One of my favorite companies to visit at every K is A.Schulman (ASI). The specialty compounder never fails to show several interesting innovations, such as Schulatec Tinco, a conductive plastic/metal hybrid compound that allows for assembly integration.
The company was founded in 1928 in Akron, OH by Alex Schulman, and curiously it is much more successful in Europe than in the United States. Sales and profits in the European trading region for the 2011 fiscal year were $1.5 billion and $197 million,
respectively, almost triple the numbers for the Americas. In fact the company is on a comeback trail in the United States, where it started losing money for the first time in 2005, according to an excellent report by Tony Deligio, the content director for PlasticsToday.com.
This is its strategy in a nutshell:
- Close unprofitable U.S. plants (particularly automotive) and open new capacity focusing on technical niches, in effect leveraging the very successful German model. A. Schulman is the number one specialty compounder of engineered materials in Germany, one of the most demanding technical markets in the world, especially in plastics. Last year ASI announced closure of its Nashville, TN plant by the end of next year and an investment of $7million in its Akron plant to add technical compounding capabilities.
- Acquire companies that add to its core strengths.
- Leverage its global purchasing power for plastics and hedge risk with mutually agreeable indexes. Develop a meaningful sales operating plan so that purchases and inventories match real-world demand from customers. A. Schulman suffered a common business malady: a sales planning system based on sales staff wishes—not reality.
Interestingly, A. Schulman now uses a “pounds” metric to measure performance, something I have not seen before in the plastics industry. Measuring pounds helps even out effects of inflation, recession, currency fluctuations, and other factors. According to a recent report, the company recorded an operating profit of 3.5 cents per pound in 2010, and has a target of 6.2 cents per pound in 2015.
The company’s reports are full of interesting data on the plastics industry, reflecting a real analysis of where they were and where they want to go.
In one example, the total global thermoplastics market excluding PVC and fiber in 2010 was identified as 124 million metric tons and was valued at $205 billion including the masterbatch value. Of that, 50 million metric tons ($78 billion) is neat plastic resin; 15 million metric tons ($36 billion) is custom compounded; and 58 million metric tons is converter compounded ($91 billion including masterbatch value). A. Schulman estimates that of the compounded material (everything but neat) there is 4 million metric tons ($14 billion) of “global defensible market space for an independent attribute supplier”, i.e., a company such as A. Schulman. So A. Schulman puts the value of its sphere at $3.93 per pound. That sounds like a good recipe for bottom line improvement, considering that uncompounded commodity plastics sells for around $1 per pound.
The story is interesting because it shows how an old-line American manufacturing company is improving its fortune through experience learned in Germany. And like so many large companies, it’s learning the enormous power of improved supply chain operations, from leverage to planning.