CEO Interview – Chuck Koester

Plastic Enterprises Co.

CEO Interview with Chuck Koester, retired President & CEO at Plastic Enterprises Company, Inc.

How a Company Got Unstuck and Doubled Their Growth

Let’s start with the end of the story. Briefly describe the result:
In three years we went from flat sales and lots of margin pressure to a significant turnaround in revenue and profit. We were breaking sales records, building a new warehouse to accommodate increased business and being able to substantially pay down debt in the next two years.

What changed?
We quit managing for the moment and got strategic. We changed some people, we improved our collaboration and we focused the business on the important things. We followed the strategy like it was our Bible.

Tell us a little about the company and what was going on before we started working together. 
Plastic Enterprises Co., Inc. is an injection molding plastic manufacturer, founded in 1965 and makes molded plastic lids and containers for packaging of food products, for customers that are household names in the food industry. Between 1998 and 2003, growth had slowed considerably and we had lost some customers. Industry growth in our market segment, the caps and closures market, was slow, ranging between 2-4%. However, the food industry was not impacted as severely as industrial markets. At the time, the snack category was exploding and more niche markets were being developed. Graphics on packaging was playing a more dominant role in marketing products at the point of purchase, phasing out “shelf talkers”, the small signs that extended from grocery store shelves to promote certain products.

What was causing the bulk of the challenges?
Plastic Enterprises was plagued with a common problem; a small number of large customers accounted for a large proportion of volume, and all were good negotiators. We were a small player in a market where the top ten companies accounted for 1/3 of the industry and 2500 injection molders competed for the other 2/3. Pressure on margins was high and we could lose business fairly easily if a competitor was willing to take the project at little to no margin—and as you know, there are those that will!

What brought it to a head?
There was a change in leadership. The  Plastic Enterprises’ executive team aspired to higher growth. We had a vision to double the company in five years or less. It would be a challenge in that it was a different trajectory than the company had been following and would require significant enterprise-wide change.We brought you in when we were considering adding thermoforming, another plastic manufacturing method, to our production capabilities. Thermoforming does have some advantages over injection molding. This change would require significant capital investment and operations training. It was unclear what impact thermoforming would have on the customer base or which new customers could be targeted with this technology.

How did the “outside-in” nature of the process help you?
As more information was gathered about the company and the market, it was apparent that we had very little data on customers, sales patterns, and potential technology. One of the things that was valuable was looking at the business the way end consumers do, in the grocery store, to discover what they see on the shelves and how that is changing. This was something we had not done for quite some time and revealed some very interesting insights.

Food packaging’s role was changing to be the on-the-shelf marketing vehicle for the product it contained. The ability for packaging to play that role was important and the technical capability to provide packaging with graphics would be as well.

Food packaging was changing at a rapid rate away from round shapes as part of the dynamic to capture attention on the shelf—especially in the snack aisle which is where much of our product was on display.

There were many round packages in an aisle we hadn’t pursued extensively—dairy. It presented an alternative to investing in a new manufacturing process if we were able to penetrate this market segment with existing technology.

How well was the team working together?
Initially there were issues as we learned to work together. But we were open and honest with each other. As the team gained confidence in how to work together and support each other the leadership team became more confident with the risk posture and the more proactive stance we wanted to pursue.

The great debate between adding a new process or entering a new market—how did you decide?
With your help, we first determined the criteria for growth which included scalability, staying within the food industry, increasing the diversity of the customer base, “owning” a niche that gives us an opportunity to stand apart from competitors and, recognizing that we needed to be able to establish value to customers that went far beyond the piece price of the product itself.After considerable debate and analysis the company made the decision not to pursue thermoforming, to stick with what we knew and focus on a segment that had potential but we hadn’t really targeted: the dairy market. It would require the hiring of an experienced sales person to penetrate those customers but we believed that we could pursue this market aggressively with current production capability and capacity and focus on high growth segments (ice cream) in an otherwise slow growing industry.Over the next few years we shifted from a mere provider of plastic packaging to the food industry to a key supplier that could meet all of the supply chain requirements of its customers. We started with quick hits, then moved to a focus on the dairy segment and, as proven results were generated, expanding products to serve the dairy and other food markets.

What else did you do?
We changed the way we positioned the product to customers, selling based on customer service, process integration, and product value, not just unit cost. We increased service capabilities and tracked product performance impact on customer productivity. Margins started to improve as we were able to convey these advantages to customers and that enabled the development of long-standing relationships.As we entered into the operating phase of the strategic work we recognized the need for changes to align the entire organization better. We committed to continually improving the project management and customer service processes while holding leadership and employees to a higher standard of alignment and accountability. We hired additional people who had key talents that were missing in our current staff. We found ways to reduce costs to customers while increasing our own bottom line such as less overtime, less waste, better scheduling and automating the warehouse. We also formed a management council that met weekly to address issues and make necessary decisions (both short term and strategic).

How long did it take to see results?
Within three years of developing the growth strategy, we were building a new warehouse to accommodate the increased business. We paid down debt substantially within two years because of the significant turnaround in revenue and profit. We began to wonder if we should build a new plant to meet business growth but decided to also evaluate whether to see if the company would be an attractive acquisition candidate.In 2011 the company was acquired by IML, a Quebec organization that is a technology-driven food packaging producer. This transition enables the company to continue its growth and success in a very competitive and fast changing marketplace.

If you had to summarize why it worked, what would you say?We got the right people with the right talent and experience in place. We adopted new processes across the entire organization and began working together as a true team. We believed if we did the right things, the bottom line would take care of itself.

We installed a new ERP system. We improved materials requirement planning allowing us to better anticipate workloads, reduce scheduling changes, load level work, and manage inventory much better.

We realized that growing our business with existing customers and capturing new customers’ business required us to be both great in cost and great in quality, very broadly defined. Only then could we attain profitable revenue growth.

We had the discipline to stay with it. We referred to our plan as our Bible and our weekly meetings allowed all of us to hold each other accountable for results and staying the course.

We communicated up, down, and across the organization continuously so that everyone knew what was important and what we were trying to accomplish. We measured how we were doing against our objectives. We celebrated our accomplishments and rewarded our team, both exempt and non-exempt, for their accomplishments. We were an ESOP so all of our employees were owners.

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