Buying resins is tough. Purchasing teams have too little information about the resins they buy and the supply markets available to them, while sellers have substantial sources of leverage. Consider these realities:
- It can be very difficult to implement alternative materials for a particular resin. Alternatives are both challenging to identify and can be extremely costly and time consuming to test and validate for current products.
- It’s nearly impossible to understand impacts of cost drivers on resin pricing. While buyers are sometimes able to draw correlations between published indexes and the resins they buy, the indexes require a significant investment to purchase.
- Identifying potential suppliers can be very difficult for many resins. The resins supply market is in constant flux, with mergers, acquisitions, and name changes making it nearly impossible to keep track of potential suppliers.
The first step for negotiation better resin prices is to identify the specific materials that should be priced lower. The key tools used for this are resins cost catalogs and feedstock cost models.
Resin Cost Catalogs
Resin cost catalogues are used to capture all the key details for the resins you buy in one place.
This information is useful for quickly estimating resin costs when pursuing new business, negotiating with resin suppliers, and identifying resin pricing that is out of line.
To build a resins cost catalog, capture key information in a spreadsheet for all the resins you buy or quote. They types of details you’ll want to capture include:
- Pricing data – landed pricing, minimum order quantity, terms & discounts
- Supplier & material details – supplier, warehouse location, type, grade, density
- Quote information – volume, program, product application
- Material specifications – end-customer specifications, agency ratings
Once you’ve organized your information into a cost catalog, you can easily identify those resins where the landed price/lb is higher than similar materials.
Feedstock Cost Models
Feedstock cost models estimate cost elements such as materials, manufacturing costs, freight, and SG&A/R&D based on an understanding of the formulations and manufacturing process and estimated costs at the cost driver level. For example, a feedstock cost model for acrylonitrile butadiene styrene (ABS) consists of the following cost drivers and proportions to calculate an estimated delivered cost, based on specific manufacturing location, delivery location, and specific packaging method:
Comparing feedstock cost models to your resin pricing is an easy way to identify materials where margins appear to be larger than similar materials. Be careful not to apply feedstock cost models to set target prices – they are based on estimates for formulations and many cost drivers, and don’t account for supply and demand factors that can weigh heavily on market prices.
Moving to Knowledge-Based Resin Price Negotiations
Once you’ve identified which resins should be price lower, you can approach the suppliers with a conversation that creates positive pressure. Resin suppliers do not respond well to arm twisting – they know it’s difficult for plastics manufacturers to change materials and resin buyers don’t have a lot of alternative sources – but they do want to ensure that their future sales are not in jeopardy.
To learn how to apply positive pressure and engage suppliers in knowledge-based pricing negotiations, download APD’s Understanding Resin Prices white paper here:
We also have a recent webinar available for download on Understanding Resin Prices