipment Benchmark

Fifty-four percent of respondents reported buying an injection molding machine in 2000. This result correlates extremely well with last year’s survey, in which 55 percent of molders said they planned to purchase new machines. In the current survey the number of respondents who say they intend to purchase new injection molding machines at their plants this year has dropped slightly, to 51 percent; a figure that is nonetheless indicative of a positive business outlook among molders (Table 3). In a separate survey question, the majority of molders (70 percent) reported new machine purchases will be used to bolster capacity, rather than to replace old equipment.

A higher percentage of respondents report having only 1 to 5 machines (Table 4), a reflection of the increase in smaller-size molders represented in this year’s survey. The question was revised this year to include categories for molders with 16 to 25 machines, and molders with more than 26 machines.

One noteworthy trend in machine size (Table 5) is a four-fold increase in the percentage of reported machines over 1500 tons relative to last year.

Machine utilization and machine age (Figures A and B) suggest some of the reasons for new machine purchases. Forty-three percent of the plants report that more than seventy-five percent of the machines are older than five years. While five years is not especially old for an injection machine, a high percentage of machines older than this indicates that these molders have not purchased new equipment in some time. As well, nearly 50 percent of molders report machine utilization of 70 to 100 percent. Unlike last year’s survey, in which machine utilization was reported to be much lower at smaller molders, this high rate of machine utilization is reported for both smaller and larger companies. This suggests that many shops are running at the upper limit of their production capacity, thus implying that these shops would be hard-pressed to take on any new business without more machines.

Business/market benchmark

Data from three new survey questions are summarized in Tables 6, 7 and 8. Average resin use for the year 2000 (Table 6) shows, not surprisingly, increasing resin consumption with increasing company size. Interestingly, however, the largest increase (four-fold) in resin consumption occurs between molders with 1 to 9 and 10 to 19 employees, as well as between shops with 10 to 19 and 20 to 49 employees. This suggests, that companies this size reach or surpass a critical mass of business volume that in turn causes resin use to jump significantly.

Average total revenue (Table 7) generally increases over the range of company sizes as expected. As the data illustrates, there is a non-linear relationship between company size and revenue: Companies with 10 to 19 employees, for example, have more than three times the average revenue of companies with 1 to 9 employees, even though they are only twice as big. The rate of increasing revenue with larger company size increases over the entire range — companies with 100 to 249 employees have on average six times more revenue than companies with 20 to 49 employees, even though they may be only two to three times larger. This provides a compelling argument for molders, under the right conditions, to consider expanding.

The biggest change in main market breakdown (Figure C) is the high percentage of molders which classified their main market as “other”. The category didn’t exist in the previous survey, but the description perhaps best fits many molders that are diversifying, and no longer consider themselves tied to one particular market.

Seventy-five percent of respondents report having internal scrap rates of three percent or less, while the overall scrap rate average for all respondents is about two percent (Figure D).

Data on how well respondents fare in turning quotes into new business is summarized in Figure E; the results showing no significant change from previous surveys. More than 70 percent of respondents export less than 50 percent of their product. (Figure F), a somewhat surprising result given the low dollar and favorable conditions for export-driven business. Lower than expected export rates may be a result of this survey’s higher representation of smaller companies, which are generally more focused on domestic markets.

Management benchmark

Molders reporting they have ISO/QS 9000 registration has decreased from approximately 50 percent last year to 25 percent this year (Table 9). This is certainly due to the higher representation of smaller companies in the present survey. While 27 percent of respondents report to be in the process of obtaining ISO/QS registration, the results raise the question of whether market motivation for becoming registered is declining among molders.

A picture of a great divide in the industry is painted by respondents’ investments in training and research and development. Nearly 60 percent report spending more than two to four percent of the plant’s total budget in training (Figure G), which is a relatively strong investment in training. On the other hand, almost 40 percent report spending one percent or less on training, which implies a much weaker management commitment to training at these companies. As well, a fifth of respondents say their plants spend more than four percent of the budget on R & D, yet another fifth invest nothing in R & D (Figure H).

Figure K shows that the large majority of survey respondents have the ca
pability of providing customers with assembly service (68 percent), with far fewer indicating an aptitude for welding/bonding (34 percent), printing/decorating (38 percent) and CAD design (37 percent).

As many as a third of respondents risk fines and/or higher rates of workplace accidents and injuries by having no formal safety program in place (Figure L). Only one-quarter of molders have a program in place to accommodate injured workers in the work place, despite the proven ability of these programs to shorten long-term disability and reduce worker compensation costs. Nearly 50 percent of respondents report having no formal training program in place.

Internet usage among injection molders has grown from to 84 percent, up from 52 percent in 1998 (Table 10). Yet Table 11 shows a far lower percentage of molders are using the Internet to purchase business related items such as equipment, resin or other supplies. While it seems likely that on-line purchasing will continue to grow among molders, one barrier at present could simply be that many B2B sites are based in the U.S., thus Canadian buyers are hesitant to incur mark-ups on purchases due to the dollar difference on items that are available by traditional means in Canada.

Conclusion:

Canadian Plastics’ fifth Injection Molders’ Survey provides more benchmark data, and points to several new and significant industry trends in comparison to the previous surveys.

Survey respondent profile: The total percentage of respondents from smaller companies with 1 to 19 employees is 43 percent in this year’s survey, compared to 27 percent in the 2000 survey. The increase in the number of smaller molders is due to a different cross-section of molders responding to our faxed survey, rather than the result of any large change to the make-up of the companies in the industry. More molders are complementing custom molding with proprietary molding, in comparison to last year’s results.

Equipment benchmark: There is a high correlation between the portion of respondents in the 2000 survey who said they intended to buy new injection machines (54 percent) in the upcoming year and the portion of respondents in this year’s survey (55 percent) who said they did buy a machine in 2000. As the survey’s respondent profile is substantially changed from last year, the good correlation between these responses suggests that the survey is an accurate representation of the strategic business plans and practices of the industry as a whole.

Fifty-one percent of respondents said they intend to buy new machines in 2001, which is only a slight decrease from last year’s survey figure. High machine utilization rates imply that many smaller molders may be compelled to buy new machines in order to be able to take on new business.

Business/market benchmark: Three new survey areas provide summary data on resin use, total revenues and hourly operator rates categorized by company size. In general, larger companies show a higher rate of resin use and revenue per employee than smaller companies. Overall scrap rate for all respondents is about two percent. The majority of respondents export less than 50 percent of their product. Twenty percent of molders classify their main market as “other”, a category that didn’t exist in last year’s survey, and an indication that more molders may be diversifying their customer base.

Management benchmark: Only twenty-five percent of companies report having ISO/QS registration, down from 50 percent last year. The decline is apparently due to the higher representation of smaller companies in this year’s survey, but nonetheless implies that market-driven motivation for formal quality registration may be declining. Investment levels in training and R & D are inconsistent among molders. A third of respondents do not have a formal safety program; as well, about 50 percent do not have a training program in place, deficiencies undoubtedly caused by a lack of top management commitment. Eighty-four percent of molders use the Internet for business purposes, an all-time high, although only 40 percent have used it to buy business-related items recently. One barrier to Internet purchases for Canadian molders could be the predominance of U.S.-based sites and the unfavorable exchange rate of the dollar.

The aggressive buying intentions, market diversity and healthy revenues seen in this year’s survey, reflect a high level of business confidence among injection molders for the upcoming year. With improving domestic economic conditions, it is a good time to be a Canadian injection molder.