Hexpol maintains high standards for consistency with major investments

BURTON, Ohio—Standardization and consistency have become the guideposts for Hexpol Compounding Americas, as North America's largest custom mixer continues to make major investments in equipment, automation and sustainability efforts.

As typically is the case, the push toward Industry 4.0—even Industry 5.0—involves an intersection of these trends. As such, Hexpol expects capital expenditures to be between $20 million and $25 million for HCA in 2024.

"Industry 4.0 weighs heavily on IT infrastructure, standardization, connectivity and integration within business systems," Gary Moore, president and CEO of Hexpol Compounding Americas, told Rubber News July 29. "Everything we do at Hexpol is aimed toward continual improvement, thus striving for Industry 4.0. We are already looking toward what Industry 5.0 is and planning accordingly.

"And sustainability is already in our DNA and culture."

Under HCA's umbrella of uniformity—a difficult goal to attain with 16 North American locations—are manufacturing and equipment upgrades, which typically are the largest percentage of overall capital expenditures. The umbrella also embraces systems and automation upgrades, which work in concert with the equipment and serve to truly standardize Hexpol's operations.

As such, Hexpol's "decentralized and highly coordinated" business model, which the company began implementing about two years ago, is driving the upgrades.

"From my standpoint, it's one word: consistency," Moore said. "We were very much a fragmented organization with pockets of disparity between other locations. With 16 plants, if you ask 16 people, you will have 16 different ideas.

"The way we have put this decentralized but highly coordinated model together is through consistency."

Take price management, for example.

"It's now a centralized function, not part of commercial (sales), not part of procurement," Moore said. "We are developing a consistency of approach with customers so that they have a better experience. The rollout has been fantastic. That part has provided better oversight ... and from a price management standpoint and regionality, all those pieces have to fit."

Within HCA, market segments it supplies compounds to include automotive at about 40 percent (weatherstripping, air and fluid management, and NVH); industrial at about 35 percent (wire and cable, architectural sealing and highway construction); and specialty compounds at about 25 percent (water management and oil and gas).

Demand in automotive had been expected to grow between 6 and 8 percent this year over 2023. But as the company moves further into 2024, that does not appear to be the case, Moore said.

"We have seen some automotive retraction based on open capacity with customers having their own in-house mixing capacity," he said. "Automotive is certainly challenged this year. The latest information from (London-based IHS Markit) suggests another decline for hydrogen automotive builds, so now the latest projection from a production standpoint (is market) parity with 2023.

"Key players have moved product back in-house because they have open capacity."

Hexpol Group, based in Malmo, Sweden, has about 5,000 employees and saw about $2.2 billion in net sales in 2023 (compounding and specialty engineered products combined).

HCA, as a listed company, cannot divulge its percentage of overall group sales, however Hexpol Group North America in 2023 comprised about 55 percent of overall group sales.

HCA has three locations in Mexico and 13 in the U.S.

HCA produces about 1.3 billion pounds of rubber compound year-over-year and has about 1,600 employees.

Hexpol maintains a strategy of continuous improvement and investment, and in recent years the capex budget for HCA has been between $20 million and $25 million, according to Moore.

Investment is split across a number of categories, though the largest two for 2024 are manufacturing and equipment (M&E) upgrades, along with the rising costs of IT upgrades to meet both sustainability and automation demands.

Other categories for capex costs include quality control, EH&S, insurance and human resources.

"Typically the highest proportion goes to M&E," Moore said. "However, Hexpol is implementing standardized ERP and MES systems over the next five years, so IT is currently ranked second."

M&E purchases, estimated at more than $5 million for 2024, include mixer upgrades and lab equipment (including an innovative new LabsCubed tensiometer) across a swath of HCA locations, including Tallapoosa, Ga.; Long Beach, Calif.; Huntingdon, Tenn.; and Queretaro, Mexico.

Systems and automation technology upgrades—including ERP and MES standardization—are being installed in Barberton, Ohio; Middlefield, Ohio; Huntingdon; Statesville, N.C.; Whitewater, Wis.; and Aguascalientes, Mexico.

"Historically, from 2021 through 2024, our capex spending shows we have been investing over a long period of time," Moore said. "And over time, the M&E percentage has been reduced because of improvements and the way the machinery is performing.

"However, there are other categories that have filled that balance ... and a major part going forward is the IT expenditure."

Moore noted that customers sometimes feel that Hexpol is "a bit slow or cumbersome to deal with, as the 800-pound gorilla in the room."

"The reality is Hexpol has grown through acquisitions," Moore said. "And when you grow through acquisitions, you do not necessarily have the same systems. That's been a hindrance to us and caused challenges.

"Even if you have a plant in close proximity but you have two different systems, you don't have that visibility or transparency."

And that is where the ERP standardization and MES harmonization is expected to bear fruit for Hexpol.

