As I See It
Mar 1st, 2008 Print this article Executive Q&A with Jack SparacioBy Tony Deligio
Jack Sparacio, president and CEO of Plastic Engineering & Development Inc. (PEDI; Carlsbad, CA), has worked within the medical industry for nearly his entire career, starting with giants like Johnson & Johnson and American Hospital Supply, before taking on executive positions at up-and-coming companies like Imed. PEDI runs 28 injection molding machines in a 50,000-ft² plant, including a 5000-ft², Class 100,000 cleanroom, which is set to expand by 3000 ft² in coming months. |
Brought on in 2001 to help grow the company’s overall business, Jack Sparacio has paired his experience and contacts within the medical-device industry to make Plastic Engineering & Development Inc. (PEDI; Carlsbad, CA) a player.
MPW: How were you able to grow PEDI’s medical business so quickly, taking it from 20% of sales to nearly 80% within five years?
Sparacio: It was just a focus on it—start calling on those customers. After I spent all these years in market, I met a lot of people, and we were able to jump over a lot of hurdles. You work with a lot of people, you get a lot of contacts, and it helps to get your foot in the door.
MPW: Is there a focus at all on the number of customers?
Sparacio: Not really. Frankly, in any business like this, you’ve got to take a look at your customer base and whether or not you’re achieving your profit margins. As your customers get larger, they become more important than the smaller ones. All customers are important—but there’s a point where we might say, we don’t want to take business that required us to do a lot of changeovers and we’re only doing $50,000 in sales to them, because it’s costly to the business. We’d rather have longer-running jobs.
The other thing that we pride ourselves on is bringing along infancy-stage companies where we can help them grow.
MPW: There are a lot of perceptions about the medical sector by the plastics-processing industry at large—it’s recession proof, with constant growth, and healthy margins. What do you see day to day?
Sparacio: Here’s what I would say at sort of the 30,000-ft global level. The medical field, particularly in medical devices, is in the billions, I don’t know for sure what percentage is plastic, but the majority of those medical devices are disposable. That’s number one. Number two, there’s about a 3-4% level of growth in the industry every year, so it continues to grow.
Would I say that it’s insulated from any of the other economic indicators, inflation? I’d say no. Price is less of an issue than in other sectors of the business, but that doesn’t mean that price isn’t important. As reimbursements change with the healthcare system, where they’re getting more stringent on what the insurers are paying, price is a factor.
What I would say is, if you have something out there that no one else has, that people need, then you have a leverage point to be able to get better margins, but it’s getting as competitive as anything else. I think the misperception is in the plastic-molding industry. People realize that there’s an attractive market there, so they all want to get into it, and there are hundreds and hundreds that don’t have a clue what the requirements are, the documentation that’s required, and what you have to do to comply.
MPW: You have a partner across the border in Tijuana (Integra) that you use for assembly work from time to time. How do you decide which projects you’ll send there?
Sparacio: It’s a matter of being competitive. If you can do assembly work in Mexico, then you can do it for 60% less then it would cost you to do it here in Carlsbad. If price is an issue with a customer, then we’ll try to convince the customer that we’ve got to take it to Mexico, and it’s all a matter of dollars and cents at that stage.
Now we’ve got a couple of customers where we’ve suggested to go there, and they don’t want to go to Mexico because they want it manufactured in the U.S. They don’t want a label on their packaging that says it was manufactured in Mexico. It’s probably a perception thing with them.
MPW: Is the origin of manufacture more of an issue in medical devices?
Sparacio: I’ll tell you where it’s an issue is where it’s a really competitive product. If it’s real competitive, they’ll make concessions and go to Mexico. If they still have good margins, and feel like they’ve got an advantage, they don’t see the need to go to that marketplace.
MPW: Is PEDI interested in expanding overseas?
Sparacio: I wouldn’t look at that right now, there’s no reason for us to do that. Here’s the thing: Before we make a decision to do that, strategically, because of where we’re located, I’d go to Mexico. There’s no question that Mexico is not as competitive in labor rates as what you have in China, but there are trade-offs. You can get product; you can get across the border. Our technical staff can go down there to deal with issues. When you’re dealing with 13 different time zones and 4000 miles, it’s a bit different.
MPW: PEDI has begun to work with PEEK (polyetheretherketone); what opportunities do you see there?
Sparacio: PEEK is a very highly engineered product that’s very difficult to mold—not a lot of people want to touch it. High temperature, hard to hold tolerances, but we’ve been fortunate enough to run it because we’ve had one customer who came to us that wants to use it for a spinal spacer. So that got us started, and we’re talking to a few other customers that are also aware that we’re doing PEEK, because we mentioned it in our customer newsletter.
MPW: PEEK would primarily serve as a metal replacement?
Sparacio: Yes, and the reason is that all the titanium is very, very expensive, and it’s machined, so when you start looking at the tradeoffs of trying to find an alternative, where you can mold a part for a fraction of the cost of what it would be to machine it…Obviously you have to have enough volume—if you’re doing 100 pieces in a week, then you can’t justify it. The stuff we’re buying right now is $1400/lb, so you’re not doing a lot of experimentation work.
MPW: Going forward, are there other challenges you see?
Sparacio: The biggest concern is the cost of the material. Everyone is concerned with resin costs, what’s going to happen, and it’s been unpredictable. The other challenge is the continued increase in labor costs. In California, we’re $0.75 higher than the rest of the country in minimum wage. That’s why I say the challenge for us is finding ways to automate processes and to eliminate the labor content.
MPW: What percentage of your final piece/part cost is accounted for by labor?
Sparacio: Well, if you look at pure direct labor, it's like 23 to 24%, but if you take all the other things into consideration, your other costs of workman's comp, insurance benefits, all those things, and start adding it all together, you're up around 40%. Then material usually runs around 18% to 20%.
MPW: Is everyone in medical trying to automate their processes more?
Sparacio: I think everybody is. I mean if you walk through [MD&M], just take a look at the machinery; it's getting more and more sophisticated.So our labor and overhead, when I add it altogether, it's probably around 50% of our costs, then about 18%, maybe 20%, is material. | 
