A new report from the Society of the Plastics Industry (SPI) on the plastics industry in the U.S., entitled The Size and Impact of the Plastics Industry on the U.S. Economy, 2003 edition, has just been released. It examines the economic impact of the $310 billion plastics industry and it is enlightening and relevant to distributors and fabricators since it includes data for NAICS 42261 – Plastics Wholesale Trade.
Some highlights are:
Details including an executive summary and table of contents of the study plus state-by-state and regional facts are available on line at: www.plasticsdatasource.org/impact.htm
- Plastic Products Manufacturing (NAICS 325991 & 3261) is the fourth largest U.S. manufacturing industry in the dollar value of shipments
The above sector showed a decrease in the value of industrial shipments of 5% and a decrease of 8.8% in the number of employees from 2000-2002
Dollar shipments of Plastic Materials and Resins (NAICS 32511) fell 14.7% and shipments of Plastics Machinery (NAICS 3332201) rose 8.9% for the same period
Compound annual growth rate for all industry sectors was – 5.4% for 2000-2002
At this writing, the beginning of the new year 2004, which is an election year, leap year and business turnaround year, it is time for most of us to be prepared for all this year will bring. The National Association of Wholesalers (NAW) will soon release a new publication on customer profitability and how to get there - some points to consider:
- There may be no correlation between the profitability of a customer and the average gross margin percent contributed by same customer – higher margin on smaller orders don’t have enough margin dollars to cover the transaction cost.
While all of the most profitable customers have large annual sales volume, not all big volume customers are profitable
There is a high correlation between customer profitability and the average margin dollars per transaction for a customer
The top 10 most profitable customers routinely have lower average margin percentages that are 10-20% lower than the average company margin percent, but the order size is 2-4 times larger than the average.
What this all should mean is how to best handle both large and small accounts in 2004.
What’s easier for larger, repetitive accounts? Trying to raise prices and margins unilaterally or working together to create a system that generates average order sizes that are significantly larger to cut down on both parties transactional costs?
For small accounts? Try to raise prices on commodity items enough to cover transaction costs or install a minimum order size that charges a flat service and/or delivery charge on orders below a profitable size. Since an extra charge on a small order is the equivalent of paying a big price increase on the entire order, customers will usually accumulate needs or order extra, future need products to make the minimum.
Editor’s note: This will be Mel Ettenson’s last column in 2004. He will be devoting more time to his subscription only, monthly newsletter. We would like to thank Mel for his contributions for the past many years and wish him good luck as he pursues other interests.
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