"Typically when you do an ERP or MES upgrade, there is no real ROI you can attach to it," Moore said. "The reality is that working with customers and harmonizing will be a much better experience moving forward. .... Visibility and transparency across 16 entities will be much greater with a single ERP system than the eight systems we have today."

One tenet of overall system integration is compatibility between software and equipment.

Thus far, four Hexpol plants (Middlefield, Ohio, most recently) have been standardized with an ERP (Enterprise Resource Planning) system, which is "everything from purchase and finance to total system orientation."

MES—Manufacturing Execution Systems—essentially govern mixer control for Hexpol. Four Hexpol locations have recently received the MES upgrades.

Today, Hexpol has three MES systems in place—using two pieces of homegrown software and a third from an outside IT company.

"Unfortunately we are not IT experts," Moore said. "We need to concentrate on what we are as a business. Sometimes you become an IT software company (by taking on too much)."

Hexpol has chosen outside partnerships in this regard, augmenting the experts' software with its own software.

"With our mixer software, we are a development partner with (Mesabi)," Moore said. "We are taking some stuff from our homegrown systems and allowing them to enhance their system. They are the experts in machinery and mix control."

And this, in turn, reduces the headcount that HCA has to dedicate to IT.

"It is now in the hands of a partner rather than us controlling it," Moore said. "We can concentrate on rubber compounding ... and they provide us with a solution."

Indeed, many of the automation upgrades being implemented by HCA in the coming years are being driven by a labor pool that has not improved.

The attrition rate for new hires is very high at Hexpol, and the challenge is bringing in new people.

"For them to leave after five, seven, 10 days is demoralizing," Moore said. "Working harder for the legacy people who are here is not a solution to me. Automated solutions can do the same things with fewer people—and increase throughput at the same time."

The Hexpol executive noted that the "end-of-the line" is the most labor-inefficient spot on the chain for HCA.

"So we looked at automation to reduce the bottleneck at the finishing line," he said, adding that an automated packaging line reduces the headcount by one or two employees.

And that, essentially, is the consistency umbrella that Hexpol is seeking.

"It all comes back to consistency," said Jerry Saxion, director of business systems at HCA. "With automation we can take the labor we do have to have them focus on more meaningful tasks, something more critical."

None of this is an overnight process, Moore said.

"To be a standardized entity like Hexpol, it's a process you have to embark on," he said. "We have never approached the market in that way, to be that consistent. We had a decentralized, fragmented approach ... and now our approach is through harmonization.

"Through this we can implement best practices at all locations, not just one location."

A final, recent example of this is the LED lighting upgrades—a $2 million investment that should pay for itself in three to four years—that HCA has integrated in Akron (silicone-dedicated), Barberton, Statesville and Queretaro.

"The journey has begun and we are mapping out the system in terms of concept," Moore said. "Then it can be looked at across all the entities.

"I don't ever see rubber compounding becoming a lights-out operation. But from bale lifters to moving heavy product, all of that goes into that automation bucket."

Automation and sustainability are inextricably linked in today's manufacturing world.

There are several examples of this, said John Sedgwick, director of engineering and maintenance at HCA.

"When we look at equipment replacement, rather than replace to the equivalent, whether air compressors or dust collection, we look at what can we do to be more efficient," Sedgwick said. "Maybe it is variable speed vs. direct-drive systems. The point is we are driving sustainable initiatives, and we look at those before executing."

Sedgwick added that HCA looks at inefficiencies in mixing and downstream processing, systems that "can be controlled automatically as opposed to managed manually with shutdown procedures ... and even on the back end with packaging."

"Any automation you put in will give you benefits," Sedgwick said. "Not just in labor, but in energy conservation, throughput improvement and consistency with your product. It kind of hits every bucket."

Sustainability costs—and their importance to the environment, without greenwashing results—are expected to increase year over year.

For HCA, sustainability costs have increased to about $2.13 million for 2024, investments that represent about 9 percent of the capex spending for HCA (up from $400,000 in 2023).

And they can be difficult to manage.

Hexpol follows its end markets in its compounding efforts, whether in rubber, silicone, thermoplastic elastomers or thermoplastic vulcanizates.

With a goal of a 75-percent reduction in CO2 emissions by 2025, Hexpol has been reporting sustainability efforts since 2006.

Whereas a single sheet of paper was required for the report in the past, EPA regulations have become piano-wire stringent and require far greater reporting today.

"One of our key things is data collection and looking at data and what we can control through this," Saxion said. "How do we minimize our data consumption? We can work with energy providers to reduce fossil fuels. But in reality we are looking at things we can control.

"We are really looking long term here. How do we better use the energy we are using and reduce it, and have the same (or increased) output?"

Moore said that HCA has listened to its customers in implementing the upgrades.

"As Hexpol has grown through acquisitions, systems have been a limiting factor," he said. "The investment is significant and the Hexpol board has approved the capital spending for both ERP and MES standardization.

"And all of this should vastly improve our customers' experience."