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How to make money at a penny a pound.

In the commodity film-extrusion business, price often rules. Making money requires careful attention to even the smallest of details. A half-cent shift in resin prices can make or break you. Competition is ruthless, and many sectors of the business are burdened with overcapacity.

So how does Alfred Teo, chairman and CEO of the Sigma Plastics Group, manage to turn a healthy profit every year and keep his customers happy in this nail-biting business?

First, it helps to be big and flexible. Sigma is part of a family of four film-processing and injection molding companies headquartered in Lyndhurst, N.J. Sigma itself is a $685-million outfit consisting of seven separate film extrusion companies with a total of 25 plants. These companies (most of which are named after letters of the Greek alphabet) compete in a wide range of film markets, including stretch film, merchandise bags, garment bags, and converter-grade packaging. Teo's strategy is based on diversification: Putting his eggs in so many different baskets helps him deal with the wild fluctuations of one market or another. When business is soft in any one area, Teo will either shut his lines down or shift extrusion capacity to a growing sector. "I will turn away business if it means losing money," Teo says, sitting behind a mahogany desk in an office big enough to house a cast-film line.

Losing money is a foreign concept to Teo. An accountant by training, he began his plastics career in 1976, when his boss sent him to Blue Star Packaging Co., a Brooklyn processor that was drowning in red ink. "I spent a week there, and in no time identified several areas where they could save money," he recalls. Shortly thereafter, he went to work for Blue Star, first as controller, then as general manager and executive vice president. When Blue Star was sold in 1979, Teo cashed in his stock options, sold his house, and started Sigma with two new Gloucester Engineering film lines.

Its first year in business, Teo's company generated $4 million in sales, mostly by selling bags to New York City garment manufacturers. Since then, Teo's company has grown by double digits virtually every year - mostly through acquisition - to the point where it now runs more than 850 million lb of resin a year through $450 million worth of extrusion machinery.

Along the way, Teo formed partnerships with some well-known processing executives, such as Irwin Friedman, who runs Delta Plastics in the Chicago area, and Raj Bal, president of Lyndhurst-based Zeta Plastics.

Even in a business where price is king, Teo has no patience for predators. Ever hear of an eye for an eye? Teo takes that adage to an extreme: "I tell my salespeople, if we lose one account to a competitor because of price, we will go to 10 of that competitor's customers and lower our prices to take away the business."

That's not to say that the Chinese-born entrepreneur gives his salespeople free reign to set prices as they see fit. "All my sales V.P.s report directly to me," Teo explains. "They don't run wild. But we're not ripping our customers off. I think I'm entitled to 5% net profit."

Teo serves his customers with his own fleet of trucks. He owns every one of the 25 processing plants his company runs - about 8 million sq ft worth - along with the property they sit on, most of which is debt-free.

Teo himself purchases all of the resin and machinery his companies use. Most of his suppliers will admit the negotiations are tough. The way Teo figures it, every $1 million in new-equipment purchases must translate into $3 million to $4 million in new business.

Interestingly, he measures productivity not on the basis of output per machine, but on output per square foot. Don't look for any empty space in any of these plants. "I would guess my output per square foot is double my competitors'," he claims.

"This is a penny-a-pound business," explains Teo. "If you watch your store, watch your salespeople, you can make money in your sleep. If you don't, you can lose money while you're awake."
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Article Details
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Title Annotation:management of Sigma Plastics Group
Author:Callari, Jim
Publication:Plastics Technology
Article Type:Company Profile
Date:May 1, 1998
Words:691
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