By Shell Polymers on Sep 22, 2021
Learned Lessons Point To New Options
Recent years have given the polyethylene (PE) field a fresh look at supply challenges and opportunities. So far, the early 2020s highlighted a serious need for supply chain diversification in the plastics industry and revealed lessons learned through real-world happenings. By understanding the business issues behind the turbulence, converters can begin to craft solutions that will assist in future business continuity.
Learn more about how Shell Polymers is helping provide Supply Chain Transparency
Challenging Times Reveal Lack of Supply Chain Diversification
Most manufacturers, including many plastic converters, are reliant on efficient and lean supply chains to help maintain healthy profit margins. That streamlining can increase the vulnerability of converter supply chains due to a variety of impacts including world events. The fragility of sourcing and supply chains was recently exposed during the PE industry’s major disruptions of 2020 and 2021: COVID-19 and Texas winter storms.
That one-two punch of problems led to resin production slowdowns as well as total shutdowns in some cases:
- As much as 85% of resin production was down in early 2021 due to winter storms that broadly impacted all sorts of industries across the Gulf Coast, including PE.1
- Challenges stretched beyond producers to end users as more than 80% of packaging manufacturers faced empty warehouses and stopped production due to a lack of raw materials.2
- Resin shortages and high resin prices lingered well into 2021, and have continued to impact converters and their customers alike.
While these rare events are unpredictable, disruptive happenings of this nature can and should be expected. In addition to regular interruptions in supply, McKinsey Global Institute predicted that companies can expect supply chain disruptions lasting a month or longer every 3.7 years.3
Supply Chain Diversification Gives Converters Necessary Agility
Diversification is challenging but necessary. “A message of COVID-19 is, don’t put all your eggs in one basket,” says John Paxton, CEO of the Material Handling Industry Association (MHI), a trade group covering material handling, logistics, and supply chain management.4 Adding suppliers is a diversification strategy that helps companies build resilience into their supply chains and prepare proactively to mitigate the risk of operational disruptions.
Choosing the right diversification path that adds benefits without new burdens can be a challenge in the plastics industry, where end users have many converters to choose from.5 Converters want to be competitive with their pricing, maintain low margins, and have accurate forecasting, among other business goals to remain competitive. Incorporating supplier diversification into an existing business strategy can help converters increase supply chain resilience and balance overall risk with agile operations.
Supply Chain Diversification Can Save Money in the Long Run
Diversification and building resilience into your supply chain does not have to be an all-or-nothing effort. Converters should weigh how diversification will help them meet business goals around cost efficiency, market position, and broader industry position.6 Some companies, especially smaller ones, may be hesitant to start multi-sourcing but research has shown that the cost of not diversifying can be more expensive when disruptions occur.7
Shell Polymers provides companies with a good choice for diversification because we are not just a supplier, but a collaborator that is committed to our customers’ overall success. Shell has spent 1,000 hours in the field listening to converters to figure out what customers need and want, giving us insights and ideas on how to empower you and help you achieve your end goals.
Shell also has measures in place that are designed to go the distance for you and with you, such as one-on-one expert consultations. We offer help in all areas we can, and are able to leverage the extensive Royal Dutch Shell network of global resources that span across industries. For example, we can connect you with lubricants if that's what you need, help with sustainability initiatives, and collaborate to help your business benefit from the advantages of Industry 4.0 technology and digitalization.
With access to the Royal Dutch Shell network, our experts are here to help converters achieve business goals beyond polymers and share their knowledge and expertise to improve not just your supply chain, but your business and its outcomes.
Leverage Location Diversity to Maximize Supply Options
It is easier and advantageous for converters to diversify their resin sources with a nearby supplier. That’s why Shell Polymers selected a location within 700 miles of the majority of North American PE buyers.
Our Monaca, Pennsylvania PE plant means that converters diversifying with Shell will not have to worry about stocking up on inventory in the spring to prepare for out-of-area regional disruptions and potential long-haul rail congestion that could delay their supply. The proximity to converters will save time in the supply chain and help maintain consistent buying practices through the increase in supply options and the ability to manage variables so converters can avoid buying resins when prices are high.
Diversifying with Shell Polymers can help converters build resilience into their supply chains. Converters can diversify with Shell to help reduce concerns over having to send trucks long distances to pick up resin supply when rail congestion occurs. Converters will also require less capital investment in storing product in silos or rail and can gain logistical savings overall. These are only a few examples of the many ways that diversifying with Shell can help converters overcome common challenges. Access to the Royal Dutch Shell network, Shell Polymers’ plant location, and strategic transportation options can help converters reduce risk, work towards meeting their business goals, and proactively plan for future supply needs.