Let's start with some key comments from last week's post. "I believe resins are actually 70% or higher of most converters' total costs. Hence, a big jump in resins prices can lead to disaster. Strong overseas competition has made this difficult situation worse. I also agree processors' gross margins average less than 10%." Member of Specialty Plastics Organization.
Response: All the more reason to control resins costs and seize the opportunity to provide product price certainty to customers.
"20% gross margin? I'm ecstatic when the numbers fall out to 10%. How do I convince my customers to buy at 20%?" Anonymous Processor
Response: The idea is for margins to not just 'fall out'. It's for processors to use hedging tools to provide customers product price certainty while capturing higher margins - a proactive approach.
Further, customers only see your product price -- with has no 'cost adder' strings attached - not your gross margin.
Rule to process by: "The market doesn't owe you a profit. Be a profit-maker and taker, not a profit-hoper."
Smart-Poly becomes Poly-Smart
As discussed last week, our fictional polypropylene processor Smart-Poly offers customers a fixed product price with no cost-adder for any contract term. They are able to do this using available hedging tools and strategies, and they increase margins and sales providing a service to customers who are not happy with higher resins costs being passed through to them by other processors. Many customers appreciate the price certainty as they look to control their costs and meet budget or other cost objectives.