The Future of Plastics Manufacturing: From Material Supplier to Service Ecosystem and Platform (Part 2)

 

Hello and welcome back to the second part of my “the future of plastics industry” series.

In this second part we keep the focus on polymer manufacturing only and how the future can evolve in this segment of the plastics industry. I still do not have a crystal ball, however orienting on the megatrends, we can try to anticipate a scenario for the future. Other areas such as plastics converting I have touched already in this post. 

Here you can jump to part 1

Key factors for success in polymer manufacturing

Before we jump into a future scenario, let us examine how business is done currently at a polymer manufacturer. Apart of operating state-of-the-art polymerization technology, the following three key product factors are keeping a polymer manufacturer in business for a long time:

-High performance

-Consistent properties

-Competitive costs

Using the optimal technology, a polymer manufacturer is able to produce high-performance products with consistent properties at competitive costs. Product and process development are critical, since new products are an enabler for growth and process optimization can make any product more profitable.

Altogether, there are four major strategies a polymer manufacturer can follow:

-Be the first with your polymer and compound solutions

-Be better with your polymer and compound solutions than the first one

-Be different with your polymer and compound solutions

-Be faster approaching certain applications with your polymer and compound solutions

In past decades, world economies were growing with an average of 6% yearly and polymer manufacturers could participate on this growth. However, in the past ten years digitalization is exponentially changing the way we do business and also the way we consume. New technologies allow the rise of businesses with complete new business models attacking all incumbent old industries.

Revenue growth rates for digital players are in the double digit range year over year. Digital players have the advantage of scaling their businesses in a fast way and keeping the margins very high too. For polymer manufacturers to grow, more material needs to be made and sold as well as and new high end niches need to be found where high prices can be achieved with polymer solutions.

Also, business volatility is increasing and it can be best summarized with the Law of Requisite Variety or for short Ashby’s Law. It is the ability to react to a situation and to have a portfolio of alternatives to pick from (scenario thinking). It also states that when the business world seems to fall apart, it is not helping to build walls and pretending not to see the change. This is the wrong way. One need to meet complexity with complexity itself. Therefore, all industries need to use the new technologies to re-shape and re-invent their businesses. This we discussed in my post where I show 5 ideas on how you canget the digital revolution started in your plastics business [2, 3].

New economy and new business models – when data is the new plastic product

“The goal is to turn data into information, and information into insight.” – Carly Fiorina, former executive, president, and chair of Hewlett-Packard Co.

Several years ago, Eric Schmidt already said that all those companies that define themselves through their product or their technology will struggle in the coming years and those companies that define themselves through their ecosystems and platforms will survive and strive [4,5].

The idea is simple, however it has a tremendous impact: from product manufacturer to platform and ecosystem provider.

We see already established plastic industry players such as Lanxess with their material platform Chemondis, as well as plastics machine manufacturer company KraussMaffei set up with Polymore their own market platform for compounds, recyclates and post-industrial waste, which can serve plastic converters as well as compounders. It is a good example of thinking outside the box and leaving the industry standard of selling plastics machinery since over such a platform it is possible to link polymer manufacturers and plastics convertors together.

Aim is for polymer manufacturers not only to create and participate in B-2-B marketplaces, but also establish ecosystems with their own services and products.

Circular economy as a service platform for polymer producers

Circular economy allows the shift away from linear business models (“take-make-dispose”) to a model of recycling, re-use, and designing for recyclability (DfR). The polyolefins industry is already setting foot into this major change since polyolefins are used in large quantities in packaging where the potential and need of circular recycling is given. A recent example is the EverMinds™ platform where polyolefin producer Borealis is a major driver behind. This platform connects stakeholders with the aim to innovate together and create a product portfolio based on circularity [10].

Ecosystem – polymer manufacturer as service provider

Also for polymer manufacturers, digital services become more and more important. It is not enough anymore to just sell plastics pellets. Successful polymer manufacturers will establish themselves as service providers in the next ten years or even earlier. There are several services which can be horizontal or vertically integrated along the current value chain. From polymer materialselection, part design, virtual engineering (filling simulation and FEA) to manufacturing key components including material, regulatory and logistics support. Key is to cleverly add the service business onto the product business and combine it with platforms to establish ecosystems.

An industry example is Diversey Inc. which started out as a chemical company providing cleaning products to hospitals and other facilities. Now, it is a solution provider, not a product provider anymore. For example, they combine cleaning care plans for hotels and hospitals which include their chemicals, application tools, smart machines, as well as training and support [7].

Collecting data over sensors on production facilities as well as online in the web via marketing tools is key part for this change too. The more structured the information is, the better new strategies can be established and decided upon on by the business executive teams.

New service based revenue streams will stabilize current business streams and may outgrow the established business in the next 10 years. Amazon Web Services (AWS) is such a case, where it was a small offering of external online storage space in 2014 and now it is with 60% the largest operating profit contributor of the Amazon ecosystem [11].

Conclusions

In plastics manufacturing, there are well established industry standards which the majority of the companies follow. They follow the norm and achieve normal results. Extraordinary results are achieved by breaking out of the industry standards. Developing to a service platform provider with an ecosystem represents such a breakout. Only 3% of organizations or people are able to create such changes which lead to high performance results [8]. And those will get the biggest share of the cake, since in the new economy the “winner takes it all” principle rules.

I want to close this post with a quote to keep in mind when driving your business forward:

“That which we need the most will be found where we least want to look.” ~ Carl Jung.

Thank you for reading and #findoutaboutplastics

Herwig Juster

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Literature:

[1] W. R. Ashby: An introduction to Cybernetics. Wiley, New York 1956

[2] https://www.findoutaboutplastics.com/2016/12/plastics-industry-level-up-your-digital.html

[3] https://www.findoutaboutplastics.com/2017/02/a-mind-sharpener-guide-for-plastics.html

[4] https://repository.fteval.at/191/1/2016_RadikaleInnovationen_Endbericht.pdf

[5] https://wien.orf.at/v2/radio/stories/2801064/

[6] https://www.berndtsoninterim.de/aktuelles/im-service-liegt-die-zukunft

[7] https://diversey.com/en/solutions/floor-care

[8] https://www.youtube.com/watch?v=VNGFep6rncY

[9] https://www.findoutaboutplastics.com/2019/07/second-wave-of-digitalization-from.html

[10] https://www.borealisgroup.com/polyolefins/circular-economy-solutions/overview

[11] https://www.geekwire.com/2021/amazon-web-services-posts-record-13-5b-profits-2020-andy-jassys-aws-swan-song/