RISING raw material prices are impacting a multitude of manufacturers the world over.

       In Malaysia, plastic packaging maker SCGM Bhd is striving to maintain its profitability amid this problem.

       The price of one of its main raw materials, resin, has been rising since last year.

       The rise in resin prices on the international market is in contrast to the year 2020 when prices for resin were low due to a lack of global demand.

       Its profit margins for the nine months ended Jan 31, 2022 had dropped to around 10%, according to its financial statements.

       “As resin accounts for a major bulk of production costs, the increase in resin prices has prompted industry players to pass on the increases.

       “SCGM has adjusted selling prices of selected items and customers are aware that it is in line with the resin price trends,” managing director Datuk Seri Lee Hock Chai tells StarBizWeek.

       In its most recent financial quarter ended Jan 31, the company had also noted the higher prices in other items such as chemicals that it uses.

       “Margins are dependent on multiple factors, such as resin, production efficiency and customisation of new products. As mentioned, we are adjusting selling prices and hope to mitigate some portion of potential margin compression from higher resin prices,” Lee says.

       A worker attending the production machine at SCGM plant in Kulaijaya, Johor.

       Meanwhile, the company is also planning to enhance its operational efficiency with recent capital expenditure (capex) spending.

       New machines

       It invested close to RM20mil in the financial year 2022 (FY22) to buy new higher-capacity and higher-speed machines to increase productivity.

       “We have installed an automatic stretch film wrapping machine that doubles our pallet wrapping speed from 10 minutes per pallet to five minutes per pallet. This also reduces our manpower requirements by one-third,” he says.

       This measure is aimed at addressing the labour crunch faced by many manufacturing companies today after the Covid-19 pandemic had closed borders for a prolonged period of time.

       “The main bottleneck at present is the labour shortage, which we hope to alleviate in the coming years through increasing our headcount and enhancing automation,” he adds.

       SCGM recently commissioned two automatic high-speed cutting and stacker machines that will increase its cutting and stacking capacity from 72,000 units daily to 158,000 units.

       It is also commissioning another automatic cup-lid production and packing machine that will help increase its packing capacity by 33% to 800,000 units daily.

       “These new machines, together with process improvements and the consistent monitoring of prices, should help us mitigate resin price fluctuations,” Lee says.

       Border opening

       Meanwhile, the company sees the recent border reopening as an opportunity to seek new customers.

       “We are resuming efforts to engage with customers overseas through trade exhibitions and meetings. One of the recent excursions is the Dubai Expo 2022, where we had linked with many food & beverage (F&B) chain retailers, producers and major distributors who were looking to source innovative and affordable packaging,” he says.

       SCGM is also looking to increase its footprint in countries it already exports to such as Singapore and Australia.

       The company derives around 80% of its revenue from the F&B industry, a segment which is growing for SCGM.

       “We have secured close to 100 new local customers mainly from the F&B segment as they enhance their packaging methods to improve food safety,” Lee says.

       “Among our new customers are fresh produce sellers in Cameron Highlands, where our packaging helps preserve the freshness, shape and hygiene of fresh fruits and vegetables during its transportation to various destinations,” he adds.

       Other areas in the F&B industry that have seen a growth in sales orders are the bakeries and confectionery segment.

       “Sales orders from these customers have risen, as deliveries and takeaways jumped,” Lee says.

       It is also designing new products for the fresh meat segment.

       “We have developed a new product that will capture liquids from fresh foods and prevent spillage when the food is removed from the packaging.

       “Using this also removes the need for the absorbent pad, hence reducing cost for the manufacturer, and prolongs the food’s freshness,” Lee says.