Hello
and welcome to this post on how the plastics industry is organized. After
graduation I spent my whole business career in the plastics industry and it is
one of the most exciting and versatile industries to be in. In Europe, the
plastics industry value chain covers over 1.5 million people, together with
55,000 companies with a turnover of 350 billion Euros in 2019.
The
plastics industry itself can be divided in five major segments:
1.
Polymer manufacturing
2.
Compounding
3.
Distribution
4.
Processing
5.
Equipment and tooling
 |
| The five major segments of the plastics industry - findoutaboutplastics.com |
Each
of the segments has at least one factor which differentiates it from the other
segments. The factors, which we will discuss in detail, are the foundation for
strategic planning and business operations. The overall knowledge on the
factors will keep the plastics business operational and allows fulfilling the
customer needs.
1. Polymer manufacturing
Polymer
manufacturing has a high need of vertical integration (from monomer to polymer)
and most polymer manufacturers are a division of larger chemical or
petrochemical companies. Compared to most downstream processing steps, which
are physical processes, polymer manufacturing is a chemical process. It
involves lots of capital since the manufacturer needs to have a minimum plant
scale due to monomer making and polymerization. There is the continuous
manufacturing way and the batch production way, however most polymers are made
over the continuous way. Batch processes allow smaller quantities, and
flexibility. This is in particular useful for specialty polymer manufacturing.
Key
factors
For
polymer manufacturers, technology is a key factor which allows them to produce
high performance materials with consistent properties at completive costs. It
covers the polymer chemistry on small as well as large scale and how to
manufacture the polymer in the most effective way (reactor technology).
2. Compounding
Polymer
manufacturing is the first step, followed by compounding to modify the
properties by incorporating fillers and additives. Compounding can be done at
the polymer manufacturer or can be a standalone business by itself. There are
also some cases where a company runs a part-time compounding in certain periods
of the year to satisfy some local customers.
Key
factors
In
compounding, formulation technology is key and compounders must be able to
develop special grades in the range of smaller volumes. For customers, there
are two major reasons why they want such special grades. Firstly, it allows
them to replace more expensive materials. For example, a newly developed flame
retardant polypropylene can replace an engineering polymer with flame retardant
properties in car electrification applications. Secondly, new compounds can
combine several properties such as low friction with electromagnetic shielding.
Compounders use twin screw technology for their extruders, however single screw
compounding is also highly used.
3.
Distribution
Small
processing companies buy their needed material over distribution which reflects
an important route to the market. Polymer manufacturers have a minimum order
quantity (usually ranging in tons) and small amounts are all covered by
distribution. Furthermore, distributors stock different materials and this
allows them to ride out supply chain interruptions. However, more and more
distribution companies move to a more just-in-time delivery, ordering the
material at the polymer manufacturers just when they received the order from
the customer.
Key
factors
Customer
relationships is one of the key factors since the customer trusts that the
distributor delivers the right material on time, every time, together with
fulfilling the paperwork (invoices, technical data sheets, certificates of
analysis). As important as customer relationships are supplier relationships
for the distributor, since the supplier allows security of material supply.
Distributors can also be seen as the extended marketing and logistics arm of a
polymer producer. Also, the suppliers provide discounts on the volume
purchased, which makes up a big portion of the distributor's gross profit.
Geographic factors are important too. Distributors start out serving a certain
region and with growth they can serve nationwide too.
3. Processing
Processing
companies cover small and medium size operations as well as billion euro
multinational agglomerates. Within those processing companies, different
specializations can be found: one can focus on certain material or equipment,
other have an industry focus, and part focus including painting and assembling
is also a route to business.
Key
factors
More
than base knowledge of the utilized processing technique, which can be
injection moulding, compression moulding, extrusion, blow moulding, roto moulding
thermoforming, and combinations of thereof, is needed to keep permanent in
business. Margin pressure is high at processors level and processors try to
offer more than processing plastics. Additional activities include part design,
mould design and construction, and secondary operations such as painting and
assembling. Processing companies need to handle certain processing details with
perfection (for example right dryer for hygroscopic polymers to obtain high
quality parts).
5.
Equipment and tooling
Machine
and equipment manufacturers play an important role in the whole plastics
industry puzzle. In the past two decades, consolidation of machine
manufacturing took place, triggered by three major economic crises (2001, 2009,
and 2020). Bigger and consolidated companies can better spread their overhead
and allow themselves to be more resilient during economic downturns.
Key
factors
Technology
is vital for equipment, machine and tooling manufacturers. New machines need to
process new materials more efficiently, as well as withstand the new compound
formulation with improved properties. Also the finished part needs to be
properly measured, so that these improved properties can be shown too.
Summary
The
plastics industry has five major industry sections and is not limited to those.
Each of the industry sections play an important part to make the whole industry
successful. Currently, each sub-segment is also in transformation due to
Industry 4.0 and digitalization. New jobs and new platforms will emerge, helping
to bring this industry into the future.
Thanks
for reading and #findoutaboutplastics
Greetings
Herwig
#PlasticsIndustry #HerwigJuster
Interested to talk with me about your plastic selection and part design needs - here you can contact me
Literature:
[1] Roger Jones –
Strategic Management for the Plastics Industry
